<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

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

      For the quarterly period ended June 30, 2005

                                       OR

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

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

                        Commission File Number: 000-25328

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

           Pennsylvania                                    23-2576479
---------------------------------                    ----------------------
(State or other jurisdiction                            (I.R.S. Employer
of incorporation or organization)                    Identification Number)

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

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

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

Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act) Yes [ ] No [X]

Number of shares of Common Stock outstanding as of August 8, 2005: 2,023,534

<PAGE>

                         FIRST KEYSTONE FINANCIAL, INC.

                                    CONTENTS

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

     Item 1. Condensed Financial Statements

             Unaudited Consolidated Statements of Financial Condition as of
             June 30, 2005 and September 30, 2004                                                     1

             Unaudited Consolidated Statements of Income for the Three and Nine
             Months Ended June 30, 2005 and 2004                                                      2

             Unaudited Consolidated Statement of Changes in Stockholders' Equity
             for the Nine Months Ended June 30, 2005 and 2004                                         3

             Unaudited Consolidated Statements of Cash Flows for the Nine Months
             Ended June 30, 2005 and 2004                                                             4

             Notes to Unaudited Consolidated Financial Statements                                     5

     Item 2. Management's Discussion and Analysis of Financial Condition and
             Results of Operations                                                                   13

     Item 3. Quantitative and Qualitative Disclosures About Market Risk                              22

     Item 4. Controls and Procedures                                                                 22

PART II      OTHER INFORMATION

     Item 1.   Legal Proceedings                                                                     23

     Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds                           23

     Item 3.   Defaults Upon Senior Securities                                                       23

     Item 4.   Submission of Matters to a Vote of Security Holders                                   23

     Item 5.   Other Information                                                                     23

     Item 6.   Exhibits                                                                              23

     SIGNATURES                                                                                      26
</TABLE>

<PAGE>

FIRST KEYSTONE FINANCIAL, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(dollars in thousands, except share amounts)

<TABLE>
<CAPTION>
                                                                                         June 30,     September 30,
                                                                                          2005           2004
                                                                                        ---------     -------------
<S>                                                                                     <C>           <C>
ASSETS

Cash and amounts due from depository institutions                                       $   4,780     $      5,185
Interest-bearing deposits with depository institutions                                     12,418           12,790
                                                                                        ---------     ------------
        Total cash and cash equivalents                                                    17,198           17,975
Investment securities available for sale                                                   47,380           63,615
 Mortgage-related securities available for sale                                           113,371           97,620
 Loans held for sale                                                                           24              172
Investment securities held to maturity- at amortized cost
    (approximate fair value of $4,337 at June 30, 2005                                      4,271            5,287
     and $5,370 at September 30, 2004)
Mortgage-related securities held to maturity - at amortized cost (approximate
    fair value of $49,280 at June 30, 2005 and $37,312 at September 30, 2004)              49,682           37,363
Loans receivable (net of allowance for loan losses of $3,471 at June 30, 2005
    and $2,039 at September 30, 2004)                                                     303,558          304,248
Accrued interest receivable                                                                 2,589            2,577
Real estate owned                                                                             920            1,229
Federal Home Loan Bank stock - at cost                                                      8,718            9,827
Office properties and equipment, net                                                        4,862            4,275
Deferred income taxes                                                                       1,052              657
Cash surrender value of life insurance                                                     16,676           16,110
Prepaid expenses and other assets                                                           3,280           10,964
                                                                                        ---------     ------------

TOTAL ASSETS                                                                            $ 573,581     $    571,919
                                                                                        =========     ============

LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:

    Deposits                                                                            $ 358,360     $    344,880
    Advances from Federal Home Loan Bank and other borrowings                             155,505          171,149
    Junior subordinated debentures                                                         21,529           21,557
    Accrued interest payable                                                                1,211            1,095
    Advances from borrowers for taxes and insurance                                         3,086              815
    Accounts payable and accrued expenses                                                   4,457            2,725
                                                                                        ---------     ------------

         Total liabilities                                                                544,148          542,221
                                                                                        ---------     ------------

Commitments and contingencies
Stockholders' Equity:

    Preferred stock, $.01 par value, 10,000,000 shares authorized; none issued
    Common stock, $.01 par value, 20,000,000 shares authorized; issued 2,712,556
       shares; outstanding at June 30, 2005 and September 30, 2004, 2,022,378
       and 1,927,744 shares, respectively                                                      14               14
    Additional paid-in capital                                                             12,895           13,622
    Employee stock ownership plan                                                          (3,208)          (3,189)
    Treasury stock at cost: 690,178 shares at June 30, 2005 and 787,219 shares
        at September 30, 2004                                                             (10,608)         (11,913)
    Accumulated other comprehensive income                                                    966            1,734
    Retained earnings - partially restricted                                               29,374           29,430
                                                                                        ---------     ------------

         Total stockholders' equity                                                        29,433           29,698
                                                                                        ---------     ------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                              $ 573,581     $    571,919
                                                                                        =========     ============
</TABLE>

See notes to unaudited consolidated financial statements.



<PAGE>

FIRST KEYSTONE FINANCIAL, INC.

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

<TABLE>
<CAPTION>
                                                                   Three months ended            Nine months ended
                                                                        June 30,                      June 30,
                                                                  --------------------          -------------------
                                                                    2005        2004              2005       2004
                                                                  ---------   --------          ---------  --------
<S>                                                               <C>         <C>               <C>        <C>
INTEREST INCOME:
Interest and fees on loans                                        $   4,446   $  4,332          $  13,317  $ 13,155
Interest and dividends on:
   Mortgage-related securities                                        1,662      1,327              4,615     3,852
   Investment securities:
       Taxable                                                          339        525              1,117     1,680
       Tax-Exempt                                                       195        220                568       641
       Dividends                                                        105         84                462       200
Interest-bearing deposits                                                41         17                122        52
                                                                  ---------   --------          ---------  --------
           Total interest income                                      6,788      6,505             20,201    19,580
                                                                  ---------   --------          ---------  --------
INTEREST EXPENSE:
      Interest on:
        Deposits                                                      1,625      1,405              4,551     4,481
        Federal Home Loan Bank advances and other borrowings          1,888      1,763              5,716     5,265
        Junior subordinated debentures                                  450        418              1,328     1,246
                                                                  ---------   --------          ---------  --------
           Total interest expense                                     3,963      3,586             11,595    10,992
                                                                  ---------   --------          ---------  --------

NET INTEREST INCOME                                                   2,825      2,919              8,606     8,588

PROVISION FOR LOAN LOSSES                                             1,645         75              1,735       225
                                                                  ---------   --------          ---------  --------

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES                   1,180      2,844              6,871     8,363
                                                                  ---------   --------          ---------  --------

NON-INTEREST INCOME:
    Service charges and other fees                                      379        287              1,176       812
    Net gain on sales of:
        Loans held for sale                                              29         11                 66        43
        Investment and mortgage-related securities                       15          6                539     1,471
    Increase in cash surrender value of life insurance                  155        159                565       628
    Other real estate fees                                               --         --                 --       550
    Other income                                                        105        112                337       304
                                                                  ---------   --------          ---------  --------
           Total non-interest income                                    683        575              2,683     3,808
                                                                  ---------   --------          ---------  --------

NON-INTEREST EXPENSE:
    Salaries and employee benefits                                    1,398      1,357              4,639     5,472
    Occupancy and equipment                                             405        297              1,150       923
    Professional fees                                                   260        195                789       679
    Federal deposit insurance premium                                    12         13                 37        40
    Data processing                                                     138        120                402       356
    Advertising                                                         106         92                289       274
    Net cost of operation of other real estate                            4          2                 10       179
    Deposit processing                                                  158        157                474       462
    Other                                                               465        413              1,406     1,289
                                                                  ---------   --------          ---------  --------
           Total non-interest expense                                 2,946      2,646              9,196     9,674
                                                                  ---------   --------          ---------  --------
(LOSS) INCOME BEFORE INCOME TAX (BENEFIT) EXPENSE                    (1,083)       773                358     2,497
INCOME TAX (BENEFIT) EXPENSE                                           (470)       146               (190)      501
                                                                  ---------   --------          ---------  --------

NET (LOSS) INCOME                                                 $    (613)  $    627          $     548  $  1,996
                                                                  =========   ========          =========  ========

BASIC EARNINGS (LOSS) PER COMMON SHARE                            $   (0.33)  $   0.34          $    0.30  $   1.09
                                                                  =========   ========          =========  ========

DILUTED EARNINGS (LOSS) PER COMMON SHARE                          $  ( 0.32)  $   0.32          $    0.30  $   1.02
                                                                  =========   ========          =========  ========
</TABLE>

See notes to unaudited consolidated financial statements.

                                       2

<PAGE>

FIRST KEYSTONE FINANCIAL, INC.

