10-Q 1 v400199_10q.htm FORM 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

(Mark One)

xQUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended                 December 31, 2014                    

OR

¨TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

 

For the transition period from ____________ to _______________

 

Commission File Number: 0-51176   

 

KENTUCKY FIRST FEDERAL BANCORP
(Exact name of registrant as specified in its charter)

 

United States of America   61-1484858
(State or other jurisdiction of   (I.R.S. Employer Identification No.)
incorporation or organization)    

 

216 West Main Street, Frankfort, Kentucky  40601
(Address of principal executive offices)(Zip Code)
 
(502) 223-1638
(Registrant’s telephone number, including area code)
 
 
(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months or such shorter period that the issuer was required to file such reports and (2) has been subject to such filing requirements for the past ninety days: Yes x No ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

 

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

 

 Large accelerated filer ¨ Accelerated filer ¨
Non-accelerated filer ¨ Smaller Reporting Company x
(Do not check if a smaller reporting company)  

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)

Yes ¨ No x

 

APPLICABLE ONLY TO CORPORATE ISSUERS

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: At February 13, 2015, the latest practicable date, the Corporation had 8,457,515 shares of $.01 par value common stock outstanding.

 

 
 

 

INDEX

 

        Page
         
PART I - ITEM 1 FINANCIAL INFORMATION  
         
      Consolidated Balance Sheets 3
         
      Consolidated Statements of Income 4
         
      Consolidated Statements of Comprehensive Income 5
         
      Consolidated Statements of Cash Flows 6
         
      Notes to Consolidated Financial Statements 8
       
    ITEM 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations 31
         
    ITEM 3 Quantitative and Qualitative Disclosures About Market Risk 41
         
    ITEM 4 Controls and Procedures 41
         
PART II - OTHER INFORMATION 42
         
SIGNATURES   43

 

2
 

 

PART I

ITEM 1: Financial Information

Kentucky First Federal Bancorp

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except share data)

 

   December 31,   June 30, 
   2014   2014 
ASSETS          
           
Cash and due from financial institutions  $3,023   $4,191 
Interest-bearing demand deposits   6,765    7,320 
Cash and cash equivalents   9,788    11,511 
           
Securities available for sale   164    247 
Securities held-to-maturity, at amortized cost- approximate fair value of $16,554 and $9,195 at December 31, 2014 and June 30, 2014, respectively   16,409    9,018 
Loans held for sale   180     
Loans, net of allowance of $1,581 and $1,473 at December 31, 2014 and June 30, 2014, respectively   244,346    246,788 
Real estate owned, net   2,233    1,846 
Premises and equipment, net   4,635    4,629 
Federal Home Loan Bank stock, at cost   6,482    6,482 
Accrued interest receivable   748    891 
Bank-owned life insurance   2,925    2,878 
Goodwill   14,507    14,507 
Prepaid federal income taxes   223    227 
Prepaid expenses and other assets   474    631 
           
Total assets  $303,114   $299,655 
           
LIABILITIES AND SHAREHOLDERS’ EQUITY          
           
Deposits  $205,019   $213,142 
Federal Home Loan Bank advances   29,047    17,200 
Advances by borrowers for taxes and insurance   205    616 
Accrued interest payable   31    32 
Deferred federal income taxes   423    210 
Deferred revenue   618    631 
Other liabilities   577    619 
Total liabilities   235,920    232,450 
           
Commitments and contingencies   -    - 
           
Shareholders’ equity          
Preferred stock, 500,000 shares authorized, $.01 par value; no shares issued and outstanding   -    - 
Common stock, 20,000,000 shares authorized, $.01 par value; 8,596,064 shares issued   86    86 
Additional paid-in capital   34,655    34,671 
Retained earnings   34,318    34,027 
Unearned employee stock ownership plan (ESOP), 131,649 shares and 140,987 shares at December 31, 2014 and June 30, 2014, repectively   (1,317)   (1,410)
Treasury shares at cost, 94,563 and 27,886 common shares at December 31, 2014 and June 30, 2014, respectively   (584)   (239)
Accumulated other comprehensive income   36    70 
Total shareholders’ equity   67,194    67,205 
           
Total liabilities and shareholders’ equity  $303,114   $299,655 

 

See accompanying notes.

3
 

 

Kentucky First Federal Bancorp

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(Dollars in thousands, except per share data)

 

   Six months ended December 31,   Three months ended December 31, 
   2014   2013   2014   2013 
Interest income                    
Loans, including fees  $6,055   $6,382   $3,055   $3,271 
Mortgage-backed securities   57    70    28    34 
Other securities   13    14    7    7 
Interest-bearing deposits and other   130    160    66    78 
Total interest income   6,255    6,626    3,156    3,390 
                     
Interest expense                    
Interest-bearing demand deposits   16    15    8    8 
Savings   118    122    59    62 
Certificates of Deposit   452    592    230    291 
Deposits   586    729    297    361 
Borrowings   119    152    57    67 
Total interest expense   705    881    354    428 
Net interest income   5,550    5,745    2,802    2,962 
Provision for loan losses   266    453    210    171 
Net interest income after provision for loan losses   5,284    5,292    2,592    2,791 
                     
Non-interest income                    
Earnings on bank-owned life insurance   47    46    24    23 
Net gain on sales of loans   15    55    9    20 
Net gain (loss) on sales of OREO   142    (17)   143    (7)
Vaulation adjustments of OREO   (14)   (34)   (14)   (17)
Other   138    162    70    78 
Total non-interest income   328    212    232    97 
Non-interest expense                    
Employee compensation and benefits   2,509    2,512    1,132    1,263 
Occupancy and equipment   271    285    140    145 
Outside service fees   87    79    49    43 
Legal fees   26    17    19    6 
Data processing   209    220    107    98 
Auditing and accounting   130    99    65    66 
FDIC insurance premiums   119    115    56    55 
Franchise and other taxes   134    136    67    68 
Foreclosure and OREO expenses (net)   121    70    68    50 
Other   521    498    255    250 
Total non-interest expense   4,127    4,031    1,958    2,044 
                     
Income before income taxes   1,485    1,473    866    844 
                     
Federal income tax expense   490    452    287    246 
                     
NET INCOME  $995   $1,021   $579   $598 
                     
EARNINGS PER SHARE                    
Basic and diluted  $0.12   $0.12   $0.07   $0.07 
DIVIDENDS PER SHARE  $0.20   $0.20   $0.10   $0.10 

 

See accompanying notes.

 

4
 

 

Kentucky First Federal Bancorp

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In thousands)

 

   Six months ended December 31,   Three months ended December 31, 
   2014   2013   2014   2013 
                 
Net income  $995   $1,021   $579   $598 
                     
Other comprehensive income (loss), net of taxes (benefits): Unrealized holding gains (losses) on securities designated as available for sale, net of taxes (benefits) of $(18), $15, $(5) and $16 during the respective periods   (34)   29    (10)   31 
Comprehensive income  $961   $1,050   $569   $629 

 

See accompanying notes.

 

5
 

 

Kentucky First Federal Bancorp

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

 

   Six months ended 
   December 31, 
   2014   2013 
Cash flows from operating activities:          
Net income  $995   $1,021 
Adjustments to reconcile net income to net cash provided by operating Activities          
Depreciation   135    157 
Accetion of purchased loan credit discount   (165)   (100)
Amortization of purchased loan premium   9    4 
Amortization (accretion) of deferred loan origination costs (fees)   8    (19)
Amortization of premiums on investment securities   81    119 
Amortization of premiums on Federal Home Loan Bank advances       (56)
Amortization of premiums on deposits   (98)   (218)
Net gain on sale of loans   (15)   (55)
Net loss (gain) on sale of real estate owned   (142)   —. 
Valuation adjustments of real estate owned   14    34 
Deferred gain on sale of real estate owned   (13)   (2)
ESOP compensation expense   77    76 
Earnings on bank-owned life insurance   (47)   (46)
Provision for loan losses   266    453 
Origination of loans held for sale   (505)   (1,502)
Proceeds from loans held for sale   340    1,753 
Increase (decrease) in cash, due to changes in:          
Accrued interest receivable   143    (9)
Prepaid expenses and other assets   157    (81)
Accrued interest payable   (1)    
Other liabilities   (42)   (54)
Federal income taxes   235    (116)
Net cash provided by operating activities   1,432    1,359 
           
Cash flows from investing activities:          
Purchase of held-to-maturity U.S. Treasury notes   (8,500)   (10,000)
Securities maturities, prepayments and calls:          
Held to maturity   1,028    1,913 
Available for sale   31    24 
Loans originated for investment, net of principal collected   1,668    6,575 
Proceeds from sale of real estate owned   397     
Additions to premises and equipment, net   (141)   (140)
Net cash used by investing activities   (5,517)   (1,628)
           
Cash flows from financing activities:          
Net decrease in deposits   (8,025)   (10,016)
Payments by borrowers for taxes and insurance, net   (411)   (366)
Proceeds from Federal Home Loan Bank advances   15,500    10,000 
Repayments on Federal Home Loan Bank advances   (3,653)   (7,238)
Dividends paid on common stock   (704)   (743)
Treasury stock repurchases   (345)    
Net cash provided by (used in) financing activities   2,362    (8,363)
           
Net decrease in cash and cash equivalents   (1,723)   (8,632)
           
Beginning cash and cash equivalents   11,511    16,540 
           
Ending cash and cash equivalents  $9,788   $7,908 

 

See accompanying notes.

