10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2008

OR

o 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	23-2576479
(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 þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o	Accelerated filer o	Non-accelerated filer o	Smaller reporting company þ
		(Do not check if a smaller reporting company)

Indicate by checkmark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o      No þ

Number of shares of Common Stock outstanding as of January 31, 2009: 2,432,998

FIRST KEYSTONE FINANCIAL, INC.

Contents

	Page
PART I FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Statements of Financial Condition as of December 31, 2008 (Unaudited) and September 30, 2008		1
Unaudited Consolidated Statements of Income for the Three Months Ended December 31, 2008 and 2007		2
Unaudited Consolidated Statement of Changes in Stockholders’ Equity for the Three Months Ended December 31, 2008 and 2007		3
Unaudited Consolidated Statements of Cash Flows for the Three Months Ended December 31, 2008 and 2007		4
Notes to Unaudited Consolidated Financial Statements		5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		16
Item 3. Quantitative and Qualitative Disclosures About Market Risk		21
Item 4T. Controls and Procedures		22
PART II OTHER INFORMATION
Item 1. Legal Proceedings		24
Item 1A. Risk Factors		24
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		24
Item 3. Defaults Upon Senior Securities		24
Item 4. Submission of Matters to a Vote of Security Holders		24
Item 5. Other Information		24
Item 6. Exhibits		25
SIGNATURES		27
SECTION 302 CERTIFICATION
SECTION 302 CERTIFICATION
SECTION 906 CERTIFICATION

- i -

FIRST KEYSTONE FINANCIAL, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(dollars in thousands)

	December 31,			September 30,
	2008			2008
ASSETS:
Cash and amounts due from depository institutions	$	3,463		$	4,340
Interest-bearing deposits with depository institutions		57,885			34,980
Total cash and cash equivalents		61,348			39,320
Investment securities available for sale		21,985			26,545
Mortgage-related securities available for sale		88,896			102,977
Investment securities held to maturity — at amortized cost (approximate fair value of $3,287 at December 31, 2008 and $3,271 at September 30, 2008)		3,255			3,255
Mortgage-related securities held to maturity — at amortized cost (approximate fair value of $24,558 at December 31, 2008 and $25,204 at September 30, 2008)		24,174			25,359
Loans receivable (net of allowance for loan losses of $3,300 and $3,453 at December 31, 2008 and September 30, 2008, respectively)		283,792			286,106
Accrued interest receivable		2,250			2,452
FHLBank stock, at cost		7,060			6,995
Office properties and equipment, net		4,357			4,386
Deferred income taxes		3,820			4,323
Cash surrender value of life insurance		18,096			17,941
Prepaid expenses and other assets		2,790			2,397
TOTAL ASSETS	$	521,823		$	522,056
LIABILITIES AND STOCKHOLDERS’ EQUITY:
Liabilities:
Deposits:
Non-interest-bearing	$	17,758		$	20,101
Interest-bearing		304,404			310,763
Total deposits		322,162			330,864
Advances from FHLBank and other borrowings		147,394			141,159
Junior subordinated debentures		11,641			11,639
Accrued interest payable		2,218			1,886
Advances from borrowers for taxes and insurance		1,999			974
Accounts payable and accrued expenses		3,178			3,238
Total liabilities		488,592			489,760
Commitments and contingencies		—			—
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 2,712,556 shares; outstanding at December 31, 2008 and September 30, 2008, 2,432,998 shares		27			27
Additional paid-in capital		12,579			12,586
Employee stock ownership plan		(2,843	)		(2,872	)
Treasury stock at cost: 279,558 shares at December 31, 2008 and at September 30, 2008		(4,244	)		(4,244	)
Accumulated other comprehensive loss		(1,738	)		(2,714	)
Retained earnings — partially restricted		29,450			29,513
Total stockholders’ equity		33,231			32,296
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY:	$	521,823		$	522,056

See notes to unaudited consolidated financial statements.

- 1 -

FIRST KEYSTONE FINANCIAL, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share data)

	Three months ended
	December 31,
	2008			2007
INTEREST INCOME:
Interest and fees on loans	$	4,260		$	4,671
Interest and dividends on:
Mortgage-related securities		1,553			1,380
Investment securities:
Taxable		350			395
Tax-exempt		42			42
Dividends		3			86
Interest on interest-bearing deposits		16			162
Total interest income		6,224			6,736
INTEREST EXPENSE:
Interest on:
Deposits		1,727			2,678
FHLBank and other borrowings		1,390			1,225
Junior subordinated debentures		286			367
Total interest expense		3,403			4,270
Net interest income		2,821			2,466
PROVISION FOR LOAN LOSS		75			42
Net interest income after provision for loan losses		2,746			2,424
NON-INTEREST INCOME:
Service charges and other fees		412			422
Net gain on sales of loans held for sale		8			—
Net (loss) gain on investments		(233	)		69
Increase in cash surrender value of life insurance		155			182
Other income		91			89
Total non-interest income		433			762
NON-INTEREST EXPENSE:
Salaries and employee benefits		1,472			1,430
Occupancy and equipment		397			400
Professional fees		362			283
Federal deposit insurance premium		110			51
Data processing		153			137
Advertising		130			100
Deposit processing		146			145
Other		379			395
Total non-interest expense		3,149			2,941
Income before income tax expense		30			245
Income tax expense		93			13
Net (loss) income	$	(63	)	$	232
Earnings per common share:
Basic	$	(0.03	)	$	0.10
Diluted	$	(0.03	)	$	0.10
Weighted average shares — basic		2,323,596			2,314,908
Weighted average shares — diluted		2,323,596			2,314,908

See notes to unaudited consolidated financial statements.

- 2 -

FIRST KEYSTONE FINANCIAL, INC.

UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
(dollars in thousands)

						Employee						Accumulated			Retained
			Additional			stock						other			earnings-			Total
	Common		paid-in			ownership			Treasury			comprehensive			partially			stockholders’
	stock		capital			plan			stock			loss			restricted			equity
BALANCE AT OCTOBER 1, 2007	$	27	$	12,598		$	(2,985	)	$	(4,244	)	$	(1,223	)	$	30,521		$	34,694
Net income		—		—			—			—			—			232			232
Other comprehensive income, net of taxes:
Net unrealized gain on securities
Net of reclassification adjustment(1)		—		—			—			—			644			—			644
Comprehensive income		—		—			—			—			—			—			876
ESOP shares committed to be released		—		—			27			—			—			—			27
Excess of fair value above cost of ESOP shares committed to be released		—		(1	)		—			—			—			—			(1	)
BALANCE AT DECEMBER 31, 2007	$	27	$	12,597		$	(2,958	)	$	(4,244	)	$	(579	)	$	30,753		$	35,596
BALANCE AT OCTOBER 1, 2008	$	27	$	12,586		$	(2,872	)	$	(4,244	)	$	(2,714	)	$	32,296		$	29,513
Net loss		—		—			—			—			—			(63	)		(63	)
Other comprehensive income, net of taxes:
Net unrealized gain on securities
Net of reclassification adjustment(1)		—		—			—			—			976			—			976
Comprehensive income		—		—			—			—			—			—			913
ESOP shares committed to be released		—		—			29			—			—			—			29
Excess of fair value above cost of ESOP shares committed to be released		—		(7	)		—			—			—			—			(7	)
BALANCE AT DECEMBER 31, 2008	$	27	$	12,579		$	(2,843	)	$	(4,244	)	$	(1,738	)	$	29,450		$	33,231

⁽¹⁾ Components of other comprehensive gain:

	December 31,
	2008		2007
Change in net unrealized loss on investment securities available for sale	$	822	$	644
Realized loss included in net loss, net of tax benefit of $79 and $0, respectively		154		—
Net unrealized gain on securities	$	976	$	644

See notes to unaudited consolidated financial statements.