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

<TABLE>
<CAPTION>
                                                                    Employee                Accumulated    Retained
                                                        Additional   stock                     other      earnings-       Total
                                               Common     paid-in   ownership  Treasury    comprehensive  partially   stockholders'
                                               stock     capital      plan      stock         income      restricted     equity
                                              --------  ----------  ---------  ---------   -------------  ----------  -------------
<S>                                           <C>       <C>         <C>        <C>         <C>            <C>         <C>
BALANCE AT OCTOBER 1, 2004                    $     14  $   13,622  $  (3,189) $ (11,913)  $       1,734  $   29,430  $      29,698
Net income                                          --          --         --         --              --         548            548
Other comprehensive income, net of tax:
   Net unrealized loss on securities
     net of reclassification adjustment(1)          --          --         --         --            (768)         --           (768)
                                              --------  ----------  ---------  ---------   -------------  ----------  -------------
Comprehensive loss                                  --          --         --         --              --          --           (220)
                                              --------  ----------  ---------  ---------   -------------  ----------  -------------

Common stock acquired by stock benefit plans        --          --        (72)        --              --          --            (72)
ESOP stock committed to be released                 --          --         53         --              --          --             53
Excess of fair value above cost of
   ESOP shares committed to be released             --          40         --         --              --          --             40
Purchase of treasury stock                          --          --         --       (110)             --          --           (110)
Exercise of stock options                           --        (767)        --      1,415              --          --            648
Dividends - $.33 per share                          --          --         --         --              --        (604)          (604)
                                              --------  ----------  ---------  ---------   -------------  ----------  -------------
BALANCE AT JUNE  30, 2005                     $     14  $   12,895  $  (3,208) $ (10,608)  $         966  $   29,374  $      29,433
                                              ========  ==========  =========  =========   =============  ==========  =============

BALANCE AT OCTOBER 1, 2003                    $     14  $   13,443  $    (830) $ (11,378)  $       3,069  $   28,070  $      32,388
Net income                                          --          --         --         --              --       1,996          1,996
Other comprehensive income, net of tax:
   Net unrealized loss on securities
     net of reclassification adjustment(1)          --          --         --         --          (2,912)         --         (2,912)
                                              --------  ----------  ---------  ---------   -------------  ----------  -------------

Comprehensive loss                                  --          --         --         --              --          --           (916)
                                              --------  ----------  ---------  ---------   -------------  ----------  -------------

Common stock acquired by stock benefit plans        --          --     (2,359)        --              --          --         (2,359)
ESOP shares committed to be released                --          --        213         --              --          --            213
Excess of fair value above cost of
   ESOP shares committed to be released             --         407         --         --              --          --            407
Purchase of treasury stock                          --          --         --     (1,339)             --          --         (1,339)
Exercise of stock options                           --        (366)        --        783              --          --            417
Dividends - $.33 per share                          --          --         --         --              --        (631)          (631)
                                              --------  ----------  ---------  ---------   -------------  ----------  -------------
BALANCE AT JUNE 30, 2004                      $     14  $   13,484  $  (2,976) $ (11,934)  $         157  $   29,435  $      28,180
                                              ========  ==========  =========  =========   =============  ==========  =============
</TABLE>

-------------
(1)   Disclosure of reclassification amount, net of tax:

<TABLE>
<CAPTION>
                                                                                  June 30,
                                                                            ---------------------
                                                                              2005        2004
                                                                            --------    ---------
<S>                                                                         <C>         <C>
Net unrealized depreciation arising during the period                       $ (1,124)   $  (3.883)
Less: reclassification adjustment for net gains included in net income
     (net of tax of $183 and $500, respectively)                                 356          971
                                                                            --------    ---------
Net unrealized loss on securities                                           $   (768)   $  (2,912)
                                                                            ========    =========

</TABLE>

See notes to unaudited consolidated financial statements.

                                       3
<PAGE>

FIRST KEYSTONE FINANCIAL, INC.

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

<TABLE>
<CAPTION>
                                                                                                       Nine months ended
                                                                                                            June 30,
                                                                                                     ----------------------
                                                                                                       2005          2004
                                                                                                     --------      --------
<S>                                                                                                  <C>           <C>
OPERATING ACTIVITIES:
     Net income                                                                                      $    548      $  1,996
     Adjustments to reconcile net income to net cash provided by (used in) operating activities:
       Provision for depreciation and amortization                                                        398           361
       Amortization of premiums and discounts                                                             395           418
       Increase in cash surrender value of life insurance                                                (566)         (647)
       (Gain) loss on sales of:
           Loans held for sale                                                                            (66)          (43)
           Investment securities                                                                         (539)       (1,475)
           Mortgage-related securities                                                                     --             4
           Real estate owned                                                                                3            --
           Provision for loan losses                                                                    1,735           225
       Amortization of ESOP                                                                                93           620
       Changes in assets and liabilities which provided (used) cash:
           Origination of loans held for sale                                                         (10,659)       (7,577)
           Loans sold in the secondary market                                                          10,807         7,732
           Accrued interest receivable                                                                    (12)           58
           Prepaid expenses and other assets                                                            7,684         1,620
           Accrued interest payable                                                                       116           (57)
           Accounts payable and accrued expenses                                                        1,732          (572)
                                                                                                     --------      --------
               Net cash provided by operating activities                                               11,669         2,663
                                                                                                     --------      --------

INVESTING ACTIVITIES:
     Loans originated                                                                                 (96,703)      (96,600)
     Purchases of:
       Mortgage-related securities available for sale                                                 (38,890)      (20,210)
       Investment securities available for sale                                                        (7,700)       (3,716)
       Mortgage-related securities held to maturity                                                   (18,591)      (34,991)
     Redemption (purchase) of FHLB stock                                                                1,109          (670)
     Insurance proceeds on real estate owned                                                               29            --
     Proceeds from sales of real estate owned                                                             252           335
     Proceeds from sales of investment and mortgage-related securities                                 26,523         9,474
     Principal collected on loans                                                                      95,806        89,353
     Proceeds from maturities, calls, or repayments of:
       Investment securities available for sale                                                           687         9,277
       Mortgage-related securities available for sale                                                  18,912        33,222
       Mortgage-related securities held to maturity                                                     6,136         2,472
       Investment securities held to maturity                                                           1,000            --
     Purchase of property and equipment                                                                  (985)         (631)
                                                                                                     --------      --------
               Net cash used in investing activities                                                  (12,415)      (12,685)
                                                                                                     --------      --------

FINANCING ACTIVITIES:
     Net increase (decrease) in deposit accounts                                                       13,480       (12,741)
     Net (decrease) increase in FHLB advances                                                         (15,644)       21,512
     Common stock acquired by ESOP                                                                        (72)       (2,359)
     Net increase in advances from borrowers for taxes and insurance                                    2,271         2,015
     Exercise of stock options                                                                            648           417
     Purchase of treasury stock                                                                          (110)       (1,339)
     Cash dividends                                                                                      (604)         (631)
                                                                                                     --------      --------
           Net cash (used in) provided by financing activities                                            (31)        6,874
                                                                                                     --------      --------
DECREASE IN CASH AND CASH EQUIVALENTS                                                                    (777)       (3,148)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                                       17,975        21,190
                                                                                                     --------      --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD                                                           $ 17,198      $ 18,042
                                                                                                     ========      ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW AND NON-CASH INFORMATION:
     Cash payments for interest on deposits and borrowings                                           $ 11,479      $ 11,049
     Transfer of loans held for sale to loan portfolio                                                     --         4,186
     Transfers of loans receivable into real estate owned                                                  --           153
     Cash payments of income taxes                                                                        300           130
</TABLE>

See notes to unaudited consolidated financial statements.

                                       4
<PAGE>
FIRST KEYSTONE FINANCIAL, INC.

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

1.    BASIS OF PRESENTATION

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

      The results of operations for the three and nine month periods ended June
      30, 2005 are not necessarily indicative of the results to be expected for
      the fiscal year ending September 30, 2005 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 Company's Form 10-K for the year ended
      September 30, 2004.

2.    INVESTMENT SECURITIES

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

<TABLE>
<CAPTION>
                                                               June 30, 2005
                                   -------------------------------------------------------------------
                                                           Gross            Gross
                                     Amortized          Unrealized        Unrealized       Approximate
                                       Cost                Gain              Loss           Fair Value
                                   -------------        ----------        ----------       -----------
<S>                                <C>                  <C>               <C>              <C>
Available for Sale:
   U.S. Government bonds
       Less than 1 year            $       1,699        $       --        $       (5)      $     1,694
       5 -10 years                         1,997                 1                --             1,998
   Municipal obligations
       5 to 10 years                         130                 4                --               134
       Over 10 years                      12,632               445                --            13,077
   Corporate bonds
       Less than 1 year                    1,000                 5                --             1,005
       1 to 5 years                        1,000                93                --             1,093
       5 to 10 years                       2,000                --               (19)            1,981
       Over 10 years                       7,998               377               (19)            8,356
   Asset-backed securities
       1 to 5 years                          731                 4                --               735
   Mutual funds                           14,009                --              (329)           13,680
   Other equity investments                1,756             1,902               (31)            3,627
                                   -------------        ----------        ----------       -----------

                Total              $      44,952        $    2,831        $     (403)      $    47,380
                                   =============        ==========        ==========       ===========

Held to Maturity:
   Municipal obligations
       5 to 10 years               $       3,259        $       70        $      (--)      $     3,329
   Corporate bonds
       Less than 1 year                    1,012                --                (4)            1,008
                                   -------------        ----------        ----------       -----------

            Total                  $       4,271        $       70        $       (4)      $     4,337
                                   =============        ==========        ==========       ===========
</TABLE>

                                        5
<PAGE>

      The table below sets forth investment securities which have an unrealized
      loss position as of June 30, 2005.

