##### 



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, 2007
 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.
  Pennsylvania
    
    23-2576479(State or other jurisdiction
    
    (I.R.S. Employerof incorporation or organization)
    
    Identification Number)22 West State StreetMedia, Pennsylvania
    
    19063(Address of principal executive office)
    
    (Zip Code)
  þ o
  Large accelerated
filer o
    
    Accelerated filer o
    
    Non-accelerated
filer þ
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



FIRST KEYSTONE FINANCIAL, INC.
 Contents
  
 PagePART I
    
    FINANCIAL INFORMATION:Item 1.
    
    Financial StatementsUnaudited Consolidated Statements of Financial Condition as of
December 31, 2007 and September 30, 2007
    
    
    1Unaudited Consolidated Statements of Income for the Three
Months Ended December 31, 2007 and 2006
    
    
    2Unaudited Consolidated Statement of Changes in Stockholders Equity
for the Three Months Ended December 31, 2007 and 2006
    
    
    3Unaudited Consolidated Statements of Cash Flows for the Three Months
Ended December 31, 2007 and 2006
    
    
    4Notes to Unaudited Consolidated Financial Statements
    
    
    5Item 2.
    
    Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    14Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    20Item 4.
    
    Controls and Procedures
    
    
    20PART II
    
    OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    22Item 1A.
    
    Risk Factors
    
    
    22Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    22Item 3.
    
    Defaults Upon Senior Securities
    
    
    22Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    22Item 5.
    
    Other Information
    
    
    22Item 6.
    
    Exhibits
    
    
    23SIGNATURES
    
    
    
    
    25
  -i-




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##### 



December 31,
    
    
    September 30,2007
    
    
    2007ASSETSCash and amounts due from depository institutions
    
    $
    8,658
    
    
    $
    4,642Interest-bearing deposits with depository institutions
    
    
    35,726
    
    
    
    48,293Total cash and cash equivalents
    
    
    44,384
    
    
    
    52,935Investment securities available for sale
    
    
    31,091
    
    
    
    29,284Mortgage-related securities available for sale
    
    
    91,912
    
    
    
    79,178Investment securities held to maturity  at amortized cost
(approximate fair value of $3,312 at December 31, 2007
and $3,266 at September 30, 2007)
    
    
    3,256
    
    
    
    3,256Mortgage-related securities held to maturity  at amortized cost (approximate fair
value of $29,636 at December 31, 2007 and $30,511 at September 30, 2007)
    
    
    29,872
    
    
    
    31,294Loans receivable (net of allowance for loan losses of $3,376 and $3,322 at December
31, 2007 and September 30, 2007, respectively)
    
    
    280,520
    
    
    
    292,418Accrued interest receivable
    
    
    2,357
    
    
    
    2,702FHLBank stock, at cost
    
    
    6,239
    
    
    
    6,338Office properties and equipment, net
    
    
    4,698
    
    
    
    4,762Deferred income taxes
    
    
    2,174
    
    
    
    2,505Cash surrender value of life insurance
    
    
    17,416
    
    
    
    17,234Prepaid expenses and other assets
    
    
    3,128
    
    
    
    2,975TOTAL ASSETS
    
    $
    517,047
    
    
    $
    524,881LIABILITIES AND STOCKHOLDERS EQUITYLiabilities:Deposits:Non-interest-bearing
    
    $
    16,178
    
    
    $
    18,404Interest-bearing
    
    
    329,689
    
    
    
    335,304Total deposits
    
    
    345,867
    
    
    
    353,708Advances from FHLBank and other borrowings
    
    
    113,208
    
    
    
    115,384Junior subordinated debentures
    
    
    15,264
    
    
    
    15,264Accrued interest payable
    
    
    2,410
    
    
    
    2,324Advances from borrowers for taxes and insurance
    
    
    1,947
    
    
    
    870Accounts payable and accrued expenses
    
    
    2,755
    
    
    
    2,637Total liabilities
    
    
    481,451
    
    
    
    490,187Commitments and contingencies (see Note 13)
    
    
    
    
    
    
    Stockholders Equity:Preferred stock, $.01 par value, 10,000,000 shares authorized; none issuedCommon stock, $.01 par value, 20,000,000 shares authorized; issued 2,712,556
shares; outstanding at December 31, 2007 and September 30, 2007, 2,432,998 shares
    
    
    27
    
    
    
    27Additional paid-in capital
    
    
    12,597
    
    
    
    12,598Employee stock ownership plan
    
    
    (2,958
    )
    
    
    (2,985
    )Treasury stock at cost: 279,558 shares at December 31, 2007 and at September 30, 2007
    
    
    (4,244
    )
    
    
    (4,244
    )Accumulated other comprehensive loss
    
    
    (579
    )
    
    
    (1,223
    )Retained earnings  partially restricted
    
    
    30,753
    
    
    
    30,521Total stockholders equity
    
    
    35,596
    
    
    
    34,694TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    517,047
    
    
    $
    524,881
  -1-




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##### 



Three months endedDecember 31,2007
    
    
    2006INTEREST INCOME:Interest and fees on loans
    
    $
    4,671
    
    
    $
    5,355Interest and dividends on:Mortgage-related securities
    
    
    1,380
    
    
    
    1,207Investment securities:Taxable
    
    
    395
    
    
    
    310Tax-exempt
    
    
    42
    
    
    
    151Dividends
    
    
    86
    
    
    
    87Interest-bearing deposits
    
    
    162
    
    
    
    63Total interest income
    
    
    6,736
    
    
    
    7,173INTEREST EXPENSE:Interest on:Deposits
    
    
    2,678
    
    
    
    2,704FHLB advances and other borrowings
    
    
    1,225
    
    
    
    1,505Junior subordinated debentures
    
    
    367
    
    
    