 

6
 

 

Kentucky First Federal Bancorp

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(Unaudited)

(In thousands)

 

   Six months ended 
   December 31, 
   2014   2013 
         
Supplemental disclosure of cash flow information:          
Cash paid during the period for:          
Federal income taxes  $205   $575 
           
Interest on deposits and borrowings  $804   $1,155 
           
Transfers of loans to real estate owned, net  $(1,035)  $(867)
           
Loans made on sale of real estate owned  $379   $35 

  

See accompanying notes.

 

7
 

 

Kentucky First Federal Bancorp

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2014

(unaudited)

 

On March 2, 2005, First Federal Savings and Loan Association of Hazard (“First Federal of Hazard” or the “Association”) completed a Plan of Reorganization (the “Plan” or the “Reorganization”) pursuant to which the Association reorganized into the mutual holding company form of ownership with the incorporation of a stock holding company, Kentucky First Federal Bancorp (the “Company”) as parent of the Association. Coincident with the Reorganization, the Association converted to the stock form of ownership, followed by the issuance of all the Association’s outstanding stock to Kentucky First Federal Bancorp. Completion of the Plan of Reorganization culminated with Kentucky First Federal Bancorp issuing 4,727,938 common shares, or 55% of its common shares, to First Federal Mutual Holding Company (“First Federal MHC”), a federally chartered mutual holding company, with 2,127,572 common shares, or 24.8% of its shares offered for sale at $10.00 per share to the public and a newly formed Employee Stock Ownership Plan (“ESOP”). The Company received net cash proceeds of $16.1 million from the public sale of its common shares. The Company’s remaining 1,740,554 common shares were issued as part of the $31.4 million cash and stock consideration paid for 100% of the common shares of Frankfort First Bancorp (“Frankfort First”) and its wholly-owned subsidiary, First Federal Savings Bank of Frankfort (“First Federal of Frankfort”). The acquisition was accounted for using the purchase method of accounting and resulted in the recordation of goodwill and other intangible assets totaling $15.4 million.

 

On December 31, 2012, the Company completed its acquisition of CKF Bancorp, Inc. (“CKF Bancorp”), the parent company of Central Kentucky Federal Savings Bank (“Central Kentucky FSB”), pursuant to the provisions of the Agreement of Merger dated as of November 3, 2011 and amended as of September 28, 2012. The acquisition was accounted for using the acquisition method of accounting and resulted in the recordation of bargain purchase gain of $958,000.

 

1. Basis of Presentation

 

The accompanying unaudited consolidated financial statements, which represent the consolidated balance sheets and results of operations of the Company, were prepared in accordance with the instructions for Form 10-Q and, therefore, do not include information or footnotes necessary for a complete presentation of financial position, results of operations and cash flows in conformity with U.S. generally accepted accounting principles. However, in the opinion of management, all adjustments (consisting of only normal recurring adjustments) which are necessary for a fair presentation of the consolidated financial statements have been included. The results of operations for the six- and three-month periods ended December 31, 2014, are not necessarily indicative of the results which may be expected for an entire fiscal year. The consolidated balance sheet as of June 30, 2014 has been derived from the audited consolidated balance sheet as of that date. Certain information and note disclosures normally included in the Company’s annual financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Form 10-K annual report for 2014 filed with the Securities and Exchange Commission.

 

Principles of Consolidation - The consolidated financial statements include the accounts of the Company, Frankfort First, and its wholly-owned banking subsidiaries, First Federal of Hazard and First Federal of Frankfort (collectively hereinafter “the Banks”). All intercompany transactions and balances have been eliminated in consolidation.

 

Reclassifications - Certain amounts presented in prior periods have been reclassified to conform to the current period presentation. Such reclassifications had no impact on prior years’ net income or shareholders’ equity.

 

8
 

 

Kentucky First Federal Bancorp

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

December 31, 2014

(unaudited)

 

2. Earnings Per Share

 

Diluted earnings per share is computed taking into consideration common shares outstanding and dilutive potential common shares to be issued or released under the Company’s share-based compensation plans. The factors used in the basic and diluted earnings per share computations follow:

 

   Six months ended
December 31,
   Three months ended
December 31,
 
(in thousands)  2014   2013   2014   2013 
                     
Net income allocated to common shareholders, basic and diluted  $995   $1,021   $579   $598 

  

   Six months ended
December 31,
   Three months ended
December 31,
 
   2014   2013   2014   2013 
                     
Weighted average common shares outstanding, basic and diluted   8,381,992    8,374,184    8,321,183    8,374,184 

 

There were 309,800 stock option shares outstanding for the six- and three-month periods ended December 31, 2014 and 2013. The stock option shares outstanding were antidilutive for the respective periods.

 

9
 

 

Kentucky First Federal Bancorp

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

December 31, 2014

(unaudited)

 

3. Investment Securities

 

The following table summarizes the amortized cost and fair value of securities available-for-sale and securities held-to-maturity at December 31, 2014 and June 30, 2014, the corresponding amounts of gross unrealized gains recognized in accumulated other comprehensive income and gross unrecognized gains and losses:

 

   December 31, 2014 
(in thousands)  Amortized
cost
   Gross
unrealized/
unrecognized
gains
   Gross
unrealized/
unrecognized
losses
   Estimated
fair value
 
                 
Available-for-sale Securities                    
Agency mortgage-backed:residential  $105   $   $   $105 
FHLMC stock   8    51        59 
   $113   $51   $   $164 
                     
Held-to-maturity Securities                    
Agency mortgage-backed: residential  $3,249   $150   $   $3,399 
U.S. Treasury notes   8,500    -        8,500 
Agency bonds   4,660    -    5    4,655 
   $16,409   $150   $5   $16,554 

 

   June 30, 2014 
(in thousands)  Amortized
cost
   Gross
unrealized/
unrecognized
gains
   Gross
unrealized/
unrecognized
losses
   Estimated
fair value
 
                 
Available-for-sale Securities                    
Agency mortgage-backed: residential  $134   $2   $   $136 
FHLMC stock   8    103        111 
   $142   $105   $   $247 
                     
Held-to-maturity Securities                    
Agency mortgage-backed: residential  $3,792   $180   $1   $3,971 
Agency bonds   5,226    3    5    5,224 
   $9,018   $183   $6   $9,195 

 

10
 

 

Kentucky First Federal Bancorp

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

December 31, 2014

(unaudited)

 

3. Investment Securities (continued)

 

The Company’s equity securities consist of Federal Home Loan Mortgage Company (FHLMC or Freddie Mac) stock, while our debt securities consist of agency bonds, a U.S. Treasury note, and mortgage-backed securities. Mortgage-backed securities do not have a single maturity date. The amortized cost and fair value of held-to-maturity debt securities are shown by contractual maturity. Securities not due at a single maturity date are shown separately.

 

   December 31, 2014 
(in thousands)  Amortized Cost   Fair Value 
         
Held-to-maturity Securities          
Within one year  $10,529   $10,531 
One to five years   2,631    2,624 
Mortgage-backed   3,249    3,399 
   $16,409   $16,554 

 

Our pledged securities at December 31, 2014, and June 30, 2014 totaled $1.7 million and $2.6 million, respectively.

 

There were no sales of investment securities during the six month periods ended December 31, 2014 and 2013.

 

We evaluated securities in unrealized loss positions for evidence of other-than-temporary impairment, considering duration, severity, financial condition of the issuer, our intention to sell or requirement to sell. Those securities were agency bonds, which carry a very limited amount of risk. Also, we have no intention to sell nor feel that we will be compelled to sell such securities before maturity. Based on our evaluation, no impairment has been recognized through earnings.

