On
January 11, 2010, First Keystone Financial, Inc. (the “Company”) determined that
it expects to record non-cash charges for the quarter ended December 31, 2009
due to other-than-temporary impairments (“OTTI”) of certain pooled trust
preferred securities and private label collateralized mortgage obligations
(“CMO”) held by the Company.
At
September 30, 2009, the Company’s pooled trust preferred securities portfolio
had an aggregate recorded book value and an estimated fair value of $8.5 million
and $5.6 million, respectively, and was comprised of five different pooled
securities. Pooled trust preferred securities are long-term (usually
30-year maturity) instruments with characteristics of both debt and equity,
mainly issued by banks or their holding companies. The Company
expects to record a pre-tax, credit-related OTTI charge of approximately
$520,000
in
the first quarter of fiscal 2010 with respect to one of its pooled trust
preferred securities which had a recorded book value and an estimated fair value
at September 30, 2009 of $2.1 million and $1.3 million, respectively, and which
recently began to defer interest payments rather than making interest payments
in cash. In addition, the Company expects to record pre-tax credit-related OTTI
charges aggregating approximately $145,000 in the first quarter of fiscal 2010
with respect to two other pooled trust preferred securities which had an
aggregate recorded book value and an estimated fair value at September 30, 2009
of $1.6 million and $718,000, respectively, due to the increasing levels of
deferrals and defaults by the underlying issuers. The anticipated OTTI charges
described above with respect to all three of the specified pooled trust
preferred securities reflect management’s assessment of the estimated future
cash flows of the subject securities. The Company has not yet
determined what non-credit-related OTTI charges related to the three pooled
trust preferred securities may be necessary and would be recorded as a component
of the Company’s other comprehensive income at December 31, 2009.
At
September 30, 2009, the Company’s private label CMO portfolio had an aggregate
recorded book value and an estimated fair value of $14.2 million and $13.9
million, respectively. The Company expects that its investment in one
private label CMO which had a recorded book value and an estimated fair value at
September 30, 2009 of $1.9 million and $1.7 million, respectively, likely will
be deemed to be other-than-temporarily impaired at December 31,
2009. Based on current information, the Company estimates that the
amount of OTTI to be recorded with respect to this CMO will be approximately
$180,000 for the quarter ended December 31, 2009. However, the
Company is unable at this time to estimate what portion of such OTTI, if any, is
credit-related and will be recognized as a charge to income in the quarter ended
December 31, 2009 and what portion of such OTTI is non-credit-related and will
be recorded as an adjustment to other comprehensive income at December 31,
2009.
The
Company has not yet completed its review of the fair values of its trust
preferred securities and other investment securities held in its portfolio at
December 31, 2009. It is possible that additional OTTI charges may be
recognized with respect to the Company’s securities for the quarter ended
December 31, 2009 or thereafter, which charges could be
material.
Item
8.01
Other
Events
.
While
the Company has not completed preparation of its financial statements at and for
the three months ended December 31, 2009, it currently expects to report a net
loss for the quarter. The primary factors for the anticipated net loss for the
quarter are the OTTI charges described above, the amount of the Company’s
provision for loan losses, which is estimated to be in the range of
approximately $650,000 to $1.1 million, and the additional expenses related to
the Company’s proposed merger with Bryn Mawr Bank
Corporation.