- 3 -

FIRST KEYSTONE FINANCIAL, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)

	Three months ended
	December 31
	2008			2007
OPERATING ACTIVITIES:
Net (loss) income	$	(63	)	$	232
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Provision for depreciation and amortization		142			141
Amortization of premiums and discounts		3			15
Increase in cash surrender value of life insurance		(155	)		(182	)
(Gain) loss on sales of:
Loans held for sale		(8	)		—
Investment securities available for sale		75			(69	)
Mortgage-related securities available for sale		(265	)		—
Other-than-temporary impairment of investment securities		423			—
Provision for loan losses		75			42
Amortization of ESOP		22			26
Changes in assets and liabilities which provided (used) cash:
Origination of loans held for sale		(1,284	)		—
Loans sold in the secondary market		1,292			—
Accrued interest receivable		202			345
Prepaid expenses and other assets		(393	)		(153	)
Accrued interest payable		332			86
Accrued expenses		(60	)		118
Net cash provided by operating activities		338			601
INVESTING ACTIVITIES:
Loans originated		(18,880	)		(14,652	)
Purchases of:
Mortgage-related securities available for sale		(7,039	)		(14,895	)
Investment securities available for sale		(1,313	)		(2,948	)
Redemption of FHLB stock		1,328			1,179
Purchase of FHLB stock		(1,393	)		(1,080	)
Proceeds from sales of investment and mortgage-related securities available for sale		23,282			69
Principal collected on loans		21,119			26,516
Proceeds from maturities, calls, or repayments of:
Investment securities available for sale		1,421			1,039
Mortgage-related securities available for sale		3,547			3,232
Mortgage-related securities held to maturity		1,173			1,405
Purchase of property and equipment		(113	)		(77	)
Net cash provided by (used in) investing activities		23,132			(212	)
FINANCING ACTIVITIES:
Net decrease in deposit accounts		(8,702	)		(7,841	)
FHLBank advances and other borrowings — repayments		(73,008	)		(34,177	)
FHLBank advances and other borrowings — draws		79,243			32,001
Net increase in advances from borrowers for taxes and insurance		1,025			1,077
Net cash used in financing activities		(1,442	)		(8,940	)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		22,028			(8,551	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		39,320			52,935
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	61,348		$	44,384
SUPPLEMENTAL DISCLOSURE OF CASH FLOW AND NON-CASH INFORMATION:
Cash payments for interest on deposits and borrowings	$	3,071		$	4,184
Cash payments of income taxes		—			—

See notes to unaudited consolidated financial statements.

- 4 -

FIRST KEYSTONE FINANCIAL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)

1.	BASIS OF PRESENTATION
	The accompanying unaudited 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 accounting principles generally accepted in the United States of America 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 periods.
	The results of operations for the three months ended December 31, 2008 are not necessarily indicative of the results to be expected for the fiscal year ending September 30, 2009 or any other period. The consolidated financial statements presented herein should be read in conjunction with the audited consolidated financial statements and related notes thereto included in the First Keystone Financial, Inc. (the “Company”) Annual Report on Form 10-K for the year ended September 30, 2008.
2.	INVESTMENT SECURITIES
	The amortized cost and approximate fair value of investment securities available for sale and held to maturity, by contractual maturities, are as follows:

	December 31, 2008
			Gross		Gross
	Amortized		Unrealized		Unrealized			Approximate
	Cost		Gain		Loss			Fair Value
Available for Sale:
U.S. Government and agency bonds:
Over 10 years	$	2,965	$	36	$	—		$	3,001
Municipal obligations:
5 to 10 years		2,901		154		(14	)		3,041
Over 10 years		997		106		—			1,103
Corporate bonds:
1 to 5 years		1,956		48		(103	)		1,901
5 to 10 years		1,532		48		—			1,580
Over 10 years		9,258		—		(3,153	)		6,105
Mutual funds		4,252		15		—			4,267
Other equity investments		1,040		—		(53	)		987
Total	$	24,901	$	407	$	(3,323	)	$	21,985
Held to Maturity:
Municipal obligations:
1 to 5 years	$	2,587	$	30	$	(5	)	$	2,612
5 to 10 years		668		7		—			675
Total	$	3,255	$	37	$	(5	)	$	3,287

- 5 -

Provided below is a summary of investment securities available for sale and held to maturity which were in an unrealized loss position at December 31, 2008.

	Loss Position					Loss Position
	Less than 12 Months					12 Months or Longer					Total
	Approximate		Unrealized			Approximate		Unrealized			Approximate		Unrealized
	Fair Value		Losses			Fair Value		Losses			Fair Value		Losses
Corporate bonds	$	2,134	$	(728	)	$	4,921	$	(2,528	)	$	7,055	$	(3,256	)
Municipal obligations		1,479		(19	)		—		—			1,479		(19	)
Other equity investments		587		(53	)		—		—			587		(53	)
Total	$	4,200	$	(800	)	$	4,921	$	(2,528	)	$	9,121	$	(3,328	)

At December 31, 2008, investment securities in a gross unrealized loss position for twelve months or longer consisted of six securities having an aggregate depreciation of 33.9% from the Company’s amortized cost basis. Management believes the declines in market value are the result of the current volatility in interest rates and turmoil in the capital and debt markets. Fair values for certain corporate debt securities were determined utilizing discounted cash flow models due to the absence of a current market to provide a reliable market quotes for the instruments. The Company’s analysis for each corporate debt security performed at the CUSIP level shows that the credit quality of the individual bonds ranges from good to deteriorating. Credit risk does exist and the default of an individual issuer in a particular pool could affect the ultimate collectability of contractual amounts. The Company has the ability and intent to hold these securities until such time as the value recovers. However, the Company will continue to review its investment portfolio to determine whether any particular impairment is other than temporary. Except as described below, management does not believe any individual unrealized loss as of December 31, 2008 represents an other-than-temporary impairment. For the three months ending December 31, 2008, the Company’s $3.7 million investment in a mutual fund, included in the first table above, was impaired as a result of the Company’s determination that the continued decline in its fair market value was other than temporary. As a result of this determination, the Company recognized a $423,000, before tax, non-cash charge, which was recorded as a loss on investment securities in other non-interest income.

The amortized cost and approximate fair value of investment securities available for sale and held to maturity, by contractual maturities, are as follows:

	September 30, 2008
			Gross		Gross
	Amortized		Unrealized		Unrealized			Approximate
	Cost		Gain		Loss			Fair Value
Available for Sale:
U.S. Government bonds:
Over 10 years	$	2,965	$	7	$	—		$	2,972
Municipal obligations:
5 to 10 years		2,901		55		(22	)		2,934
Over 10 years		997		52		—			1,049
Corporate bonds:
Less than 1 year		1,000		4		—			1,004
1 to 5 years		1,057		—		(107	)		950
5 to 10 years		1,532		—		—			1,532
Over 10 years		9,415		—		(2,835	)		6,580
Mutual funds		8,563		8		—			8,571
Other equity investments		1,040		—		(87	)		953
Total	$	29,470	$	126	$	(3,051	)	$	26,545

- 6 -

	September 30, 2008
			Gross		Gross
	Amortized		Unrealized		Unrealized			Approximate
	Cost		Gain		Loss			Fair Value
Held to Maturity:
Municipal obligations:
1 to 5 years	$	1,537	$	5	$	(9	)	$	1,533
5 to 10 years		1,718		21		(1	)		1,738
Total	$	3,255	$	26	$	(10	)	$	3,271

Provided below is a summary of investment securities available for sale and held to maturity which were in an unrealized loss position at September 30, 2008.