    502Total interest expense
    
    
    4,270
    
    
    
    4,711Net interest income
    
    
    2,466
    
    
    
    2,462PROVISION FOR LOAN LOSSES
    
    
    42
    
    
    
    75Net interest income after provision for loan losses
    
    
    2,424
    
    
    
    2,387NON-INTEREST INCOME:Service charges and other fees
    
    
    422
    
    
    
    387Net gain on sales of loans held for sale
    
    
    
    
    
    
    116Net gain on sales of investments
    
    
    69
    
    
    
    Increase in cash surrender value of life insurance
    
    
    182
    
    
    
    147Other income
    
    
    89
    
    
    
    97Total non-interest income
    
    
    762
    
    
    
    747NON-INTEREST EXPENSE:Salaries and employee benefits
    
    
    1,430
    
    
    
    1,498Occupancy and equipment
    
    
    400
    
    
    
    396Professional fees
    
    
    283
    
    
    
    337Federal deposit insurance premium
    
    
    51
    
    
    
    38Operations of real estate owned
    
    
    
    
    
    
    50Data processing
    
    
    137
    
    
    
    138Advertising
    
    
    100
    
    
    
    107Deposit processing
    
    
    145
    
    
    
    154Other
    
    
    395
    
    
    
    419Total non-interest expense
    
    
    2,941
    
    
    
    3,137Income (loss) before income tax expense (benefit)
    
    
    245
    
    
    
    (3
    )Income tax expense (benefit)
    
    
    13
    
    
    
    (91
    )Net income
    
    $
    232
    
    
    $
    88Earnings per common share:Basic
    
    $
    0.10
    
    
    $
    0.04Diluted
    
    $
    0.10
    
    
    $
    0.04Weighted average shares  basic
    
    
    2,314,908
    
    
    
    1,992,453Weighted average shares  diluted
    
    
    2,314,908
    
    
    
    2,011,731
  -2-




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##### 



Employee
    
    
    
    
    
    
    Accumulated
    
    
    RetainedAdditional
    
    
    stock
    
    
    
    
    
    
    other
    
    
    earnings-
    
    
    TotalCommon
    
    
    paid-in
    
    
    ownership
    
    
    Treasury
    
    
    comprehensive
    
    
    partially
    
    
    stockholdersstock
    
    
    capital
    
    
    plan
    
    
    stock
    
    
    (loss) gain
    
    
    restricted
    
    
    equityBALANCE AT OCTOBER 1, 2006
    
    $
    27
    
    
    $
    12,974
    
    
    $
    (3,089
    )
    
    $
    (10,522
    )
    
    $
    (787
    )
    
    $
    30,056
    
    
    $
    28,659Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    88
    
    
    
    88Other comprehensive income, net of tax:Net unrealized loss on securities
net of reclassification adjustment,
net of tax benefit of $134(1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (261
    )
    
    
    
    
    
    
    (261
    )Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (173
    )ESOP shares committed to be released
    
    
    
    
    
    
    
    
    
    
    25
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25Share-based compensation
    
    
    
    
    
    
    15
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15Excess of fair value above cost of
ESOP shares committed to be released
    
    
    
    
    
    
    10
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10Release of treasury shares for equity offering
    
    
    
    
    
    
    (412
    )
    
    
    
    
    
    
    6,200
    
    
    
    
    
    
    
    
    
    
    
    5,788BALANCE AT DECEMBER 31, 2006
    
    $
    27
    
    
    $
    12,587
    
    
    $
    (3,064
    )
    
    $
    (4,322
    )
    
    $
    (1,048
    )
    
    $
    30,144
    
    
    $
    34,324BALANCE AT OCTOBER 1, 2007
    
    $
    27
    
    
    $
    12,598
    
    
    $
    (2,985
    )
    
    $
    (4,244
    )
    
    $
    $(1,223
    )
    
    $
    30,521
    
    
    $
    34,694Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    232
    
    
    
    232Other comprehensive income, net of tax:Net unrealized gain on securities
net of reclassification adjustment,
net of taxes of $332(1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    644
    
    
    
    
    
    
    
    644Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    876ESOP shares committed to be released
    
    
    
    
    
    
    
    
    
    
    27
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27Excess 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
 
 (1)
    
    Disclosure of reclassification amount, net of tax: December 31,2007
    
    
    2006Net unrealized appreciation (depreciation) arising during the period
    
    $
    644
    
    
    $
    (261
    )Less: reclassification adjustment for net gains included in net income
(net of tax)
    
    
    
    
    
    
    Net unrealized gain (loss) on securities
    
    $
    644
    
    
    $
    (261
    )
  -3-




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##### 



Three months endedDecember 31,2007
    
    
    2006OPERATING ACTIVITIES:Net income
    
    $
    232
    
    
    $
    88Adjustments to reconcile net income to net cash provided by operating activities:Provision for depreciation and amortization
    
    
    141
    
    
    
    137Amortization of premiums and discounts
    
    
    15
    
    
    
    59Increase in cash surrender value of life insurance
    
    
    (182
    )
    
    
    (147
    )Net gain on sales of loans held for sale
    
    
    
    
    
    
    (116
    )Net gain on sales of investments
    
    
    (69
    )
    
    
    Provision for loan losses
    
    
    42
    
    
    
    75Amortization of ESOP
    
    
    26
    
    
    
    35Share-based compensation
    
    
    
    
    
    
    15Changes in assets and liabilities which provided (used) cash:Origination of loans held for sale
    
    
    
    
    
    
    (152
    )Loans sold in the secondary market
    
    
    
    
    
    
    1,099Accrued interest receivable
    
    
    345
    
    
    
    125Prepaid expenses and other assets
    
    
    (153
    )
    
