<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-QSB

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

         For the quarterly period ended December 31, 1997

                                       OR

[   ]    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
         SECURITIES EXCHANGE ACT OF 1934

             For the transition period from .......... to ..........

                         Commission File Number: 0-25328

                         FIRST KEYSTONE FINANCIAL, INC.
             (Exact name of registrant as specified in its charter)

          Pennsylvania                                         23-0469351
  (State or other jurisdiction                              (I.R.S. Employer
of incorporation or organization)                         Identification Number)

         22 West State Street
         Media, Pennsylvania                                            19063
(Address of principal executive office)                               (Zip Code)

       Registrant's telephone number, including area code: (610) 565-6210

Indicate by check mark whether the Registrant (1) has filed all reports required
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports) and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No [ ]

Number of shares of Common Stock outstanding as of February 6, 1998:  2,412,838

Transitional Small Business Disclosure Format        Yes [ ]      No   [X]

<PAGE>   2
                         FIRST KEYSTONE FINANCIAL, INC.

                                    CONTENTS

<TABLE>
<CAPTION>
                                                                                                         PAGE
                                                                                                         ----
<S>                                                                                                      <C>
PART I                 FINANCIAL INFORMATION:

     Item 1.    Financial Statements

                Consolidated Statements of Financial Condition as of
                December 31, 1997 (Unaudited) and September 30, 1997 ............................         1

                Consolidated Statements of Income for the Three
                Months Ended December 31, 1997 and 1996 (Unaudited)..............................         2

                Consolidated Statement of Changes in Stockholders' Equity for the Three
                Months Ended December 31, 1997 (Unaudited).......................................         3

                Consolidated Statements of Cash Flows for the Three Months
                Ended December 31, 1997 and 1996 (Unaudited).....................................         4

                Notes to Consolidated Financial Statements (Unaudited)...........................         5

     Item 2.    Managements's Discussion and Analysis of Financial Condition and
                Results of Operations............................................................         9

PART II         OTHER INFORMATION

     Item 1.    Legal Proceedings...............................................................         12

     Item 2.    Changes in Securities...........................................................         12

     Item 3.    Defaults Upon Senior Securities.................................................         12

     Item 4.    Submission of Matters to a Vote of Security Holders............................          12

     Item 5.    Other Information...............................................................         12

     Item 6.    Exhibits and Reports on Form 8-K................................................         12

SIGNATURES......................................................................................         13
</TABLE>

                                        i
<PAGE>   3
FIRST KEYSTONE FINANCIAL, INC.


CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(dollars in thousands)

<TABLE>
<CAPTION>
                                                                                       December 31    September 30
ASSETS                                                                                    1997            1997
------                                                                              ------------------------------
                                                                                       (Unaudited)
<S>                                                                                    <C>              <C>
Cash and amounts due from depository institutions                                      $   2,736         $   1,832
Interest-bearing deposits with depository institutions                                    13,697            19,729
                                                                                         -------            ------
        Total cash and cash equivalents                                                   16,433            21,561
Investment securities available for sale                                                  19,604            10,211
Mortgage-related securities available for sale                                           100,498           104,472
Loans held for sale                                                                        6,165             4,577
Investment securities held to maturity - at cost 
         (approximate fair value of
         $8,980 at December 31, 1997
          and $9,960 at September 30, 1997)                                                9,000            10,000
Mortgage-related securities held to maturity - at amortized cost
         (approximate fair value of $22,600 at December 31, 1997
          and $20,200 at September 30, 1997)                                              22,970            20,707
Loans receivable - net                                                                   189,885           188,289
Accrued interest receivable                                                                2,756             2,565
Real estate owned                                                                          1,804             1,672
Federal Home Loan Bank stock - at cost                                                     3,808             3,769
Office properties and equipment - net                                                      2,645             2,552
Deferred income taxes                                                                        510               680
Prepaid expenses and other assets                                                          2,449             2,375
                                                                                         -------            ------

TOTAL ASSETS                                                                            $378,527          $373,430
                                                                                        ========          ========