	Loss Position					Loss Position
	Less than 12 Months					12 Months or Longer					Total
	Approximate		Unrealized			Approximate		Unrealized			Approximate		Unrealized
	Fair Value		Losses			Fair Value		Losses			Fair Value		Losses
Corporate bonds	$	6,068	$	(2,392	)	$	1,462	$	(550	)	$	7,530	$	(2,942	)
Municipal obligations		2,062		(32	)		—		—			2,062		(32	)
Other equity investments		553		(87	)		—		—			553		(87	)
Total	$	8,683	$	(2,511	)	$	1,462	$	(550	)	$	10,145	$	(3,061	)

3.	MORTGAGE-RELATED SECURITIES
	Mortgage-related securities available for sale and mortgage-related securities held to maturity are summarized as follows:

	December 31, 2008
			Gross		Gross
	Amortized		Unrealized		Unrealized			Approximate
	Cost		Gain		Loss			Fair Value
Available for Sale:
FHLMC pass-through certificates	$	22,644	$	602	$	(2	)	$	23,244
FNMA pass-through certificates		37,670		1,093		(51	)		38,712
GNMA pass-through certificates		1,511		—		(19	)		1,492
Collateralized mortgage obligations		26,788		75		(1,415	)		25,448
Total	$	88,613	$	1,770	$	(1,487	)	$	88,896
Held to Maturity:
FHLMC pass-through certificates	$	9,313	$	137	$	(11	)	$	9,439
FNMA pass-through certificates		14,861		275		(17	)		15,119
Total	$	24,174	$	412	$	(28	)	$	24,558

Provided below is a summary of mortgage-related securities available for sale and held to maturity which were in an unrealized loss position at December 31, 2008.

- 7 -

	Loss Position					Loss Position
	Less than 12 Months					12 Months or Longer					Total
			Unrealized					Unrealized					Unrealized
	Fair Value		Losses			Fair Value		Losses			Fair Value		Losses
Pass-through certificates	$	8,758	$	(99	)	$	23	$	(1	)	$	8,781	$	(100	)
Collateralized mortgage obligations		14,751		(1,001	)		6,314		(414	)		21,065		(1,415	)
Total	$	23,509	$	(1,100	)	$	6,337	$	(415	)	$	29,846	$	(1,515	)

At December 31, 2008, mortgage-related securities in a gross unrealized loss position for twelve months or longer consisted of seven securities that at such date had an aggregate depreciation of 6.1% from the Company’s amortized cost basis. Management does not believe any individual unrealized loss as of December 31, 2008 represents an other-than-temporary impairment. The unrealized losses reported for mortgage-related securities relate primarily to securities issued by the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation and private institutions. The majority of the unrealized losses associated with mortgage-related securities are attributable to changes in interest rates and conditions in the financial and credit markets not due to the deterioration of the creditworthiness of the issuer. The Company has the ability and intent to hold these securities until the securities mature or recover in value.

Mortgage-related securities available for sale and mortgage-related securities held to maturity are summarized as follows:

	September 30, 2008
			Gross		Gross
	Amortized		Unrealized		Unrealized			Approximate
	Cost		Gain		Loss			Fair Value
Available for Sale:
FHLMC pass-through certificates	$	34,860	$	117	$	(175	)	$	34,802
FNMA pass-through certificates		41,982		235		(216	)		42,001
GNMA pass-through certificates		1,669		10		—			1,679
Collateralized mortgage obligations		25,653		3		(1,161	)		24,495
Total	$	104,164	$	365	$	(1,552	)	$	102,977
Held to Maturity:
FHLMC pass-through certificates	$	9,776	$	42	$	(84	)	$	9,734
FNMA pass-through certificates		15,582		3		(116	)		15,469
Collateralized mortgage obligations		1		—		—			1
Total	$	25,359	$	45	$	(200	)	$	25,204

- 8 -

Provided below is a summary of mortgage-related securities available for sale and held to maturity which were in an unrealized loss position at September 30, 2008.

	Loss Position					Loss Position
	Less than 12 Months					12 Months or Longer					Total
			Unrealized					Unrealized					Unrealized
	Fair Value		Losses			Fair Value		Losses			Fair Value		Losses
Pass-through certificates	$	54,080	$	(561	)	$	1,401	$	(30	)	$	55,481	$	(591	)
Collateralized mortgage obligations		17,914		(678	)		6,385		(483	)		24,299		(1,161	)
Total	$	71,994	$	(1,239	)	$	7,786	$	(513	)	$	79,780	$	(1,752	)

4.	FAIR VALUE MEASUREMENT
	In the first quarter of 2009, the Company adopted FASB Statement 157, Fair Value Measurements Statement 157 establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:
	Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.
	Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
	Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the parameters that market participants would use in pricing an asset or liability.
	Most of the securities classified as available for sale are reported at fair value utilizing Level 2 inputs. For these securities, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quoted market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things. Impaired loans are reported at fair value utilizing level 2 inputs. For these loans, a review of the collateral is conducted and an appropriate allowance for loan loss is allocated to the loan.
	Securities reported at fair value utilizing Level 1 inputs are limited to actively traded equity securities whose market price is readily available from the New York Stock Exchange or the NASDAQ exchange.
	Securities reported at fair value utilizing Level 3 inputs consist predominantly of corporate debt securities for which there is no active market. Fair values for these securities are determined utilizing discounted cash flow models which incorporate various assumptions including average historical spreads, credit ratings, and liquidity of the underlying securities.
	Assets measured at fair value on a recurring and nonrecurring basis are summarized as follows:

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	Fair Value Measurement at December 31, 2008 Using:
			Quoted Prices in				Significant
			Active Markets for		Significant Other		Unobservable
			Identical Assets		Observable Inputs		Inputs
	Total		(Level 1)		(Level 2)		(Level 3)
Available for sale securities measured on a recurring basis	$	110,428	$	4,854	$	94,689	$	10,885
Impaired loans measured on a nonrecurring basis		2,541		—		2,541		—
Total	$	112,969	$	4,854	$	97,140	$	10,885

The following table presents the changes in the Level III fair-value category for the three months ended December 31, 2008. The Company classifies financial instruments in Level III of the fair-value hierarchy when there is reliance on at least one significant unobservable input to the valuation model. In addition to these unobservable inputs, the valuation models for Level III financial instruments typically also rely on a number of inputs that are readily observable either directly or indirectly.

	Fair Value Measurements Using
	Significant Unobservable Inputs
	(Level 3)
	Available for Sale Securities
Beginning balance	$	11,421
Total gains or losses (realized/unrealized)
Included in earnings (or changes in net assets)		—
Included in other comprehensive income		(275	)
Purchases, issuances and settlements		(261	)
Transfers in and/or out of Level 3		—
Ending balance	$	10,885
The amount of total gains or losses for the period included in earnings (or changes in net assets) attributable to the change in unrealized gains or losses relating to assets still held at the reporting date	$	—

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5.	LOANS RECEIVABLE
	Loans receivable consist of the following:

	December 31,			September 30,
	2008			2008
Single-family	$	142,916		$	145,626
Construction and land		24,957			27,493
Multi-family and commercial		54,077			54,419
Home equity and lines of credit		55,365			55,246
Consumer loans		1,527			1,330
Commercial loans		16,976			15,955
Total loans		295,818			300,069
Loans in process		(9,023	)		(10,802	)
Allowance for loan losses		(3,300	)		(3,453	)
Deferred loan costs		297			292
Loans receivable — net	$	283,792		$	286,106

At December 31, 2008 and September 30, 2008, non-performing loans (which include loans in excess of 90 days delinquent) amounted to approximately $3,812 and $2,420, respectively. At December 31, 2008, non-performing loans consisted of three single-family residential mortgage loans aggregating $324, four non-residential mortgage loans aggregating $1,937, four commercial business loans aggregating $1,153, one construction loan of $246, two home equity loans aggregating $133, and five consumer loans aggregating $19.

