<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from .......... to ..........
Commission File Number: 0-25328
FIRST KEYSTONE FINANCIAL, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 23-0469351
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
22 West State Street
Media, Pennsylvania 19063
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (610) 565-6210
Indicate by check mark whether the Registrant (1) has filed all reports required
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports) and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
--- ---
Number of shares of Common Stock outstanding as of February 10, 1997: 1,227,875
Transitional Small Business Disclosure Format Yes No X
--- ---
<PAGE> 2
FIRST KEYSTONE FINANCIAL, INC.
CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I FINANCIAL INFORMATION:
Item 1.Financial Statements
Consolidated Statements of Financial Condition as of
December 31, 1996 (Unaudited) and September 30, 1996................... 1
Consolidated Statements of Income for the Three
Months Ended December 31, 1996 and 1995 (Unaudited).................... 2
Consolidated Statement of Changes in Stockholders' Equity for the Three
Months Ended December 31, 1996 (Unaudited)............................. 3
Consolidated Statements of Cash Flows for the Three Months
Ended December 31, 1996 and 1995 (Unaudited)........................... 4
Notes to Consolidated Financial Statements (Unaudited)................. 5
Item 2.Managements's Discussion and Analysis of Financial Condition and
Results of Operations.................................................. 9
PART II OTHER INFORMATION
Item 1.Legal Proceedings...................................................... 12
Item 2.Changes in Securities.................................................. 12
Item 3.Defaults Upon Senior Securities........................................ 12
Item 4.Submission of Matters to a Vote of Security Holders.................... 12
Item 5.Other Information...................................................... 12
Item 6.Exhibits and Reports on Form 8-K....................................... 12
SIGNATURES........................................................................ 13
</TABLE>
i
<PAGE> 3
FIRST KEYSTONE FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(dollars in thousands)
<TABLE>
<CAPTION>
December 31 September 30
ASSETS 1996 1996
----------- ------------
(Unaudited)
<S> <C> <C>
Cash and amounts due from depository institutions $ 2,598 $ 1,870
Interest-bearing deposits with depository institutions 11,592 9,824
--------- ---------
Total cash and cash equivalents 14,190 11,694
Investment securities available for sale 15,617 16,532
Mortgage-related securities available for sale 68,934 60,211
Loans held for sale 3,104 2,447
Mortgage-related securities held to maturity (approximate fair value
of $21,730 at December 31, 1996 and $22,060 at September 30, 1996) 22,614 23,221
Loans receivable - net 173,512 167,530
Accrued interest receivable 2,321 2,404
Real estate owned 1,610 1,557
Federal Home Loan Bank stock - at cost 2,986 2,337
Office properties and equipment - net 2,422 2,507
Deferred income taxes 1,898 2,111
Prepaid expenses and other assets 1,487 1,690
--------- ---------
TOTAL ASSETS $ 310,695 $ 294,241
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 222,173 $ 219,205
Advances from Federal Home Loan Bank 59,715 46,740
Accrued interest payable 1,285 1,501
Advances from borrowers for taxes and insurance 1,875 921
Accounts payable and accrued expenses 2,349 2,790
--------- ---------
Total liabilities 287,397 271,157
--------- ---------
Stockholders' Equity:
Preferred stock, $.01 par value, 10,000,000 shares authorized;
none issued
Common stock, $.01 par value, 20,000,000 shares authorized;
issued and outstanding: December 31, 1996 and September 30, 1996,
1,292,500 and 1,292,500 shares, respectively 14 14
Additional paid in capital 12,684 12,659
Common stock acquired by stock benefit plans (2,131) (1,437)
Treasury stock at cost; 67,500 shares (1,288) (1,288)
Unrealized loss on available for sale securities - net of tax (160) (494)
Retained earnings - partially restricted 14,179 13,630
Total stockholders' equity 23,298 23,084
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 310,695 $ 294,241
========= =========
</TABLE>
See notes to consolidated financial statements.