    
    151Accrued interest payable
    
    
    86
    
    
    
    218Accrued expenses
    
    
    118
    
    
    
    (817
    )Net cash provided by operating activities
    
    
    601
    
    
    
    770INVESTING ACTIVITIES:Loans originated
    
    
    (14,652
    )
    
    
    (26,297
    )Purchases of:Mortgage-related securities available for sale
    
    
    (14,895
    )
    
    
    (2,026
    )Investment securities available for sale
    
    
    (2,948
    )
    
    
    (113
    )Redemption of FHLB stock
    
    
    1,179
    
    
    
    1,017Purchase of FHLB stock
    
    
    (1,080
    )
    
    
    (725
    )Principal collected on loans
    
    
    26,516
    
    
    
    32,545Proceeds from sales of investments
    
    
    69
    
    
    
    Proceeds from maturities, calls, or repayments of:Investment securities available for sale
    
    
    1,039
    
    
    
    55Mortgage-related securities available for sale
    
    
    3,232
    
    
    
    3,092Mortgage-related securities held to maturity
    
    
    1,405
    
    
    
    1,780Purchase of property and equipment
    
    
    (77
    )
    
    
    (13
    )Net cash (used in) provided by investing activities
    
    
    (212
    )
    
    
    9,315FINANCING ACTIVITIES:Net decrease in deposit accounts
    
    
    (7,841
    )
    
    
    (2,045
    )Net decrease in FHLBank advances and other borrowings
    
    
    (2,176
    )
    
    
    (6,715
    )Net increase in advances from borrowers for taxes and insurance
    
    
    1,077
    
    
    
    1,033Net proceeds from equity offering
    
    
    
    
    
    
    5,788Net cash used in financing activities
    
    
    (8,940
    )
    
    
    (1,939
    )(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
    
    
    (8,551
    )
    
    
    8,146CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
    
    
    52,935
    
    
    
    12,787CASH AND CASH EQUIVALENTS AT END OF PERIOD
    
    $
    44,384
    
    
    $
    20,933SUPPLEMENTAL DISCLOSURE OF CASH FLOW AND NON-CASH INFORMATION:Cash payments for interest on deposits and borrowings
    
    $
    4,184
    
    
    $
    4,493
  -4-




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##### 



1.
    
    BASIS OF PRESENTATIONThe 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 month period ended December 31, 2007 are not
necessarily indicative of the results to be expected for the fiscal year ending September
30, 2008 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, 2007.2.
    
    INVESTMENT SECURITIESThe amortized cost and approximate fair value of investment securities available for sale and
held to maturity, by contractual maturities, are as follows:
 December 31, 2007Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    ApproximateCost
    
    
    Gain
    
    
    Loss
    
    
    Fair ValueAvailable for Sale:U.S. Government and agency bonds:1 to 5 years
    
    $
    2,000
    
    
    $
    1
    
    
    $
    
    
    
    $
    2,001Over 10 years
    
    
    2,963
    
    
    
    37
    
    
    
    
    
    
    
    3,000Municipal obligations:5 to 10 years
    
    
    1,130
    
    
    
    3
    
    
    
    
    
    
    
    1,133Over 10 years
    
    
    2,824
    
    
    
    79
    
    
    
    
    
    
    
    2,903Corporate bonds:Less than 1 year
    
    
    1,000
    
    
    
    19
    
    
    
    
    
    
    
    1,0191 to 5 years
    
    
    1,070
    
    
    
    26
    
    
    
    
    
    
    
    1,0965 to 10 years
    
    
    2,000
    
    
    
    
    
    
    
    (385
    )
    
    
    1,615Over 10 years
    
    
    7,598
    
    
    
    
    
    
    
    (339
    )
    
    
    7,259Mutual funds
    
    
    10,327
    
    
    
    15
    
    
    
    (293
    )
    
    
    10,049Other equity investments
    
    
    1,040
    
    
    
    37
    
    
    
    (61
    )
    
    
    1,016Total
    
    $
    31,952
    
    
    $
    217
    
    
    $
    (1,078
    )
    
    $
    31,091Held to Maturity:Municipal obligations:5 to 10 years
    
    $
    3,256
    
    
    $
    56
    
    
    $
    
    
    
    $
    3,312
 -5-




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##### 



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, 2007.
 Loss Position
    
    
    Loss PositionLess than 12 Months
    
    
    12 Months or Longer
    
    
    TotalUnrealized
    
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    UnrealizedFair Value
    
    
    Losses
    
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    LossesCorporate bonds
    
    $
    5,398
    
    
    $
    (180
    )
    
    $
    3,475
    
    
    $
    (544
    )
    
    $
    8,873
    
    
    $
    (724
    )Equity securities
    
    
    274
    
    
    
    (61
    )
    
    
    
    
    
    
    
    
    
    
    274
    
    
    
    (61
    )Mutual funds
    
    
    
    
    
    
    
    
    
    
    9,522
    
    
    
    (293
    )
    
    
    9,522
    
    
    
    (293
    )Total
    
    $
    5,672
    
    
    $
    (241
    )
    
    $
    12,997
    
    
    $
    (837
    )
    
    $
    18,669
    
    
    $
    (1,078
    )
 At December 31, 2007, investment securities in a gross unrealized loss position for twelve months
or longer consisted of three securities and investments in two mutual funds having an aggregate
depreciation of 6.0% from the Companys amortized cost basis. Management believes that the
estimated fair value of the securities disclosed above is primarily dependent upon the movement in
market interest rates. These investment securities are comprised of securities that are rated
investment grade by at least one bond credit rating service. Although the fair value will fluctuate
as the market interest rates move, management believes that these fair values will recover as the
underlying portfolios mature and are reinvested in yielding market rates of interest investments.
Mutual funds in an unrealized loss position for 12 months or longer consist of two funds primarily
invested in asset-backed securities and have an aggregate depreciation of 3.0%. Corporate bonds in
an unrealized loss position for 12 months or longer consisted of three debt securities and had an
aggregate depreciation of 13.5%. The Company has the ability and intent to hold all of these
securities until such time as the value recovers. Management does not believe any individual
unrealized loss as of December 31, 2007 represents an other-than-temporary impairment.
 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, 2007Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    ApproximateCost
    
