-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JVa9Cn1CMX2rbKDn0LTPilN93zne2PmsplYA5UQ3hKoPmPV7rYu0TWyrLULLF8Gx mjxD2yaalkOllWYmwb3X+A== /in/edgar/work/20000814/0000893220-00-000978/0000893220-00-000978.txt : 20000921 0000893220-00-000978.hdr.sgml : 20000921 ACCESSION NUMBER: 0000893220-00-000978 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST KEYSTONE FINANCIAL INC CENTRAL INDEX KEY: 0000856751 STANDARD INDUSTRIAL CLASSIFICATION: [6035 ] IRS NUMBER: 232576479 STATE OF INCORPORATION: PA FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-25328 FILM NUMBER: 699455 BUSINESS ADDRESS: STREET 1: 22 WEST STATE ST CITY: MEDIA STATE: PA ZIP: 19063 BUSINESS PHONE: 6105656210 10-Q 1 e10-q.txt FORM 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2000 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: 000-25328 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 August 8, 2000: 2,251,716 Transitional Small Business Disclosure Format Yes No X ------ ---- 2 FIRST KEYSTONE FINANCIAL, INC. CONTENTS
PAGE ---- PART I FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Statements of Financial Condition as of June 30, 2000 (Unaudited) and September 30, 1999 ................................ 1 Consolidated Statements of Income for the Three and Nine Months Ended June 30, 2000 and 1999 (Unaudited).................................. 2 Consolidated Statement of Changes in Stockholders' Equity for the Nine Months Ended June 30, 2000 (Unaudited).......................................... 3 Consolidated Statements of Cash Flows for the Nine Months Ended June 30, 2000 (Unaudited)........................................... 4 Notes to Consolidated Financial Statements (Unaudited)........................... 5 Item 2. Managements's Discussion and Analysis of Financial Condition and Results of Operations.................................................................. 10 Item 3. Quantitative and Qualitative Disclosures About Market Risk............................. 14 PART II OTHER INFORMATION Item 1. Legal Proceedings............................................................... 15 Item 2. Changes in Securities and Use of Proceeds....................................... 15 Item 3. Defaults Upon Senior Securities................................................. 15 Item 4. Submission of Matters to a Vote of Security Holders............................ 15 Item 5. Other Information............................................................... 15 Item 6. Exhibits and Reports on Form 8-K................................................ 15 SIGNATURES...................................................................................... 16
i 3 ITEM 1. FINANCIAL STATEMENTS FIRST KEYSTONE FINANCIAL, INC. CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION - ---------------------------------------------- (dollars in thousands)
June 30 September 30 ASSETS 2000 1999 - ------ ---------- --------- (Unaudited) Cash and amounts due from depository institutions $ 2,612 $ 3,010 Interest-bearing deposits with depository institutions 22,164 17,005 ------ ------- Total cash and cash equivalents 24,776 20,015 Investment securities available for sale 47,179 44,315 Mortgage-related securities available for sale 111,798 113,046 Loans held for sale 3,115 1,792 Mortgage-related securities held to maturity - at amortized cost (approximate fair value of $12,760 at June 30, 2000 and $14,100 at September 30, 1999) 13,396 14,497 Loans receivable - net 233,018 226,375 Accrued interest receivable 2,961 3,096 Real estate owned 1,083 297 Federal Home Loan Bank stock - at cost 6,157 6,157 Office properties and equipment - net 3,691 3,076 Deferred income taxes 3,421 2,749 Prepaid expenses and other assets 14,649 14,711 ------- ------- TOTAL ASSETS $465,244 $450,126 ======== ======== LIABILITIES, MINORITY INTEREST IN SUBSIDIARY AND STOCKHOLDERS' EQUITY Liabilities: Deposits $275,964 $260,826 Advances from Federal Home Loan Bank 120,360 123,137 Securities sold under agreements to repurchase 19,300 19,300 Accrued interest payable 2,865 2,321 Advances from borrowers for taxes and insurance 3,079 946 Accounts payable and accrued expenses 2,792 3,492 ------- ------- Total liabilities 424,360 410,022 ------- ------- Company-obligated mandatorily redeemable preferred securities of a subsidiary trust holding solely junior subordinated debentures of the Company 16,200 16,200 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: 2,251,716 shares at June 30, 2000 and September 30, 1999 14 14 Additional paid-in capital 13,470 13,408 Common stock acquired by stock benefit plans (1,331) (1,531) Treasury stock at cost: 468,284 shares (5,622) (5,622) Accumulated other comprehensive loss (4,301) (2,992) Retained earnings - partially restricted 22,454 20,627 ------- ------- Total stockholders' equity 24,684 23,904 ------- ------- TOTAL LIABILITIES, MINORITY INTEREST IN SUBSIDIARY AND STOCKHOLDERS' EQUITY $465,244 $450,126 ======== ========