<TABLE>
<CAPTION>
                       Less than 12 Months  12 Months or Longer         Total
                       -------------------  -------------------  --------------------
                        Fair    Unrealized   Fair    Unrealized    Fair    Unrealized
                        Value     Losses     Value     Losses      Value     Losses
                       -------  ----------  -------  ----------  --------  ----------
<S>                    <C>      <C>         <C>      <C>         <C>       <C>
U.S. Government and
  Agency bonds         $ 1,694  $       (5) $    --  $       --  $  1,694  $       (5)
Municipal
  obligations               --          --       --          --        --          --
Corporate bonds          4,090         (42)      --          --     4,090         (42)
Mutual funds                --          --   13,680        (329)   13,680        (329)
Equity investments         546         (31)      --          --       546         (31)
                       -------  ----------  -------  ----------  --------  ----------

Total                  $ 6,330  $      (78) $13,680  $     (329) $ 20,010  $     (407)
                       -------  ----------  -------  ==========  ========  ==========
</TABLE>

      At June 30, 2005, investment securities in a gross unrealized loss
      position for twelve months or longer consisted of shares in mutual funds
      that at such date had an aggregate depreciation of 2.4% 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. The Company has the ability and intent to hold
      these securities until the anticipated recovery of fair value occurs.
      Management does not believe any individual unrealized loss as of June 30,
      2005 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:

<TABLE>
<CAPTION>
                                                       September 30, 2004
                                     --------------------------------------------------
                                                    Gross        Gross
                                     Amortized    Unrealized   Unrealized   Approximate
                                       Cost          Gain         Loss      Fair Value
                                     ---------    ----------   ----------   -----------
<S>                                  <C>          <C>          <C>          <C>
Available for Sale:
  U.S. Government and agency bonds
     1 to 5 years                    $  14,694    $       --   $     (199)  $    14,495
  Municipal obligations
     5 to 10 years                         130             6           --           136
     Over 10 years                      11,833           412           --        12,245
  Corporate bonds
     Less than 1 year                    1,000            43           --         1,043
     1 to 5 years                        4,968           479           --         5,447
     5 to 10 years                       2,000            --           (5)        1,995
     Over 10 years                       5,341           248           --         5,589
  Asset-backed securities
     1 to 5 years                        1,189             8           --         1,197
  Mutual funds                          14,009            --         (205)       13,804
  Preferred stocks                       3,900            --           --         3,900
  Other equity investments               1,755         2,009           --         3,764
                                     ---------    ----------   ----------   -----------

       Total                         $  60,819    $    3,205   $     (409)  $    63,615
                                     =========    ==========   ==========   ===========

Held to Maturity:
  Municipal obligations
     5 to 10 years                   $   3,260    $       50   $       --   $     3,310
  Corporate bonds
     Less than 1 year                    1,002            21           --         1,023
     1 to 5 years                        1,025            12           --         1,037
                                     ---------    ----------   ----------   -----------

       Total                         $   5,287    $       83   $       --   $     5,370
                                     =========    ==========   ==========   ===========
</TABLE>

                                       6
<PAGE>

3.    MORTGAGE-RELATED SECURITIES

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

<TABLE>
<CAPTION>
                                                            June 30, 2005
                                          --------------------------------------------------
                                                         Gross        Gross
                                          Amortized    Unrealized   Unrealized   Approximate
                                            Cost          Gain         Loss      Fair Value
                                          ---------    ----------   ----------   -----------
<S>                                       <C>          <C>          <C>          <C>
Available for Sale:
    FHLMC pass-through certificates       $   4,926    $        5   $      (79)  $     4,852
    FNMA pass-through certificates           48,683           165         (460)       48,388
    GNMA pass-through certificates            4,262            15          (34)        4,243
    Collateralized mortgage obligations      56,464            66         (642)       55,888
                                          ---------    ----------   ----------   -----------

        Total                             $ 114,335    $      251   $   (1,215)  $   113,371
                                          =========    ==========   ==========   ===========

Held to Maturity:
    FHLMC pass-through certificates       $  18,193    $       17   $     (188)  $    18,022
    FNMA pass-through certificates           31,131            26         (254)       30,903
    Collateralized mortgage obligations         358            --           (3)          355
                                          ---------    ----------   ----------   -----------

        Total                             $  49,682    $       43   $     (445)  $    49,280
                                          =========    ==========   ==========   ===========
</TABLE>

      The table below sets forth mortgage-related securities which have an
      unrealized loss position as of June 30, 2005.

<TABLE>
<CAPTION>
                       Less than 12 Months   12 Months or Longer         Total
                       --------------------  -------------------  --------------------
                        Fair     Unrealized   Fair    Unrealized    Fair    Unrealized
                        Value      Losses     Value     Losses      Value     Losses
                       --------  ----------  -------  ----------  --------  ----------
<S>                    <C>       <C>         <C>      <C>         <C>       <C>
Pass-through
  certificates         $ 66,649  $     (663) $17,276  $     (352) $ 83,925  $   (1,015)
Collateralized
  mortgage
  obligations            34,421        (346)  13,421        (299)   47,842        (645)
                       --------  ----------  -------  ----------  --------  ----------
Total                  $101,070  $   (1,009) $30,697  $     (651) $131,767  $   (1,660)
                       ========  ==========  =======  ==========  ========  ==========
</TABLE>

      At June 30, 2005, mortgage-related securities in a gross unrealized loss
      position for twelve months or longer consist of 18 securities having an
      aggregate depreciation of 2.1% from the Company's amortized cost basis.
      Management does not believe any individual unrealized loss as of June 30,
      2005 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
      primarily attributable to changes in interest rates and not from the
      deterioration of the creditworthiness of the issuer.

                                       7
<PAGE>

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

<TABLE>
<CAPTION>
                                                            September 30, 2004
                                          --------------------------------------------------
                                                         Gross        Gross
                                          Amortized    Unrealized   Unrealized   Approximate
                                            Cost          Gain         Loss      Fair Value
                                          ---------    ----------   ----------   -----------
<S>                                       <C>          <C>          <C>          <C>
Available for Sale:

    FHLMC pass-through certificates      $    5,838    $       15   $      (42)  $     5,811
    FNMA pass-through certificates           42,805           259         (203)       42,861
    GNMA pass-through certificates            1,250            20           --         1,270
    Collateralized mortgage obligations      47,895           141         (358)       47,678
                                         ----------    ----------   ----------   -----------

        Total                            $   97,788    $      435   $     (603)  $    97,620
                                         ==========    ==========   ==========   ===========

Held to Maturity:

    FHLMC pass-through certificates      $   16,226    $       85   $     (101)  $    16,210
    FNMA pass-through certificates           20,613            74         (106)       20,581
    Collateralized mortgage obligations         524            --           (3)          521
                                         ----------    ----------   ----------   -----------

        Total                            $   37,363    $      159   $     (210)  $    37,312
                                         ==========    ==========   ==========   ===========
</TABLE>

4.    LOANS RECEIVABLE

      Loans receivable consist of the following:

                                         June 30,      September 30,
                                           2005            2004
                                         ----------    ----------
Real estate loans:
     Single-family                       $  153,164    $   163,907
     Construction and land                   35,380         38,078
     Multi-family and commercial             72,469         64,509
     Home equity and lines of credit         46,082         43,621
Consumer loans                                1,490          1,471
Commercial loans                             11,395         10,624
                                         ----------    -----------
     Total loans                            319,980        322,210
Loans in process                            (12,766)       (15,807)
Allowance for loan losses                    (3,471)        (2,039)
Deferred loan fees                             (185)          (116)
                                         ----------    -----------

Loans receivable - net                   $  303,558    $   304,248
                                         ==========    ===========

      At June 30, 2005 and September 30, 2004, non-performing loans (which
      include loans in excess of 90 days delinquent) amounted to approximately
      $4,796 and $2,033, respectively. At June 30, 2005, non-performing loans
      primarily consisted of single-family residential mortgage loans
      aggregating $767, commercial real estate loans aggregating $3,837 and home
      equity lines of credit totaling $167.

      At June 30, 2005 and September 30, 2004, the Company had impaired loans
      with a total recorded investment of $3,837 and $0, respectively. Interest
      income of $39 was recognized on these impaired loans during the nine
      months ended June 30, 2005. Interest income of approximately $227 was not
      recognized as interest income due to the non-accrual status of loans for
      the nine months ended June 30, 2005.

                                       8
<PAGE>

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

<TABLE>
<CAPTION>
                                   Nine Months Ended
                                       June 30,
                               ------------------------
                                  2005          2004
                               ----------    ----------
<S>                            <C>           <C>
Balance beginning of period    $    2,039    $    1,986
Provisions charged to income        1,735           225
Charge-offs                          (303)         (150)
Recoveries                             --            68
                               ----------    ----------
Total                          $    3,471    $    2,129
                               ==========    ==========
</TABLE>

The Company has identified the evaluation of the allowance for loan losses as a
critical accounting estimate where amounts are sensitive to material variation.
The Company is constantly challenging the methodology, conducting assessments
and redefining the process to determine the appropriate level of allowance for
loan losses. Critical accounting estimates are significantly affected by
management's judgment and uncertainties and there is a likelihood that
materially different amounts would be reported under different, but reasonable,
conditions or assumptions. The allowance for loan losses is considered a
critical accounting estimate because there is a large degree of judgment in (i)
assigning individual loans to specific risk levels (pass, special mention,
substandard, doubtful and loss), (ii) valuing the underlying collateral securing
the loans, (iii) determining the appropriate reserve factor to be applied to
specific risk levels for criticized and classified loans (special mention,
substandard, doubtful and loss) and (iv) determining reserve factors to be
applied to pass loans based upon loan type. Management reviews the allowance for
loan losses generally on a monthly basis, but at least quarterly. To the extent
that loans change risk levels, collateral values change or reserve factors
change, the Company may need to adjust its provision for loan losses which would
impact earnings. In this framework, a series of qualitative factors are used in
a methodology as a measurement of how current circumstances are affecting the
loan portfolio. Included, among other things, in these qualitative factors are
past loss experience, type and volume of loans, changes in lending policies and
procedures, underwriting standards, collections, charge-offs and recoveries,
national and local economic conditions, concentrations of credit, and the effect
of external factors on the level of estimated credit losses in the current
portfolio.