At December 31, 2008 and September 30, 2008 the Company had impaired loans with a total recorded investment of $3,205 and $817, respectively. Interest income of $5 was recognized on these impaired loans during the three months ended December 31, 2008. Interest income of approximately $53 was not recognized as interest income due to the non-accrual status of such loans for the three months ended December 31, 2008.

Loans collectively evaluated for impairment include residential real estate, home equity (including lines of credit) and consumer loans and are not included in the data that follow:

	December 31,		September 30,
	2008		2008
Impaired loans with related allowance for loan losses under SFAS No. 114	$	3,205	$	817
Impaired loans with no related allowance for loan losses under SFAS No. 114		—		—
Total impaired loans	$	3,205	$	817
Valuation allowance related to impaired loans	$	664	$	370

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The following is an analysis of the allowance for loan losses:

	Three Months Ended
	December 31,
	2008			2007
Balance beginning of period	$	3,453		$	3,322
Provisions charged to income		75			42
Charge-offs		(229	)		—
Recoveries		1			12
Total	$	3,300		$	3,376

6.	DEPOSITS
	Deposits consist of the following major classifications:

	December 31,					September 30,
	2008					2008
	Amount		Percent			Amount		Percent
Non-interest bearing	$	17,758		5.5	%	$	20,101		6.0	%
NOW		66,188		20.6			70,344		21.3
Passbook		34,726		10.8			34,796		10.5
Money market demand		44,297		13.7			43,572		13.2
Certificates of deposit		159,193		49.4			162,051		49.0
Total	$	322,162		100.0	%	$	330,864		100.0	%

7.	EARNINGS PER SHARE
	Basic net income (loss) per share is based upon the weighted average number of common shares outstanding, while diluted net income (loss) per share is based upon the weighted average number of common shares outstanding and common share equivalents that would arise from the exercise of dilutive securities. All dilutive shares consist of options the exercise price of which is lower than the market price of the common stock covered thereby at the dates presented. At December 31, 2008 and 2007, anti-dilutive shares consisted of options covering 58,566 and 50,956 shares, respectively.
	The calculation of basic and diluted earnings per share (“EPS”) is as follows:

	Three Months Ended
	December 31,
	2008			2007
Numerator	$	(63	)	$	232
Denominators:
Basic shares outstanding		2,323,596			2,314,908
Effect of dilutive securities		—			—
Dilutive shares outstanding		2,323,596			2,314,908
Earnings per share:
Basic	$	(0.03	)	$	0.10
Diluted	$	(0.03	)	$	0.10

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8.	REGULATORY CAPITAL REQUIREMENTS
	The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum regulatory capital requirements can result in certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgments by regulators about components, risk weightings, and other factors.
	Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth below) of tangible and core capital (as defined in the regulations) to adjusted assets (as defined), and of Tier I and total capital (as defined) to average assets (as defined). Management believes, as of December 31, 2008, that the Bank met all regulatory capital adequacy requirements to which it was subject.
	The Bank’s actual capital amounts and ratios are presented in the following table.

						Required for					Well Capitalized
						Capital Adequacy					Under Prompt
	Actual					Purpose					Corrective Action
	Amount		Ratio			Amount		Ratio			Amount		Ratio
At December 31, 2008:
Core Capital (to Adjusted Tangible Assets)	$	44,326		8.50	%	$	20,852		4.0	%	$	26,065		5.0	%
Tier I Capital (to Risk-Weighted Assets)		44,326		14.31			N/A		N/A			18,586		6.0
Total Capital (to Risk-Weighted Assets)		46,976		15.17			24,781		8.0			30,977		10.0
Tangible Capital (to Tangible Assets)		44,262		8.49			7,819		1.5			N/A		N/A
At September 30, 2008:
Core Capital (to Adjusted Tangible Assets)	$	44,234		8.46	%	$	20,911		4.0	%	$	26,139		5.0	%
Tier I Capital (to Risk-Weighted Assets)		44,234		14.02			N/A		N/A			18,935		6.0
Total Capital (to Risk-Weighted Assets)		47,322		14.99			24,247		8.0			31,559		10.0
Tangible Capital (to Tangible Assets)		44,167		8.45			7,841		1.5			N/A		N/A

On February 13, 2006, the Bank entered into a supervisory agreement with the Office of Thrift Supervision (“OTS”). The supervisory agreement requires the Bank, among other things, to maintain minimum core capital and total risk-based capital ratios of 7.5% and 12.5%, respectively. At December 31, 2008, the Bank was in compliance with such requirement. The Bank has been deemed to be “well-capitalized” for purposes of the prompt corrective action regulations by the OTS. However, due to the supervisory agreement, it is still deemed in “troubled condition.”

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9.	RECENT ACCOUNTING PRONOUNCEMENTS
	In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS No. 141(R)”), which establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in an acquiree, including the recognition and measurement of goodwill acquired in a business combination. SFAS No. 141(R) is effective for fiscal years beginning on or after December 15, 2008. Earlier adoption is prohibited. The Company is evaluating the impact of this pronouncement but does not expect that the guidance will have a material effect on the Company’s financial position or results of operations.
	In September 2006, the FASB issued FAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other Post Retirement Plans, an amendment of FASB Statements No. 87, 88, 106 and 132(R). This Statement requires that employers measure plan assets and obligations as of the balance sheet date. This requirement is effective for fiscal years ending after December 15, 2008. The other provisions of the Statement were effective as of the end of the fiscal year ending after December 15, 2006, for public companies. The Company has determined that the guidance provided by SFAS No. 158 does not have an impact on its stockholders’ equity or on the Company’s financial position or results of operations.
	In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51” (“SFAS No. 160”). SFAS No. 160 amends ARB No. 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary, which is sometimes referred to as minority interest, is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. Among other requirements, this statement requires consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the noncontrolling interest. It also requires disclosure, on the face of the consolidated income statement, of the amounts of consolidated net income attributable to the parent and to the noncontrolling interest. SFAS No. 160 is effective for fiscal years beginning on or after December 15, 2008. Earlier adoption is prohibited. The adoption of this standard is not expected to have a material effect on the Company’s results of operations or financial position.
	In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities,” (“SFAS No. 161”) to require enhanced disclosures about derivative instruments and hedging activities. The new standard has revised financial reporting for derivative instruments and hedging activities by requiring more transparency about how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” and how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. SFAS No. 161 requires disclosure of the fair values of derivative instruments and their gains and losses in a tabular format. It also requires entities to provide more information about their liquidity by requiring disclosure of derivative features that are credit risk-related. Further, it requires cross-referencing within footnotes to enable financial statement users to locate important information about derivative instruments. SFAS No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The Company has determined that the adoption of this standard does not have a material effect on the Company’s results of operations or financial position.
	In April 2008, the FASB issued FASB Staff Position No. 142-3, “Determination of the Useful Life of Intangible Assets” (“FSP 142-3”). FSP 142-3 amends the factors that should be considered in developing assumptions about renewal or extension used in estimating the useful life of a recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible Assets.” This standard is intended to improve the consistency between the useful life of a recognized intangible asset under SFAS No. 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS No. 141R and other GAAP. FSP 142-3 is effective for financial statements issued for fiscal years beginning after December 15, 2008. The measurement provisions of this standard will apply only to intangible assets of the Company acquired after the effective date. The Company does not expect the adoption of FSP 142-3 to have a material effect on its results of operations or financial position.
	In February 2007, the FASB issued FSP No. FAS 158-1, Conforming Amendments to the Illustrations in

