Exhibit 99.1
FIRST 22 West State Street
KEYSTONE Media, PA 19063
FINANCIAL, INC. 610-565-6210
FOR IMMEDIATE RELEASE
_____________________
FIRST KEYSTONE FINANCIAL ANNOUNCES
SECOND QUARTER RESULTS
Media, PA May 8, 2007 - First Keystone Financial,
Inc.(NASDAQ:FKFS), the holding company for First Keystone
Bank (the "Bank"), reported today net income for the
quarter ended March 31, 2007 of $167,000, or $0.07 per
diluted share, compared to $19,000, or $0.01 per diluted
share, for the same period last year. Net income for the
six months ended March 31, 2007 was $255,000, or $0.12 per
diluted share, as compared to $464,000, or $0.24 per
diluted share, for the same period in 2006.
Although the inverted yield curve continued to negatively
affect earnings in the second quarter, we are pleased to
report significant improvement in our earnings in the second
quarter of fiscal 2007 as compared to both the same quarter in
fiscal 2006 as well as to the December 31, 2006 quarter.
Furthermore, although the quarterly results do not reflect it,
we continued to make progress in implementing our improved
loan underwriting and credit review processes, including the
hiring of a full-time credit review officer, as part of our
compliance with the supervisory agreements we entered into
with the OTS. In addition, in April 2007, we gave notice to
redeem $6.0 million of trust preferred securities to be
effective in June 2007. The repayment of these borrowings,
which carried a cost of 9.1%, will reduce our annual interest
expense by approximately $546,000. The redemption of this debt
will also reduce the Company's debt-to-equity ratio below 50%,
a key part of our capital plan submitted to the OTS in
connection with the supervisory agreement.
Net interest income for the three months ended March 31,
2007 decreased $209,000, or 7.4%, to $2.6 million as compared
to the same period in 2006. The decrease in net interest
income was primarily the result of a $711,000, or 18.4%,
increase in interest expense for the quarter ended March 31,
2007 due to a 68 basis point increase in the weighted average
rate paid on interest-bearing liabilities, primarily deposits.
However, the increase in interest expense was partially offset
by a $502,000, or 7.5%, increase in interest income for the
quarter ended March 31, 2007 as compared to the second quarter
of fiscal 2006 primarily due to an increase of 48 basis points
in the weighted yield earned on its interest-earning assets.
The Company's net interest margin decreased by 16 basis points
in the second quarter of fiscal 2007 to 2.21%, as compared to
2.37% for the second quarter of fiscal 2006.
On a linked quarter basis, net interest income increased
$158,000, or 6.4%. During the second quarter of fiscal 2007,
as compared to the first quarter of fiscal 2007, the Company
experienced a 14 basis point increase in the yield earned on
average interest-earning assets which was partially offset by
a 3 basis point increase in the rates paid on interest-bearing
liabilities. Nonwithstanding the challenging interest rate
environment and intense competition in the marketplace, the
Company was able to improve its net interest margin by 17
basis points to 2.21% during the three months ended March 31,
2007 compared to the December 31, 2006 quarter.
4
At March 31, 2007, non-performing assets decreased $1.3
million to $2.6 million from $3.9 million at December 31, 2006
and $146,000 from $2.7 million at September 30, 2006. During
the quarter, the Company's only real estate owned, which
consisted of a restaurant located in Chesapeake City,
Maryland, was sold for $2.7 million resulting in a pre-tax
gain on the sale of $61,000. The reduction in non-performing
assets due to the sale of the real estate owned was partially
offset by a $1.7 million increase in non-performing loans
primarily as a result of a $1.1 million non-accrual commercial
real estate loan. The commercial property consists of a
bakery along with rental units above the establishment located
in center city Philadelphia, Pennsylvania. The Company is
continuing to aggressively pursue a workout strategy. At March
31, 2007, the Company's ratio of non-performing assets to
total assets was 0.49% compared to 0.75% at December 31, 2006.
For the three months ended March 31, 2007 as compared to
the three months ended March 31, 2006, the provision for loan
loss increased $25,000 to $100,000. The provision for loan
loss was based on the Company's quarterly review of the credit
quality of its loan portfolio, the level of classified assets,
the amount of net charge-offs during the second quarter of
fiscal 2007 and other factors. The Company's coverage ratio,
which is the ratio of the allowance for loan losses to non-
performing loans, was 136.6% and 242.0% at March 31, 2007 and
December 31, 2006, respectively.
For the quarter ended March 31, 2007, non-interest income
increased $53,000 to $853,000 as compared to the same period
last year. The increase was primarily the result of a
$50,000, or 13.9%, increase in service charges and other fees
resulting from higher fees being charged. In addition, the
Company recognized a $120,000 gain on sales of tax-exempt
investment securities as a result of a change in tax strategy.
Offsetting these increases in non-interest income was a
$97,000 decrease in the gain on sale of real estate owned
property.