    
    Gain
    
    
    Loss
    
    
    Fair ValueAvailable for Sale:U.S. Government bonds:1 to 5 years
    
    $
    2,000
    
    
    $
    
    
    
    $
    
    
    
    $
    2,000Over 10 years
    
    
    3,950
    
    
    
    10
    
    
    
    (9
    )
    
    
    3,951Municipal obligations:5 to 10 years
    
    
    1,130
    
    
    
    
    
    
    
    (14
    )
    
    
    1,116Corporate bonds:1 to 5 years
    
    
    2,074
    
    
    
    50
    
    
    
    
    
    
    
    2,1245 to 10 years
    
    
    2,000
    
    
    
    
    
    
    
    (560
    )
    
    
    1,440Over 10 years
    
    
    7,654
    
    
    
    61
    
    
    
    (42
    )
    
    
    7,673Mutual funds
    
    
    10,203
    
    
    
    7
    
    
    
    (322
    )
    
    
    9,888Other equity investments
    
    
    1,040
    
    
    
    60
    
    
    
    (8
    )
    
    
    1,092Total
    
    $
    30,051
    
    
    $
    188
    
    
    $
    (955
    )
    
    $
    29,284Held to Maturity:Municipal obligations:5 to 10 years
    
    $
    3,256
    
    
    $
    10
    
    
    $
    
    
    
    $
    3,266
 -6-




---



##### 



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, 2007.
 Loss Position
    
    
    Loss PositionLess than 12 Months
    
    
    12 Months or Longer
    
    
    TotalUnrealized
    
    
    
    
    
    Unrealized
    
    
    
    
    
    UnrealizedFair Value
    
    
    Losses
    
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    LossesU.S. Government
bonds
    
    $
    2,954
    
    
    $
    (9
    )
    
    $
    
    
    
    $
    
    
    
    $
    2,954
    
    
    $
    (9
    )Corporate bonds
    
    
    
    
    
    
    
    
    
    
    3,420
    
    
    
    (602
    )
    
    
    3,420
    
    
    
    (602
    )Municipal bonds
    
    
    
    
    
    
    
    
    
    
    986
    
    
    
    (14
    )
    
    
    986
    
    
    
    (14
    )Mutual funds
    
    
    
    
    
    
    
    
    
    
    9,374
    
    
    
    (322
    )
    
    
    9,374
    
    
    
    (322
    )Equity securities
    
    
    327
    
    
    
    (8
    )
    
    
    
    
    
    
    
    
    
    
    327
    
    
    
    (8
    )Total
    
    $
    3,281
    
    
    $
    (17
    )
    
    $
    13,780
    
    
    $
    (938
    )
    
    $
    17,061
    
    
    $
    (955
    )
 3.
    
    MORTGAGE-RELATED SECURITIESMortgage-related securities available for sale and mortgage-related securities held to
maturity are summarized as follows:
 December 31, 2007Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    ApproximateCost
    
    
    Gain
    
    
    Loss
    
    
    Fair ValueAvailable for Sale:FHLMC pass-through certificates
    
    $
    26,051
    
    
    $
    195
    
    
    $
    (14
    )
    
    $
    26,232FNMA pass-through certificates
    
    
    34,210
    
    
    
    300
    
    
    
    (65
    )
    
    
    34,445GNMA pass-through certificates
    
    
    2,117
    
    
    
    12
    
    
    
    
    
    
    
    2,129Collateralized mortgage obligations
    
    
    29,551
    
    
    
    19
    
    
    
    (464
    )
    
    
    29,106Total
    
    $
    91,929
    
    
    $
    526
    
    
    $
    (543
    )
    
    $
    91,912Held to Maturity:FHLMC pass-through certificates
    
    $
    11,426
    
    
    $
    9
    
    
    $
    (112
    )
    
    $
    11,323FNMA pass-through certificates
    
    
    18,412
    
    
    
    6
    
    
    
    (139
    )
    
    
    18,279Collateralized mortgage obligations
    
    
    34
    
    
    
    
    
    
    
    
    
    
    
    34Total
    
    $
    29,872
    
    
    $
    15
    
    
    $
    (251
    )
    
    $
    29,636
 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, 2007.
 Loss Position
    
    
    Loss PositionLess than 12 Months
    
    
    12 Months or Longer
    
    
    TotalUnrealized
    
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    UnrealizedFair Value
    
    
    Losses
    
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    LossesPass-through
certificates
    
    $
    5,296
    
    
    $
    (17
    )
    
    $
    29,966
    
    
    $
    (313
    )
    
    $
    35,262
    
    
    $
    (330
    )Collateralized
mortgage
obligations
    
    
    4,776
    
    
    
    (17
    )
    
    
    23,671
    
    
    
    (447
    )
    
    
    28,447
    
    
    
    (464
    )Total
    
    $
    10,072
    
    
    $
    (34
    )
    
    $
    53,637
    
    
    $
    (760
    )
    
    $
    63,709
    
    
    $
    (794
    )
 -7-




---



##### 



At December 31, 2007, mortgage-related securities in a gross unrealized loss position for twelve
months or longer consisted of forty securities that at such date had an aggregate depreciation of
1.4% from the Companys amortized cost basis. Management does not believe any individual unrealized
loss as of December 31, 2007 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 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, 2007Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    ApproximateCost
    