1
<PAGE> 4
FIRST KEYSTONE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended
December 31
----------------------
1996 1995
------- -------
<S> <C> <C>
INTEREST INCOME:
Interest on:
Loans $ 3,501 $ 3,413
Mortgage-related securities 1,433 1,270
Investments 303 159
Interest-bearing deposits 68 128
------- -------
Total interest income 5,305 4,970
------- -------
INTEREST EXPENSE:
Interest on:
Deposits 2,227 2,436
Federal Home Loan Bank advances 702 354
------- -------
Total interest expense 2,929 2,790
------- -------
NET INTEREST INCOME 2,376 2,180
PROVISION FOR LOAN LOSSES 56 38
------- -------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 2,320 2,142
------- -------
OTHER INCOME (LOSS):
Service charges and other fees 250 271
Net gain on sale of:
Loans 57 9
Real estate owned 8 1
Real estate operations (6) (2)
Other income 8 14
------- -------
Total other income 317 293
------- -------
OPERATING EXPENSES:
Salaries and employee benefits 755 1,011
Occupancy and equipment expenses 214 344
Professional fees 154 282
Federal deposit insurance premium 100 146
Bank service charges 95 109
Data processing 82 92
Advertising 61 58
Other 177 168
------- -------
Total operating expenses 1,638 2,210
------- -------
INCOME BEFORE INCOME TAX EXPENSE 999 225
INCOME TAX EXPENSE 384 78
------- -------
NET INCOME $ 615 $ 147
======= =======
EARNINGS PER COMMON SHARE $ 0.53 $ 0.12
======= =======
</TABLE>
See notes to consolidated financial statements.
2
<PAGE> 5
FIRST KEYSTONE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
(dollars in thousands)
<TABLE>
<CAPTION>
Common Unrealized gain (loss)
stock on mortgage-related
Additional acquired by securities Total
Common paid-in stock benefit Treasury available for sale Retained stockholders'
stock capital plans stock (net of tax) earnings equity
------ ---------- ------------- -------- ---------------------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 30, 1996 $ 14 $ 12,659 $(1,437) $(1,288) $(494) $13,630 $23,084
Common stock acquired
by stock benefit plans (756) (756)
ESOP stock committed
to be released 27 27
Excess of fair value
above cost of stock
benefit plans committed
to be released 25 25
RRP amortization 35 35
Dividends - $.05 per share (66) (66)
Net unrealized gain on
securities available for
sale, net of tax 334 334
Net income 615 615
----- -------- ------- ------- ----- ------- -------
BALANCE AT DECEMBER 31, 1996 $ 14 $ 12,684 $(2,131) $(1,288) $(160) $14,179 $23,298
===== ======== ======= ======= ===== ======= =======
</TABLE>
3
<PAGE> 6
FIRST KEYSTONE FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(dollars in thousands)
<TABLE>
<CAPTION>
Three months ended
December 31
------------------------
1996 1995
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 615 $ 147
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Provision for depreciation and amortization 92 111
Amortization of premiums (244) (128)
Gain on sales of loans (57) (9)
Gain on sales of real estate owned (8) (1)
Provision for loan losses 56 38
Amortization of stock benefit plans 87 108
Changes in assets and liabilities which provided (used) cash:
Origination of loans held for sale (8,116) (2,952)
Loans sold in the secondary market 7,459 2,004
Deferred income taxes 3 3
Accrued interest receivable 83 110
Prepaid expenses and other assets 203 1
Accrued interest payable (216) (2)
Accrued expenses (441) 196
-------- --------
Net cash used in operating activities (484) (374)
-------- --------
INVESTING ACTIVITIES:
Loans originated or acquired (16,730) (15,740)
Purchases of mortgage-related securities available for sale (10,153) (1,091)
Purchase of FHLB stock (649)
Proceeds from sales of real estate owned 434 36
Principal collected on loans 10,652 10,771
Proceeds from maturities, calls, or repayments of:
Investment securities available for sale 1,000
Mortgage-related securities available for sale 2,047 587
Investment securities held to maturity 4,000
Mortgage-related securities held to maturity 597 2,169
Purchase of property and equipment (7) (14)
Net expenditures on real estate acquired through foreclosure and in development (286)
-------- --------
Net cash used in investing activities (13,095) (718)
-------- --------
FINANCING ACTIVITIES:
Net increase (decrease) in deposit accounts 2,968 (3,586)
Net proceeds from (repayments on) FHLB advances 12,975 (5,001)
Net increase in advances from borrowers for taxes and insurance 954 809
Common stock acquired by stock benefit plans (756) (704)
Cash dividend (66)
-------- --------
Net cash provided by (used in) financing activities 16,075 (8,482)
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,496 (8,138)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 11,694 22,668
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 14,190 $ 14,530
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash payments for interest on deposits and borrowings $ 3,150 $ 2,546
Transfers of loans receivable into real estate owned 193
Cash payments of income taxes 30
Transfer of investment securities to investment securities available for sale 6,710
Transfer of mortgage-related securities to mortgage-related securities available for sale 43,823
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 7
FIRST KEYSTONE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF December 31, 1996 (UNAUDITED) AND SEPTEMBER 30, 1996 AND
(UNAUDITED) FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995
(dollars in thousands, except per share amounts)
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared in
accordance with instructions to Form 10-QSB. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. However,
such information reflects all adjustments (consisting solely of normal
recurring adjustments) which are, in the opinion of management, necessary
for a fair statement of results for the unaudited interim periods.