Non-interest expense increased $27,000 to $3.3 million
for the quarter ended March 31, 2007 as compared to the same
period last year. The increase for the quarter ended March
31, 2007 was primarily due to increases of $55,000 and $17,000
in other non-interest expense and advertising, respectively,
partially offset by decreases of $29,000 and $20,000 in
salaries and employee benefits and professional fees,
respectively.
The Company recognized an income tax benefit of $48,000
and $142,000 for the quarters ended March 31, 2007 and 2006,
respectively. The decrease in the income tax benefit was
primarily due to the increase in the income before income
taxes experienced in the 2007 period.
The Company's total assets decreased by $1.0 million from
$523.0 million at September 30, 2006 to $521.9 million at
March 31, 2007. Cash and cash equivalents increased by $21.6
million to $34.4 million at March 31, 2007 from $12.8 million
at September 30, 2006 primarily due to cash flows generated by
the sale of investment securities, loan repayments and, to a
lesser extent, mortgage-related securities repayments. Loans
receivable decreased by $11.7 million from $323.2 million at
September 30, 2006 to $311.5 million at March 31, 2007
primarily as a result of the Company experiencing repayments
within the commercial real estate loan portfolio. Deposits
increased $5.1 million, or 1.4%, from $358.8 million at
September 30, 2006 to $363.9 million at March 31, 2007. The
increase in deposits resulted from an $8.1 million, or 4.4%,
increase in certificates of deposit partially offset by a $3.1
million, or 1.8%, decrease in core deposits (which consist of
passbook, money market, NOW and non-interest bearing
accounts). In addition, borrowings decreased $12.8 million,
or 12.0%, from $107.2 million at September 30, 2006 as a
result of excess cash flows being used to reduce overnight
borrowings.
Stockholders' equity increased $6.1 million to $34.7
million at March 31, 2007 from September 30, 2006 primarily
due to the Company's completion of the private equity offering
raising net proceeds of approximately $5.8 million. The
Company issued 400,000 shares of common stock from treasury
resulting in a reduction in treasury stock by $6.2 million.
5
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 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.
6
FIRST KEYSTONE FINANCIAL, INC.
SELECTED OPERATIONS DATA
(In thousands except per share data)
(Unaudited)
Three Months Ended Six Months Ended
March 31, March 31,
_______________________________________________
2007 2006 2007 2006
_______________________________________________
Net interest income $2,619 $2,828 $5,081 $5,608
Provision for loan losses 100 525 175 570
Non-interest income 853 800 1,600 1,573
Non-interest expense 3,253 3,226 6,390 6,217
_______________________________________________
Income (loss) before taxes 119 (123) 116 394
Income tax benefits (48) (142) (139) (70)
_______________________________________________
Net income $ 167 $ 19 $ 255 $ 494
===============================================
Basic earnings per share $ 0.07 $ 0.01 $ 0.12 $ 0.25
Diluted earnings per share 0.07 0.01 0.12 0.24
Dividends per share -- -- -- 0.11
Number of shares outstanding at end of period 2,427,988 2,023,534 2,427,988 2,023,534
Weighted average basic shares outstanding 2,303,333 1,890,608 2,146,185 1,889,463
Weighted average diluted shares outstanding 2,323,978 1,913,500 2,166,137 1,913,029
_________________________________________________________________________________________________
FIRST KEYSTONE FINANCIAL, INC.
SELECTED FINANCIAL DATA
(In thousands except per share data)
(Unaudited)
March 31, September 30,
2007 2006
_________________________________
Total assets $521,916 $522,960
Loans receivable, net 311,505 323,220
Investment and mortgage-related
securities available for sale 102,156 103,416
Investment and mortgage-related
securities held to maturity 38,288 41,612
Cash and cash equivalents 34,423 12,787
Deposits 363,866 358,816
Borrowings 94,412 107,241
Junior subordinated debt 21,465 21,483
Loan loss allowance 3,525 3,367
Total stockholders' equity 34,723 28,659
Book value per share $14.30 $14.13
7
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,
_________________________________________
2007 2006 2007 2006
_________________________________________
Return on average assets (1) 0.13% 0.01% 0.10% 0.18%
Return on average equity (1) 1.94% 0.27% 1.61% 3.32%
Interest rate spread (1) 2.16% 2.36% 2.10% 2.36%
Net interest margin (1) 2.21% 2.37% 2.13% 2.36%
Interest-earning assets/interest-bearing
liabilities 101.33% 100.10% 100.61% 99.96%
Operating expenses to average assets (1) 2.55% 2.52% 2.49% 2.44%
Ratio of non-performing assets to
total assets at end of period 0.49% 0.68% 0.49% 0.68%
Ratio of allowance for loan losses to
gross loans receivable 1.12% 1.14% 1.12% 1.14%
Ratio of loan loss allowance to
non-performing loans at end of period 136.57% 68.79% 136.57% 68.79%
(1) Annualized.
CONTACT: Thomas M. Kelly, President
Rose M. DiMarco, Chief Financial Officer
(610) 565-6210
8