    
    Gain
    
    
    Loss
    
    
    Fair ValueAvailable for Sale:FHLMC pass-through certificates
    
    $
    15,647
    
    
    $
    1
    
    
    $
    (137
    )
    
    $
    15,511FNMA pass-through certificates
    
    
    31,744
    
    
    
    80
    
    
    
    (320
    )
    
    
    31,504GNMA pass-through certificates
    
    
    2,185
    
    
    
    3
    
    
    
    (7
    )
    
    
    2,181Collateralized mortgage obligations
    
    
    30,689
    
    
    
    19
    
    
    
    (726
    )
    
    
    29,982Total
    
    $
    80,265
    
    
    $
    103
    
    
    $
    (1,190
    )
    
    $
    79,178Held to Maturity:FHLMC pass-through certificates
    
    $
    11,957
    
    
    $
    5
    
    
    $
    (316
    )
    
    $
    11,646FNMA pass-through certificates
    
    
    19,289
    
    
    
    4
    
    
    
    (476
    )
    
    
    18,817Collateralized mortgage obligations
    
    
    48
    
    
    
    
    
    
    
    
    
    
    
    48Total
    
    $
    31,294
    
    
    $
    9
    
    
    $
    (792
    )
    
    $
    30,511
 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, 2007.
 Loss Position
    
    
    Loss PositionLess than 12 Months
    
    
    12 Months or Longer
    
    
    TotalUnrealized
    
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    UnrealizedFair Value
    
    
    Losses
    
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    LossesPass-through
certificates
    
    $
    21,075
    
    
    $
    (176
    )
    
    $
    47,185
    
    
    $
    (1,080
    )
    
    $
    68,260
    
    
    $
    (1,256
    )Collateralized
mortgage
obligations
    
    
    2,754
    
    
    
    (20
    )
    
    
    26,392
    
    
    
    (706
    )
    
    
    29,146
    
    
    
    (726
    )Total
    
    $
    23,829
    
    
    $
    (196
    )
    
    $
    73,577
    
    
    $
    (1,786
    )
    
    $
    97,406
    
    
    $
    (1,982
    )
 -8-




---



##### 



4.
    
    LOANS RECEIVABLELoans receivable consist of the following:
 December 31,
    
    
    September 30,2007
    
    
    2007Real estate loans:Single-family
    
    $
    140,151
    
    
    $
    139,888Construction and land
    
    
    23,500
    
    
    
    23,501Multi-family and commercial
    
    
    55,320
    
    
    
    60,026Home equity and lines of credit
    
    
    56,352
    
    
    
    57,808Consumer loans
    
    
    1,191
    
    
    
    1,204Commercial loans
    
    
    15,887
    
    
    
    19,044Total loans
    
    
    292,401
    
    
    
    301,471Loans in process
    
    
    (8,801
    )
    
    
    (6,008
    )Allowance for loan losses
    
    
    (3,376
    )
    
    
    (3,322
    )Deferred loan costs
    
    
    296
    
    
    
    277Loans receivable  net
    
    $
    280,520
    
    
    $
    292,418
 At December 31, 2007 and September 30, 2007, non-performing loans (which include loans in excess of
90 days delinquent) amounted to approximately $1,785 and $4,685, respectively. At December 31,
2007, non-performing loans consisted of seven single-family residential mortgage loans aggregating
$466, four non-residential mortgage loans aggregating $1,072, three commercial business loans
aggregating $219 and four consumer loans aggregating $28.At December 31, 2007 and September 30,
2007, the Company had impaired loans with a total recorded investment of $245 and $1,173,
respectively. No interest income was recognized on these impaired loans during the three months
ended December 31, 2007. Interest income of approximately $9 was not recognized as interest income
due to the non-accrual status of such loans for the three months ended December 31, 2007.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 30,2007
    
    
    2007Impaired loans with related allowance for loan losses
under SFAS No. 114
    
    $
    220
    
    
    $
    1,148Impaired loans with no related allowance for loan losses
under SFAS No. 114
    
    
    25
    
    
    
    25Total impaired loans
    
    $
    245
    
    
    $
    1,173Valuation allowance related to impaired loans
    
    $
    110
    
    
    $
    271
 The following is an analysis of the allowance for loan losses:
 Three Months EndedDecember 31,2007
    
    
    2006Balance beginning of period
    
    $
    3,322
    
    
    $
    3,367Provisions charged to income
    
    
    42
    
    
    
    75Charge-offs
    
    
    
    
    
    
    (12
    )Recoveries
    
    
    12
    
    
    
    25Total
    
    $
    3,376
    
    
    $
    3,455
 -9-




---



##### 



5.
    
    DEPOSITSDeposits consist of the following major classifications:
 December 31,
    
    
    September 30,2007
    
    
    2007Amount
    
    
    Percent
    
    
    Amount
    
    
    PercentNon-interest bearing
    
    $
    16,178
    
    
    
    4.7
    %
    
    $
    18,404
    
    
    
    5.2
    %NOW
    
    
    73,643
    
    
    
    21.3
    
    
    
    75,194
    
    
    
    21.2Passbook
    
    
    35,979
    
    
    
    10.4
    
    
    
    37,369
    
    
    
    10.6Money market demand
    
    
    34,646
    
    
    
    10.0
    
    
    
    34,252
    
    
    
    9.7Certificates of deposit
    
    
    185,421
    
    
    
    53.6
    
    
    
    188,489
    
    
    
    53.3Total
    
    $
    345,867
    
    
    
    100.0
    %
    
    $
    353,708
    
    
    
    100.0
    %
 6.
    