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FASB Statements No. 87, No. 88, and No. 106 and to the Related Staff Implementation Guides. This FSP provides conforming amendments to the illustrations in FAS Statements No. 87, 88, and 106 and to related staff implementation guides as a result of the issuance of FAS Statement No. 158. The conforming amendments made by this FSP are effective as of the effective dates of Statement No. 158. The unaffected guidance that this FSP codifies into Statements No. 87, 88, and 106 does not contain new requirements and therefore does not require a separate effective date or transition method. The Company is currently evaluating the impact the adoption of the FSP will have on the Company’s results of operations.

In February 2008, the FASB issued FSP No. FAS 140-3, Accounting for Transfers of Financial Assets and Repurchase Financing Transactions. This FSP concludes that a transferor and transferee should not separately account for a transfer of a financial asset and a related repurchase financing unless (a) the two transactions have a valid and distinct business or economic purpose for being entered into separately and (b) the repurchase financing does not result in the initial transferor regaining control over the financial asset. The FSP is effective for financial statements issued for fiscal years beginning on or after November 15, 2008, and interim periods within those fiscal years. The Company is currently evaluating the impact the adoption of the FSP will have on the Company’s results of operations.

In May 2008, the FASB issued FSP No. APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement.) This FSP provides guidance on the accounting for certain types of convertible debt instruments that may be settled in cash upon conversion. Additionally, this FSP specifies that issuers of such instruments should separately account for the liability and equity components in a manner that will reflect the entity’s nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. The FSP is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. The Company is currently evaluating the impact the adoption of the FSP will have on the Company’s results of operations.

In June 2008, the FASB ratified EITF Issue No. 08-4, Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjusted Conversion Ratios. This Issue provides transition guidance for conforming changes made to EITF Issue No. 98-5, Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjusted Conversion Ratios, that resulted from EITF Issue No. 00-27, Application of Issue No. 98-5 to Certain Convertible Instruments, and FAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liability and Equity. The conforming changes are effective for financial statements issued for fiscal years ending after December 15, 2008, with earlier application permitted. The Company is currently evaluating the impact the adoption of the FSP will have on the Company’s results of operations.

In June 2008, the FASB issued FASB Staff Position (“FSP”) No. EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities,” to clarify that instruments granted in share-based payment transactions can be participating securities prior to the requisite service having been rendered. A basic principle of the FSP is that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and are to be included in the computation of EPS pursuant to the two-class method. The provisions of this FSP are effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those years. All prior-period EPS data presented (including interim financial statements, summaries of earnings, and selected financial data) are required to be adjusted retrospectively to conform with the provisions of the FSP. The Company is currently evaluating the impact the adoption of the FSP will have on the Company’s results of operations.

In December 2008, the FASB issued Staff Position No. FAS 132(R)-1, Employers’ Disclosures about Postretirement Benefit Plan Assets. FSP FAS 132(R)-1 requires more detailed disclosures about employers’ plan assets in a defined benefit pension or other postretirement plan, including employers’ investment strategies, major categories of plan assets, concentrations of risk within plan assets, and inputs and valuation techniques used to measure the fair value of plan assets. FSP FAS 132(R)-1 also requires, for fair value measurements using significant unobservable inputs (Level 3), disclosure of the effect of the

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measurements on changes in plan assets for the period. The disclosures about plan assets required by FSP FAS 132(R)-1 must be provided for fiscal years ending after December 15, 2009. As this pronouncement is only disclosure-related, it will not have an impact on the financial position and results of operations.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     In addition to historical information, this Quarterly Report on Form 10-Q includes certain “forward-looking statements” based on management’s current expectations. The Company’s actual results could differ materially, as such term is defined in the Securities Act of 1933 and the Securities Exchange Act of 1934, from management’s expectations. Such forward-looking statements include statements regarding management’s current intentions, beliefs or expectations as well as the assumptions on which such statements are based. These forward-looking statements are subject to significant business, economic and competitive uncertainties and contingencies, many of which are not subject to the Company’s control. Existing stockholders and potential stockholders of the Company are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements. Factors that could cause future results to vary from current management expectations include, but are not limited to, general economic conditions, legislative and regulatory changes, monetary and fiscal policies of the federal government, changes in tax policies, rates and regulations of federal, state and local tax authorities, changes in interest rates, deposit flows, the cost of funds, demand for loan products, demand for financial services, competition, changes in the quality or composition of the Company’s loan and investment portfolios, changes in accounting principles, policies or guidelines, availability and cost of energy resources and other economic, competitive, governmental and technological factors affecting the Company’s operations, markets, products, services and fees.

     The Company undertakes no obligation to update or revise any forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results that occur subsequent to the date such forward-looking statements are made.

General

     The Company is a Pennsylvania corporation and the sole stockholder of the Bank, a federally chartered stock savings bank, which converted to the stock form of organization in January 1995. The Bank is a community-oriented bank emphasizing customer service and convenience. The Bank’s primary business is attracting deposits from the general public and using those funds, together with other available sources of funds, primarily borrowings, to originate loans. The Bank’s management remains focused on its long-term strategic plan to continue to shift the Bank’s loan composition towards increased investment in commercial, construction and home equity loans and lines of credit in order to provide a higher yielding loan portfolio with generally shorter contractual terms. In view of the Company’s implementation of an enhanced credit review and loan administration infrastructure, as well as underwriting standards with respect to the origination of commercial loans, the Company has begun to prudently renew its emphasis on the origination of commercial loans. In furtherance of such goal, the Company recently engaged an experienced commercial loan officer and a commercial business development officer. However, in light of current economic conditions and the Company’s overriding goal of protecting its asset quality, it is expected that growth of the commercial loan portfolio will be slow for the foreseeable future.

Critical Accounting Policies

     Accounting policies involving significant judgments and assumptions by management, which have, or could have, a material impact on the carrying value of certain assets or comprehensive income, are considered critical accounting policies. In management’s opinion, the most critical accounting policy affecting the Company’s financial statements is the evaluation of the allowance for loan losses. The Company maintains an allowance for loan losses at a level management believes is sufficient to provide for known and inherent losses in the loan portfolio that are both probable and reasonable to estimate. The allowance for loan losses is considered a critical accounting estimate because there is a large degree of judgment in (i) assigning individual loans to specific risk levels (pass, substandard, doubtful and loss), (ii) valuing the underlying collateral securing the loans, (iii) determining the appropriate reserve factor to be applied to specific risk levels for criticized and classified loans (special mention, substandard, doubtful

- 16 -

and loss) and (iv) determining reserve factors to be applied to pass loans based upon loan type. Accordingly, there is a likelihood that materially different amounts would be reported under different, but reasonably plausible conditions or assumptions.