See notes to consolidated financial statements. 1 4 FIRST KEYSTONE FINANCIAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) - --------------------------------------------- (dollars in thousands, except per share data)
Three months ended Nine months ended June 30 June 30 ------- ------- 2000 1999 2000 1999 ---- ---- ---- ---- INTEREST INCOME: Interest on: Loans $ 4,795 $ 4,329 $ 13,783 $ 12,948 Mortgage-related securities 2,199 1,896 6,457 5,857 Investments 862 708 2,467 2,173 Interest-bearing deposits 161 117 400 321 -------- -------- -------- -------- Total interest income 8,017 7,050 23,107 21,299 -------- -------- -------- -------- INTEREST EXPENSE: Interest on: Deposits 2,896 2,542 8,340 7,707 Federal Home Loan Bank advances 1,764 1,304 4,914 3,983 Other borrowings 294 300 886 888 -------- -------- -------- -------- Total interest expense 4,954 4,146 14,140 12,578 -------- -------- -------- -------- NET INTEREST INCOME 3,063 2,904 8,967 8,721 PROVISION FOR LOAN LOSSES 105 84 315 184 -------- -------- -------- -------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 2,958 2,820 8,652 8,537 -------- -------- -------- -------- NON-INTEREST INCOME (LOSS): Service charges and other fees 246 222 698 697 Net gain on sale of: Loans 58 70 171 270 Investment securities 42 291 Real estate owned 25 8 16 8 Real estate operations (27) (68) (72) (92) Other income 474 98 823 207 -------- -------- -------- -------- Total non-interest income 776 372 1,636 1,381 -------- -------- -------- -------- NON-INTEREST EXPENSE: Salaries and employee benefits 1,033 876 2,801 2,662 Occupancy and equipment expenses 287 258 832 771 Professional fees 242 142 727 435 Federal deposit insurance premium 14 37 66 110 Bank service charges 124 123 372 326 Data processing 100 98 301 290 Advertising 84 90 278 247 Provision for real estate owned losses 350 Minority interest in expense of subsidiary 393 393 1,179 1,179 Other 337 206 805 783 -------- -------- -------- -------- Total non-interest expense 2,614 2,223 7,361 7,153 -------- -------- -------- -------- INCOME BEFORE INCOME TAX EXPENSE 1,120 969 2,927 2,765 INCOME TAX EXPENSE 261 244 627 668 -------- -------- -------- -------- NET INCOME $ 859 $ 725 $ 2,300 $ 2,097 ======== ======== ======== ======== BASIC EARNINGS PER COMMON SHARE $ 0.42 $ 0.35 $ 1.11 $ 1.03 ======== ======== ======== ======== DILUTED EARNINGS PER COMMON SHARE $ 0.41 $ 0.34 $ 1.07 $ 0.98 ======== ======== ======== ========
See notes to consolidated financial statements. 2 5 FIRST KEYSTONE FINANCIAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED) - --------------------------------------------------------------------- (dollars in thousands)
Common stock Accumulated Retained Additional acquired by other earnings- Total Common paid-in stock benefit Treasury comprehensive partially stockholders' stock capital plans stock loss restricted equity ----- ------- ----- ----- ---- ---------- ------ BALANCE AT SEPTEMBER 30, 1999 $14 $13,408 $(1,531) $(5,622) $(2,992) $20,627 $23,904 Net income 2,300 2,300 Other comprehensive loss, net of tax (1,309) (1,309) ESOP stock committed to be released 95 95 Excess of fair value above cost of ESOP and RRP shares committed to be released 62 62 RRP amortization 105 105 Dividends - $.21 per share (473) (473) --- ------- ------- ------- ------- ------- ------- BALANCE AT JUNE 30, 2000 $14 $13,470 $(1,331) $(5,622) $(4,301) $22,454 $24,684 === ======= ======= ======= ======= ======= =======
See notes to consolidated financial statements. 3 6 FIRST KEYSTONE FINANCIAL, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - ------------------------------------------------- (dollars in thousands)
Nine months ended June 30 ------- 2000 1999 ---- ---- OPERATING ACTIVITIES: Net income $ 2,300 $ 2,097 Adjustments to reconcile net income to net cash used in operating activities: Provision for depreciation and amortization 323 335 Amortization of premiums and discounts (169) (221) Gain on sales of: Loans (171) (270) Investment securities available for sale (291) Real estate owned (16) (8) Provision for loan losses 315 184 Provision for real estate owned losses 350 Amortization of stock benefit plans 262 349 Distribution of policy value in demutualization (278) Changes in assets and liabilities which provided (used) cash: Origination of loans held for sale (30,088) (40,113) Loans sold in the secondary