The determination of the allowance for loan losses requires management to make
significant estimates with respect to the amounts and timing of losses and
market and economic conditions. Accordingly, a decline in the economy could
increase loan delinquencies, foreclosures or repossessions resulting in
increased charge-off amounts and the need for additional loan loss allowances in
future periods. The Company will continue to monitor and adjust its allowance
for loan losses through the provision for loan losses as economic conditions and
other factors dictate. Although the Company maintains its allowance for loan
losses at levels considered adequate to provide for the amount of known and
inherent loss in its loan portfolio, there can be no assurance that future
losses will not exceed estimated amounts or that additional provisions for loan
losses will not be required in future periods. In addition, the Company's
determination as to the amount of its allowance for loan losses is subject to
review by the Bank's primary regulator, the Office of Thrift Supervision (the
"OTS"), as part of its examination process, which may require the recognition of
an adjustment to the allowance for loan losses based on its judgment of
information available to it at the time of its examination. To the extent that
actual outcomes differ from management's estimates, additional provisions to the
allowance for loan losses may be required that would adversely impact earnings
in future periods.

For the three and nine months ended June 30, 2005, the Company recorded a
provision of $1,645 and $1,735, respectively.

                                       9
<PAGE>

5.    DEPOSITS

      Deposits consist of the following major classifications:

<TABLE>
<CAPTION>
                                         June 30,            September 30,
                                           2005                  2004
                                   -------------------    -------------------
                                    Amount     Percent     Amount     Percent
                                   --------    -------    --------    -------
<S>                                <C>         <C>        <C>         <C>
Non-interest bearing               $ 19,825       5.5%    $ 21,046       6.1%
Interest bearing:
         NOW                         70,345      19.6       55,864      16.2
         Passbook                    50,891      14.2       51,371      14.9
         Money market demand         50,262      14.0       51,682      15.0
         Certificates of deposit    167,037      46.7      164,917      47.8
                                   --------     -----     --------     -----
Total                              $358,360     100.0%    $344,880     100.0%
                                   ========     =====     ========     =====
</TABLE>

6.    EARNINGS PER SHARE

      Basic net income per share is based upon the weighted average number of
      common shares outstanding, while diluted net income per share is based
      upon the weighted average number of common 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 June 30, 2005, anti-dilutive shares consisted
      of options covering 408 shares. No anti-dilutive shares existed at June
      30, 2004.

      The calculated basic and diluted earnings per share ("EPS") is as follows:

<TABLE>
<CAPTION>
                                 For the Three Months Ended     For the Nine Months Ended
                                           June 30,                      June 30,
                                ----------------------------   ---------------------------
                                    2005            2004           2005           2004
                                ------------    ------------   ------------   ------------
<S>                             <C>             <C>            <C>            <C>
Numerator - Net (loss) income   $       (613)   $        627   $        548   $      1,996
Denominators:
   Basic shares outstanding        1,874,143       1,835,609      1,827,849      1,831,822
   Effect of dilutive shares          38,636         120,546         18,472        121,281
                                ------------    ------------   ------------   ------------
   Diluted shares outstanding      1,912,779       1,956,155      1,846,321      1,953,103
                                ============    ============   ============   ============
EPS:
   Basic                        $      (0.33)   $       0.34   $       0.30   $       1.09
   Diluted                      $      (0.32)   $       0.32   $       0.30   $       1.02
</TABLE>

                                       10
<PAGE>

7.    STOCK-BASED COMPENSATION

      The Company applies APB Opinion No. 25, "Accounting for Stock Issued to
      Employees" and related interpretations in accounting for stock options
      and, accordingly, no compensation expense has been recognized in the
      financial statements. Had the Company determined compensation expense
      based on the fair value at the grant date for its stock options in
      accordance with the fair value method in SFAS No. 123, "Accounting for
      Stock-Based Compensation," the Company's net (loss) income and earnings
      per share would have been reduced to the pro forma amounts indicated
      below.

<TABLE>
<CAPTION>
                                                      Three Months Ended         Nine Months Ended
                                                           June 30,                  June 30,
                                                   ------------------------   -----------------------
                                                      2005          2004         2005         2004
                                                   ----------    ----------   ----------   ----------
<S>                                                <C>           <C>          <C>          <C>
Net (loss) income, as reported                     $     (613)   $      627   $      548   $    1,996
Less: Total stock-based employee compensation
      expense determined under fair value method
      for all options, net of tax                           4             5           12           15
                                                   ----------    ----------   ----------   ----------

Pro forma net (loss) income                        $     (617)   $      622   $      536   $    1,981
                                                   ==========    ==========   ==========   ==========

(Loss) earnings per share:

   Basic - as reported                             $    (0.33)   $     0.34   $     0.30   $     1.09

   Basic - pro forma                               $    (0.33)   $     0.34   $     0.29   $     1.08

   Diluted - as reported                           $    (0.32)   $     0.32   $     0.30   $     1.02

   Diluted - pro forma                             $    (0.32)   $     0.32   $     0.29   $     1.01
</TABLE>

      In December 2004, the Financial Accounting Standards Board ("FASB") issued
      SFAS No. 123 (Revised 2004), "Share-Based Payment" (SFAS 123(R)). This
      Statement revises SFAS No. 123 by eliminating the option to account for
      employee stock options under APB No. 25 and generally requires companies
      to recognize the cost of employee services received in exchange for awards
      of equity instruments based on the grant-date fair value of those awards
      (the "fair-value-based" method). The provisions of SFAS 123(R) were to be
      effective for the Company's financial statements issued for the first
      interim period beginning after June 15, 2005. However, the SEC in April
      2005 amended the compliance dates such that SFAS 123(R) becomes effective
      at the beginning of the fiscal year that begins after June 15, 2005.
      Accordingly, the Company will adopt SFAS 123(R) on October 1, 2005 and
      plans to use the modified prospective method. In management's opinion, the
      impact of adopting SFAS 123(R) will be generally consistent with the
      impact disclosed above pursuant to the pro forma disclosure requirements
      of SFAS No. 123.

                                       11
<PAGE>

8.    RECENT ACCOUNTING PRONOUNCEMENTS

      In March 2004, the FASB Emerging Issues Task Force ("EITF") reached a
      consensus regarding EITF 03-1, "The Meaning of Other-Than-Temporary
      Impairment and Its Application to Certain Investments." The consensus
      provides guidance for evaluating whether an investment is
      other-than-temporarily impaired and was effective for other-than-temporary
      impairment evaluations made in reporting periods beginning after June 15,
      2004. However, the guidance contained in paragraphs 10-20 of this Issue
      has been delayed by FASB Staff Position ("FSP") EITF Issue 03-1-1,
      "Effective Date of Paragraphs 10-20 of EITF Issue No. 03-1, The Meaning of
      Other-Than-Temporary Impairment and Its Application to Certain
      Investments," posted September 30, 2004. On June 29, 2005, the Board
      decided not to provide additional guidance on the meaning of
      other-than-temporary impairment, but directed the staff to issue proposed
      FSP EITF 03-1-a, "Implementation Guidance for the Application of Paragraph
      16 of EITF Issue No. 03-1," as final. The final FSP will supersede EITF
      Issue No. 03-1, "The Meaning of Other-Than-Temporary Impairment and Its
      Application to Certain Investments," and EITF Topic No. D-44, "Recognition
      of Other-Than-Temporary Impairment upon the Planned Sale of a Security
      Whose Cost Exceeds Fair Value." The final FSP (retitled FSP FAS 115-1,
      "The Meaning of Other-Than-Temporary Impairment and Its Application to
      Certain Investments") will replace the guidance set forth in paragraphs
      10-18 of Issue 03-1 with references to existing other-than-temporary
      impairment guidance, such as FASB Statement No. 115, "Accounting for
      Certain Investments in Debt and Equity Securities", SEC Staff Accounting
      Bulletin No. 59, "Accounting for Noncurrent Marketable Equity Securities",
      and APB Opinion No. 18, "The Equity Method of Accounting for Investments
      in Common Stock." FSP FAS 115-1 will codify the guidance set forth in EITF
      Topic D-44 and clarify that an investor should recognize an impairment
      loss no later than when the impairment is deemed other than temporary,
      even if a decision to sell has not been made.

      The Board decided that FSP FAS 115-1 would be effective for
      other-than-temporary impairment analysis conducted in periods beginning
      after September 15, 2005. The Board directed the staff to proceed to a
      draft of a final FSP for vote by written ballot.