     The determination of the allowance for loan losses requires management to make significant estimates with respect to the amounts and timing of losses and market and economic conditions. Accordingly, a decline in the economy could increase loan delinquencies, foreclosures or repossessions resulting in increased charge-off amounts and the need for additional loan loss allowances in future periods. The Bank will continue to monitor and adjust its allowance for loan losses through the provision for loan losses as economic conditions and other factors dictate. Management reviews the allowance for loan losses generally on a monthly basis, but at a minimum at least quarterly. Although the Bank maintains its allowance for loan losses at levels considered adequate to provide for the inherent risk of loss in its loan portfolio, there can be no assurance that future losses will not exceed estimated amounts or that additional provisions for loan losses will not be required in future periods. In addition, the Bank’s determination as to the amount of its allowance for loan losses is subject to review by its primary federal banking regulator, the OTS, as part of its examination process, which may result in additional provisions to increase the allowance based upon the judgment and review of the OTS.

Supervisory Agreements

     On February 13, 2006, the Company and the Bank each entered into a supervisory agreement with the OTS which primarily addressed issues identified in the OTS’ reports of examination of the Company’s and the Bank’s operations and financial condition conducted in 2005.

     Under the terms of the supervisory agreement between the Company and the OTS, the Company agreed to, among other things, (i) develop and implement a three-year capital plan designed to support the Company’s efforts to maintain prudent levels of capital and to reduce its debt-to-equity ratio below 50%; (ii) not incur any additional debt without the prior written approval of the OTS; and (iii) not repurchase any shares of or pay any cash dividends on its common stock until the Company complied with certain conditions. Upon reducing its debt-to-equity below 50%, the Company may resume the payment of quarterly cash dividends at the lesser of the dividend rate in effect immediately prior to entering into the supervisory agreement ($0.11 per share) or 35% of its consolidated net income (on an annualized basis), provided that the OTS, upon review of prior written notice from the Company of the proposed dividend, does not object to such payment.

     The Company submitted to and received from the OTS approval of a capital plan, which called for an equity infusion in order to reduce the Company’s debt-to-equity ratio below 50%. As part of its capital plan, the Company conducted a private placement of 400,000 shares of common stock, raising gross proceeds of approximately $6.5 million. In June 2007, the net proceeds of approximately $5.8 million were used to reduce the amount of the Company’s outstanding debt through the redemption of $6.2 million of its junior subordinated debentures. As a result of such redemption, the Company’s debt-to-equity ratio is less than 50%. Although the Company’s debt-to-equity ratio is below 50%, it does not anticipate resuming the payment of dividends until such time as the Company’s operating results materially improve. During the quarter ended June 30, 2008, the Company redeemed the remaining $2.1 million of its floating rate junior subordinated debentures. In addition, the Company purchased $1.5 million of the $16.2 million of 9.7% fixed-rate trust preferred securities issued by First Keystone Capital Trust I. As a result, as of December 31, 2008 the Company held $5.0 million of such securities.

     Under the terms of the supervisory agreement between the Bank and the OTS, the Bank agreed to, among other things, (i) not grow in any quarter in excess of the greater of 3% of total assets (on an annualized basis) or net interest credited on deposit liabilities during such quarter; (ii) maintain its core capital and total risk-based capital in excess of 7.5% and 12.5%, respectively; (iii) adopt revised policies and procedures governing commercial lending; (iv) conduct periodic reviews of its commercial loan department; (v) conduct periodic internal loan reviews; (vi) adopt a revised asset classification policy and (vii) not amend, renew or enter compensatory arrangements with senior executive officers and directors, subject to certain exceptions, without the prior approval of the OTS. As a result of the growth restriction imposed on the Bank, the Company’s growth is currently and will continue to be substantially constrained unless and until the supervisory agreements are terminated or modified. As of March 31, 2006 and June 30, 2006, the Bank exceeded the growth limitation contained in the supervisory agreement with the OTS described above. Subsequent to June 30, 2006, the Bank reduced its assets sufficiently to be below the June

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30, 2006 limitation. The OTS advised the Bank that it would not take any regulatory action against the Bank provided it was in compliance with the growth limitation as of September 30, 2006. The Bank has continued to comply with the growth restriction as of each quarter since and including September 30, 2006.

     As a result of the supervisory agreement, the Bank hired a Chief Credit Officer (who was promoted to Chief Lending Officer during the third quarter of fiscal 2008) who, under the direction of the Board and the Chief Executive Officer, has taken steps to enhance the Bank’s credit review analysis, develop loan administrative procedures and adopt an asset classification system. The Bank continues to address these areas and to reduce the level of classified and criticized assets in order to remain in full compliance with the terms of the supervisory agreements. At December 31, 2008, the Company believes it and the Bank are in compliance with all the operative provisions of both supervisory agreements.

Comparison of Financial Condition at December 31, 2008 and September 30, 2008

     The Company’s total assets decreased by $223,000 from $522.1 million at September 30, 2008 to $521.8 million at December 31, 2008. Cash and cash equivalents increased by $22.0 million to $61.3 million at December 31, 2008 from $39.3 million at September 30, 2008 primarily due to sales of mortgage-related and investment securities available for sale and, to a lesser extent, loan repayments. Loans receivable decreased by $2.3 million, from $286.1 million at September 30, 2008 to $283.8 million at December 31, 2008 primarily as a result of the Company’s experiencing repayments which outpaced originations within the single-family residential mortgage and construction loan portfolios. Deposits decreased $8.7 million, or 2.6%, from $330.9 million at September 30, 2008 to $322.2 million at December 31, 2008. The decrease in deposits resulted from a $4.2 million, or 5.9%, decrease in NOW accounts, a $2.3 million, or 11.7%, decrease in non-interest bearing deposits, and a $2.9 million, or 1.8% decrease in certificates of deposit. The decline in certificates of deposit was primarily due to the runoff of certificates of deposit bearing higher than market rates that would have been renewed at lower rates, as part of the Company’s management of its cost of funds, had the certificates renewed at the Bank upon their maturity.

Stockholders’ equity increased $935,000 from $32.3 million at September 30, 2008 to $33.2 million at December 31, 2008, primarily due to a $976,000 decrease in accumulated other comprehensive loss partially offset by a net loss of $63,000 for the three months ended December 31, 2008. The decline in accumulated other comprehensive loss reflected in large part the increase in the fair market values of certain of the Company’s available for sale mortgage-related securities portfolio.

Comparison of Results of Operations for the Three Months Ended December 31, 2008 and 2007

Net Income (Loss). Net loss was $63,000, or $.03 per diluted share, for the quarter ended December 31, 2008 as compared to net income of $232,000, or $.10 per diluted share, for the same period in 2007.

Net Interest Income. Net interest income increased $355,000, or 14.4%, to $2.8 million for the three months ended December 31, 2008, as compared to the same period in 2007. The increase in net interest income for the three months ended December 31, 2008 was primarily due to a decrease in interest expense of $867,000, or 20.3%, partially offset by a decrease in interest income of $512,000, or 7.6%, as compared to the same period in 2007. The weighted average yield earned on interest-earning assets for the three months ended December 31, 2008 decreased 47 basis points to 5.42% compared to the same period in 2007. For the three months ended December 31, 2008, the weighted average rate paid on interest-bearing liabilities decreased 81 basis points to 2.99% from 3.80% for the same period in the prior fiscal year.

     The interest rate spread and net interest margin were 2.43% and 2.46%, respectively, for the three months ended December 31, 2008 as compared to 2.10% and 2.16%, respectively, for the same period in 2007. The slightly smaller increase in the net interest margin, as compared to the increase in spread for the quarter to quarter comparison, was primarily due to the relative shift in net interest-earning assets.

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     The following tables present the average balances for various categories of assets and liabilities, and income and expense related to those assets and liabilities for the three months ended December 31, 2008 and 2007.