LIABILITIES, MINORITY INTEREST IN SUBSIDIARIES AND STOCKHOLDERS' EQUITY

Liabilities:

        Deposits                                                                        $230,355          $227,918
        Advances from Federal Home Loan Bank                                              76,160            75,387
        Securities sold under agreements to repurchase                                    24,600            24,600
        Accrued interest payable                                                           1,312             1,575
        Advances from borrowers for taxes and insurance                                    1,973               913
        Accounts payable and accrued expenses                                              2,877             2,085
                                                                                         -------           -------

                    Total liabilities                                                    337,277           332,478
                                                                                         -------           -------
        Guaranteed preferred beneficial interest in
           subordinated debt                                                              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: 2,412,838 shares at December 31, 1997
           and 2,456,838 shares at  September 30, 1997                                        14                14
        Additional paid-in capital                                                        12,972            12,896
        Common stock acquired by stock benefit plans                                      (1,977)           (2,038)
        Treasury stock at cost; 307,162 shares                                            (3,260)           (2,545)
        Unrealized gain on available for sale securities - net of tax                        733               408
        Retained earnings - partially restricted                                          16,568            16,017
                                                                                         -------           -------

                    Total stockholders' equity                                            25,050            24,752
                                                                                         -------           -------

TOTAL LIABILITIES, MINORITY INTEREST IN SUBSIDIARIES AND STOCKHOLDERS' EQUITY           $378,527          $373,430
                                                                                        ========          ========
</TABLE>

See notes to consolidated financial statements.

                                        1

<PAGE>   4
FIRST KEYSTONE FINANCIAL, INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(dollars in thousands, except per share data)

<TABLE>
<CAPTION>
                                                                                          Three months ended
                                                                                              December 31
                                                                                         ---------------------
                                                                                           1997         1996
<S>                                                                                       <C>          <C>
INTEREST INCOME:
    Interest on:
        Loans                                                                              $4,086       $3,501
        Mortgage-related securities                                                         2,066        1,433
        Investments                                                                           446          303
        Interest-bearing deposits                                                             164           68
                                                                                            -----        -----

                    Total interest income                                                   6,762        5,305
                                                                                            -----       ------

INTEREST EXPENSE:
    Interest on:
        Deposits                                                                            2,433        2,227
        Federal Home Loan Bank advances                                                     1,019          702
        Other borrowings                                                                      375           
                                                                                            -----       ------ 

                    Total interest expense                                                  3,827        2,929
                                                                                            -----       ------

NET INTEREST INCOME                                                                         2,935        2,376

PROVISION FOR LOAN LOSSES                                                                      75           56
                                                                                             ----      -------

NET INTEREST INCOME AFTER PROVISION
    FOR LOAN LOSSES                                                                         2,860        2,320
                                                                                            -----       ------

OTHER INCOME (LOSS):
    Service charges and other fees                                                            242          250
    Net gain on sale of:
        Loans                                                                                 128           57
        Real estate owned                                                                                    8
    Real estate operations                                                                     (3)          (6)
    Other income                                                                               18            8
                                                                                             ----       ------

                    Total other income                                                        385          317
                                                                                             ----      -------

OPERATING EXPENSES:
    Salaries and employee benefits                                                            864          755
    Occupancy and equipment expenses                                                          236          214
    Professional fees                                                                         152          154
    Federal deposit insurance premium                                                          36          100
    Bank service charges                                                                      102           95
    Data processing                                                                            81           82
    Advertising                                                                                82           61
    Minority interest in expense of subsidiaries                                              393
    Other                                                                                     209          177
                                                                                             ----      -------

                    Total operating expenses                                                2,155        1,638
                                                                                            -----      -------

INCOME BEFORE INCOME TAX EXPENSE                                                            1,090          999

INCOME TAX EXPENSE                                                                            418          384
                                                                                             ----       ------

NET INCOME                                                                                   $672      $   615
                                                                                          =======      =======

DILUTED EARNINGS PER COMMON SHARE                                                           $0.29      $  0.26
                                                                                          =======      =======
</TABLE>

See notes to consolidated financial statements.