                                       12
<PAGE>

      ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
      RESULTS OF OPERATIONS

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

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

      GENERAL

      The Company is a Pennsylvania corporation and sole shareholder of First
      Keystone Bank, a federally chartered stock savings bank (the "Bank"),
      which converted to the stock form of organization in January 1995. The
      Bank is a community oriented bank emphasizing customer service and
      convenience. The Bank's primary business is attracting deposits from the
      general public and using those funds together with other available sources
      of funds, primarily borrowings, to originate loans. The Bank's management
      remains focused on its long-term strategic plan to continue to shift its
      composition of its loan portfolio towards commercial and multi-family real
      estate, commercial business, construction and home equity loans and lines
      of credit in order to provide a higher yielding portfolio with generally
      shorter terms and/or bearing adjustable interest rates.

      CRITICAL ACCOUNTING POLICIES

      The Company has identified the evaluation of the allowance for loan losses
      as a critical accounting estimate where amounts are sensitive to material
      variation. The Company is constantly challenging the methodology,
      conducting assessments and redefining the process to determine the
      appropriate level of allowance for loan losses. Critical accounting
      estimates are significantly affected by management's judgment and
      uncertainties and there is a likelihood that materially different amounts
      would be reported under different, but reasonable, conditions or
      assumptions. The allowance for loan losses is considered a critical
      accounting estimate because there is a large degree of judgment in (i)
      assigning individual loans to specific risk levels (pass, special mention,
      substandard, doubtful and loss), (ii) valuing the underlying collateral
      securing the loans, (iii) determining the appropriate reserve factor to be
      applied to specific risk levels for criticized and classified loans
      (special mention, substandard, doubtful and loss) and (iv) determining
      reserve factors to be applied to pass loans based upon loan type.
      Management reviews the allowance for loan losses generally on a monthly
      basis, but at least quarterly. To the extent that loans change risk
      levels, collateral values change or reserve factors change, the Company
      may need to adjust its provision for loan losses which would impact
      earnings. In this framework, a series of qualitative factors are used in a
      methodology as a measurement of how current circumstances are affecting
      the loan portfolio. Included, among other things, in these qualitative
      factors are past loss experience, type and volume of loans, changes in
      lending policies and procedures, underwriting standards, collections,
      charge-offs and recoveries, national and local economic conditions,
      concentrations of credit, and the effect of external factors on the level
      of estimated credit losses in the current portfolio.

                                       13
<PAGE>

      The determination of the allowance for loan losses requires management to
      make significant estimates with respect to the amounts and timing of
      losses and market and economic conditions. Accordingly, a decline in the
      economy could increase loan delinquencies, foreclosures or repossessions
      resulting in increased charge-off amounts and the need for additional loan
      loss allowances in future periods. The Company will continue to monitor
      and adjust its allowance for loan losses through the provision for loan
      losses as economic conditions and other factors dictate. Although the
      Company maintains its allowance for loan losses at levels considered
      adequate to provide for the amount of known and inherent loss in its loan
      portfolio, there can be no assurance that future losses will not exceed
      estimated amounts or that additional provisions for loan losses will not
      be required in future periods. In addition, the Company's determination as
      to the amount of its allowance for loan losses is subject to review by the
      Bank's primary regulator, the Office of Thrift Supervision (the "OTS"), as
      part of its examination process, which may require the recognition of an
      adjustment to the allowance for loan losses based on its judgment of
      information available to it at the time of its examination. To the extent
      that actual outcomes differ from management's estimates, additional
      provisions to the allowance for loan losses may be required that would
      adversely impact earnings in future periods.

      COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 2005 AND SEPTEMBER 30, 2004

      Total assets of the Company increased $1.7 million from $571.9 million at
      September 30, 2004 to $573.6 million at June 30, 2005. The
      mortgage-related securities held to maturity increased by $12.3 million
      from $37.3 million at September 30, 2004 mainly due to implementation of
      the Company's asset-liability strategy of reinvesting a portion of the
      proceeds from the sale of investment securities available for sale into
      the held to maturity portfolio in order to minimize volatility of the
      Company's equity in the future as market rates of interest shift. In
      addition, mortgage-related securities available for sale increased $15.8
      million, or 16.1%, from $97.6 million mainly due to the reinvestment of
      cash flows from the loan portfolio. Although loans receivable decreased
      slightly to $303.6 million at June 30, 2005, the Company continued to
      increase its percentage of its portfolio consisting of commercial real
      estate loans and home equity loans and lines of credit, partially offset
      by a decrease in single-family residential loans. Prepaid expenses and
      other assets decreased $7.7 million primarily due to funds received for
      settlement of sales of securities. Deposits increased $13.5 million, or
      3.9%, from $344.9 million at September 30, 2004 to $358.4 million at June
      30, 2005, while borrowings decreased $15.6 million, or 9.1%, from $171.1
      million at September 30, 2004. The increase in deposits resulted from an
      increase of $11.4 million, or 6.3%, in core deposits (which consist of
      passbook, money market, NOW and non-interest bearing accounts) combined
      with an increase of $2.1 million, or 1.3%, in certificates of deposit. The
      growth in deposits was attributable to the Company's commitment to focus
      on business development and aggressively pursue those relationships.

      Stockholders' equity decreased $265,000 to $29.4 million at June 30, 2005
      primarily due to the reduction in accumulated other comprehensive income
      of $768,000, the cost of repurchasing 4,900 shares of common stock and
      dividend payments totaling $604,000, partially offset by net income of
      $548,000 as well as a $648,000 increase in equity resulting from the
      exercise of stock options during the nine months ended June 30, 2005.

      COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED
      JUNE 30, 2005 AND 2004

      NET (LOSS) INCOME.

      The Company incurred a net loss for the quarter ended June 30, 2005 of
      $(613,000), or $(0.32) per diluted share, as compared to net income of
      $627,000, or $.32 per diluted share, for the quarter ended June 30, 2004.
      Net income for the nine months ended June 30, 2005 was $548,000, or $.30
      per diluted share, a decrease of $1.4 million as compared to $2.0 million,
      or $1.02 per diluted share, for the same period in 2004. The primary
      reason for the significant decline in the 2005 periods was the $1.6
      million provision for loan losses during the third quarter of fiscal 2005.
      See "- Provision for Loan Losses."

                                       14
<PAGE>

      NET INTEREST INCOME.

            Net interest income decreased slightly by $94,000, or 3.2%, to $2.8
      million and increased slightly by $18,000, or 0.2%, to $8.6 million for
      the three and nine months ended June 30, 2005, respectively, compared to
      the same periods in 2004. The decrease for the third quarter of 2005 was
      primarily due to a $377,000, or 10.5%, increase in interest expense which
      was partially offset by an increase in interest income of $283,000, or
      4.4%, for the three months ended June 30, 2005, respectively. The $18,000
      increase in net interest income for the nine months ended June 30, 2005,
      was primarily due to an increase in interest income of $621,000, or 3.2%,
      for the nine months ended June 30, 2005, respectively, which was partially
      offset by a $603,000, or 5.5%, increase in interest expense during such
      period. The average balance of interest-earning assets increased $7.7
      million and $10.3 million for the three and nine months ended June 30,
      2005, respectively, as compared to the same periods in 2004. Calculated on
      a tax-equivalent basis, the weighted average yield earned on
      interest-earning assets for the three months ended June 30, 2005 increased
      14 basis points to 5.12% compared to the 2004 period and 5 basis points to
      5.09% for the nine months ended June 30, 2005. However, offsetting such
      improvements in the yield were increases in the weighted average rate paid
      on interest-bearing liabilities. The weighted average rate paid on such
      liabilities increased 25 basis points to 2.98% during the three months
      ended June 30, 2005 from 2.73% for the same period in the prior fiscal
      year and 9 basis points to 2.90% for the nine months ended June 30, 2005
      as compared to 2.81% for the nine months ended June 30, 2004. The
      increases in the cost of funds were primarily a result of the upwards
      repricing of certificates of deposit, money market accounts and floating
      rate debt due to increases in market rates of interest which outpaced the
      increases in the yield on interest-earning assets. In addition, net
      interest expense was affected by an increase in the average balance of
      interest-bearing liabilities of $6.6 million and $10.7 million for the
      three and nine months ended June 30, 2005, respectively, as compared to
      the same periods in 2004.

      The following tables present the average balances for various categories
      of assets and liabilities, and income and expense related to those assets
      and liabilities for the three and nine months ended June 30, 2005 and
      2004. The adjustment of tax exempt securities to a tax equivalent yield in
      the table below may be considered to include non-GAAP financial
      information. Management believes that it is a practice followed by many
      institutions in the banking industry to present net interest margin, net
      interest rate spread and net interest income on a fully tax equivalent
      basis when a significant proportion of interest-earning assets are
      tax-free. Therefore, management believes, these measures provide useful
      information to investors by allowing them to make peer comparisons. A GAAP
      reconciliation is included below.