  

11
 

 

Kentucky First Federal Bancorp

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

December 31, 2014

(unaudited)

 

4. Loans receivable

 

The composition of the loan portfolio was as follows:

 

   December 31,   June 30, 
(in thousands)      2014       2014 
         
Residential real estate          
One- to four-family  $193,709   $196,381 
Multi-family   14,086    14,002 
Construction   1,261    2,122 
Land   2,697    2,362 
Farm   1,618    1,644 
Nonresidential real estate   22,134    21,945 
Commercial nonmortgage   2,072    2,080 
Consumer and other:          
Loans on deposits   2,573    2,564 
Home equity   5,543    5,359 
Automobile   64    64 
Unsecured   635    638 
    246,392    249,161 
           
Undisbursed portion of loans in process   (574)   (952)
Deferred loan origination costs   109    52 
Allowance for loan losses   (1,581)   (1,473)
   $244,346   $246,788 

 

The following table presents the activity in the allowance for loan losses by portfolio segment for the six months ended December 31, 2014:

 

(in thousands)  Beginning
balance
   Provision
for loan
losses
   Loans
charged
off
   Recoveries   Ending
balance
 
                     
Residential real estate:                         
One- to four-family  $1,003   $241   $(165)  $7   $1,086 
Multi-family   73    7            80 
Construction   11    (4)           7 
Land   10    3              13 
Farm   9                9 
Nonresidential real estate   112    11            123 
Commercial nonmortgage   11    1            12 
Consumer and other:                         
Loans on deposits   13    2            15 
Home equity   28    4            32 
Automobile                    
Unsecured   3    1            4 
Unallocated   200                200 
Totals  $1,473   $266   $(165)  $7   $1,581 

 

12
 

 

Kentucky First Federal Bancorp

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2014

(unaudited)

 

4. Loans receivable (continued)

 

The following table presents the activity in the allowance for loan losses by portfolio segment for the three months ended December 31, 2014:

 

(in thousands)  Beginning
balance
   Provision for
loan losses
   Loans
charged off
   Recoveries   Ending
balance
 
                     
Residential real estate:                         
One- to four-family  $1,020   $189   $(128)  $5   $1,086 
Multi-family   73    7            80 
Construction   11    (4)           7 
Land   11    2            13 
Farm   9                9 
Nonresidential real estate   114    9            123 
Commercial nonmortgage   10    2            12 
Consumer and other:                         
Loans on deposits   14    1            15 
Home equity   30    2            32 
Automobile                    
Unsecured   2    2            4 
Unallocated   200                200 
Totals  $1,494   $210   $(128)  $5   $1.581 

 

The following table presents the activity in the allowance for loan losses by portfolio segment for the six months ended December 31, 2013:

 

(in thousands)  Beginning
balance
   Provision for
loan losses
   Loans
charged off
   Recoveries   Ending
balance
 
                     
Residential real estate:                         
One- to four-family  $871   $437   $(330)  $4   $982 
Multi-family   63    1            64 
Construction   8    2            10 
Land   12    (2)           10 
Farm   6    2            8 
Nonresidential real estate   94    8            102 
Commercial nonmortgage   13    3            16 
Consumer and other:                         
Loans on deposits   12    2            14 
Home equity   25    3            28 
Automobile                    
Unsecured   6    (3)       1    4 
Unallocated   200                200 
Totals  $1,310   $453   $(330)  $5   $1,438 

 

13
 

 

Kentucky First Federal Bancorp

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2014

(unaudited)

 

4. Loans receivable (continued)

 

The following table presents the activity in the allowance for loan losses by portfolio segment for the three months ended December 31, 2013:

 

(in thousands)  Beginning
balance
   Provision for
loan losses
   Loans
charged off
   Recoveries   Ending
balance
 
                     
Residential real estate:                         
One- to four-family  $937   $164   $(123)  $4   $982 
Multi-family   65    (1)           64 
Construction   9    1            10 
Land   11    (1)           10 
Farm   8                8 
Nonresidential real estate   102                102 
Commercial nonmortgage   14    2            16 
Consumer and other:                         
Loans on deposits   12    2            14 
Home equity   26    2            28 
Autombile                    
Unsecured   2    2            4 
Unallocated   200                200 
Totals  $1,386   $171   $(123)  $4   $1,438 

 

14
 

 

Kentucky First Federal Bancorp

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2014

(unaudited)

 

4. Loans receivable (continued)

 

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio class and based on impairment method as of December 31, 2014. The recorded investment in loans excludes accrued interest receivable and deferred loan costs, net due to immateriality.

 

December 31, 2014:                        
(in thousands)  Loans
Individually
evaluated
   Loans
acquired
with
deteriorated
credit
quality
   Ending
loans
balance
   Ending
allowance
attributed to
loans
   Unallocated
allowance
   Total
allowance
 
Loans individually evaluated for impairment:                              
Residential real estate:                              
One- to four-family  $1,086   $2,564   $3,650   $8   $   $8 
Land       420    420              
Nonresidential real estate       526    526             
    1,086    3,510    4,596    8        8 
                               
Loans collectively evaluated for impairment:                              
Residential real estate:                              
One- to four-family            $190,059   $1,078   $   $1,078 
Multi-family             14,086    80        80 
Construction             1,261    7        7 
Land             2,277    13        13 
Farm             1,618    9        9 
Nonresidential real estate             21,608    123        123 
Commercial nonmortgage             2,072    12        12 
Consumer:                              
Loans on deposits             2,573    15        15 
Home equity             5,543    32        32 
Automobile             64             
Unsecured             635    4        4 
Unallocated                     200    200 
              241,796    1,373    200    1,573 
             $246,392   $1,381   $200   $1,581 

 

15
 

 

Kentucky First Federal Bancorp

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2014

(unaudited)

 

4. Loans receivable (continued)

 

The following tables present the balance in the allowance for loan losses and the recorded investment in loans by portfolio class and based on impairment method as of June 30, 2014.

 

June 30, 2014:                        
(in thousands)  Loans
individually
evaluated
   Loans
acquired
with
deteriorated
credit
quality
   Ending
loans
balance
   Ending
allowance
attributed to
loans
   Unallocated
allowance
   Total
allowance
 
Loans individually evaluated for impairment:                              
Residential real estate:                              
One- to four-family  $2,159   $2,735   $4,894   $14   $   $14 
Land       444    444              
Nonresidential real estate       529    529             
Commercial nonmortgage       68    68             
    2,159    3,776    5,935    14        14 
                               
Loans collectively evaluated for impairment:                              
Residential real estate:                              
One- to four-family            $191,487   $989   $   $989 
Multi-family             14,002    73        73 
Construction             2,122    11        11 
Land             1,918    10        10 
Farm             1,644    9        9 
Nonresidential real estate             21,416    112        112 
Commercial nonmortgagel             2,012    11        11 
Consumer:                              
Loans on deposits             2,564    13        13 
Home equity             5,359    28        28 
Automobile             64             
Unsecured             638    3        3 
Unallocated                     200    200 
              243,226    1,259    200    1,459 
             $249,161   $1,273   $200   $1,473 

 

16
 

 

Kentucky First Federal Bancorp

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2014

(unaudited)

 

4. Loans receivable (continued)

 

The following table presents loans individually evaluated for impairment by class of loans as of and for the six months ended December 31, 2014 and 2013:

 

December 31, 2014:

 

 

(in thousands)

  Unpaid
Principal
Balance and
Recorded
Investment
   Allowance
for Loan
Losses
Allocated
   Average
Recorded
Investment
   Interest
Income
Recognized
   Cash Basis
Income
Recognized
 
                     
With no related allowance recorded:                         
One- to four-family  $1,006   $   $1,470   $   $ 
Multi-family                      
Nonresidential real estate                      
Purchased credit-impaired loans   3,510        3,593    75    18 
    4,516        5,063    75    18 
With an allowance recorded:                         
One- to four-family   80    8    116         
   $4,596   $8   $5,179   $75   $18 

 

December 31, 2013:

 

 

 

 

(in thousands)

  Unpaid
Principal
Balance and
Recorded
Investment
   Allowance
for Loan
Losses
Allocated
   Average
Recorded
Investment
   Interest
Income
Recognized
   Cash Basis
Income
Recognized
 
                     
With no related allowance recorded:                         
One- to four-family  $4,457   $   $3,056   $   $ 
Multi-family   1,550        1,063         
Nonresidential real estate   1,286        882         
Purchased credit-impaired loans   3,567        3,846         
    10,860        8,847         
With an allowance recorded:                         
One- to four-family   207    13    210         
   $11,067   $13   $9,057   $   $ 

 

17
 

 

Kentucky First Federal Bancorp

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2014

(unaudited)

 

4. Loans receivable (continued)

 

The following tables present the recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans as of December 31, 2014, and June 30, 2014:

 

   December 31, 2014   June 30, 2014 
(in thousands)  Nonaccrual   Loans Past
Due Over 90
Days Still
Accruing
   Nonaccrual   Loans Past
Due Over 90
Days Still
Accruing
 
                 
One- to four-family residential real estate  $4,243   $1,930   $5,767   $3,513 
Construction   289             
Nonresidential real estate and land   393        384     
Commercial nonmortgage           47     
Consumer   65    36    29     
   $4,990   $1,966   $6,227   $3,513 

 

Troubled Debt Restructurings:

 

A Troubled Debt Restructuring (“TDR”) is the situation where the Bank grants a concession to the borrower that the Bank would not otherwise have considered due to the borrower’s financial difficulties. All TDRs are considered “impaired.” At December 31, 2014 and June 30, 2014, the Company had $1.8 million and $2.0 million of loans classified as TDRs, respectively. Of the TDRs at December 31, 2014, approximately 41.6% were related to the borrower’s completion of Chapter 7 bankruptcy proceedings with no reaffirmation of his debt to the Banks.