                                        2

<PAGE>   5
FIRST KEYSTONE FINANCIAL, INC. AND SUBSIDIARIES


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

<TABLE>
<CAPTION>
                                                                            Common                               Unrealized gain
                                                                            stock                               on mortgage-related
                                                            Additional    acquired by                               securities
                                                 Common      paid-in     stock benefit        Treasury           available for sale
                                                 stock       capital         plans             stock                (net of tax)
                                                --------    --------     -------------        --------          -------------------

<S>                  >                          <C>         <C>          <C>                  <C>               <C>
BALANCE AT SEPTEMBER 30, 1997                   $     14    $ 12,896       $ (2,038)          $ (2,545)            $    408

     ESOP stock committed
         to be released                                                          26
     Excess of fair value
         above cost of ESOP
         stock committed
         to be released                                           76
     RRP amortization                                                            35
     Dividends - $.05 per share
     Net unrealized gain on
         securities available for
         sale, net of tax                                                                                               325
     Purchase of treasury stock                                                                   (715)
     Net income
                                                --------    --------       --------           --------              --------

BALANCE AT DECEMBER 31, 1997                    $     14    $ 12,972       $ (1,977)          $ (3,260)             $   733
                                                ========    ========       ========           ========             ========

<CAPTION>


                                                                 Total
                                                  Retained    stockholders'
                                                  earnings       equity
                                                  --------    -------------

<S>                                               <C>          <C>
BALANCE AT SEPTEMBER 30, 1997                      $ 16,017      $ 24,752

     ESOP stock committed
         to be released                                                26
     Excess of fair value
         above cost of ESOP
         stock committed
         to be released                                                76
     RRP amortization                                                  35
     Dividends - $.05 per share                        (121)         (121)
     Net unrealized gain on
         securities available for
         sale, net of tax                                             325
     Purchase of treasury stock                                      (715)
     Net income                                         672           672
                                                   --------      --------

BALANCE AT DECEMBER 31, 1997                        $16,568      $ 25,050
                                                   ========      ========

                                        3
</TABLE>
<PAGE>   6
FIRST KEYSTONE FINANCIAL, INC.


CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(dollars in thousands)

<TABLE>
<CAPTION>
                                                                                               Three months ended
                                                                                                 December 31
                                                                                           -------------------------
                                                                                             1997             1996
<S>                                                                                        <C>              <C>
OPERATING ACTIVITIES:
Net income                                                                                 $    672         $    615
    Adjustments to reconcile net income to net
        cash provided by (used in) operating activities:
           Provision for depreciation and amortization                                          108               92
           Amortization of premiums                                                             (91)            (244)
           Gain on sales of loans                                                              (128)             (57)
           Gain on sales of real estate owned                                                                     (8)
           Provision for loan losses                                                             75               56
           Amortization of stock benefit plans                                                  137               87
    Changes in assets and liabilities which provided (used) cash:
           Origination of loans held for sale                                               (19,470)          (8,116)
           Loans sold in the secondary market                                                17,882            7,459
           Deferred income taxes                                                                (17)               3
           Accrued interest receivable                                                         (191)              83
           Prepaid expenses and other assets                                                    (74)             203
           Accrued interest payable                                                            (263)            (216)
           Accrued expenses                                                                     792             (441)
                                                                                           --------         --------
                Net cash used in operating activities                                          (568)            (484)
                                                                                           --------         --------

INVESTING ACTIVITIES:
    Loans originated or acquired                                                            (12,263)         (16,730)
    Purchases of:
        Mortgage-related securities available for sale                                                       (10,153)
        Investment securities available for sale                                            (10,352)
        Mortgage-related securities held to maturity                                         (2,687)
        Investment securities held to maturity                                               (2,000)
    Purchase of FHLB stock                                                                      (39)            (649)
    Proceeds from sales of real estate owned                                                    611              434
    Principal collected on loans                                                             10,725           10,652
    Proceeds from maturities, calls, or repayments of:
        Investment securities available for sale                                              1,070            1,000
        Mortgage-related securities available for sale                                        4,278            2,047
        Investment securities held to maturity                                                3,000
        Mortgage-related securities held to maturity                                            474              597
    Purchase of property and equipment                                                         (201)              (7)
    Net expenditures on real estate acquired through foreclosure and in development            (610)            (286)
                                                                                           --------         --------
                Net cash used in investing activities                                        (7,994)         (13,095)
                                                                                           --------         --------