    EARNINGS PER SHAREBasic net income per share is based upon the weighted average number of common shares
outstanding, while diluted net income per share is based upon the weighted average number
of common 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, 2007 and 2006, anti-dilutive shares consisted of options
covering 50,956 and 2,221 shares, respectively.The calculation of basic and diluted earnings per share (EPS) is as follows:
 Three Months EndedDecember 31,2007
    
    
    2006Numerator
    
    $
    232
    
    
    $
    88Denominators:Basic shares outstanding
    
    
    2,314,908
    
    
    
    1,992,453Effect of dilutive securities
    
    
    
    
    
    
    19,278Dilutive shares outstanding
    
    
    2,314,908
    
    
    
    2,011,731Earnings per share:Basic
    
    $
    0.10
    
    
    $
    0.04Diluted
    
    $
    0.10
    
    
    $
    0.04
 -10-




---



##### 



7.
    
    REGULATORY CAPITAL REQUIREMENTSThe 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, 2007, that the Bank meets all regulatory capital adequacy requirements to which it is
subject.The Banks actual capital amounts and ratios are presented in the following table.
 Required for
    
    Well CapitalizedCapital Adequacy
    
    Under PromptActual
    
    Purpose
    
    Corrective ActionAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    RatioAt December 31, 2007:Core Capital (to Adjusted Tangible Assets)
    
    $
    49,628
    
    
    
    9.63
    %
    
    $
    20,621
    
    
    
    4.0
    %
    
    $
    25,777
    
    
    
    5.0
    %Tier I Capital (to Risk-Weighted Assets)
    
    
    49,628
    
    
    
    16.24
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    18,331
    
    
    
    6.0Total Capital (to Risk-Weighted Assets)
    
    
    53,004
    
    
    
    17.35
    
    
    
    24,441
    
    
    
    8.0
    
    
    
    30,552
    
    
    
    10.0Tangible Capital (to Tangible Assets)
    
    
    49,551
    
    
    
    9.61
    
    
    
    7,732
    
    
    
    1.5
    
    
    
    N/A
    
    
    
    N/AAt September 30, 2007:Core Capital (to Adjusted Tangible Assets)
    
    $
    49,207
    
    
    
    9.38
    %
    
    $
    20,975
    
    
    
    4.0
    %
    
    $
    26,219
    
    
    
    5.0
    %Tier I Capital (to Risk-Weighted Assets)
    
    
    49,207
    
    
    
    15.44
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    19,118
    
    
    
    6.0Total Capital (to Risk-Weighted Assets)
    
    
    52,529
    
    
    
    16.49
    
    
    
    25,491
    
    
    
    8.0
    
    
    
    31,864
    
    
    
    10.0Tangible Capital (to Tangible Assets)
    
    
    49,126
    
    
    
    9.37
    
    
    
    7,864
    
    
    
    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, 2007, 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.
 -11-




---



##### 



8.
    
    RECENT ACCOUNTING PRONOUNCEMENTSIn December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations
(SFAS 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 currently evaluating the impact the adoption of the standard
will have on the Companys results of operations.In September 2007, the FASB issued SFAS No. 157, Fair Value Measurements. SFAS No. 157
defines fair value, establishes a framework for measuring fair value in GAAP, and expands
disclosures about fair value measurements. SFAS No. 157 does not require any new fair value
measurements. The definition of fair value retains the exchange price notion in earlier
definitions of fair value. SFAS No. 157 clarifies that the exchange price is the price in
an orderly transaction between market participants to sell the asset or transfer the
liability in the market in which the reporting entity would transact for the asset or
liability. The definition focuses on the price that would be received to sell the asset or
paid to transfer the liability (an exit price), not the price that would be paid to acquire
the asset or received to assume the liability (an entry price). SFAS No. 157 emphasizes
that fair value is a market-based measurement, not an entity-specific measurement. This
Statement is effective for financial statements issued for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal years. Early adoption is
permitted. 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 2007, the FASB issued SFAS 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). For defined benefit post-retirement plans, SFAS 158 requires that the funded
status be recognized in the statement of financial position, that assets and obligations
that determine funded status be measured as of the end of the employers fiscal year, and
that changes in funded status be recognized in comprehensive income in the year the changes
occur. SFAS 158 does not change the amount of net periodic benefit cost included in net
income or address measurement issues related to
defined benefit post-retirement plans. 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 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 Company is currently evaluating the impact the adoption of the standard will have on
the Companys results of operations.
 -12-




---



##### 



The Company adopted the provisions of FIN No. 48, Accounting for Uncertainty in Income
Taxes, an interpretation of FASB Statement 109, effective October 1, 2007. FIN No. 48
prescribes a recognition threshold and a measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a tax
return. Benefits from tax positions should be recognized in the financial statements only
when it is more likely than not that the tax position will be sustained upon examination by
the appropriate taxing authority that would have full knowledge of all relevant
information. A tax position that meets the more-likely-than-not recognition threshold is
measured at the largest amount of benefit that is greater than fifty percent likely of
being realized upon ultimate settlement. Tax positions that previously failed to meet the
more-likely-than-not recognition threshold should be recognized in the first subsequent
financial reporting period in which that threshold is met. Previously recognized tax
positions that no longer meet the more-likely-than-not recognition threshold should be
derecognized in the first subsequent financial reporting period in which that threshold is
no longer met. FIN No. 48 also provides guidance on the accounting for and disclosure of
unrecognized tax benefits, interest and penalties. Adoption of FIN No. 48 did not have a
significant impact on the Companys financial statements.In June 2007, the FASB ratified Emerging Issues Task Force Issue No. 06-11 (EITF 06-11),
Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards.EITF 06-11
applies to share-based payment arrangements with dividend protection features that entitle
employees to receive (a) dividends on equity-classified nonvested shares, (b) dividend
equivalents on equity-classified nonvested share units, or (c) payments equal to the
dividends paid on the underlying shares while an equity-classified share option is
outstanding, when those dividends or dividend equivalents are charged to retained earnings
under SFAS No. 123R, Share-Based Payment, and result in an income tax deduction for the
employer. A consensus was reached that a realized income tax benefit from dividends or
dividend equivalents that are charged to retained earnings and are paid to employees for
equity-classified nonvested equity shares, nonvested equity share units, and outstanding
equity share options should be recognized as an increase in additional paid-in capital.
EITF 06-11 is effective for fiscal years beginning after December 15, 2007, and interim
periods within those fiscal years. The Company is currently evaluating the impact the
adoption of the EITF will have on the Companys results of operations.
 -13-