 

There were no terms of loans restructured during the six- and three-month periods ended December 31, 2014.

 

The following table presents TDR’s by loan type at December 31, 2014 and June 30, 2014, and their performance, by modification type:

  

(dollars in thousands)  Number
of Loans
   Pre-
Modification
Outstanding
Recorded
Investment
   Post-
Modification
Outstanding
Recorded
Investment
   TDRs
Performing
to Modified
Terms
   TDRs Not
Performing
to
Modified
Terms
 
                     
December 31, 2014                         
Residential Real Estate:                         
1-4 Family   38   $2,122   $1,814   $1,580   $234 
                          
June 30, 2014                         
Residential Real Estate:                         
1-4 Family   39   $2,230   $1,997   $1,621   $376 

 

18
 

 

Kentucky First Federal Bancorp

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2014

(unaudited)

 

4. Loans receivable (continued)

 

There were no TDR loan modifications for the three months ended December 31, 2014. The following table summarizes TDR loan modifications for the three months ended December 31, 2013, and their performance, by modification type:

 

(in thousands)  Troubled Debt
Restructurings
Performing to
Modified Terms
   Troubled Debt
Restructurings
Not Performing
to Modified
Terms
   Total Troubled
Debt
Restructurings
 
             
Three months ended December 31, 2013               
Residential real estate:               
Rate reduction  $   $   $ 
Bankruptcies   42        42 
Total troubled debt restructures  $42   $   $42 

 

There were no TDR loan modifications for the six months ended December 31, 2014. The following table summarizes TDR loan modifications that occured during the six months ended December 31, 2013, and their performance, by modification type

 

(in thousands)  Troubled Debt
Restructurings
Performing to
Modified Terms
   Troubled Debt
Restructurings
Not Performing
to Modified
Terms
   Total Troubled
Debt
Restructurings
 
             
Six months ended December 31, 2013               
Residential real estate:               
Rate reduction  $   $   $ 
Bankruptcies   376        376 
Total troubled debt restructures  $376   $   $376 

 

The Company had no allocated specific reserves to customers whose loan terms had been modified in troubled debt restructurings as of December 31, 2014, or at June 30, 2014. The Company had no commitments to lend on loans classified as TDRs at December 31, 2014 or June 30, 2014.

 

There were no TDRs that defaulted during the six- or three-month periods ended December 31, 2014, while there was one TDR that defaulted in the six- and three-month periods ended December 31, 2013. That default was a result of bankruptcy. The TDR described above increased the allowance for loan losses as a result of $194,000 in charge offs during the six- and three-month periods ended December 31, 2013.

 

19
 

 

Kentucky First Federal Bancorp

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2014

(unaudited)

 

4. Loans receivable (continued)

 

The following table presents the aging of the principal balance outstanding in past due loans as of December 31, 2014, by class of loans:

 

(in thousands)  30-89 Days
Past Due
   90 Days or
Greater
Past Due
   Total
Past
Due
   Loans Not
Past Due
   Total 
                     
Residential real estate:                         
One-to four-family  $3,768   $4,110   $7,878   $185,831   $193,709 
Multi-family               14,086    14,086 
Construction               1,261    1,261 
Land       289    289    2,408    2,697 
Farm               1,618    1,618 
Nonresidential real estate       144    144    21,990    22,134 
Commercial non-mortgage               2,072    2,072 
Consumer and other:                         
Loans on deposits               2,573    2,573 
Home equity   16        16    5,527    5,543 
Automobile               64    64 
Unsecured   3    36    39    596    635 
Total  $3,787   $4,579   $8,366   $238,026   $246,392 

 

The following tables present the aging of the principal balance outstanding in past due loans as of June 30, 2014, by class of loans:

  

(in thousands)  30-89 Days
Past Due
   90 Days or
Greater Past
Due
   Total
Past Due
   Loans Not
Past Due
   Total 
                     
Residential real estate:                         
One-to four-family  $4,481   $9,060   $13,541   $182,840   $196,381 
Multi-family               14,002    14,002 
Construction   343        343    1,779    2,122 
Land       364    364    1,998    2,362 
Farm               1,644    1,644 
Nonresidential real estate   375    396    771    21,174    21,945 
Commercial nonmortgage       88    88    1,992    2,080 
Consumer:                         
Loans on deposits               2,564    2,564 
Home equity       33    33    5,326    5,359 
Automobile               64    64 
Unsecured   68        68    570    638 
Total  $5,267   $9,941   $15,208   $233,953   $249,161 

 

20
 

 

Kentucky First Federal Bancorp

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2014

(unaudited)

 

4. Loans receivable (continued)

 

Credit Quality Indicators:

 

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis is performed on an annual basis. The Company uses the following definitions for risk ratings:

 

Special Mention. Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

 

Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

 

Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.

 

Loans not meeting the criteria above that are analyzed individually as part of the above-described process are considered to be pass rated loans. Loans listed that are not rated are included in groups of homogeneous loans and are evaluated for credit quality based on performing status. See the aging of past due loan table above. As of December 31, 2014, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

 

(in thousands)  Pass   Special
Mention
   Substandard   Doubtful   Not rated 
                     
Residential real estate:                         
One- to four-family  $   $7,009   $9,161   $   $177,539 
Multi-family   14,086                 
Construction   1,261                 
Land   1,780        917         
Farm   1,618                 
Nonresidential real estate   19,152    955    2,027         
Commercial nonmortgage   2,027    33    12         
Consumer:                         
Loans on deposits   2,573                 
Home equity   5,543                 
Automobile   64                 
Unsecured   604    3    28         
   $48,708   $8,000   $12,145   $   $177,539 

 

21
 

 

Kentucky First Federal Bancorp

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

December 31, 2014

(unaudited)

 

4. Loans receivable (continued)

 

At June 30, 2014, the risk category of loans by class of loans was as follows:

 

(in thousands)  Pass   Special
Mention
   Substandard   Doubtful   Not rated 
                     
Residential real estate:                         
One- to four-family  $   $2,928   $11,287   $   $182,166 
Multi-family   14,002                 
Construction   2,122                 
Land   1,366        996         
Farm   1,644                 
Nonresidential real estate   18,920    965    2,060         
Commercial nonmortgage   2,014        66         
Consumer:                         
Loans on deposits   2,564                 
Home equity   5,359                 
Automobile   64                 
Unsecured   606    3    29         
   $48,661   $3,896   $14,438   $   $182,166 

 

Purchased Credit Impaired Loans:

 

The Company purchased loans during fiscal year 2013 for which there was, at acquisition, evidence of deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected. The carrying amount of those loans, net of a purchase credit discount of $761,000 and $782,000 at December 31, 2014 and June 30, 2014, respectively, is as follows:

 

(in thousands)  December 31, 2014   June 30, 2014 
         
One- to four-family residential real estate  $2,564   $2,735 
Land   420    444 
Nonresidential real estate   526    529 
Commercial nonmortgage       68 
Outstanding balance  $3,510   $3,776 

 

22
 

 

Kentucky First Federal Bancorp

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

December 31, 2014

(unaudited)

 

4. Loans receivable (continued)

 

Accretable yield, or income expected to be collected, is as follows

 

(in thousands)  Three months
ended
December 31,
2014
   Six months
ended
December 31,
2014
   Twelve
months ended
June 30, 2014
 
             
Balance at beginning of period  $1,408   $1,478   $1,294 
New loans purchased            
Accretion of income   (105)   (165)   (155)
Reclassifications from nonaccretable difference           339 
Disposals   (54)   (64)    
Balance at end of period  $1,249   $1,249   $1,478 

 

For those purchased loans disclosed above, the Company made no increase in allowance for loan losses for the year ended June 30, 2014, nor for the six- or three-month periods ended December 31, 2014. Neither were any allowance for loan losses reversed during those periods.

 

5. Disclosures About Fair Value of Assets and Liabilities

 

ASC topic 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC topic 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

 

Level 1 - Quoted prices in active markets for identical assets or liabilities.

 

Level 2 - Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in active markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

 

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

 

Following is a description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy.

 

Securities

 

Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics. Level 2 securities include agency mortgage-backed securities.