The results of operations of the three month period ended December 31,
1996 are not necessarily indicative of the results to be expected for the
fiscal year ending September 30, 1997. The consolidated financial
statements presented herein should be read in conjunction with the audited
consolidated financial statements and related notes thereto included in
the Company's Annual Report to Stockholders for the year ended September
30, 1996.
2. INVESTMENT SECURITIES
The amortized cost and approximate fair value of investment securities, by
contractual maturities, are as follows:
<TABLE>
<CAPTION>
December 31, 1996
------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Approximate
Cost Gain Loss Fair Value
--------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Available for Sale:
U.S. Treasury securities and securities
of U.S. Government agencies:
1 to 5 years $12,500 $ 71 $ 18 $12,553
5 to 10 years 3,000 81 2,919
Other investments 145 145
------- ---- ------ -------
Total $15,645 $ 71 $ 99 $15,617
======= ==== ====== =======
</TABLE>
<TABLE>
<CAPTION>
September 30, 1996
------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Approximate
Cost Gain Loss Fair Value
--------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Available for Sale:
U.S. Treasury securities and securities
of U.S. Government agencies:
1 to 5 years $13,500 $ 48 $ 30 $13,518
5 to 10 years 3,000 130 2,870
Other investments 145 1 144
------- ---- ------ -------
Total $16,645 $ 48 $ 161 $16,532
======= ==== ====== =======
</TABLE>
5
<PAGE> 8
3. MORTGAGE-RELATED SECURITIES
Mortgage-related securities available for sale and mortgage-related
securities held to maturity are summarized as follows:
<TABLE>
<CAPTION>
December 31, 1996
-----------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Approximate
Cost Gain Loss Fair Value
--------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Available for Sale:
FHLMC pass-through certificates $13,885 $144 $ 58 $13,971
FNMA pass-through certificates 10,747 40 75 10,712
GNMA pass-through certificates 14,978 12 179 14,811
Collateralized mortgage obligations 29,556 169 285 29,440
------- ---- ------ -------
Total $69,166 $365 $ 597 $68,934
======= ==== ====== =======
Held to Maturity:
FHLMC pass-through certificates $ 1,745 $ 85 $1,660
FNMA pass-through certificates 12,713 $ 16 429 12,300
Collateralized mortgage obligations 8,156 24 410 7,770
------- ---- ------ -------
Total $22,614 $ 40 $ 924 $21,730
======= ==== ====== =======
</TABLE>
<TABLE>
<CAPTION>
September 30, 1996
-------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Approximate
Cost Gain Loss Fair Value
--------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Available for Sale:
FHLMC pass-through certificates $12,852 $ 93 $ 144 $12,801
FNMA pass-through certificates 11,079 8 162 10,925
GNMA pass-through certificates 8,355 230 8,125
Collateralized mortgage obligations 28,616 102 358 28,360
------- ---- ------- -------
Total $60,902 $203 $ 894 $60,211
======= ==== ======= =======
Held to Maturity:
FHLMC pass-through certificates $ 3,631 $ 161 $ 3,470
FNMA pass-through certificates 11,383 $ 27 510 10,900
Collateralized mortgage obligations 8,207 517 7,690
------- ---- ------- -------
Total $23,221 $ 27 $ 1,188 $22,060
======= ==== ======= =======
</TABLE>
The collateralized mortgage obligations contain both fixed and adjustable
classes of bonds which are repaid in accordance with a predetermined
priority. The underlying collateral of the bonds are loans which are
insured by FHLMC, FNMA or the GNMA.