FINANCING ACTIVITIES:
    Net increase in deposit accounts                                                          2,437            2,968
    Net proceeds from FHLB advances                                                             773           12,975
    Net increase in advances from borrowers for taxes and insurance                           1,060              954
    Common stock acquired by stock benefit plans                                                                (756)
    Purchase of treasury stock                                                                 (715)
    Cash dividend                                                                              (121)             (66)
                                                                                           --------         --------
                Net cash provided by financing activities                                     3,434           16,075
                                                                                           --------         --------

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                             (5,128)           2,496
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                             21,561           11,694
                                                                                           --------         --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD                                                 $ 16,433         $ 14,190
                                                                                           ========         ========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
    Cash payments for interest on deposits and borrowings                                  $  4,090         $  3,150
    Transfers of loans receivable into real estate owned                                        143              193
    Cash payment of income taxes                                                                                  30
</TABLE>

See notes to consolidated financial statements.

                                        4
<PAGE>   7
FIRST KEYSTONE FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1997 (UNAUDITED)
AND SEPTEMBER 30, 1997 AND (UNAUDITED) FOR THE THREE MONTHS ENDED DECEMBER 31,
1997 AND 1996 (dollars in thousands, except per share amounts)

1.       BASIS OF PRESENTATION

         The accompanying consolidated financial statements have been prepared
         in accordance with instructions to Form 10-QSB. Accordingly, they do
         not include all of the information and footnotes required by generally
         accepted accounting principles for complete financial statements.
         However, such information reflects all adjustments (consisting solely
         of normal recurring adjustments) which are, in the opinion of
         management, necessary for a fair statement of results for the unaudited
         interim periods.

         The results of operations of the three month period ended December 31,
         1997 are not necessarily indicative of the results to be expected for
         the fiscal year ending September 30, 1998. 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, 1997.

         Certain information in this quarterly statement may constitute
         forward-looking information 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 and the development of an interest rate environment that
         adversely affects the interest rate spread or other income from the
         Company's and the Bank's investments and operations.

2.       INVESTMENT SECURITIES

         The amortized cost and approximate fair value of investment securities,
         by contractual maturities, are as follows:

<TABLE>
<CAPTION>
                                                                           December 31, 1997
                                                        --------------------------------------------------------
                                                                         Gross         Gross
                                                          Amortized    Unrealized    Unrealized      Approximate
                                                            Cost          Gain          Loss         Fair Value
                                                            ----          ----          ----         ----------
<S>                                                      <C>               <C>       <C>             <C>
         Available for Sale:

             U.S. Treasury securities and securities
                of U.S. Government agencies:
                   1 to 5 years                          $ 3,000           $ 12                        $ 3,012
                   5 to 10 years                           3,000             13             $10          3,003
             Municipal obligations                         3,068             98                          3,166
             Mutual funds                                  6,000                              6          5,994
             Preferred stocks                              3,000             50                          3,050
             Other equity investments                      1,352             27                          1,379
                                                         -------           ----            ----        -------
                     Total                               $19,420           $200             $16        $19,604
                                                         =======           ====             ===        =======
         Held to Maturity:

             U.S. Treasury securities and securities
                 of U.S. Government agencies:
                   Over 10 years                          $9,000            $10             $30         $8,980
                                                          ------            ---             ---         ------
                     Total                                $9,000            $10             $30         $8,980
                                                          ======            ===             ===         ======
</TABLE>

                                        5
<PAGE>   8
<TABLE>
<CAPTION>
                                                                          September 30, 1997
                                                         ------------------------------------------------------
                                                                          Gross           Gross
                                                         Amortized      Unrealized      Unrealized   Approximate
                                                           Cost            Gain            Loss      Fair Value
                                                           ----            ----            ----      ----------
<S>                                                      <C>            <C>             <C>          <C>
         Available for Sale:

             U.S. Treasury securities and securities
                of U.S. Government agencies:

                   1 to 5 years                          $ 4,000            $15                        $ 4,015
                   5 to 10 years                           3,000                            $17          2,983
             Municipal obligations                         3,138             75                          3,213
                                                         -------            ---             ---        -------
                     Total                               $10,138            $90             $17        $10,211
                                                         =======            ===             ===        =======

         Held to Maturity:

             U.S. Treasury securities and securities
                of U.S. Government agencies:

                   Over 10 years                         $10,000                            $40         $9,960
                                                         -------                            ---         ------
                     Total                               $10,000                            $40         $9,960
                                                         =======                            ===         ======
</TABLE>

3.    MORTGAGE-RELATED SECURITIES

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

<TABLE>
<CAPTION>
                                                                            December 31, 1997
                                                          -----------------------------------------------------
                                                                          Gross          Gross
                                                          Amortized    Unrealized      Unrealized   Approximate
                                                            Cost          Gain            Loss       Fair Value
                                                           -------       -----            ----        --------
<S>                                                       <C>            <C>           <C>          <C>
         Available for Sale:

             FHLMC pass-through certificates               $16,803      $  258                        $ 17,061
             FNMA pass-through certificates                 14,186         228           $   6          14,408
             GNMA pass-through certificates                 27,780         266                          28,046
             Collateralized mortgage obligations            40,735         433             185          40,983
                                                           -------       -----            ----        --------
                 Total                                     $99,504      $1,185            $191        $100,498
                                                           =======      ======            ====        ========

         Held to Maturity:

             FHLMC pass-through certificates              $  5,456         $18            $ 36        $  5,438
             FNMA pass-through certificates                  9,786          11             189           9,608
             Collateralized mortgage obligations             7,728          12             186           7,554
                                                           -------         ---            ----         -------
                 Total                                     $22,970         $41            $411         $22,600
                                                           =======         ===            ====         =======
</TABLE>


                                        6
<PAGE>   9
<TABLE>
<CAPTION>
                                                                           September 30, 1997
                                                          ------------------------------------------------------
                                                                          Gross           Gross
                                                          Amortized    Unrealized      Unrealized    Approximate
                                                            Cost          Gain            Loss       Fair Value
                                                            ----          ----            ----       ----------
<S>                                                       <C>             <C>             <C>         <C>
         Available for Sale:
             FHLMC  pass-through certificates             $ 17,540        $213            $  9        $ 17,744
             FNMA pass-through certificates                 14,587         149              21          14,715
             GNMA pass-through certificates                 28,938         133              17          29,054
             Collateralized mortgage obligations            42,814         376             231          42,959
                                                          --------        ----            ----         -------
                 Total                                    $103,879        $871            $278        $104,472
                                                          ========        ====            ====        ========
         Held to Maturity:

             FHLMC  pass-through certificates              $ 2,747        $ 15            $ 52         $ 2,710
             FNMA pass-through certificates                 10,053          29             272           9,810
             Collateralized mortgage obligations             7,907          17             244           7,680
                                                           -------        ----            ----         -------
                 Total                                     $20,707        $ 61            $568         $20,200
                                                           =======        ====            ====         =======
</TABLE>

      The collateralized mortgage obligations contain both fixed and adjustable
      classes of bonds which are repaid in accordance with a predetermined
      priority. The underlying collateral of the bonds primarily consist of
      loans which are insured by FHLMC, FNMA, or the GNMA.

      The mortgage-related securities designated as available for sale, by
      definition, could be sold in response to changes in interest rates and
      cash flows or for restructuring purposes.