 

23
 

 

 

 

Kentucky First Federal Bancorp

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

December 31, 2014

(unaudited)

 

5.Disclosures About Fair Value of Assets and Liabilities (continued)

 

Impaired Loans

 

At the time a loan is considered impaired, it is evaluated for loss based on the fair value of collateral securing the loan if the loan is collateral dependent. If a loss is identified, a specific allocation will be established as part of the allowance for loan losses such that the loan’s net carrying value is at its estimated fair value. Impaired loans carried at fair value generally receive specific allocations of the allowance for loan losses. For collateral-dependent loans, fair value is commonly based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification. Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

 

Other Real Estate

 

Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. Fair value is commonly based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.

 

Financial assets measured at fair value on a recurring basis are summarized below:

 

   Fair Value Measurements Using 
(in thousands)  Fair Value   Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
   Significant
Other
Observable
Inputs
(Level 2)
   Significant
Unobservable
Inputs
(Level 3)
 
                 
December 31, 2014                    
Agency mortgage-backed: residential  $105   $   $105   $ 
FHLMC stock   59        59     
   $164   $   $164   $ 
June 30, 2014                    
Agency mortgage-backed: residential  $136   $   $136   $ 
FHLMC stock   111        111     
   $247   $   $247   $ 

 

24
 

 

Kentucky First Federal Bancorp

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

December 31, 2014

(unaudited)

 

5.Disclosures About Fair Value of Assets and Liabilities (continued)

 

Assets measured at fair value on a non-recurring basis are summarized below:

 

   Fair Value Measurements Using 
(in thousands)  Fair Value   Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
   Significant
Other
Observable
Inputs
(Level 2)
   Significant
Unobservable
Inputs
(Level 3)
 
                 
December 31, 2014                    
Impaired loans                    
One- to four-family  $72   $   $   $72 
                     
Other real estate owned, net                    
One- to four-family   1,343            1,343 
Land   15            15 
                     
June 30, 2014                    
Impaired loans                    
One- to four-family  $186   $   $   $186 
                     
Other real estate owned, net                    
One- to four-family   1,140            1,140 
Land   15            15 

 

Impaired loans, which were measured using the fair value of the collateral for collateral-dependent loans, totaled $80,000 and $200,000 at December 31, 2014 and June 30, 2014, respectively, with specific valuation allowance of $8,000 and $14,000, respectively. There was no specific allowance made for the six month periods ended December 31, 2014 or 2013.

 

Other real estate owned measured at fair value less costs to sell, had carrying amounts of $1.4 million and $1.2 million at December 31, 2014 and June 30, 2014, respectively. Other real estate owned was written down $14,000 and $34,000 during the six months ended December 31, 2014 and 2013, respectively.

 

25
 

 

Kentucky First Federal Bancorp

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

December 31, 2014

(unaudited)

 

5. Disclosures About Fair Value of Assets and Liabilities (continued)

 

The following table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at December 31, 2014 and June 30, 2014:

 

             Range
   Fair Value   Valuation  Unobservable  (Weighted
December 31, 2014  (in thousands)   Technique(s)  Input(s)  Average)
Impaired Loans:              
Residential real estate              
One- to four- family  $72   Sales comparison approach  Adjustments for differences between comparable sales  3.1% to 19.8% (4.3%)
               
Foreclosed and repossessed assets:              
1-4 family  $1,343   Sales comparison approach  Adjustments for differences between comparable sales  -37.10% to 30.2% (0.6%)
Land  $15   Sales comparison approach  Adjustments for differences between comparable sales  20.2% to 38.9% (20.8%)

 

             Range
   Fair Value   Valuation  Unobservable  (Weighted
June 30, 2014  (in thousands)   Technique(s)  Input(s)  Average)
Impaired Loans:              
Residential real estate              
One- to four- family  $186   Sales comparison approach  Adjustments for differences between comparable sales  3.1% to 19.8% (4.3%)
               
Foreclosed and repossessed assets:              
1-4 family  $1,140   Sales comparison approach  Adjustments for differences between comparable sales  -37.1% to 30.2% (1.1%)
Land  $15   Sales comparison approach  Adjustments for differences between comparable sales  20.2% to 38.9% (20.8%)

 

26
 

 

Kentucky First Federal Bancorp

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

December 31, 2014

(unaudited)

 

5.Disclosures About Fair Value of Assets and Liabilities (continued)

 

The following is a disclosure of the fair value of financial instruments, both assets and liabilities, whether or not recognized in the consolidated balance sheet, for which it is practicable to estimate that value. For financial instruments where quoted market prices are not available, fair values are based on estimates using present value and other valuation methods.

 

The methods used are greatly affected by the assumptions applied, including the discount rate and estimates of future cash flows. Therefore, the fair values presented may not represent amounts that could be realized in an exchange for certain financial instruments.

 

The following methods were used to estimate the fair value of all other financial instruments at December 31, 2014 and June 30, 2014:

 

Cash and cash equivalents and interest-bearing deposits: The carrying amounts presented in the consolidated statements of financial condition for cash and cash equivalents are deemed to approximate fair value.

 

Held-to-maturity securities: For held-to-maturity securities, fair value is estimated by using pricing models, quoted price of securities with similar characteristics, which is level 2 pricing for the other securities.

 

Loans held for sale: Loans originated and intended for sale in the secondary market are determined by FHLB pricing schedules.

 

Loans: The loan portfolio has been segregated into categories with similar characteristics, such as one- to four-family residential, multi-family residential and nonresidential real estate. These loan categories were further delineated into fixed-rate and adjustable-rate loans. The fair values for the resultant loan categories were computed via discounted cash flow analysis, using current interest rates offered for loans with similar terms to borrowers of similar credit quality. For loans on deposit accounts and consumer and other loans, fair values were deemed to equal the historic carrying values. The fair value of the loans does not necessarily represent an exit price.

 

Federal Home Loan Bank stock: It is not practicable to determine the fair value of FHLB stock due to restrictions placed on its transferability.

 

Accrued interest receivable: The carrying amount is the estimated fair value.

 

Deposits: The fair value of NOW accounts, passbook accounts, and money market deposits are deemed to approximate the amount payable on demand. Fair values for fixed-rate certificates of deposit have been estimated using a discounted cash flow calculation using the interest rates currently offered for deposits of similar remaining maturities.

 

Federal Home Loan Bank advances: The fair value of these advances is estimated using the rates currently offered for similar advances of similar remaining maturities or, when available, quoted market prices.

 

Advances by borrowers for taxes and insurance and accrued interest payable: The carrying amount presented in the consolidated statement of financial condition is deemed to approximate fair value.

 

27
 

 

Kentucky First Federal Bancorp

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

December 31, 2014

(unaudited)

 

5.Disclosures About Fair Value of Assets and Liabilities (continued)

 

Commitments to extend credit: For fixed-rate and adjustable-rate loan commitments, the fair value estimate considers the difference between current levels of interest rates and committed rates. The fair value of outstanding loan commitments at December 31, 2014 and June 30, 2014, was not material.

 

Based on the foregoing methods and assumptions, the carrying value and fair value of the Company’s financial instruments at December 31, 2014 and June 30, 2014 are as follows:

 

   Fair Value Measurements at 
(in thousands)  December 31, 2014 Using 
   Carrying
Value
   Level 1   Level 2   Level 3   Total 
Financial assets                         
Cash and cash equivalents  $9,788   $9,788         $9,788 
Available-for-sale securities   164        $164         164 
Held-to-maturity securities   16,409         16,554         16,554 
Loans held for sale   180              180    180 
Loans receivable - net   244,346              248,520    248,520 
Federal Home Loan Bank stock   6,482                   n/a 
Accrued interest receivable   748         34    714    748 
                          
Financial liabilities                         
Deposits  $205,019   $77,976   $126,647         204,623 
Federal Home Loan Bank advances   29,047         29,944         29,944 
Advances by borrowers for taxes and insurance   205    205              205 
Accrued interest payable   31         31         31 

  

   Fair Value Measurements at 
(in thousands)  June 30, 2014 Using 
   Carrying
Value
   Level 1   Level 2   Level 3   Total 
Financial assets                         
Cash and cash equivalents  $11,511   $11,511           $11,511 
Available-for-sale securities   247        $247         247 
Held-to-maturity securities   9,018         9,195         9,195 
Loans held for sale                      
Loans receivable – net   246,788             $253,780    253,780 
Federal Home Loan Bank stock   6,482                   n/a 
Accrued interest receivable   891              891    891 
                          
Financial liabilities                         
Deposits  $213,142   $88,854   $124,390        $213,244 
Federal Home Loan Bank advances   17,200         18,303         18,303 
Advances by borrowers for taxes and insurance   616    616              616 
Accrued interest payable   32         32         32 

 

Loans receivable represents the Company’s most significant financial asset, which is in Level 3 for fair value measurements. A third party provides financial modeling for the Company and results are based on assumptions and factors determined by management.