                                       15
<PAGE>

<TABLE>
<CAPTION>
                                                                  FOR THE THREE MONTHS ENDED
                                            -----------------------------------------------------------------------
                                                      JUNE 30, 2005                         JUNE 30, 2004
                                            ----------------------------------     --------------------------------
                                                                      Average                              Average
                                             Average                   Yield/       Average                 Yield/
(Dollars in thousands)                       Balance     Interest     Cost(4)       Balance    Interest    Cost(4)
                                            ---------   ---------   ----------     ---------   --------   ---------
<S>                                         <C>         <C>         <C>            <C>         <C>        <C>
Interest-earning assets:
   Loans receivable(1) (2)                  $ 304,240   $   4,446         5.85%    $ 296,824   $  4,331        5.84%
   Mortgage-related securities(2)             163,818       1,662         4.06       141,377      1,327        3.75
   Investment securities(2)                    57,514         723         5.03        80,378        917        4.56
   Other interest-earning assets               11,802          41         1.39        11,091         17        0.61
                                            ---------   ---------                  ---------   --------
      Total interest-earning assets           537,374   $   6,872         5.12       529,670   $  6,592        4.98
                                            ---------   ---------   ----------     ---------   --------   ---------
Non-interest-earning assets                    32,008                                 34,104
                                            ---------                              ---------
   Total assets                             $ 569,382                              $ 563,774
                                            =========                              =========
Interest-bearing liabilities:
   Deposits                                 $ 357,629   $   1,625         1.82     $ 347,979   $  1,405        1.62
   FHLB advances and other borrowings         153,418       1,888         4.92       156,429      1,763        4.51
   Junior subordinated debentures              21,535         450         8.36        21,572        418        7.75
                                            ---------   ---------                  ---------   --------

      Total interest-bearing liabilities      532,582       3,963         2.98       525,980      3,586        2.73
                                            ---------   ---------   ----------     ---------   --------   ---------
Interest rate spread                                                      2.14%                                2.25%
                                                                    ==========                            =========
Non-interest-bearing liabilities                7,105                                  6,715
                                            ---------                              ---------
   Total liabilities                          539,687                                532,695
Stockholders' equity                           29,695                                 31,079
                                            ---------                              ---------
Total liabilities and stockholders'
   equity                                   $ 569,382                              $ 563,774
                                            =========                              =========
Net interest-earning assets                 $   4,792                              $   3,690
                                            =========                              =========
Net interest income                                     $   2,909                              $  3,006
                                                        =========                              ========
Net interest margin(3)                                                    2.17%                                2.27%
                                                                    ==========                            =========
Ratio of average interest-earning assets
   to average interest-bearing liabilities                              100.90%                              100.70%
                                                                    ==========                            =========
</TABLE>

---------------------

(1)   Includes non-accrual loans.

(2)   Includes assets classified as either available for sale or held for sale.

(3)   Net interest income divided by interest-earning assets.

(4)   Presented on a tax-equivalent basis.

                                       16
<PAGE>

<TABLE>
<CAPTION>
                                                                  FOR THE NINE MONTHS ENDED
                                            ----------------------------------------------------------------------
                                                       JUNE 30, 2005                      JUNE 30, 2004
                                            ---------------------------------   ----------------------------------
                                                                     Average                              Average
                                             Average                  Yield/      Average                 Yield/
(Dollars in thousands)                       Balance    Interest     Cost(4)      Balance     Interest    Cost(4)
                                            -------     ---------   ---------   -----------   --------   --------
<S>                                         <C>         <C>         <C>         <C>           <C>        <C>
Interest-earning assets:

   Loans receivable(1) (2)                  $ 305,552   $  13,317        5.81%  $   293,283   $ 13,154        5.98%
   Mortgage-related securities(2)             153,983       4,615        4.00       135,129      3,852        3.80
   Investment securities(2)                    64,444       2,408        4.98        84,992      2,793        4.38
   Other interest-earning assets
                                               12,049         122        1.35        12,304         52        0.56
                                            ---------   ---------               -----------   --------

      Total interest-earning assets           536,028   $  20,462        5.09       525,708   $ 19,851        5.04
                                            ---------   ---------   ---------   -----------   --------   ---------
Non-interest-earning assets                    32,457                               31,592
                                            ---------                           -----------
   Total assets                             $ 568,485                           $   557,300
                                            =========                           ===========
Interest-bearing liabilities:

   Deposits                                 $ 348,445   $   4,551        1.74   $   348,451   $  4,481        1.71
   FHLB advances and other borrowings         162,720       5,716        4.68       151,941      5,265        4.62
   Junior subordinated debentures
                                               21,544       1,328        8.22        21,581      1,246        7.70
                                            ---------   ---------               -----------   --------
      Total interest-bearing liabilities      532,709      11,595        2.90       521,973     10,992        2.81
                                            ---------   ---------   ---------   -----------   --------   ---------

Interest rate spread                                                     2.19%                                2.23%
                                                                    =========                            =========
Non-interest-bearing liabilities                6,007                                 3,730
                                            ---------                           -----------
   Total liabilities                          538,716                               525,703
Stockholders' equity                           29,769                                31,597
                                            ---------                           -----------

Total liabilities and stockholders'
equity                                      $ 568,485                           $   557,300
                                            =========                           ===========
Net interest-earning assets                 $   3,319                           $     3,735
                                            =========                           ===========
Net interest income                                     $   8,867                             $  8,859
                                                        =========                             ========
Net interest margin(3)                                                   2.21%                                2.25%
                                                                    =========                            =========
Ratio of average interest-earning
     assets to average interest-bearing
     liabilities                                                       100.62%                              100.72%
                                                                    =========                            =========
</TABLE>

---------------------

(1)   Includes non-accrual loans.

(2)   Includes assets classified as either available for sale or held for sale.

(3)   Net interest income divided by interest-earning assets.

(4)   Presented on a tax-equivalent basis.

                                       17
<PAGE>

Although management believes that the above mentioned non-GAAP financial
measures enhance investor's understanding of the Company's business and
performance, these non-GAAP financials measures should not be considered as an
alternative to GAAP. The reconciliation of these non-GAAP financials measures
from GAAP to non-GAAP is presented below.

<TABLE>
<CAPTION>
                                                              FOR THE THREE MONTHS ENDED
                                                 ---------------------------------------------------
                                                      JUNE 30, 2005               JUNE 30, 2005
                                                 ---------------------------------------------------
                                                               AVERAGE                     AVERAGE
(Dollars in thousands)                           INTEREST     YIELD/COST    INTEREST      YIELD/COST
                                                 ---------------------------------------------------
<S>                                               <C>         <C>           <C>           <C>
Investment securities - nontaxable                $  639        4.44%        $  829         4.13%
Tax equivalent adjustments                            84                         88
                                                  ------                     ------
Investment securities - nontaxable to
  a taxable equivalent yield                      $  723        5.03%        $  917         4.56%
                                                  ======                     ======

Net interest income                               $2,825                     $2,919
Tax equivalent adjustment                             84                         88
                                                  ------                     ------
Net interest income, tax equivalent               $2,909                     $3,007
                                                  ======                     ======
Net interest rate spread, no tax  adjustment                    2.08%                       2.18%
Net interest margin, no tax adjustment                          2.10%                       2.20%
</TABLE>

<TABLE>
<CAPTION>
                                                              FOR THE NINE MONTHS ENDED
                                                 ---------------------------------------------------
                                                      JUNE 30, 2005               JUNE 30, 2005
                                                 ---------------------------------------------------
                                                               AVERAGE                     AVERAGE
(Dollars in thousands)                           INTEREST     YIELD/COST    INTEREST      YIELD/COST
                                                 ---------------------------------------------------
<S>                                              <C>          <C>           <C>           <C>
Investment securities - nontaxable                $2,147        4.44%        $2,521         3.95%
Tax equivalent adjustments                           261                        272
                                                  ------                     ------
Investment securities - nontaxable to
  a taxable equivalent yield                      $2,408        4.98%        $2,793         4.38%
                                                  ======                     ======

Net interest income                               $8,606                     $8,588
Tax equivalent adjustment                            261                        272
                                                  ------                     ------
Net interest income, tax equivalent               $8,867                     $8,860
                                                  ======                     ======
Net interest rate spread, no tax  adjustment                    2.12%                       2.16%
Net interest margin, no tax adjustment                          2.14%                       2.18%
</TABLE>

PROVISION FOR LOAN LOSSES.

The Company establishes provisions for loan losses, which are charges to its
operating results, in order to maintain a level of total allowance for losses
that management believes covers all known and inherent losses that are both
probable and reasonably estimable at each reporting date. Management performs
reviews generally on a monthly basis, but at least quarterly, in order to
identify these known and inherent losses and to assess the overall collection
probability for the loan portfolio. Management's reviews consist of a
quantitative analysis by loan category, using historical loss experience, and
consideration of a series of qualitative loss factors. For each primary type of
loan, management establishes a loss factor reflecting our estimate of the known
and inherent losses in each loan type using both the quantitative analysis as
well as consideration of the qualitative factors. Management's evaluation
process includes, among other things, an analysis of delinquency trends,
non-performing loan trends, the levels of charge-offs and recoveries, the levels
of classified and special mention assets; prior loss experience, total loans
outstanding, the volume of loan originations, the type, average size, terms and
geographic location and concentration of loans held by the Company, the value
and the nature of the collateral securing loans, the number of loans requiring
heightened management oversight, general economic conditions, particularly as
they relate to the Company's primary market area, and trends in market rates of
interest. The amount of the allowance for loan losses is an estimate and actual

                                       18
<PAGE>

losses may vary from these estimates. Furthermore, the Company's primary banking
regulator periodically reviews the Company's allowance for loan losses as an
integral part of the examination process. Such agency may require the Company to
make additional provisions for estimated loan losses based upon judgments
different from those of management.