	For the three months ended
	December 31, 2008							December 31, 2007
					Average							Average
	Average				Yield/			Average				Yield/
(Dollars in thousands)	Balance		Interest		Cost			Balance		Interest		Cost
Interest-earning assets:
Loans receivable(1)	$	286,042	$	4,260		5.96	%	$	286,475	$	4,671		6.52	%
Mortgage-related securities(2)		123,230		1,553		5.04			114,775		1,380		4.81
Investment securities(2)		33,917		395		4.66			38,034		523		5.50
Other interest-earning assets		16,182		16		0.40			17,806		162		3.64
Total interest-earning assets		459,371		6,224		5.42			457,090		6,736		5.90
Non-interest-earning assets		34,635							34,602
Total assets	$	494,006						$	491,692
Interest-bearing liabilities:
Deposits	$	322,433		1,727		2.14		$	347,017		2,678		3.09
FHLB advances and other borrowings		120,791		1,390		4.60			87,704		1,225		5.59
Junior subordinated debentures		11,639		286		9.83			15,264		367		9.64
Total interest-bearing liabilities		455,043		3,403		2.99			449,985		4,270		3.80
Interest rate spread(3)						2.43	%						2.10	%
Non-interest-bearing liabilities		7,026							6,671
Total liabilities		462,069							456,656
Stockholders’ equity		31,937							35,036
Total liabilities and stockholders’ equity	$	494,006						$	491,692
Net interest-earning assets	$	4,328						$	7,105
Net interest income			$	2,821						$	2,466
Net interest margin(3)						2.46	%						2.16	%
Ratio of average interest-earning assets to average interest-bearing liabilities						100.95	%						101.58	%

(1)	Includes non-accrual loans.
(2)	Includes assets classified as either available for sale or held to maturity.
(3)	Net interest income divided by average interest-earning assets.

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Provision for Loan Losses. Provisions for loan losses are charged to earnings to maintain the total allowance for loan losses at a level believed by management sufficient to cover all known and inherent losses in the loan portfolio which are both probable and reasonably estimable. Management’s analysis includes consideration of the Company’s historical experience, the volume and type of lending conducted by the Company, the amount of the Company’s classified and criticized 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 portfolio. For the three months ended December 31, 2008 as compared to the three months ended December 31, 2007, the provision for loan loss increased $33,000 to $75,000. For the three months ended December 31, 2008, the provision for loan loss was based on the Company’s monthly review of the credit quality of its loan portfolio and the continual evaluation of the classified and pass loan portfolios in order to maintain the overall allowance for loan losses at a level deemed appropriate. The increase in the level of the provision reflected the increase in non-performing and classified assets.

     At December 31, 2008, non-performing assets increased $1.4 million to $3.8 million, or 0.73%, of total assets, from $2.4 million, or 0.46% of total assets at September 30, 2008. This increase was primarily the result of an increase in non-accrual loans of $2.8 million, comprised of four commercial real estate loans aggregating $1.9 million, two commercial business loans aggregating $232,000, two home equity loans aggregating $133,000, one single-family residential mortgage of $186,000 and one construction loan of $246,000. The increase was partially offset by returns to performing status of three construction loans aggregating $705,000, four commercial business loans aggregating $227,000 and two single-family residential mortgages aggregating $158,000, all of which had been previously classified as over 90 days past due. The Company’s coverage ratio, which is the ratio of the allowance for loan losses to non-performing loans, was 86.6% and 142.7% at December 31, 2008 and September 30, 2008, respectively. In addition, loans 30 to 89 days delinquent increased $767,000, from $3.1 million at September 30, 2008 to $3.8 million at December 31, 2008. The increase was primarily the result of a $2.5 million increase in commercial mortgage loans 30 to 89 days delinquent which was partially offset by the return to current status of $2.0 million of construction loans that had been 30 to 89 days delinquent at September 30, 2008.

     At December 31, 2008, the Bank’s classified assets increased by $1.5 million to $13.4 million compared to $11.9 million at September 30, 2008. At December 31, 2008, classified assets were comprised of substandard commercial business and real estate loans aggregating $12.6 million, a $550,000 corporate bond rated below investment grade and a $227,000 commercial business loan classified as doubtful.

     Management continues 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.

Non-interest Income. For the quarter ended December 31, 2008, non-interest income decreased $329,000 to $433,000 as compared to the same period last year. The decrease was primarily due to the previously mentioned $423,000 non-cash impairment charge related to the determination that the decline in value of the Company’s $3.7 million investment in a mutual fund was other than temporary. In addition, during the quarter ending December 31, 2008, the Company executed a redemption-in-kind on its $3.5 million investment in another mutual fund, which resulted in a pre-tax loss of $53,000. Partially offsetting the decrease was an increase of $121,000 in the gain on sale of investment and mortgage-related securities.

Non-interest Expense. Non-interest expense increased $208,000 to $3.1 million for the quarter ended December 31, 2008 as compared to the same period last year. The increase for the quarter ended December 31, 2008 was primarily due to increases of $79,000, $30,000, $59,000 and $42,000 in professional fees, advertising, federal deposit insurance and salaries and employee benefits, respectively.

Income Tax Expense. The Company’s income tax expense increased $80,000 to $93,000 for the quarter ended December 31, 2008, as compared to the same period last year. The increase was the result of an increase in taxable income for the quarter ended December 31, 2008 as compared to the same period last year. Although the income before income tax expense for the quarter ended December 31, 2008 was $30,000, as compared to $245,000 for the same period last year, the results of operations for the quarter ended December 31, 2008 included a capital loss related to the other-than-temporary impairment charge recorded on the Company’s investment in a mutual fund, and, as such, does not reduce ordinary taxable income.

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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, prepayments and maturities of outstanding loans and mortgage-related securities, sales of loans, maturities of investment securities and other short-term investments, borrowings 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 and mortgage-related securities 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 the ability to obtain advances from the FHLBank Pittsburgh through several credit programs with the FHLB in amounts not to exceed the Bank’s maximum borrowing capacity and subject to certain conditions, including holding a predetermined amount of FHLB stock as collateral. As an additional source of funds, the Company has access to the FRB discount window, but only after it has exhausted its access to the FHLB. At December 31, 2008, the Company had $102.7 million of outstanding advances and $38.4 million of overnight borrowings from the FHLBank Pittsburgh. The Bank currently has the ability to obtain up to $55.0 million of additional advances from the FHLBank 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 fund maturing certificates of deposit and savings withdrawals, fund loan commitments and maintain a portfolio of mortgage-related and investment securities. At December 31, 2008, total approved loan commitments outstanding amounted to $722,000, not including $9.0 million in loans in process. At the same date, commitments under unused lines of credit amounted to $42.0 million. Certificates of deposit scheduled to mature in one year or less at December 31, 2008 totaled $120.3 million. Based upon the Company’s historical experience, management believes that a significant portion of maturing deposits will remain with the Company.

     The Bank is required under applicable federal banking 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 (or risk-based) equal to at least 8.0% of its risk-weighted assets. At December 31, 2008, the Bank had tangible capital and core capital equal to 8.5% of adjusted total assets and total capital equal to 15.2% of risk-weighted assets. However, as a result of the supervisory agreement discussed in Item 2 of Part I hereof, the Bank is required to maintain core and risk-based capital in excess of 7.5% and 12.5%, respectively. The Bank is in compliance with such higher requirements imposed by the supervisory agreement.

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.

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

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the year ended September 30, 2008.

     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 up to 300 basis points, and a decline of 100 basis points.

     The interest rate risk measures 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 sets forth the Bank’s NPV as of December 31, 2008.