 

28
 

 

Kentucky First Federal Bancorp

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

December 31, 2014

(unaudited)

 

6.Other Comprehensive Income (Loss)

 

The following is a summary of the accumulated other comprehensive income balances, net of tax:

 

   Balance at
June 30, 2014
   Current Year
Change
   Balance at
December 31,
2014
 
                
Unrealized gains (losses) on available-for-sale securities  $70   $(34)  $36 

 

Other comprehensive income (loss) components and related tax effects for the periods indicated were as follows:

 

   Six months ended December 31, 
(in thousands)  2014   2013 
           
Unrealized holding gains (losses) on available-for-sale securities  $(52)  $44 
Tax effect   (18)   15 
Net-of-tax amount  $(34)  $29 

 

   Three months ended December 31, 
(in thousands)  2014   2013 
           
Unrealized holding gains (losses) on available-for-sale securities  $(15)  $47 
Tax effect   (5)   16 
Net-of-tax amount  $(10)  $31 

 

29
 

 

Kentucky First Federal Bancorp

ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

 

Forward-Looking Statements

 

Certain statements contained in this report that are not historical facts are forward-looking statements that are subject to certain risks and uncertainties. When used herein, the terms “anticipates,” “plans,” “expects,” “believes,” and similar expressions as they relate to Kentucky First Federal Bancorp or its management are intended to identify such forward looking statements. Kentucky First Federal Bancorp’s actual results, performance or achievements may materially differ from those expressed or implied in the forward-looking statements. Risks and uncertainties that could cause or contribute to such material differences include, but are not limited to, general economic conditions, prices for real estate in the Company’s market areas, interest rate environment, competitive conditions in the financial services industry, changes in law, governmental policies and regulations, rapidly changing technology affecting financial services and the other matters mentioned in Item 1A of the Company’s Annual Report on Form 10-K for the year ended June 30, 2014.

 

30
 

 

Kentucky First Federal Bancorp

ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (continued)

 

Average Balance Sheets

 

The following table represents the average balance sheets for the six month periods ended December 31, 2014 and 2013, along with the related calculations of tax-equivalent net interest income, net interest margin and net interest spread for the related periods.

 

   Six Months Ended December 31, 
   2014   2013 
   Average
Balance
   Interest
And
Dividends
   Yield/
Cost
   Average
Balance
   Interest
And
Dividends
   Yield/
Cost
 
   (Dollars in thousands) 
Interest-earning assets:                              
Loans 1  $246,474   $6,055    4.91%  $259,965   $6,382    4.91%
Mortgage-backed securities   3,652    57    3.12    4,993    70    2.80 
Other securities   5,704    13    0.46    7,613    14    0.37 
Other interest-earning assets   14,417    130    1.80    19,106    160    1.67 
Total interest-earning assets   270,247    6,255    4.63    291,677    6,626    4.54 
Less: Allowance for loan losses   (1,479)             (1,351)          
Non-interest-earning assets   29,196              29,094           
Total assets  $297,964             $319,420           
Interest-bearing liabilities:                              
Demand deposits  $6,348   $16    0.50%  $8,907   $15    0.34%
Savings   68,834    118    0.34    65,555    122    0.37 
Certificates of deposit   132,693    452    0.68    150,372    592    0.79 
Total deposits   207,875    586    0.56    224,834    729    0.65 
Borrowings   16,673    119    1.43    21,274    152    1.43 
Total interest-bearing liabilities   224,548    705    0.63    246,108    881    0.72 
Noninterest-Bearing demand deposits   4,036              3,664           
Noninterest-bearing liabilities   2,036              2,396           
Total liabilities   230,620              252,168           
Shareholders’ equity   67,344              67,252           
Total liabilities and shareholders’ equity  $297,964             $319,420           
Net interest income/average yield       $5,550    4.00%       $5,745    3.82%
Net interest margin             4.11%             3.94%
Average interest-earning assets to average interest-bearing liabilities             120.35%             118.52%

 

 

1 Includes loan fees, immaterial in amount, in both interest income and the calculation of yield on loans. Also includes loans on nonaccrual status.

 

31
 

 

Kentucky First Federal Bancorp

ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (continued)

 

Average Balance Sheets (continued)

 

The following table represents the average balance sheets for the three month periods ended December 31, 2014 and 2013, along with the related calculations of tax-equivalent net interest income, net interest margin and net interest spread for the related periods.

 

   Three Months Ended December 31, 
   2014   2013 
   Average
Balance
   Interest
And
Dividends
   Yield/
Cost
   Average
Balance
   Interest
And
Dividends
   Yield/
Cost
 
   (Dollars in thousands) 
Interest-earning assets:                              
Loans 2  $246,344   $3,055    4.96%  $257,559   $3,271    5.08%
Mortgage-backed securities   3,510    28    3.19    4,763    34    2.86 
Other securities   6,081    7    0.46    8,473    7    0.33 
Other interest-earning assets   14,620    66    1.81    16,376    78    1.91 
Total interest-earning assets   270,555    3,156    4.67    287,171    3.390    4.72 
Less: Allowance for loan losses   (1,493)             (1,384)          
Non-interest-earning assets   28,933              29,355           
Total assets  $297,995             $315,142           
Interest-bearing liabilities:                              
Demand deposits  $7,531   $8    0.43%  $6,306   $8    0.51%
Savings   67,886    59    0.35    68,892    62    0.36 
Certificates of deposit   130,398    230    0.71    147,885    291    0.79 
Total deposits   205,815    297    0.58    223,083    361    0.65 
Borrowings   18,685    57    1.22    19,547    67    1.37 
Total interest-bearing liabilities   224,500    354    0.63    242,630    428    0.71 
Noninterest-bearing demand deposits   4,252              3,664           
Noninterest-bearing liabilities   1,865              2,296           
Total liabilities   230,617              248,590           
Shareholders’ equity   67,378              66,552           
Total liabilities and shareholders’ equity  $297,995             $315,142           
Net interest income/average yield       $2,802    4.04%       $2,962    4.01%
Net interest margin             4.14%             4.13%
Average interest-earning assets to average interest-bearing liabilities             120.51%             118.36%

 

 

2 Includes loan fees, immaterial in amount, in both interest income and the calculation of yield on loans. Also includes loans on nonaccrual status.

 

32
 

 

Kentucky First Federal Bancorp

ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (continued)

 

Discussion of Financial Condition Changes from June 30, 2014 to December 31, 2014

 

Assets: At December 31, 2014, the Company’s assets totaled $303.1 million, an increase of $3.5 million, or 1.2%, from total assets at June 30, 2014. This increase was attributed primarily to an increase in investment securities and partially offset by a decrease in loans and cash and cash equivalents.

 

Cash and cash equivalents: Cash and cash equivalents decreased by $1.7 million or 15.0% to $9.8 million at December 31, 2014.

 

Loans: Loans receivable, net, decreased by $2.4 million or 1.0% to $244.3 million at December 31, 2014, due primarily to low levels of loan demand and loan payoffs received. Management continues to look for high-quality loans to add to its portfolio and will continue to emphasize loan originations to the extent that it is profitable, prudent and consistent with our interest rate risk strategies. However, loan demand continues in its weakened state as a result of the downturn in the economy and we expect to see a continued decrease in demand for home loans until the housing market regains a stronger footing.

 

Non-Performing Loans:  At December 31, 2014, the Company had non-performing loans (loans 90 or more days past due or on nonaccrual status) of approximately $7.0 million, or 2.8% of total loans (including loans purchased in the acquisition), compared to $9.7 million or 3.95%, of total loans at June 30, 2014.  The Company’s allowance for loan losses totaled $1.6 million and $1.5 million at December 31, 2014, and June 30, 2014, respectively. The allowance for loan losses at December 31, 2014, represented 22.7% of nonperforming loans and 0.64% of total loans (including loans purchased in the acquisition), while at June 30, 2014, the allowance represented 15.1% of nonperforming loans and 0.60% of total loans.

 

The Company had $14.4 million in assets classified as substandard for regulatory purposes at December 31, 2014, including loans ($12.2 million) and real estate owned (“REO”) ($2.2 million), including loans acquired in the CKF Bancorp transaction. Classified loans as a percentage of total loans (including loans acquired on December 31, 2012) was 4.9% and 5.9% at December 31, 2014 and June 30, 2014, respectively. Of substandard loans, 99.7% were secured by real estate on which the Banks have priority lien position.