---



##### 



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
   General
  Critical Accounting Policies
   -14-




---



##### 



Supervisory Agreements
      -15-




---



##### 



Comparison of Financial Condition at December 31, 2007 and September 30, 2007
  Comparison of Results of Operations for the Three Months Ended December 31, 2007 and 2006
 Net Income.
 Net Interest Income.
  -16-




---



##### 



For the three months endedDecember 31, 2007               December 31, 2006Average
    
    
    
    
    
    
    
    
    
    
    AverageAverage
    
    
    
    
    
    
    Yield/
    
    
    Average
    
    
    
    
    
    
    Yield/(Dollars in thousands)
    
    Balance
    
    
    Interest
    
    
    Cost
    
    
    Balance
    
    
    Interest
    
    
    CostInterest-earning assets:Loans receivable(1) (2)
    
    $
    286,475
    
    
    $
    4,671
    
    
    
    6.52
    %
    
    $
    321,525
    
    
    $
    5,355
    
    
    
    6.66
    %Mortgage-related securities(2)
    
    
    114,775
    
    
    
    1,380
    
    
    
    4.81
    
    
    
    106,734
    
    
    
    1,207
    
    
    
    4.52Investment securities
    
    
    38,034
    
    
    
    523
    
    
    
    5.50
    
    
    
    43,904
    
    
    
    548
    
    
    
    4.99Other interest-earning assets
    
    
    17,806
    
    
    
    162
    
    
    
    3.64
    
    
    
    10,658
    
    
    
    63
    
    
    
    2.37Total interest-earning assets
    
    
    457,090
    
    
    
    6,736
    
    
    
    5.90
    
    
    
    482,821
    
    
    
    7,173
    
    
    
    5.94Non-interest-earning assets
    
    
    34,602
    
    
    
    
    
    
    
    
    
    
    
    37,911Total assets
    
    $
    491,692
    
    
    
    
    
    
    
    
    
    
    $
    520,732Interest-bearing liabilities:Deposits
    
    $
    347,017
    
    
    
    2,678
    
    
    
    3.09
    
    
    $
    355,631
    
    
    
    2,704
    
    
    
    3.04FHLB advances and other borrowings
    
    
    87,704
    
    
    
    1,225
    
    
    
    5.59
    
    
    
    107,661
    
    
    
    1,505
    
    
    
    5.59Junior subordinated debentures
    
    
    15,264
    
    
    
    367
    
    
    
    9.64
    
    
    
    21,480
    
    
    
    502
    
    
    
    9.35Total interest-bearing liabilities
    
    
    449,985
    
    
    
    4,270
    
    
    
    3.80
    
    
    
    484,772
    
    
    
    4,711
    
    
    
    3.89Interest rate spread(3)
    
    
    
    
    
    
    
    
    
    
    2.10
    %
    
    
    
    
    
    
    
    
    
    
    2.05
    %Non-interest-bearing liabilities
    
    
    6,671
    
    
    
    
    
    
    
    
    
    
    
    7,048Total liabilities
    
    
    456,656
    
    
    
    
    
    
    
    
    
    
    
    491,820Stockholders equity
    
    
    35,036
    
    
    
    
    
    
    
    
    
    
    
    28,912Total liabilities and stockholders equity
    
    $
    491,692
    
    
    
    
    
    
    
    
    
    
    $
    520,732Net interest-earning assets
    
    $
    7,105
    
    
    
    
    
    
    
    
    
    
    $
    (1,951
    )Net interest income
    
    
    
    
    
    $
    2,466
    
    
    
    
    
    
    
    
    
    
    $
    2,462Net interest margin(3)
    
    
    
    
    
    
    
    
    
    
    2.16
    %
    
    
    
    
    
    
    
    
    
    
    2.04
    %Ratio of average interest-earning assets to
average interest-bearing liabilities
    
    
    
    
    
    
    
    
    
    
    101.58
    %
    
    
    
    
    
    
    
    
    
    
    99.60
    %
 
 (1)
    
    Includes non-accrual loans.(2)
    
    Includes assets classified as either
available for sale or held for sale.(3)
    
    Net interest income divided by average
interest-earning assets. -17-




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##### 



Provision for Loan Losses.
    Non-interest Income.
 Non-interest Expense.
 Income Tax Expense.
 -18-




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##### 



Liquidity and Capital Resources
    Impact of Inflation and Changing Prices
   -19-




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##### 



Item 3. Quantitative and Qualitative Disclosures About Market Risk
    Net Portfolio Value(Dollars in thousands)Changes in
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    NetRates in
    
    
    
    
    
    
    
    Dollar
    
    Percentage
    
    Portfolio Value AsBasis Points
    
    
    
    Amount
    
    Change
    
    Change
    
    a % of Assets
    
    Change300
    
    
    
    
    $
    44,795
    
    
    $
    (22,203
    )
    
    
    (33
    )%
    
    
    8.86
    %
    
    (370) bp200
    
    
    
    
    
    53,096
    
    
    
    (13,902
    )
    
    
    (21
    )
    