                                        7
<PAGE>   10
5.    LOANS RECEIVABLE

      Loans receivable consist of the following:

<TABLE>
<CAPTION>
                                                 December 31     September 30
                                                    1997             1997
                                                 ---------        ---------
<S>                                              <C>              <C>
      Real estate loans:
           Single-family                         $ 139,086        $ 135,168
           Construction and land                    16,783           16,400
           Multi-family and commercial              18,300           18,305
      Consumer loans:
           Home equity and lines of credit          22,085           22,964
           Deposit                                     357              348
           Education                                   392              365
           Other                                     1,665            1,690
      Commercial loans                               1,175            2,000
                                                 ---------        ---------
           Total loans                             199,843          197,240
      Loans in process                              (6,604)          (5,670)
      Allowance for loan losses                     (1,693)          (1,628)
      Deferred loan fees                            (1,661)          (1,653)
                                                 ---------        ---------
      Loans receivable - net                     $ 189,885        $ 188,289
                                                 =========        =========
</TABLE>

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

<TABLE>
<CAPTION>
                                           Three Months Ended
                                              December 31
                                         ----------------------
                                           1997           1996
                                         -------        -------
<S>                                      <C>            <C>
      Balance beginning of period        $ 1,628        $ 2,624
      Provisions charged to income            75             56
      Charge-offs                            (10)           (31)
      Recoveries                                              2
                                         -------        -------
      Total                              $ 1,693        $ 2,651
                                         =======        =======
</TABLE>

      At December 31, 1997 and September 30, 1997 non-performing loans (which
      include loans in excess of 90 days delinquent) amounted to approximately
      $2,247 and $2,077, respectively.

6.    DEPOSITS

      Deposits consist of the following major classifications:

<TABLE>
<CAPTION>
                                                December 31                September 30
                                                   1997                        1997
                                          -----------------------     -----------------------
                                           Amount        Percent       Amount        Percent
                                          --------       --------     --------       --------
<S>                                       <C>                 <C>     <C>                 <C>
      Non-interest bearing accounts       $  6,377            2.8%    $  6,165            2.7%
      NOW accounts                          29,465           12.8       27,754           12.2
      Passbook accounts                     37,388           16.2       38,035           16.7
      Money market demand accounts          15,833            6.9       16,429            7.2
      Certificate accounts                 141,292           61.3      139,535           61.2
                                          --------       --------     --------       --------
      Total                               $230,355          100.0%    $227,918          100.0%
                                          ========       ========     ========       ========
</TABLE>


                                        8
<PAGE>   11
7.    EARNINGS PER SHARE

      In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share". This
      statement which supercedes APB Opinion No. 15, simplifies the standards
      for computing earnings per share ("EPS"). SFAS 128 replaces the current
      "primary" and "fully diluted" earnings per share with "basic" and
      "diluted" earnings per share.

      The reported basic and fully diluted earnings per share is as follows:

<TABLE>
<CAPTION>
                                                     For quarter ended December 31, 1997

                                                                        Weighted
                                                                        Average
                                                                        Shares
                                                   Income             Outstanding          Per
                                               (Numerator)           (Denominator)        Share

                                               -------------------------------------------------
<S>                                            <C>                   <C>                  <C>
BASIC EPS
Income available to stockholders                   672,000             2,165,439           0.31

Effect of dilutive securities                                            130,437

DILUTED EPS
Income available to stockholders
plus assumed conversion of
options                                            672,000             2,295,876           0.29
</TABLE>


<TABLE>
<CAPTION>
                                                     For quarter ended December 31, 1996

                                                                      Weighted
                                                                       Average
                                                                       Shares
                                                  Income             Outstanding            Per
                                               (Numerator)          (Denominator)          Share
                                              ---------------------------------------------------
<S>                                           <C>                   <C>                   <C>
BASIC EPS
Income available to stockholders                  615,000              2,312,487            0.27

Effect of dilutive securities                                             51,275

DILUTED EPS
Income available to stockholders
plus assumed conversion of
options                                           615,000              2,363,762            0.26
</TABLE>


                                        9
<PAGE>   12
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 1997 (UNAUDITED) AND SEPTEMBER
30, 1997

Total assets of the Company increased $5.1 million or 1.4% from $373.4 million
at September 30, 1997 to $378.4 million at December 31, 1997 primarily due to a
$9.4 million increase in investment securities available for sale combined with
a $1.6 million increase in loans receivable-net offset by a $5.1 million
decrease in cash and cash equivalents. The increase in investment securities and
loans was funded primarily through cash and, to a lesser extent, deposits. The
loan growth was concentrated primarily in single-family and commercial real
estate loans and consumer loans.