For the three months ended June 30, 2005 and 2004, the provision for loan losses
amounted to $1.6 million and $75,000, respectively, while for the nine months
ended June 30, 2005 and 2004 the provision for loan losses amounted to $1.7
million and $225,000, respectively. The significant increase in the provision
for loan losses reflected management's assessment of a number of factors,
including, among other things, the significant increase in the level of the
Company's non-performing loans including migration in the Company's
classification of such assets in substandard, doubtful and special mention
categories in the 2005 periods, the increased level of charge-offs, the changing
composition of the commercial and multi-family real estate and commercial
business loan portfolios as well as extensive discussions with the examination
staff in connection with the recent examination of the Company by its primary
banking regulator.

At June 30, 2005, non-performing assets increased to $5.7 million, or 1.0% of
total assets, from $3.3 million at September 30, 2004. The increase in
non-performing assets was primarily the result of a $3.6 million increase in
non-performing commercial real estate loans, combined with $144,000 increase in
single-family residential loans, partially offset by previously non-performing
construction and home equity loans aggregating $770,000 and $76,000,
respectively, returning to current status. Included in non-performing assets at
June 30, 2005 was a $3.8 million non-accrual commercial real estate loan to one
borrower secured by a restaurant in Chesapeake City, Maryland which loan was one
of the primary reasons for the substantial increase in the provision for the
third quarter of fiscal 2005. Although the Company received an updated appraisal
of the property, upon review, during the quarter ended June 30, 2005, of a
number of factors concerning the loan and the unique nature of the property, the
Company determined to classify this loan as "doubtful" and establish a
significant reserve related to it. The Company will continue its foreclosure
proceedings and the borrower is currently marketing the property for sale.

Included in non-performing assets is $920,000 in real estate owned consisted
primarily of one commercial real estate property. The Bank owns a 25%
participation interest in an 18-hole golf course and a golf house located in
Avondale, Pennsylvania. The lead lender collected $1.0 million from an easement
agreement of which $250,000 represented the Bank's portion and reduced the book
value of the property to $875,000. The golf facility is fully operational and
continues to generate revenues. However, in connection with the operations of
the facility, the Company incurred its representative share of expenses totaling
approximately $0 and $150,000 for the three and nine months ended June 30, 2004.
No operating expenses were incurred during the three and nine months ended June
30, 2005. In May 2004, the lead lender entered into an agreement of sale.
Although the agreement of sale has expired, the prospective buyer is operating
and incurring the operating costs of the facility under the expired agreement.

During the three months ended June 30, 2005, the Company also charged-off
$243,000 related to a small commercial loan. In addition, the Company's
portfolios of commercial and multi-family real estate and land loans,
construction loans and commercial business loans, all of which generally are
deemed to have higher levels of known and inherent losses than single-family
residential mortgage loans, continued to grow in the aggregate, both in terms of
total dollar amount and as a percentage of the Company's total loan portfolio,
during the nine months ended June 30, 2005. Furthermore, the composition of the
Company's commercial loan portfolio in particular, much of which is unseasoned,
has shifted in recent periods with respect to the nature of the collateral for
such loans and the type of borrower. Increasingly, such loans' primary
collateral is not real estate but inventory and accounts receivables, collateral
which is, among other things, difficult to value. The borrowers tend to be small
businesses which are more susceptible to adverse changes in business conditions,
including, for example, rising interest rates, since such rate changes result,
due to the adjustable nature of the loans, in increased operating costs for such
borrowers.

The coverage ratio, which is the ratio of the allowance for loan losses to
non-performing loans, was 72.38% and 100.3% at June 30, 2005 and September 30,
2004, respectively, while the ratio of the allowance to gross loans was 1.13%
and 0.67%, respectively, at such dates.

Management continues to review its loan portfolio to determine the extent, if
any, to which further additional loss provisions may be deemed necessary. There
can be no assurance that the allowance for losses will be adequate to cover
losses which may in fact be realized in the future and that additional
provisions for losses will not be required.

                                       19
<PAGE>

NON-INTEREST INCOME.

Non-interest income increased $108,000 to $683,000 for the three months ended
June 30, 2005 from the same period last year. The increase in non-interest
income was primarily the result of a $92,000 increase in service charges and
other fees due to additional fee-based deposit services implemented in the
latter part of fiscal 2004. Non-interest income decreased $1.1 million to $2.7
million for the nine months ended June 30, 2005 by comparison to the same period
last year. Non-interest income was substantially higher in the 2004 period due
to gains on sale of investment securities which resulted in gains experienced in
the 2004 period related to the gain on sale of equity securities of a company
that was acquired. Non-interest income for the nine months ended June 30, 2004
also included $550,000 related to a non-recurring real estate fee. By
comparison, gains during the 2005 period only amounted to $539,000 and there
were no real estate fees. The increase in cash surrender value of life insurance
was $565,000 for the nine months ended June 30, 2005 as compared to $628,000 for
the same period in 2004. The reduced rate of increase in the cash surrender
value related to a reduction in the appreciation in the value of equity
securities which form the primary investment of certain insurance policies held
by the Bank to fund certain supplemental retirement benefits. Partially
offsetting such decreases was a $364,000 increase in service charges and other
fees due to the implementation of additional fee-based deposit services.

NON-INTEREST EXPENSE.

Non-interest expense for the quarter ended June 30, 2005 increased $300,000, or
11.3%, from the same period last year primarily due to increases of $108,000, or
36.3%, $65,000, or 33.3%, $52,000, or 12.6% and $41,000, or 3.0% in occupancy
and equipment, professional fees, other non-interest expense and salaries and
employee benefits, respectively. The increase in occupancy and equipment was
related to branch expansion in the first quarter of fiscal 2005 and increased
costs relating to rent, maintenance and taxes. Professional fees increased due
to the additional auditing and legal fees resulting from the increased
regulatory requirements placed on financial institutions. The increase in
non-interest expense was due to the implementation of a training program as well
as increased general administrative expenses.

For the nine months ended June 30, 2005, non-interest expense decreased by
$478,000, or 4.9%, primarily due to a decrease of $833,000, or 15.2%, in salary
and employee benefits. The decrease was primarily the result of expenses
recognized in the 2004 period in connection with the funding of a non-qualified
supplemental retirement plan for certain executive officers and the prepayment
of the outstanding balance of one of the loans to the ESOP. However, during
fiscal 2005, such decreases were partially offset by a $379,000 increase in
salary and employee benefit expense compared to the same period in the prior
year due to merit increases, the hiring of additional personnel and retirement
benefits. In addition, the decrease in non-interest expense was partially offset
by increases of $227,000, or 24.6%, $110,000, or 16.2%, and $117,000, or 9.1%,
in occupancy and equipment, professional fees and other non-interest expenses,
respectively, for the reasons described above. Furthermore, the decrease in
non-interest expense was partially offset by an increase of $46,000 in data
processing costs.

INCOME TAX EXPENSE.

Income tax expense decreased $616,000 and $691,000 from $146,000 and $500,000 to
a benefit of $470,000 and $190,000 for the three and nine months ended June 30,
2005, respectively. The decrease for the three and nine months ended June 30,
2005 was primarily related to the decline in pre-tax income for such periods.

                                       20
<PAGE>

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, repayments, prepayments and maturities of
outstanding loans and mortgage-related securities, sales of loans, maturities of
investment securities and other short-term investments, borrowing and funds
provided from operations. While scheduled payments from the amortization of
loans and mortgage-related securities and maturing investment securities and
short-term investments are relatively predictable sources of funds, deposit
flows and loan prepayments are greatly influenced by general interest rates,
economic conditions and competition. In addition, the Company invests excess
funds in overnight deposits and other short-term interest-earning assets which
provide liquidity to meet lending requirements. The Company has been able to
generate sufficient cash through its deposits as well as borrowings to satisfy
its funding commitments. At June 30, 2005, the Company had short-term borrowings
(due within one year or currently callable) outstanding of $155.0 million, all
of which consisted of advances from the Federal Home Loan Bank of Pittsburgh.

Liquidity management is both a daily and long-term function of business
management. Excess liquidity is generally invested in short-term investments
such as overnight deposits. On a longer term basis, the Company maintains a
strategy of investing in various lending products, mortgage-related securities
and investment securities. The Company uses its sources of funds primarily to
meet its ongoing commitments, to fund maturing certificates of deposit and
savings withdrawals, fund loan commitments and maintain a portfolio of
mortgage-related and investment securities. At June 30, 2005, total approved
loan commitments outstanding amounted to $8.8 million, not including loans in
process. At the same date, commitments under unused lines of credit amounted to
$39.7 million. Certificates of deposit scheduled to mature in one year or less
at June 30, 2005 totaled $82.5 million. Based upon its historical experience,
management believes that a significant portion of maturing deposits will remain
with the Company.

As of June 30, 2005, the Bank had regulatory capital which was in excess of
applicable requirements. The Bank is required under applicable federal banking
regulations to maintain tangible capital equal to at least 1.5% of its adjusted
total assets, core capital equal to at least 4.0% of its adjusted total assets
and total capital to at least 8.1% of its risk-weighted assets. At June 30,
2005, the Bank had tangible capital and core capital equal to 8.1% of adjusted
total assets and total capital equal to 15.0% of risk-weighted assets. As of
June 30, 2005, the Bank met the requirements of a "well capitalized" institution
under OTS regulatory framework for prompt corrective action.