 

33
 

 

Kentucky First Federal Bancorp

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (continued)

 

Discussion of Financial Condition Changes from June 30, 2014 to December 31, 2014 (continued)

 

The table below shows the aggregate amounts of our assets classified for regulatory purposes at the dates indicated:

 

(dollars in thousands)  December 31, 2014   June 30, 2014 
Substandard assets  $14,378   $16,284 
Doubtful assets        
Loss assets        
Total classified assets  $14,378   $16,284 

 

At December 31, 2014, the Company’s real estate acquired through foreclosure represented 15.5% of substandard assets compared to 11.3% at June 30, 2014. During the six months ended December 31, 2014 and the fiscal year ended June 30, 2014, the Company made loan(s) to facilitate the purchase of its other real estate owned by qualified borrowers. During the six months ended December 31, 2014, the Company sold property with carrying value of $662,000 for $821,000, while during the year ended June 30, 2014, property with a carrying value of $189,000 was sold for $200,000. Such loans are considered loans to facilitate an exchange and, as such, the Company defers recognition of any gain until the proper time in the future. Loans to facilitate the sale of other real estate owned, which were included in substandard loans, totaled $306,000 and $309,000 at December 31, 2014 and June 30, 2014, respectively.

 

34
 

 

Kentucky First Federal Bancorp

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (continued)

 

Discussion of Financial Condition Changes from June 30, 2014 to December 31, 2014 (continued)

 

The following table presents the aggregate carrying value of REO at the dates indicated:

 

   December 31, 2014   June 30, 2014 
   Number   Net   Number   Net 
   of   Carrying   of   Carrying 
   Properties   Value   Properties   Value 
                 
Single family, non-owner occupied   25   $2,218    20   $1,831 
Building lot   3    15    3    15 
Total REO   28   $2,233    23   $1,846 

 

At December 31, 2014, and June 30, 2014, the Company had $8.0 million and $3.9 million of loans classified as special mention, respectively (including loans purchased at December 31, 2012.) This category includes assets which do not currently expose us to a sufficient degree of risk to warrant classification, but do possess credit deficiencies or potential weaknesses deserving our close attention. The primary reason for this increase was related to two larger borrowers who each experienced some weakness in cash flow, but had no delinquency and their loans were well secured by real estate.

 

Securities: At December 31, 2014, the Company’s investment securities had increased $7.3 million or 78.9% to $16.6 million compared to June 30, 2014, due primarily to the purchase of an $8.5 million short-term U.S. Treasury note. The Treasury note had matured prior to the filing of this document.

 

Liabilities: At December 31, 2014, the Company’s liabilities totaled $235.9 million, an increase of $3.5 million, or 1.5%, from total liabilities at June 30, 2014. The increase in liabilities was attributed primarily to an increase in FHLB advances and was partially offset by a decrease in deposits. FHLB advances increased $11.8 million or 68.9% from $17.2 million at June 30, 2014 to $29.0 million at December 31, 2014, primarily to fund the purchase of a short-term U.S. Treasury note. Deposits decreased $8.1 million or 3.8% to $205.0 million at December 31, 2014, as certificate of deposit customers have sought higher yields elsewhere.

 

Shareholders’ Equity: At December 31, 2014, the Company’s shareholders’ equity totaled $67.2 million, a decrease of $11,000 from the June 30, 2014 total. The Company repurchased $345,000 of its outstanding common shares for treasury purposes during the six months just ended. In addition to the purchase of treasury stock, the change in shareholders’ equity was primarily associated with net profits for the period less dividends paid on common stock.

 

35
 

 

Kentucky First Federal Bancorp

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (continued)

 

Discussion of Financial Condition Changes from June 30, 2014 to December 31, 2014 (continued)

 

The Company paid dividends of $704,000 or 70.8% of net income for the six month period just ended. On July 8, 2014, the members of First Federal MHC for the third time approved a dividend waiver on annual dividends of up to $0.40 per share of Kentucky First Federal Bancorp common stock. The Board of Directors of First Federal MHC applied for approval of another waiver. On August 3, 2014 the Company received notice from the Federal Reserve Bank of Cleveland that there would be no objection to a waiver of dividends paid by the Company to First Federal MHC. As a result, First Federal MHC will be permitted to waive the receipt of dividends for quarterly dividends up to $0.10 per common share through the third quarter of 2015. Management believes that the Company has sufficient capital to continue the current dividend policy without affecting the well-capitalized status of either subsidiary bank. Management cannot speculate on future dividend levels, because various factors, including capital levels, income levels, liquidity levels, regulatory requirements and overall financial condition of the Company are considered before dividends are declared. However, management continues to believe that a strong dividend is consistent with the Company’s long-term capital management strategy. See “Risk Factors” in Part II, Item 1A, of the Company’s Annual Report on Form 10-K for the year ended June 30, 2014 for additional discussion regarding dividends.

 

Comparison of Operating Results for the Six Month Periods Ended December 31, 2014 and 2013

 

General

 

Net income totaled $995,000 for the six months ended December 31, 2014, a decrease of $26,000 or 2.5% from net income of $1.0 million for the same period in 2013.

 

Net Interest Income

 

Net interest income after provision for loan losses decreased $8,000 or 0.2% and totaled $5.3 million for the six months ended December 31, 2014 and 2013. Provision for loan losses decreased by $187,000 or 41.3% to $266,000 for the six month period just ended compared to $453,000 for the prior year period. Interest income decreased $371,000 or 5.6%, to $6.3 million, while interest expense decreased $176,000 or 20.0% to $705,000 for the six months ended December 31, 2014, after amortization of fair value adjustments on interest bearing accounts.

 

Interest income on loans decreased $327,000 or 5.1% to $6.1 million, due primarily to a decrease in the average balance of the loan portfolio. The average balance of loans outstanding decreased $13.5 million to $246.5 million for the six month period just ended, while the average rate earned on loans outstanding remained constant at 4.91% for both periods. Interest income on mortgage-backed residential securities (“MBS”) decreased $13,000 or 18.6% to $57,000 for the six months ended December 31, 2014, as the average balance decreased $1.3 million or 26.9% to $3.7 million for the recently ended period, while the average rate increased 32 basis points to 3.1% compared to the period a year ago. Interest income on other securities, primarily composed of agency bonds, totaled $13,000 during the recent six month period, compared to $14,000 for the prior year period. The average balance of the other investment securities was $5.7 million for the six month period just ended and the average rate earned on those securities was 46 basis points.

 

36
 

 

Kentucky First Federal Bancorp

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (continued)

 

Comparison of Operating Results for the Six Month Periods Ended December 31, 2014 and 2013 (continued)

 

Net Interest Income (continued)

 

Interest income on interest-bearing deposits and other decreased for the period just ended primarily because of lower dividends received on FHLB of Cincinnati stock. The Company’s dividends from FHLB of Cincinnati decreased $30,000 or 18.8% to $130,000 for the six month period ended December 31, 2014 compared to the 2013 period. The Company’s stock in FHLB of Cincinnati was partially redeemed pursuant to the FHLB of Cincinnati’s most recent amended Capital Plan, which became effective February 17, 2014. Because of the redemption, the Company’s average balance of FHLB of Cincinnati stock decreased $1.2 million or 16.1% to $7.7 million for the six months ended December 31, 2014, compared to the prior year period. In addition to the lower average balance of FHLB of Cincinnati stock, the rate paid by the FHLB of Cincinnati decreased 13 basis points to 4.01% for the recently ended period compared to last year.

 

Interest expense on deposits decreased $143,000 or 19.6% to $586,000 for the six month period ended December 31, 2014, due to a decrease in average deposits outstanding as well as a decrease in the average amount paid on deposits. Average deposits outstanding decreased $17.0 million or 7.5% to $207.9 million for the recently ended six month period, while the average rate paid on deposits declined 9 basis points to 56 basis points for the current year period. Interest expense on borrowings decreased $33,000 or 21.7% to $119,000 for the six month period ended December 31, 2014, compared to the prior year period. The decrease in interest expense on borrowings was attributed to a lower average balance outstanding as the average balance outstanding decreased $4.6 million or 21.6% to $16.7 million and the average rate paid on borrowings was 1.43% for both six month periods.

 

Net interest margin increased from 3.94% for the prior year period to 4.11% for the six months ended December 31, 2014.

 

Provision for Losses on Loans

 

The Company recorded $266,000 in provision for losses on loans during the six months ended December 31, 2014, compared to a provision of $453,000 for the six months ended December 31, 2013. The decreased provision was primarily due to changes in collateral values of impaired loans. There can be no assurance that the loan loss allowance will be adequate to absorb unidentified losses on loans in the portfolio, which could adversely affect the Company’s results of operations.

 

Non-interest Income

 

Non-interest income totaled $328,000 for the six months ended December 31, 2014, an increase of $116,000 or 54.7% from the same period in 2013. The increase in non-interest income was primarily attributable to a $159,000 increase in net gain on sales of REO. The Company sold a property for $190,000, which it had acquired at foreclosure and was carried at a cost of $77,000, although the property was subject to redemption by the previous owner for a period of one year. In addition, the Company sold two properties for a total of $40,000, which had been written off subject to regulatory guidance, because the properties were held by the Company for more than sixty months. Somewhat offsetting the gain on sale of REO was a decrease of $40,000 or 72.7% in the gains on sale of loans, which totaled $15,000 for the recently ended six month period. The Company had both fewer loans and lower dollar volume of long-term, fixed rate loans that it sold to the FHLB during the period due to lower customer demand. There were no sales of investments during the six month period just ended.