market 28,765 39,617 Deferred income taxes 4 Accrued interest receivable 135 285 Prepaid expenses and other assets 62 (6,965) Accrued interest payable 544 352 Accrued expenses (700) 352 -------- -------- Net cash provided by (used in) operating activities 1,284 (3,963) -------- -------- INVESTING ACTIVITIES: Loans originated (50,048) (75,626) Purchases of: Investment securities available for sale (3,033) (20,051) Mortgage-related securities available for sale (10,826) (38,217) Purchase of FHLB stock (987) Proceeds from sales of real estate owned 361 2,120 Proceeds from sales of investment securities 6,791 Principal collected on loans 42,487 50,616 Proceeds from maturities, calls, or repayments of: Investment securities available for sale 12,075 Mortgage-related securities available for sale 10,487 38,414 Mortgage-related securities held to maturity 1,094 3,188 Purchase of property and equipment (938) (591) Net expenditures on real estate acquired through foreclosure and in development (128) (24) -------- -------- Net cash used in investing activities (10,544) (22,292) -------- -------- FINANCING ACTIVITIES: Net increase in deposit accounts 15,138 11,307 Net (decrease) increase in FHLB advances and other borrowings (2,777) 14,909 Net increase in advances from borrowers for taxes and insurance 2,133 2,102 Purchase of treasury stock (1,047) Cash dividend (473) (409) -------- -------- Net cash provided by financing activities 14,021 26,862 -------- -------- INCREASE IN CASH AND CASH EQUIVALENTS 4,761 607 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 20,015 24,126 -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 24,776 $ 24,733 ======== ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash payments for interest on deposits and borrowings $ 13,596 $ 12,226 Transfers of loans receivable into real estate owned 1,121 1,317 Cash payments of income taxes 275 715
See notes to consolidated financial statements. 4 7 FIRST KEYSTONE FINANCIAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2000 (UNAUDITED) AND SEPTEMBER 30, 1999 AND (UNAUDITED) FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 2000 AND 1999 (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-Q. 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 and nine month periods ended June 30, 2000 are not necessarily indicative of the results to be expected for the fiscal year ending September 30, 2000. 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, 1999. Certain information in this quarterly statement may constitute forward-looking information (within the meaning of the Private Securities Litigation Reform Act of 1995) that involves risks and uncertainties that could cause actual results to differ materially from those estimated. 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 changes in general economic and market conditions; changes in interest rates, deposit flows, loan demand, real estate values and competition; changes in accounting principles, policies or guidelines; and the development of an interest rate environment that adversely affects the interest rate spread or other income from the Company's investments and operations. 2. INVESTMENT SECURITIES The amortized cost and approximate fair value of investment securities are as follows:
June 30, 2000 ---------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Approximate Cost Gain Loss Fair Value ---- ---- ---- ---------- Available for Sale: U.S. Treasury securities and securities of U.S. Government agencies: 1 to 5 years $ 8,677 $ 150 $ 8,527 5 to 10 years 6,996 $ 9 322 6,683 Municipal obligations 18,929 3 977 17,955 Corporate bonds 4,910 372 4,538 Mutual funds 2,000 34 1,966 Preferred stocks 5,530 887 4,643 Other equity investments 2,778 208 119 2,867 -------- ---- ------- -------- Total $49,820 $220 $2,861 $47,179 ======= ==== ====== =======
5 8
September 30, 1999 -------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Approximate Cost Gain Loss Fair Value ---- ---- ---- ---------- Available for Sale: U.S. Treasury securities and securities of U.S. Government agencies: 1 to 5 years $ 5,746 $ 94 $ 5,652 5 to 10 years 6,994 214 6,780 Municipal obligations 18,924 $1 1,052 17,873 Corporate bonds 4,909 270 4,639 Mutual funds 2,000 28 1,972 Preferred stocks 5,534 286 5,248 Other equity investments 2,390 239 2,151 -------- --- ------- -------- Total $46,497 $1 $2,183 $44,315 ======= == ====== =======
3. MORTGAGE-RELATED SECURITIES Mortgage-related securities available for sale and mortgage-related securities held to maturity are summarized as follows:
June 30, 2000 ----------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Approximate Cost Gain Loss Fair Value ---- ---- ---- ---------- Available for Sale: FHLMC pass-through certificates $ 10,499 $ 9 $ 275 $ 10,233 FNMA pass-through certificates 30,868 8 1,253 29,623 GNMA pass-through certificates 38,243 5 1,079 37,169 Collateralized mortgage obligations 36,080 77 1,384 34,773 --------- --- ------ --------- Total $115,690 $ 99 $3,991 $111,798 ======== ==== ====== ======== Held to Maturity: FHLMC pass-through certificates $ 2,935 $1 $106 $ 2,830 FNMA pass-through certificates 5,977 297 5,680 Collateralized mortgage obligations 4,484 234 4,250 -------- --- ---- -------- Total $13,396 $1 $637 $12,760 ======= == ==== =======
6 9
September 30, 1999 ------------------------------------------------------ Gross Gross Amortized Unrealized Unrealized Approximate Cost Gain Loss Fair Value ---- ---- ---- ---------- Available for Sale: FHLMC pass-through certificates $ 11,927 $ 81 $ 174 $ 11,834 FNMA pass-through certificates 32,795 37 877 31,955 GNMA pass-through certificates 34,639 75 755 33,959 Collateralized mortgage obligations 36,054 111 867 35,298 -------- ---- ------ -------- Total $115,415 $304 $2,673 $113,046 ======== ==== ====== ======== Held to Maturity: FHLMC pass-through certificates $ 3,156 $11 $ 67 $ 3,100 FNMA pass-through certificates 6,832 232 6,600 Collateralized mortgage obligations 4,509 109 4,400 ------- ---- ---- -------- Total $14,497 $11 $408 $14,100 ======= === ==== =======
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 primarily consist of loans which are insured or guaranteed 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. 7 10 5. LOANS RECEIVABLE Loans receivable consist of the following:
June 30 September 30 2000 1999 ------------ ------------ Real estate loans: Single-family $163,640 $166,802 Construction and land 17,507 18,426 Multi-family and commercial 35,415 31,188 Consumer loans: Home equity and lines of credit 20,778 18,624 Deposit 207 243 Education 314 365 Other 868 1,080 Commercial loans 7,120 2,190 --------- --------- Total loans 245,849 238,918 Loans in process (9,504) (9,005) Allowance for loan losses (1,927) (1,928) Deferred loan fees (1,400) (1,610) --------- --------- Loans receivable - net $233,018 $226,375 ======== ========
The following is an analysis of the allowance for loan losses:
Nine Months Ended June 30 ------- 2000 1999 ---------- ------ Balance beginning of period $1,928 $1,738 Provisions charged to income 315 184 Charge-offs (316) (67) Recoveries 2 ------ ------ Total $1,927 $1,857 ====== ======
At June 30, 2000 and September 30, 1999, non-performing loans (which consist of loans in excess of 90 days delinquent) amounted to approximately $2,025 and $3,180, respectively. 6. DEPOSITS Deposits consist of the following major classifications:
June 30 September 30 2000 1999 ---- ---- Amount Percent Amount Percent ------ ------- ------ ------- Non-interest bearing accounts $ 10,057 3.6% $ 7,912 3.0% NOW accounts 38,873 14.1 33,412 12.8 Passbook accounts 40,568 14.7 40,324 15.5 Money market demand accounts 20,580 7.5 19,417 7.4 Certificate accounts 165,886 60.1 159,761 61.3 -------- ----- -------- ----- Total $275,964 100.0% $260,826 100.0% ======== ===== ======== =====
8 11 7. COMPREHENSIVE INCOME The Company adopted Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income, effective October 1, 1999. The statement requires disclosure of amounts from transactions and other events which are currently excluded from the statement of operations and are recorded directly to stockholders' equity. These transactions and other events represent foreign currency items, minimum pension liability adjustments and unrealized gains and losses on certain investments in debt and equity securities. Only the last of these items, however, is currently applicable to the Company. For the three and nine months ended June 30, 2000 and 1999, the Company's comprehensive income was as follows:
Three Months Ended Nine Months Ended June 30 June 30 --------- -------- 2000 1999 2000 1999 ------ ------ ------ ------ Net income $ 859 $ 725 $ 2,300 $ 2,097 Net SFAS 115 adjustment 459 (2,579) (1,309) (3,775) ------- ------- ------- ------- Total comprehensive income (loss) $ 1,318 $(1,854) $ 991 $(1,678) ======= ======= ======= =======
8. EARNINGS PER SHARE Basic net income per share is based upon the weighted average number of common shares outstanding, while diluted net income per share is based upon the weighted average number of common share outstanding and common share equivalents that would arise from the exercise of dilutive securities. The calculated basic and diluted earnings per share ("EPS") is as follows:
For the Three Months Ended For the Nine Months Ended June 30, June 30, -------- -------- 2000 1999 2000 1999 ------ ------ ----- ----- Numerator $ 859 $ 725 $ 2,300 $ 2,097 Denominators: Basic shares outstanding 2,064,807 2,044,095 2,064,769 2,039,771 Effect of dilutive securities 51,730 98,729 80,234 104,032 ---------- ---------- ---------- ---------- Diluted shares outstanding 2,116,537 2,142,824 2,145,003 2,143,803 ========== ========== ========== ========== hares outstanding EPS: Basic $ 0.42 $ 0.35 $ 1.11 $ 1.03 Diluted $ 0.41 $ 0.34 $ 1.07 $ 0.98
9 12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 2000 AND SEPTEMBER 30, 1999 Total assets of the Company increased $15.1 million or 3.4% from $450.1 million at September 30, 1999 to $465.2 million at June 30, 2000 primarily due to a $6.6 million increase in loans receivable - net, a $4.8 million in cash and cash equivalents, and a $2.9 million increase in investment securities available for sale. The increased loan growth was concentrated primarily in commercial real estate, commercial loans, and home equity loans funded through deposits and cash flows and reflected the Company's continued emphasis on originating higher yielding loans. Deposits increased $15.1 million or 5.4% from $260.8 million at September 30, 1999 to $276.0 million at June 30, 2000. The increase resulted primarily from the growth in NOW accounts and certificates of deposit. Stockholders' equity increased $780,000 due to the combined effects of increased net income for the nine months ended June 30, 2000 partially offset by a decrease in the aggregate market valuation, net of taxes, of available for sale securities and dividends paid. COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 2000 AND 1999 Net Income. Net income was $859,000 for the three months ended June 30, 2000 as compared to $725,000 for the same period in 1999 while net income for the nine month period ended June 30, 2000 was $2.3 million as compared to $2.1 million for the same period in 1999. The $134,000 or 18.5% increase in net income for the three months ended June 30, 2000 was due to a $138,000 increase in net interest income after provision for loan losses and a $404,000 increase in non-interest income partially offset by a $391,000 increase in non-interest expense. The $203,000 or 9.7% increase in net income for the nine months ended June 30, 2000 compared to the same period in 1999 was primarily due to increases of $115,000 and $255,000 in net interest income after provision for loan losses and non-interest income, respectively, together with a $41,000 decrease in income tax expense partially offset by a $208,000 increase in non-interest expense. 10 13 Net Interest Income. Net interest income increased $159,000 to $3.1 million and $246,000 to $9.0 million for the three and nine months ended June 30, 2000, respectively. Such increases were primarily due to a $967,000 or 13.7% and $1.8 million or 8.5% increases in interest income for the three and nine months ended June 30, 2000, respectively, which were partially offset by $808,000 or 19.5% and $1.6 million or 12.4% increases in interest expense during such periods. The average balance of interest-earning assets increased $22.1 million and $16.0 million for the three and nine months ended June 30, 2000, respectively, as compared to the same period in 1999. Calculated on a fully taxable equivalent basis, the weighted average yield earned on interest-earning assets for the three and nine months ended June 30, 2000 increased 53 basis points to 7.58% and 30 basis points to 7.44%, respectively, compared to the 1999 periods. In addition, net interest income was affected by an increase in the average balance of interest-bearing liabilities of $33.7 million and $27.2 million for the three and nine months ended June 30, 2000, respectively, as compared to the same period in 1999. The weighted average rate paid on such liabilities increased 42 basis points to 4.84 % and 21 basis points to 4.70% during the three and nine months ended June 30, 2000, respectively, as compared to 4.42% and to 4.49%, respectively, during the three and nine months ended June 30, 1999. The interest rate spread amounted to 2.74% and 2.63% for the three months ended June 30, 2000 and 1999, respectively, while the net interest margin remained at 2.96%. The interest rate spread and net interest margin were 2.73% and 2.95%, respectively, for the nine months ended June 30, 2000 as compared to 2.65% and 2.98% for the same periods in 1999. The increase in the net interest rate spread was primarily due to improvement in the yield on Company's investment and mortgage-related securities during fiscal 2000. Provision for Loan Losses. Provisions for