The mortgage-related securities designated as available for sale, by
definition, could be sold in response to changes in interest rates and
cash flows or for restructuring purposes.
6
<PAGE> 9
5. LOANS RECEIVABLE
Loans receivable consist of the following:
<TABLE>
<CAPTION>
December 31 September 30
1996 1996
----------- ------------
<S> <C> <C>
Real estate loans:
Single-family $ 125,656 $ 122,270
Construction and land 16,516 17,682
Multi-family and commercial 13,162 11,129
Consumer loans:
Home equity and lines of credit 21,599 20,444
Deposit 310 457
Education 630 917
Other 2,223 2,212
Commercial loans 3,338 2,923
--------- ---------
Total loans 183,433 178,044
Loans in process (5,710) (6,368)
Allowance for loan losses (2,651) (2,624)
Deferred loan fees (1,561) (1,512)
--------- ---------
Loans receivable - net $ 173,512 $ 167,530
========= =========
</TABLE>
The following is an analysis of the allowance for loan losses:
<TABLE>
<CAPTION>
Three Months Ended
December 31
----------------------
1996 1995
------- -------
<S> <C> <C>
Balance beginning of period $ 2,624 $ 1,487
Provisions charged to income 56 38
Charge-offs (31) (30)
Recoveries 2
------- -------
Total $ 2,651 $ 1,495
======= =======
</TABLE>
At December 31, 1996 and September 30, 1996 non-performing loans (which
include loans in excess of 90 days delinquent) amounted to approximately
$5,894 and $5,352, respectively.
6. DEPOSITS
Deposits consist of the following major classifications:
<TABLE>
<CAPTION>
December 31 September 30
1996 1996
--------------------- ---------------------
Amount Percent Amount Percent
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Non-interest bearing accounts $ 7,406 3.3% $ 4,710 2.2%
NOW accounts 28,801 13.0 28,085 12.8
Passbook accounts 39,586 17.8 41,504 18.9
Money market demand accounts 16,943 7.6 16,159 7.4
Certificate accounts 129,437 58.3 128,747 58.7
-------- ----- -------- -----
Total $222,173 100.0% $219,205 100.0%
======== ===== ======== =====
</TABLE>
7
<PAGE> 10
7. EARNINGS PER SHARE
Earnings per share ("EPS") was $0.53 and $0.12 for the three months ended
December 31, 1996 and 1995, respectively. EPS was calculated based on the
number of common stock and common stock equivalents outstanding during
each of the periods. Weighted average shares outstanding were 1,156,243
and 1,228,634 for the three months ended December 31, 1996 and 1995,
respectively, and, in accordance with SOP 93-6, do not include shares held
by the stock benefit plans that were purchased and unallocated during the
periods.
8
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 1996 (UNAUDITED) AND SEPTEMBER
30, 1996
Total assets of the Company increased $16.5 million or 5.6% from $294.2 million
at September 30, 1996 to $310.7 million at December 31, 1996 primarily due to a
$8.7 million increase in mortgage-related securities available for sale and a
$6.0 million increase in loans receivable-net. The increase in mortgage-related
securities and loans is part of the Company's strategy of maximizing the use of
capital through asset growth. The loan growth was concentrated primarily in
single-family and commercial real estate loans and consumer loans. The Company's
asset growth was funded through the use of Federal Home Loan Bank ("FHLB")
advances.
Deposits increased $3.0 million or 1.4% from $219.2 million at September 30,
1996 to $222.2 million at December 31, 1996. The increase resulted primarily
from the growth in non-interest bearing checking accounts.
Stockholders' equity increased $214,000 is due to the combined effects of
increased net income and in the market valuation, net of taxes, for available
for sale securities partially offset by the purchases of shares of common stock
for employee benefit plans and dividends paid.