Deposits increased $2.4 million or 1.1% from $227.9 million at September 30,
1997 to $230.3 million at December 31, 1997. The increase resulted primarily
from the growth in certificate accounts and a modest increase in core deposits.

Stockholders' equity increased $298,000 is due to the combined effects of
increased net income and in the market valuation, net of taxes, of available for
sale securities partially offset by the repurchase of shares of common stock and
dividends paid.

COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31, 1997
AND 1996

Net Income.

Net income was $672,000 for the three months ended December 31, 1997 as compared
to $615,000 for the same period in 1996. The $57,000 or 9.3% increase in net
income for the three months ended December 31, 1997 was due to a $559,000 or
23.5% increase in net interest income offset by a $517,000 or 31.6% increase in
operating expenses and a $34,000 or 8.9% increase in income taxes.

Net Interest Income.

Net interest income increased $559,000 or 23.5% to $2.9 million for the three
months ended December 31, 1997 as compared to the same period in 1996. The
increase was due to a $1.5 million or 27.5% increase in interest income which
was offset, in part, by a $898,000 or 30.7% increase in interest expense for the
1997 period. The interest rate spread and net interest margin were 2.81% and
3.27%, respectively, for the three months ended December 31, 1997 as compared to
3.10% and 3.36%, respectively, for the same period in 1996. The $1.5 million
increase in interest income was primarily due to a $75.7 million or 26.8%
increase in average interest-earning assets and a 4 basis point increase in
yield. The $898,000 increase in interest expense was primarily due to an
increase of $57.0 million or 21.4% in the average balance of interest-bearing
liabilities and a 33 basis point increase in the weighted average rate paid
thereon for the three months ended December 31, 1997, as compared to the same
period in 1996.

The increase in the average balances of both interest-earning assets and
interest-bearing liabilities was due to the leveraging of a portion of the $16.2
million received upon the issuance of trust preferred securities in the last
quarter of fiscal 1997. The decrease in the net interest rate spread was due to
this leveraging of assets while the smaller decline in the net interest margin
was primarily due to higher funding costs.


                                       10
<PAGE>   13
Provision for Loan Losses.

The Company's provision for loan losses increased to $75,000 for the three
months ended December 31, 1997 as compared to $56,000 for the same period in
1996. The increase was primarily due to the growth in the loan portfolio. Total
non-performing assets, which primarily consist of residential loans, at December
31, 1997 were $4.1 million or 1.1% of total assets, an increase of $302,000 from
September 30, 1997. The Company's coverage ratio, which is the loan loss reserve
to non-performing assets, was 41.8% at December 31, 1997.

Other Income.

Other income increased $68,000 or 21.5% to $385,000 for the three months ended
December 31, 1997 as compared to the same period in 1996. The increase was
primarily a result of an increase of $71,000 increase in the net gain on sales
of loans partially offset by a small decrease in service charges and other fees
of $8,000. The increase in gain on sales of loans was due to increased
originations and sales of loans with servicing released to credit impaired
borrowers as part of management's strategy of diversifying product mix.

Operating Expenses.

Operating expenses increased $517,000 or 31.6% during the three months ended
December 31, 1997 as compared to the same period in 1996 primarily due to the
issuance of trust preferred securities in August 1997. Increases of $109,000,
$22,000, $21,000 and $32,000 were incurred in the salaries and employee
benefits, occupancy and equipment, advertising and other expenses, respectively.
The expense related to the trust preferred securities amounted to $393,000
during the 1997 quarter. Offsetting the above expense increases was a reduction
in federal deposit insurance premiums of $64,000 reflecting lower deposit
insurance charges assessed on SAIF insured deposits.

Income Tax Expense.

Income tax expense increased $34,000 to $418,000 during the three months ended
December 31, 1997 as compared to the same period in 1996. The increase was
primarily a result of an increase in income before income taxes.

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 December 31, 1997, the Company had short-term
outstanding borrowings of $40.2 million in advances from the FHLB of Pittsburgh
and $5.3 million in short-term securities sold


                                       11
<PAGE>   14
under agreement to repurchase.