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.

                                       21
<PAGE>

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

For a discussion of the Company's asset and liability management policies, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operation" in the Company's Annual Report on Form 10-K for the year ended
September 30, 2004. There are no material changes in the Company's
asset-liability management policy from those disclosed in the Form 10-K.

The Company utilizes reports prepared by the OTS to measure interest rate risk.
Using data from the Bank's quarterly thrift financial reports, the OTS models
the net portfolio value ("NPV") of the Bank over a variety of interest rate
scenarios. The NPV is defined as the present value of expected cash flows from
existing assets less the present value of expected cash flows from existing
liabilities plus the present value of net expected cash inflows from existing
off-balance sheet contracts. The model assumes instantaneous, parallel shifts in
the U.S. Treasury Securities yield curve of 100 to 300 basis points up and 200
basis points down, in 100 basis point increments.

The interest rate risk measures used by the OTS include an "Exposure Measure" or
"Post-Shock" NPV ratio and a "Sensitivity Measure." The "Post-Shock" NPV ratio
is the net present value as a percentage of assets over the various yield curve
shifts. A low "Post-Shock" NPV ratio indicates greater exposure to interest rate
risk and can result from a low initial NPV ratio or high sensitivity to changes
in interest rates. The "Sensitivity Measure" is the decline in the NPV ratio, in
basis points, caused by a 2% increase or decrease in rates, whichever produces a
larger decline. The following sets forth the Bank's NPV as of June 30, 2005.

<TABLE>
<CAPTION>
                                        Net Portfolio Value
                                      (Dollars in thousands)
--------------------------------------------------------------------------------------------------------
  Changes in                                                           Net
   Rates in                      Dollar       Percentage        Portfolio Value As
 Basis Points     Amount         Change         Change          a % of Assets           Change
--------------------------------------------------------------------------------------------------------
<S>              <C>           <C>             <C>              <C>                    <C>
      300        $46,656       $(21,465)         (32)%               8.40%             (316) bp
                                                                     9.70              (179) bp
      100         62,707         (5,414)          (8)               10.84               (72) bp
        0         68,121             --           --                11.56                --
     (100)        68,231            110            0                11.46               (10) bp
     (200)        56,033        (12,088)         (18)                9.36              (220) bp
</TABLE>

As of June 30, 2005, the Company's NPV was $68.1 million or 11.56% of the market
value of assets. Following a 200 basis point decrease in interest rates, the
Company's "post shock" NPV was $56.0 million or 9.36% of the market value of
assets. The change in the NPV ratio or the Company's sensitivity measure was
(2.20)%.

ITEM 4.  CONTROLS AND PROCEDURES

Our management evaluated, with the participation of our Chief Executive Officer
and Chief Financial Officer, the effectiveness of our disclosure controls and
procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934) as of the end of the period covered by this report. Based
on such evaluation, our Chief Executive Officer and Chief Financial Officer have
concluded that our disclosure controls and procedures are designed to ensure
that information required to be disclosed by us in the reports that we file or
submit under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the SEC's rules and
regulations and are operating in an effective manner.

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

                                       22
<PAGE>

PART II  OTHER INFORMATION

Item 1. Legal Proceedings

        No material changes in the legal proceedings previously disclosed in
        Item 3 "Legal Proceedings" of the Company's Annual Report on Form 10-K
        for the year ended September 30, 2004.

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

        (a)  - (b) Not applicable

        (c)  The following table sets forth information with respect to
             purchases made by or on behalf of the Company of shares of common
             stock of the Company during the indicated periods.

<TABLE>
<CAPTION>
                              Total                        Total Number of          Maximum Number of
                             Number        Average       Shares Purchased as     Shares that May Yet Be
                            of Shares     Price Paid      Part of Publicly         Purchased Under the
      Period (1)            Purchased     per Share        Announced Plan                 Plan
-------------------------------------------------------------------------------------------------------
<S>                         <C>           <C>            <C>                     <C>
April 1-30, 2005                --            --                  --                     51,432

May 1-31, 2005                  --            --                  --                     51,432

June 1-30, 2005                 --            --                  --                     51,432

     Total                      --            --                  --                     51,432
                                                                                         ======
</TABLE>

-------------------------
(1)  On January 31, 2003, the Company announced its current program to
     repurchase up to 101,000 of shares of common stock of the Company.
     Subsequent to June 30, 2005, the Company decided to terminate the
     repurchase program based on the determination that due to the pricing of
     the common stock and the consideration of various other factors, the
     completion of the Company's repurchase program was not the best use of the
     Company's available funds.

Item 3. Defaults Upon Senior Securities

        Not applicable

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

        None

Item 5. Other Information

        (a)  None

        (b) No changes in procedures.

Item 6. Exhibits

        (a)  List of Exhibits

<TABLE>
<CAPTION>
Exhibit No.    Description
----------     ---------------------------------------------------------------------------------
<S>            <C>
   3.1         Amended and Restated Articles of Incorporation of First Keystone Financial, Inc. 1

   3.2         Amended and Restated Bylaws of First Keystone Financial, Inc. 1

   4.1         Specimen Stock Certificate of First Keystone Financial, Inc. 1

   4.2         Instrument defining the rights of security holders **

   10.1        Employee Stock Ownership Plan and Trust of First Keystone Financial, Inc. 1, *
</TABLE>

                                       23
<PAGE>

<TABLE>
<S>            <C>
   10.2        401(K)/ Profit-sharing Plan of First Keystone Federal Savings Bank 1, *

   10.3        Employment Agreement between First Keystone Financial, Inc. and
               Thomas M. Kelly dated December 1, 2004. 2,*

   10.4        Severance Agreement between First Keystone Financial, Inc. and
               Elizabeth M. Mulcahy dated December 1, 2004. 2,*

   10.5        Severance Agreement between First Keystone Financial, Inc. and
               Carol Walsh dated December 1, 2004. 2,*

   10.6        1995 Stock Option Plan. 3, *

   10.7        1995 Recognition and Retention Plan and Trust Agreement 4,*

   10.8        1998 Stock Option Plan 4, *

   10.9        Employment Agreement between First Keystone Bank and Thomas M. Kelly
               dated December 1, 2004 2, *

   10.10       Severance Agreement between First Keystone Bank and Elizabeth M. Mulcahy
               dated December 1, 2004 2, *

   10.11       Severance Agreement between First Keystone Bank and Carol Walsh
               dated December 1, 2004 2, *

   10.12       First Keystone Bank Supplemental Executive Retirement Plan 5,*

   10.13       Consulting Agreement between First Keystone Bank and Edmund Jones 6,*

   10.14       Amendment No. 1 to the Employment  Agreement between First Keystone Financial,  Inc. and
               Thomas M. Kelly. 7,*

   10.15       Amendment No. 1 to the  Employment  Agreement  between First Keystone Bank and Thomas M.
               Kelly. 7,*

   10.16       Transition,  Consulting,  Noncompetition  and Retirement  Agreement by and between First
               Keystone Financial, Inc., First Keystone Bank and Donald S. Guthrie. 8,*

   11          Statement  re:  computation  of per  share  earnings.  See  Note  2 to the  Consolidated
               Financial Statements included in Item 8 hereof.

   31.1        Section 302 Certification of Chief Executive Officer

   31.2        Section 302 Certification of Chief Financial Officer

   32.1        Certification of Chief Executive  Officer pursuant to Section 906 of the  Sarbanes-Oxley
               Act of 2002

   32.2        Certification of Chief Financial  Officer pursuant to Section 906 of the  Sarbanes-Oxley
               Act of 2002

   99.1        Codes of Ethics 9
</TABLE>

----------------------------

(1)  Incorporated by reference from the Registration Statement Form S-1
     (Registration No. 33-84824) filed by the Registrant with the SEC on October
     6, 1994, as amended.

(2)  Incorporated by reference from Exhibit 10.5, 10.6, 10.8, 10.14, 10.15 and
     10.16, respectively, in the Form 8-K filed by the Registrant with the SEC
     on December 7, 2004 (File No. 000-25328).

(3)  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).

(4)  Incorporated from Appendix A of the Registrant's definitive proxy statement
     dated December 24, 1998 (File No. 000-25328).

(5)  Incorporated by reference from Exhibit 10.17 in the Form 10-Q filed by the
     Registrant with the SEC on May 17, 2004.

(6)  Incorporated by reference from Exhibit 10.18 in the Form 10-K filed by the
     Registrant with the SEC on December 29, 2004.

(7)  Incorporated by reference from Exhibit 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.

                                       24
<PAGE>

(9)  Incorporated by reference from the Form 10-K filed by the Registrant with
     the SEC on December 23, 2003.

(*) 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.

                                       25
<PAGE>

                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                       FIRST KEYSTONE FINANCIAL, INC.

Date: August 15, 2005                  By: /s/ Thomas M. Kelly
                                           ----------------------------------
                                       Thomas M. Kelly
                                       President and Chief Executive Officer

Date: August 15, 2005                  By: /s/ Rose M. DiMarco
                                           ----------------------------------
                                       Rose M. DiMarco
                                          Chief Financial Officer

                                       26