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31, 1996
AND 1995
Net Income.
Net income was $615,000 for the three months ended December 31, 1996 as compared
to $147,000 for the same period in 1995. The $468,000 increase in net income for
the three months ended December 31, 1996 was due to a $178,000 increase in net
interest income after provision for loan losses combined with a $572,000
decrease in operating expenses partially offset by a $306,000 increase in income
taxes.
Net Interest Income.
Net interest income increased $196,000 or 9.0% to $2.4 million for the three
months ended December 31, 1996 as compared to the same period in 1995. The
increase was due to a $335,000 or 6.7% increase in interest income which was
offset in part by a $139,000 or 5.0% increase in interest expense for the 1996
period. The interest rate spread and net interest margin were 3.10% and 3.36%,
respectively, for the three months ended December 31, 1996 as compared to 2.98%
and 3.34%, respectively, for the same period in 1995. The $335,000 increase in
interest income was primarily due to a $21.7 million increase in average
interest-earning assets offset in part by an 11 basis point decrease in yield.
The $139,000 increase in interest expense was primarily due to an increase of
$24.8 million in the average balance of interest-bearing liabilities
substantially offset by a 22 basis point decline in the weighted average rate
paid thereon for the three months ended December 31, 1996, as compared to the
same period in 1995.
9
<PAGE> 12
Provision for Loan Losses.
The Company's provision for loan losses increased to $56,000 for the three
months ended December 31, 1996 as compared to $38,000 for the same period in
1995. The increase was primarily due to the growth in the loan portfolio. Total
non-performing assets at December 31, 1996 were $7.5 million or 2.4% of total
assets, an increase of $595,000 or 8.6% from September 30, 1996. The increase
consisted primarily of single-family residential mortgage loans.
The Company continues to monitor the Bennett bankruptcy proceedings and is
vigorously pursing all options available to protect its interests. There has
been little change in the bankruptcy status since last reported in the Company's
Annual Report to stockholders for the year ended September 30, 1996.
Other Income.
Other income increased $24,000 or 8.2% to $317,000 for the three months ended
December 31, 1996 as compared to the same period in 1995. The increase was
primarily a result of an increase of $48,000 in the net gain on sales of loans
offset by a decrease in service charges and other fees of $21,000. The increase
in gain on sales of loans is due to increased originations and sales of loans,
servicing released, to credit impaired borrowers and is part of management's
strategy of diversifying product mix.
Operating Expenses.
Operating expenses decreased $572,000 or 25.9% during the three months ended
December 31, 1996 as compared to the same period in 1995. Operating expenses
during the first quarter of fiscal 1996 included a $311,000 one-time charge
relating to the Company's restructuring plan implemented in December 1995.
Increases of $147,000, $112,500 and $48,500 were incurred in the compensation
and employee benefits, occupancy and equipment and professional fees expenses as
part of the restructuring plan. Exclusive of the one-time charge, the Company
had additional decreases of $109,000, $79,000, $46,000 and $17,000 in salaries
and employee benefits expense, professional fees, federal deposit insurance
premium and occupancy and equipment reflecting the effects of the implementation
of the cost reduction plan.
Income Tax Expense
Income tax expense increased $306,000 to $384,000 during the three months ended
December 31, 1996 as compared to the same period in 1995. The increase was
primarily a result of an increase in income before income taxes and an increase
in the state tax expense. State tax expense was lower in the prior period due to
the utilization of certain state tax carryforwards.
Liquidity and Capital Resources
The Company's liquidity, represented by cash and cash equivalents, is a product
of its operating, investing and financing activities. The Company's primary
sources of funds are deposits, amortization, prepayment and maturities of
outstanding loans and mortgage-related securities, sales of loans, maturities of
investment securities and other short-term investments, borrowing and funds
provided from operations. While scheduled payments from the amortization of
loans and mortgage-related securities and maturing investment securities and
short-term investments are relatively predictable sources of funds,
10
<PAGE> 13
deposit flows and loan prepayments are greatly influenced by general interest
rates, economic conditions and competition. In addition, the Company invests
excess funds in overnight deposits and other short-term interest-earning assets
which provide liquidity to meet lending requirements. The Company has been able
to generate sufficient cash through its deposits as well as borrowings
(consisting solely of advances from the FHLB of Pittsburgh to satisfy its
funding commitments. At December 31, 1996, the Company had $27.7 million in
primarily short-term outstanding advances from the FHLB of Pittsburgh.