Net Portfolio Value
(Dollars in thousands)
Changes in									Net
Rates in			Dollar			Percentage			Portfolio Value As
Basis Points	Amount		Change			Change			a % of Assets			Change
300	$	36,349	$	(12,966	)		(26	)%		7.06	%	(213) bp
200		42,492		(6,853	)		(14	)		8.11		(108) bp
100		46,938		(2,407	)		( 5	)		8.84		(35) bp
50		48,249		(1,096	)		(2	)		9.03		(16) bp
0		49,345		—			—			9.19		—  bp
(50)		49,067		(278	)		(1	)		9.11		(8) bp
(100)		48,603		(742	)		(2	)		9.01		(18) bp

     As of December 31, 2008, the Company’s NPV was $49.3 million or 9.19% of the market value of assets. Following a 200 basis point increase in interest rates, the Company’s “post shock” NPV would be $42.5 million or 8.11% of the market value of assets. The change in the NPV ratio or the Company’s sensitivity measure was a decline of 108 basis points.

     As of September 30, 2008, the Company’s NPV was $59.4 million or 11.02% of the market value of assets. Following a 200 basis point increase in interest rates, the Company’s “post shock” NPV would be $46.0 million or 8.84% of the market value of assets. The change in the NPV ratio or the Company’s sensitivity measure was a decline of 218 basis points.

Item 4T. Controls and Procedures

     Our management evaluated, with the participation of our Chief Executive Officer (who also currently serves as our principal financial officer), the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based on such evaluation, our Chief Executive Officer has concluded that our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and regulations and (ii) accumulated and communicated to management, including the Chief Executive

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Officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure and that such disclosure controls and procedures are operating in an effective manner.

     No change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) occurred during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II

Item 1. Legal Proceedings

No material changes have occurred in the legal proceedings previously disclosed in Item 3 of the Company’s Form 10-K for the fiscal year ended September 30, 2008.

Item 1A. Risk Factors

There were no material changes from the risk factors described in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2008.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(a) — (b) Not applicable.

(c) Not applicable. No shares were repurchased by the Company during the quarter.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Submission of Matters to a Vote of Security Holders

Not applicable

Item 5. Other Information

(a) Not applicable

(b) No changes in procedures.

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Item 6. Exhibits

List of Exhibits

Exhibit
No	Description
3.1	Amended and Restated Articles of Incorporation of First Keystone Financial, Inc. 1
3.2	Amended and Restated Bylaws of First Keystone Financial, Inc. 1
4.1	Specimen Stock Certificate of First Keystone Financial, Inc. 2
4.2	Instrument defining the rights of security holders **
10.1	Form of Amended and Restated Severance Agreement between First Keystone Financial, Inc. and Carol Walsh 3,*
10.2	Amended and Restated 1995 Stock Option Plan 3, *
10.3	Amended and Restated 1995 Recognition and Retention Plan and Trust Agreement 3,*
10.4	Amended and Restated 1998 Stock Option Plan 3, *
10.5	Form of Amended and Restated Severance Agreement between First Keystone Bank and Carol Walsh 3, *
10.6	Amended and Restated First Keystone Bank Supplemental Executive Retirement Plan 4,*
10.7	Form of Amended and Restated Transition, Consulting, Noncompetition and Retirement Agreement by and between First Keystone Financial, Inc., First Keystone Bank and Donald S. Guthrie 3,*
10.8	Severance and Release Agreement by and among First Keystone Financial, Inc., First Keystone Bank and Thomas M. Kelly 5,*
10.9	Letter dated December 11, 2006 with respect to appointment to Board 6
10.10	Form of Registration Rights Agreement 7
11	Statement re: computation of per share earnings. See Note 2 to the Consolidated Financial Statements included in Item 8 hereof.
31.1	Section 302 Certification of Chief Executive Officer
31.2	Section 302 Certification of Chief Financial Officer
32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.2	Supervisory Agreement between First Keystone Financial, Inc. and the Office of Thrift Supervision dated February 13, 2006. 8
99.3	Supervisory Agreement between First Keystone Bank and the Office of Thrift Supervision dated February 13, 2006. 8

(1)	Incorporated by reference from Exhibit 3.1(with respect to the Articles) and Exhibit 3.2 (with respect to the Bylaws) on Form 8-K filed by the Registrant with the SEC on February 12, 2008.
(2)	Incorporated by reference from the Registration Statement on Form S-1 (Registration No. 33-84824) filed by the Registrant with the SEC on October 6, 1994, as amended.
(4)	Incorporated by reference from Exhibit 10.1 in the Form 8-K filed by the Registrant with SEC on July 2, 2007 (File No. 000-25328).
(5)	Incorporated by reference from Exhibit 10.1 in the Form 8-K filed by the Registrant with the SEC on August 19, 2008.
(6)	Incorporated by reference from Exhibit 10.1 in the Form 8-K filed by the Registrant with the SEC on December 20, 2006.

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(7)	Incorporated by reference from the Form 10-K filed by the Registrant with the SEC on December 29, 2006
(8)	Incorporated by reference from the Form 10-Q for the quarter ended December 31, 2005 filed by the Registrant with the SEC on February 14, 2006.
(*)	Consists of a management contract or compensatory plan
(**)	The Company has no instruments defining the rights of holders of long-term debt where the amount of securities authorized under such instrument exceeds 10% of the total assets of the Company and its subsidiaries on a consolidated basis. The Company hereby agrees to furnish a copy of any such instrument to the SEC upon request.

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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 17, 2009	By:	/s/ Hugh J. Garchinsky
		Hugh J. Garchinsky
		President and Chief Executive Officer (principal executive officer and principal financial officer)

- 27 -

EX-31.1

EXHIBIT 31.1

CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
PURSUANT TO RULES 13a-14 AND 15d-14 OF THE SECURITIES EXCHANGE ACT OF
1934 AND SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

     I, Hugh J. Garchinsky certify that:

1.	I have reviewed this quarterly report on Form 10-Q of First Keystone Financial, Inc. (the “Registrant”);
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
4.	The Registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Registrant and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)	Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)	Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5. The Registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of Registrant’s board of directors (or persons performing the equivalent functions):

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

Date: February 17, 2009	/s/ Hugh J. Garchinsky
	Hugh J. Garchinsky
	President and Chief Executive Officer

- 28 -

EX-31.2

EXHIBIT 31.2

CERTIFICATION OF THE PRINCIPAL FINANCIAL OFFICER
PURSUANT TO RULES 13a-14 AND 15d-14 OF THE SECURITIES EXCHANGE ACT
OF 1934 AND SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

     I, Hugh J. Garchinsky, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of First Keystone Financial, Inc. (the “Registrant”);
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
4.	The Registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Registrant and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)	Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)	Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5. The Registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of Registrant’s board of directors (or persons performing the equivalent functions):

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

Date: February 17, 2009	/s/ Hugh J. Garchinsky
	Hugh J. Garchinsky
	Principal Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE AND PRINCIPAL FINANCIAL OFFICER
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)

     The undersigned Chief Executive Officer and Principal Financial Officer of First Keystone Financial, Inc. (the “Registrant”) hereby certifies that the Registrant’s Form 10-Q for the quarter ended June 30, 2008 fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that the information contained therein fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

/s/ Hugh J. Garchinsky
Name: Hugh J. Garchinsky
Title: President and Chief Executive Officer
	Principal Executive and Principal Financial Officer

Date: February 17, 2009

A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act has been provided to First Keystone Financial, Inc. and will be retained by First Keystone Financial, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.