loan losses are charged to earnings to bring the total allowance for loan losses to a level considered appropriate by management based on historical experience, the volume and type of lending conducted by the Company, the amount of the Company's classified assets, the status of past due principal and interest payments, general economic conditions, particularly as they relate to the Company's primary market area, and other factors related to the collectibility of the Company's loan and loans held for sale portfolios. For the three months ended June 30, 2000, the provision for loan losses amounted to $105,000 as compared to $84,000 for the same period in 1999. For the nine months ended June 30, 2000 and 1999, the provision for loan losses was $315,000 and $184,000, respectively. The provisions in the interim periods of fiscal 1999 reflected a $50,000 allocation of expense to real estate owned. The increase in fiscal 2000 periods is due to allocations for the current loan portfolio resulting from increased investment in multi-family and commercial real estate and commercial business loans which are generally deemed to entail greater inherent risk of loss. At June 30, 2000, non-performing assets totaled $3.1 million or .67% of total assets, a decrease of $369,000 from September 30, 1999. The Company's coverage ratio, which is the ratio of the loan loss reserve to non-performing assets, was 62.0% and 55.5% at June 30, 2000 and September 30, 1999, respectively. Management will continue to review its loan portfolio to determine the extent, if any, to which additional loss provisions may be deemed necessary. There can be no assurance that the allowance for losses will be adequate to cover losses which may in fact be realized in the future and that additional provisions for losses will not be required. 14 Non-interest Income. Non-interest income increased $404,000 or 108.6% to $776,000 and $255,000 or 18.5% to $1.6 million for the three and nine months ended June 30, 2000, respectively, as compared to the same periods in 1999. In the third quarter of fiscal 2000, an increase of $376,000 in other non-interest income was primarily due to a receipt of a distribution of common stock with a value of $278,000 at the date of issue in connection with the demutualization of an insurance company. In addition, the increases during the 2000 periods were due to the combined effect of a slight increase in service charges and other fees and a decrease in the loss from real estate operations partially offset by decreases in the net gain on sale of assets. Non-interest Expense. Non-interest expenses increased $391,000 or 17.6% during the three months ended June 30, 2000 as compared to the same period in 1999. Increases of $157,000, $100,000 and $131,000 were incurred in the salaries and employee benefits, professional fees, and other non-interest expenses, respectively. The increase in salary and employee benefits reflected accruals for certain incentive bonuses, normal salary adjustments and the hiring of additional personnel due to branch expansion. The increase in professional fees was primarily an accrual for legal costs associated with foreclosures. Other non-interest expenses increased due to one-time fees arising from the use of temporary employees and the adjustment of various expense accruals.For the nine months ended, June 30, 2000, non-interest expenses increased $208,000 or 2.9% due to increases of $139,000, $61,000, $292,000, $46,000, and $22,000 in salaries and employee benefits, occupancy and equipment, professional fees, bank service charges and other non-interest expenses, respectively, partially offset by a $350,000 decrease in the provision for real estate losses. Income Tax Expense. Income tax expense increased $17,000 to $261,000 for the three months ended June 30, 2000 compared to June 30, 1999, while decreasing $41,000 to $627,000 for the nine months ended June 30, 2000. The increase for the third quarter of fiscal 2000 reflected the increase in income before income taxes. For the nine months ended June 30, 2000, the decrease in taxes resulted from the implementation of various tax planning strategies including investment in tax-exempt securities. 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, 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 to satisfy its funding commitments. At June 30, 2000, the Company had short-term borrowings outstanding of $65.0 million, all of which consisted of advances from the Federal Home Loan Bank of Pittsburgh. 