Liquidity management is both a daily and long-term function of business
management. Excess liquidity is generally invested in short-term investments
such as overnight deposits. On a longer term basis, the Company maintains a
strategy of investing in various lending products, mortgage-related securities
and investment securities. The Company uses its sources of funds primarily to
meet its ongoing commitments, to pay maturing certificates of deposit and
savings withdrawals, fund loan commitments and maintain a portfolio of
mortgage-related and investment securities. At December 31, 1997, the total
approved loan commitments outstanding amounted to $7.0 million, not including
loans in process. At the same date, commitments under unused lines of credit
amounted to $7.3 million. Certificates of deposit scheduled to mature in one
year or less at December 31, 1997 totalled $80.7 million. Based upon its
historical experience, management believes that a significant portion of
maturing deposits will remain with the Company.

The Bank is required by the Office of Thrift Supervision ("OTS") to maintain
average daily balances of liquid assets and short-term liquid assets (as
defined) in amounts equal to 5% and 1%, respectively, of net withdrawable
deposits and borrowings payable in one year or less to assure its ability to
meet demand from withdrawals and repayments of short-term borrowings. The
liquidity requirements may vary from time to time at the direction of the OTS
depending upon economic conditions and deposit flows. The Bank's average monthly
liquidity ratio and short-term liquid assets for December 1997 was 6.3% and
5.2%, respectively.

As of December 31, 1997, the Bank had regulatory capital which was 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 3.0% of its adjusted total assets and total
capital to at least 8.0% of its risk-weighted assets. At December 31, 1997, the
Bank had tangible capital equal to 8.4% of adjusted total assets, core capital
equal to 8.4% of adjusted total assets and total capital equal to 20.5% of
risk-weighted assets.

Impact of Inflation and Changing Prices.

The Consolidated Financial Statements of the Company and related notes presented
herein have been prepared in accordance with generally accepted accounting
principles which requires the measurement of financial position and operating
results in terms of historical dollars, without considering changes in the
relative purchasing power of money over time due to inflation.

Unlike most industrial companies, substantially all of the assets and
liabilities of a financial institution are monetary in nature. As a result,
interest rates have a more significant impact on a financial institution's
performance than the effects of general levels of inflation. Interest rates do
not necessarily move in the same direction or in the same magnitude as the price
of goods and services, since such prices are affected by inflation to a larger
extent than interest rates. In the current interest rate environment, liquidity
and the maturity structure of the Company's assets and liabilities are critical
to the maintenance of acceptable performance levels.


                                       12
<PAGE>   15
                                     PART II

Item 1.    Legal Proceedings

           Not applicable

Item 2.    Changes in Securities

           Not applicable

Item 3.    Defaults Upon Senior Securities

           Not applicable

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

           On January 28, 1998, the Annual Meeting of stockholders of the
           Company was held to elect management's nominees for director and to
           ratify the appointment of the Company's independent auditors. With
           respect to the election of directors, the results were as follows:

<TABLE>
<CAPTION>
                      Nominee                       For           Withheld
                      -------                       ---           --------
<S>                                               <C>               <C>
                      Edward Calderoni            1,075,280         9,200
                      Silvio F. D'Ignazio         1,077,380         7,100
                      Joan G. Taylor              1,074,780         9,700
</TABLE>

           With respect to the ratification of Deloitte & Touche LLP as the
           Company's independent certified accountants, the results were as
           follows: 1,067,209 Votes For, 14,061 Votes Against, and 3,210 Votes
           Abstaining.

Item 5.    Other Information

           None

Item 6.    Exhibits and Reports on Form 8-K

           None


                                       13
<PAGE>   16
                                   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 13, 1998               By: /s/ Donald S. Guthrie
                                            ----------------------
                                         Donald S. Guthrie
                                         President and Chief Executive Officer

Date:    February 13, 1998               By: /s/ Thomas M. Kelly
                                            --------------------
                                         Thomas M. Kelly
                                         Executive Vice-President and Chief
                                         Financial Officer


                                       14