 

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Kentucky First Federal Bancorp

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (continued)

 

Comparison of Operating Results for the Six Month Periods Ended December 31, 2014 and 2013 (continued)

 

Non-interest Expense

 

Non-interest expense totaled $4.1 million and $4.0 million for the six months ended December 31, 2014 and 2013, respectively, an increase of $96,000 or 2.4% period to period. The increase was primarily related to higher costs associated with foreclosure and REO expenses as well as auditing and accounting. Foreclosure and REO expenses totaled $121,000, an increase of $51,000 or 10.2% as the Company continued to work through the REO process. Auditing and accounting expense totaled $130,000, an increase of $31,000 or 31.3%, for the recently ended six month period compared to $99,000 for the prior year period, primarily because of increased costs associated with internal control activities in 2014 as compared to 2013.

 

Federal Income Tax Expense

 

Federal income taxes expense totaled $490,000 for the six months ended December 31, 2014, compared to $452,000 in the prior year period. The effective tax rates were 33.0% and 30.7% for the six month periods ended December 31, 2014 and 2013, respectively.

 

Comparison of Operating Results for the Three Month Periods Ended December 31, 2014 and 2013

 

General

 

Net income totaled $579,000 for the three months ended December 31, 2014, a decrease of $19,000 or 3.2% from net income of $598,000 for the same period in 2013.

 

Net Interest Income

 

Net interest income after provision for loan losses decreased $199,000 or 7.1% to $2.6 million for the three month period just ended compared to $2.8 million for the prior year quarter. Net interest income before provision for loan loss decreased $160,000 or 5.4% to $2.8 million for the quarter ended December 31, 2014. Provision for losses on loans increased $39,000 to $210,000 for the recently-ended quarter compared to a provision of $171,000 in the prior year period. Interest income decreased by $234,000, or 6.9%, to $3.2 million, while interest expense decreased $74,000 or 17.3% to $354,000 for the three months ended December 31, 2013, after amortization of fair value adjustments on interest bearing accounts.

 

Interest income on loans decreased $216,000 or 6.6% to $3.1 million, due to a decrease in the average size of the loan portfolio and a decrease in the average rate earned on the portfolio. The average balance of loans outstanding for the three month period ended December 31, 2014, decreased $11.2 million or 4.4% to $246.3 million, while the average rate earned decreased 12 basis points to 4.96% for the period. Interest income on interest-bearing deposits and other decreased $12,000 or 15.4% to $66,000 for the three months ended December 31, 2014, primarily as a result of redemption of FHLB of Cincinnati stock.

 

Interest income on interest-bearing deposits and other decreased $12,000 or 15.4% to $66,000 for the period just ended primarily because of lower dividends received on FHLB of Cincinnati stock. As noted previously, the Company’s stock in FHLB of Cincinnati was partially redeemed. As a result of the lower level of FHLB stock owned and lower dividend rates paid by the FHLB, dividend income decreased $13,000 or 16.7% to $78,000 for the three month period ended December 31, 2014 compared to the prior year period.

 

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Kentucky First Federal Bancorp

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (continued)

 

Comparison of Operating Results for the Three Month Periods Ended December 31, 2014 and 2013

(continued)

 

Interest expense on deposits decreased $64,000 or 17.7% to $297,000 for the three month period ended December 31, 2014, while interest expense on borrowings decreased $10,000 or 14.9% to $57,000 for the same period. The decrease in interest expense on deposits was attributed to a decrease in both the average balance of deposits as well as the average rate paid on deposits. The average balance of deposits decreased $17.3 million to $205.8 million for the most recent period, while the average balance paid on deposits decreased 7 basis points to 0.58%. The decrease in average deposits was attributed to rate-sensitive deposit customers withdrawing funds to seek additional yield as the historically low interest rate environment continues. The decrease in interest expense on borrowings also was attributed both to lower outstanding balances and a lower rate paid on amounts outstanding. The average balance of borrowings outstanding decreased $862,000 or 4.4% to $18.7 million for the recently ended three month period, while the average rate paid on borrowings decreased 15 basis points to 1.22% for the most recent period.

 

Net interest margin increased slightly from 4.13% for the prior year quarterly period to 4.14% for the quarter ended December 31, 2014.

 

Provision for Losses on Loans

 

The Company recorded $210,000 in provision for losses on loans during the three months ended December 31, 2014, compared to a $171,000 provision for the three months ended December 31, 2013, primarily due to changes in collateral values of impaired loans. There can be no assurance that the loan loss allowance will be adequate to absorb unidentified losses on loans in the portfolio, which could adversely affect the Company’s results of operations.

 

Non-interest Income

 

Non-interest income totaled $232,000 for the three months ended December 31, 2014, an increase of $135,000 from the same period in 2013, primarily due to the gain on sale of REO noted previously. There were no sales of investments during the three month period just ended.

 

Non-interest Expense

 

Non-interest expense remained constant and totaled $2.0 million for the three months ended December 31, 2014, and 2013. Employee compensation and benefits did, however, decrease $131,000 or 10.4% to $1.1 million for the quarterly period, because of changes in pension laws which temporarily reduce funding requirements for multiple-employer pension plan in which the Company participates. Although the Company’s liabilities for future pension benefit expenses was at least 100% funded at December 31, 2014, and no further defined benefit pension costs are anticipated for the balance of the fiscal year, the Company expects that its pension funding costs will be higher in the future.

 

Federal Income Tax Expense

 

Federal income taxes expense totaled $287,000 for the three months ended December 31, 2014, compared to $246,000 in the prior year period. The effective tax rates were 33.1% and 24.9% for the three-month periods ended December 31, 2014 and 2013, respectively.

 

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Kentucky First Federal Bancorp

 

ITEM 3:  Quantitative and Qualitative Disclosures About Market Risk

 

This item is not applicable as the Company is a smaller reporting company.

 

ITEM 4:  Controls and Procedures

 

The Company’s Chief Executive Officer and Chief Financial Officer have evaluated the Company’s disclosure controls and procedures (as defined under Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report, and have concluded that the Company’s disclosure controls and procedures were effective.

 

The Company’s Chief Executive Officer and Chief Financial Officer have also concluded that there were no significant changes during the quarter ended December 31, 2014, in the Company’s internal control over financial reporting or in other factors that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

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Kentucky First Federal Bancorp

 

PART II

 

ITEM 1.Legal Proceedings

 

None.

 

ITEM 1A.Risk Factors

 

There have been no material changes in the risk factors disclosed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2014.

 

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

 

(c)          The following table sets forth information regarding Company’s repurchases of its common stock during the quarter ended December 31, 2014.

 

           Total # of     
       Average   shares purchased   Maximum # of shares 
   Total   price paid   as part of publicly   that may yet be 
   # of shares   per share   announced plans   purchased under 
Period  purchased   (incl commissions)   or programs   the plans or programs 
                 
October 1-31, 2014      $        145,000 
November 1-30, 2014      $        145,000 
December 1-31, 2014   66,677   $8.26    66,677    78,323 

 

(1)  On January 16, 2014, the Company announced a program (its seventh) to repurchase of up to 150,000 shares of its common stock.

 

ITEM 3.Defaults Upon Senior Securities

 

Not applicable.

 

ITEM 4.Mine Safety Disclosures.

 

Not applicable.

 

ITEM 5.Other Information

 

None.

 

ITEM 6.Exhibits

 

  3.11 Charter of Kentucky First Federal Bancorp
  3.21 Bylaws of Kentucky First Federal Bancorp, as amended and restated
  4.11 Specimen Stock Certificate of Kentucky First Federal Bancorp
  31.1 CEO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
  31.2 CFO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
  32.1 CEO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
  32.1 CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
     
  101.0 The following materials from Kentucky Firt Federal Bancorp’s Quarterly Report
     
    On Form 10-Q for the quarter ended December 31, 2014 formatted in Extensivle Business Reporting Language (XBRL): (i) the Consolidated Balance Sheets; (ii) the Consolidated Sttements of Income; (iii) the Consolidated Statements of Comprehensive Income; (iv) the Consolidated Statements of Cash Flows: and (v) the related Notes.

 

 

(1)Incorporated herein by reference to the Company’s Registration Statement on Form S-1 (File No. 333-119041).

 

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Kentucky First Federal Bancorp

 

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.

 

      KENTUCKY FIRST FEDERAL BANCORP
         
Date: February 17, 2015   By:   /s/Don D. Jennings
        Don D. Jennings
        Chief Executive Officer
         
Date: February 17, 2015   By:   /s/ R. Clay Hulette
        R. Clay Hulette
        Vice President and Chief Financial Officer

 

42