15 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 At June 30, 2000, the total approved loan commitments outstanding amounted to $11.5 million, not including loans in process. At the same date, commitments under unused lines of credit amounted to $16.7 million. Certificates of deposit scheduled to mature in one year or less at June 30, 2000 totaled $99.1 million. Based upon its historical experience, management believes that a significant portion of maturing deposits will remain with the Company. First Keystone Federal Savings Bank (the "Bank"), the Company's wholly owned subsidiary, 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 4% 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 Bank's average monthly liquidity ratio for June 2000 was 7.61%. As of June 30, 2000, the Bank had regulatory capital in excess of applicable limits. The Bank 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 4.0% of its adjusted total assets and total capital equal to at least 8.0% of its total risk-weighted assets. At June 30, 2000, the Bank had tangible and core capital equal to 8.3% of adjusted total assets and total capital equal to 18.2% of risk-weighted assets. 16 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK For a discussion of the Company's asset and liability management policies, see "Management's Discussion and Analysis of Financial Condition and Results of Operation" in the Company's Annual Report on Form 10-K for the year ended September 30, 1999. The Company utilizes reports prepared by the OTS to measure interest rate risk. Using data from the Bank's quarterly thrift financial reports, the OTS models the net portfolio value ("NPV") of the Bank over a variety of interest rate scenarios. The NPV is defined as the present value of expected cash flows from existing assets less the present value of expected cash flows from existing liabilities plus the present value of net expected cash inflows from existing off-balance sheet contracts. The model assumes instantaneous, parallel shifts in the U.S. Treasury Securities yield curve of 100 to 300 basis points, either up or down, and in 100 basis point increments. The interest rate risk analysis used by the OTS include an "Exposure Measure" or "Post-Shock" NPV ratio and a "Sensitivity Measure". The "Post-Shock" NPV ratio is the net present value as a percentage of assets over the various yield curve shifts. A low "Post-Shock" NPV ratio indicates greater exposure to interest rate risk and can result from a low initial NPV ratio or high sensitivity to changes in interest rates. The "Sensitivity Measure" is the decline in the NPV ratio, in basis points, caused by a 2% increase or decrease in rates, whichever produces a larger decline. The following table sets forth the Bank's NPV as of June 30, 2000.
Net Portfolio Value Changes in Rates in Dollar Percentage Net Portfolio Value Change in Basis Points Amount Change Change As a % of Assets Percentage (1) ------------ ------ ------ ------ ---------------- -------------- (dollars in thousands) 300 $14,910 $(29,058) (66.09)% 3.49% (63.19) 200 24,473 (19,496) (44.34) 5.57 (41.24) 100 34,299 (9,670) (21.99) 7.59 (19.94) 0 43,968 9.48 (100) 53,202 9,234 21.00 11.18 17.93 (200) 57,779 13,811 31.41 11.96 20.74 (300) 60,488 16,520 37.57 12.38 23.42
(1) Based on the portfolio value of the Bank's assets in the base case scenario As of June 30, 2000, the Company's NPV was $44.0 million or 9.48% of the market value of assets. Following a 200 basis point increase in interest rates, the Company's "post shock" NPV was $24.5 million or 5.57% of the market value of assets. The change in the NPV ratio or the Company's sensitivity measure was (3.91)%. 17 PART II Item 1. Legal Proceedings Not applicable Item 2. Changes in Securities and Use of Proceeds Not applicable Item 3. Defaults Upon Senior Securities Not applicable Item 4. Submission of Matters to a Vote of Security Holders None Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K (a) Exhibits. No. 27 Financial Data Schedule (b) Reports filed on Form 8-K. None. 18 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: August 11, 2000 By: /s/ Donald S. Guthrie ---------------------- Donald S. Guthrie President and Chief Executive Officer Date: August 11, 2000 By: /s/ Thomas M. Kelly -------------------- Thomas M. Kelly Executive Vice-President and Chief Financial Officer EX-27 2 ex27.txt FINANCIAL DATA SCHEDULE WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
9 1,000 QUARTER SEP-30-2000 OCT-01-1999 JUN-30-2000 2,612 22,164 0 0 158,977 13,396 12,760 233,018 1,927 465,244 275,964 65,000 8,736 74,660 6,531 0 0 18,153 465,244 4,795 3,061 161 8,017 2,896 4,954 3,063 105 0 2,614 1,120 1,120 0 0 859 0.42 0.41 7.58 1,683 342 2 0 1,949 127 0 1,927 1,304 0 623
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