    
    10.30
    
    
    (226) bp100
    
    
    
    
    
    60,769
    
    
    
    (6,229
    )
    
    
    (9
    )
    
    
    11.58
    
    
    (98) bp50
    
    
    
    
    
    64,064
    
    
    
    (2,934
    )
    
    
    (4
    )
    
    
    12.10
    
    
    (46) bp0
    
    
    
    
    
    66,998
    
    
    
    
    
    
    
    
    
    
    
    12.56
    
    
     bp(50
    )
    
    
    
    
    68,436
    
    
    
    1,437
    
    
    
    2
    
    
    
    12.77
    
    
    20 bp(100
    )
    
    
    
    
    70,062
    
    
    
    3,063
    
    
    
    5
    
    
    
    13.00
    
    
    43 bp(200
    
    
    
    
    
    70,622
    
    
    
    3,624
    
    
    
    5
    
    
    
    13.01
    
    
    45 bp
 -20-




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##### 



Item 4. Controls and Procedures
   -21-




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##### 



PART II
 
 Legal Proceedings
  
 Risk Factors
  
 Unregistered Sales of Equity Securities and Use of Proceeds
   
 Defaults Upon Senior Securities
  
 Submission of Matters to a Vote of Security Holders
  VotesNominee
    
    For
    
    
    WithheldBruce C. Hendrixson
    
    
    1,750,222
    
    
    
    466,072Thomas M. Kelly
    
    
    1,750,747
    
    
    
    465,547
    
 Other Information
   -22-




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##### 



Exhibits
  ExhibitNo
    
    Description3.1
    
    Amended and Restated Articles of Incorporation of First Keystone Financial, Inc. 13.2
    
    Amended and Restated Bylaws of First Keystone Financial, Inc. 14.1
    
    Specimen Stock Certificate of First Keystone Financial, Inc. 24.2
    
    Instrument defining the rights of security holders **10.1
    
    Employment Agreement between First Keystone Financial, Inc. and
Thomas M. Kelly dated December 1, 2004 3,*10.2
    
    Severance Agreement between First Keystone Financial, Inc. and
Carol Walsh dated December 1, 2004 3,*10.3
    
    1995 Stock Option Plan 4, *10.4
    
    1995 Recognition and Retention Plan and Trust Agreement 5,*10.5
    
    1998 Stock Option Plan 5, *10.6
    
    Employment Agreement between First Keystone Bank and Thomas M. Kelly
dated December 1, 2004 3, *10.7
    
    Severance Agreement between First Keystone Bank and Carol Walsh
dated December 1, 2004 3, *10.8
    
    First Keystone Bank Supplemental Executive Retirement Plan 6,*10.9
    
    Amendment No. 1 to the Employment Agreement between First Keystone Financial, Inc. and
Thomas M. Kelly 7,*10.10
    
    Amendment No. 1 to the Employment Agreement between First Keystone Bank and Thomas M.
Kelly 7,*10.11
    
    Transition, Consulting, Noncompetition and Retirement Agreement by and between First
Keystone Financial, Inc., First Keystone Bank and Donald S. Guthrie 8,*10.12
    
    Letter dated December 11, 2006 with respect to appointment to Board 910.13
    
    Form of Registration Rights Agreement 1011
    
    Statement re: computation of per share earnings. See Note 2 to the Consolidated Financial
Statements included in Item 8 hereof.23.1
    
    Consent of S.R. Snodgrass, A.C.23.2
    
    Consent of Deloitte & Touche LLP31.1
    
    Section 302 Certification of Chief Executive Officer31.2
    
    Section 302 Certification of Chief Financial Officer32.1
    
    Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of
200232.2
    
    Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of
200299.1
    
    Codes of Ethics 1199.2
    
    Supervisory Agreement between First Keystone Financial, Inc. and the Office of Thrift
Supervision dated February 13, 2006. 1299.3
    
    Supervisory Agreement between First Keystone Bank and the Office of Thrift Supervision dated
February 13, 2006. 12
 
 (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. -23-




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##### 



(3)
    
    Incorporated by reference from Exhibits 10.5, 10.8, 10.14, and 10.16, respectively, in
the Form 8-K filed by the Registrant with the SEC on December 7, 2004 (File No. 000-25328).(4)
    
    Incorporated by reference from Exhibit 10.9 in the Form 10-K filed by the Registrant
with SEC on December 29, 1995 (File No. 000-25328).(5)
    
    Incorporated from Appendix A of the Registrant=s definitive proxy statement dated
December 24, 1998 (File No. 000-25328).(6)
    
    Incorporated by reference from Exhibit 10.17 in the Form 10-Q filed by the Registrant
with the SEC on May 17, 2004.(7)
    
    Incorporated by reference from Exhibits 10.19 and 10.20, respectively, in the Form 8-K
filed by the Registrant with the SEC on March 29, 2005.(8)
    
    Incorporated by reference from Exhibit 10.21 in the Form 8-K filed by the Registrant
with the SEC on March 29, 2005.(9)
    
    Incorporated by reference from Exhibit 10.1 in the Form 8-K filed by the Registrant
with the SEC on December 20, 2006.(10)
    
    Incorporated by reference from the Form 10-K filed by the Registrant with the SEC on
December 23, 2003.(11)
    
    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.(12)
    
    Incorporated by reference from the Form 10-K filed by the Registrant with the SEC on
December 29, 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. -24-




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##### 



SIGNATURES
  FIRST KEYSTONE FINANCIAL, INC.Date: February 14, 2008
    By:
    /s/ Thomas M. KellyThomas M. KellyPresident and Chief Executive OfficerDate: February 14, 2008
    By:
    /s/ Rose M. DiMarcoRose M. DiMarcoChief Financial Officer -25-