Liquidity management is both a daily and long-term function of business
management. Excess liquidity is generally invested in short-term investments
such as overnight deposits. On a longer term basis, the Company maintains a
strategy of investing in various lending products, mortgage-related securities
and investment securities. The Company uses its sources of funds primarily to
meet its ongoing commitments, to pay maturing certificates of deposit and
savings withdrawals, fund loan commitments and maintain a portfolio of
mortgage-related and investment securities. At December 31, 1996, the total
approved loan commitments outstanding amounted to $6.4 million, not including
loans in process. At the same date, commitments under unused lines of credit
amounted to $5.0 million. Certificates of deposit scheduled to mature in one
year or less at December 31, 1996 totalled $71.5 million. Based upon its
historical experience, management believes that a significant portion of
maturing deposits will remain with the Company.
The Company is required by the Office of Thrift Supervision ("OTS") to maintain
average daily balances of liquid assets and short-term liquid assets (as
defined) in amounts equal to 5% and 1%, respectively, of net withdrawable
deposits and borrowings payable in one year or less to assure its ability to
meet demand from withdrawals and repayments of short-term borrowings. The
liquidity requirements may vary from time to time at the direction of the OTS
depending upon economic conditions and deposit flows. The Company's average
monthly liquidity ratio and short-term liquid assets for December 1996 was 8.3%
and 4.4%, respectively.
As of December 31, 1996, the Company had regulatory capital which was in excess
of applicable limits. The Company is required under certain federal regulations
to maintain tangible capital equal to at least 1.5% of its adjusted total
assets, core capital equal to at least 3.0% of its adjusted total assets and
total capital to at least 8.0% of its risk-weighted assets. At December 31,
1996, the Bank had tangible capital equal to 7.5% of adjusted total assets, core
capital equal to 7.5% of adjusted total assets and total capital equal to 17.0%
of risk-weighted assets.
Impact of Inflation and Changing Prices
The Consolidated Financial Statements of the Company and related notes presented
herein have been prepared in accordance with generally accepted accounting
principles which requires the measurement of financial position and operating
results in terms of historical dollars, without considering changes in the
relative purchasing power of money over time due to inflation.
Unlike most industrial companies, substantially all of the assets and
liabilities of a financial institution are monetary in nature. As a result,
interest rates have a more significant impact on a financial institution's
performance than the effects of general levels of inflation. Interest rates do
not necessarily move in the same direction or in the same magnitude as the price
of goods and services, since such prices are affected by inflation to a larger
extent than interest rates. In the current interest rate environment, liquidity
and the maturity structure of the Company's assets and liabilities are critical
to the maintenance of acceptable performance levels.
11
<PAGE> 14
PART II
Item 1. Legal Proceedings
Not applicable
Item 2. Changes in Securities
Not applicable
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
On January 29, 1997, the Annual Meeting of stockholders of the Company
was held to elect directors and ratify the appointment of auditors. With
respect to the election of directors, the results were as follows:
<TABLE>
<CAPTION>
Nominee For Withheld
------- ------- --------
<S> <C> <C>
William K. Betts 992,787 173,481
Walter J. Lewicki 990,662 175,606
</TABLE>
With respect to the ratification of Deloitte & Touche LLP as the
Company's independent certified accountants, the results were as
follows: 1,152,567 Votes For, 13,426 Votes Against, and 275 Votes
Abstain.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
None
12
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST KEYSTONE FINANCIAL, INC.
Date: February 12, 1997 By: /s/ Donald S. Guthrie
----------------------------------
Donald S. Guthrie
President and Chief Executive Officer
Date: February 12, 1997 By: /s/ Thomas M. Kelly
----------------------------------
Thomas M. Kelly
Executive Vice-President and Chief
Financial Officer
13
<TABLE> <S> <C>
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<NAME> FIRST KEYSTONE FINANCIAL
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