10-Q 1 v465999_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                                   March 31, 2017                    

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, smaller reporting company or an emerging growth company. See the definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one)

 

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

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    ¨

 

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 May 9, 2017, the latest practicable date, the Corporation had 8,444,515 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 42
         
    ITEM 4 Controls and Procedures 42
         
PART II - OTHER INFORMATION 43
         
SIGNATURES   44

  

 2 

 

 

PART I

ITEM 1: Financial Information

Kentucky First Federal Bancorp

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except share data)

 

   March 31,   June 30, 
   2017   2016 
ASSETS        
         
Cash and due from financial institutions  $4,691   $4,297 
Interest-bearing demand deposits   7,962    8,811 
Cash and cash equivalents   12,653    13,108 
           
Time deposits in other financial institutions   5,199    3,711 
Securities available for sale   77    134 
Securities held-to-maturity, at amortized cost- approximate  fair value of $2,171 and $4,151 at March 31, 2017 and June 30, 2016, respectively    2,131    4,079 
Loans held for sale   195     
Loans, net of allowance of $1,515 at March 31, 2017 and June 30, 2016   253,200    238,468 
Real estate owned, net   487    527 
Premises and equipment, net   5,821    6,022 
Federal Home Loan Bank stock, at cost   6,482    6,482 
Accrued interest receivable   677    710 
Bank-owned life insurance   3,135    3,064 
Goodwill   14,507    14,507 
Prepaid federal income taxes   212    93 
Prepaid expenses and other assets   490    966 
           
Total assets  $305,266   $291,871 
           
LIABILITIES AND SHAREHOLDERS’ EQUITY          
           
Deposits  $181,619   $188,572 
Federal Home Loan Bank advances   53,839    33,211 
Advances by borrowers for taxes and insurance   552    741 
Accrued interest payable   30    22 
Deferred federal income taxes   738    642 
Deferred revenue   582    595 
Other liabilities   659    573 
Total liabilities   238,019    224,356 
           
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   35,075    34,639 
Retained earnings   34,336    34,732 
Unearned employee stock ownership plan (ESOP), 89,628 shares and 103,636 shares at March 31, 2017 and June 30, 2016, respectively   (896)   (1,036)
Treasury shares at cost, 151,549 and 112,563 common shares at March 31, 2017 and June 30, 2016, respectively   (1,355)   (937)
Accumulated other comprehensive income   1    31 
Total shareholders’ equity   67,247    67,515 
           
Total liabilities and shareholders’ equity  $305,266   $291,871 

 

See accompanying notes.

 

 3 

 

 

Kentucky First Federal Bancorp

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(Dollars in thousands, except per share data)

 

   Nine months ended March 31,   Three months ended March 31, 
   2017   2016   2017   2016 
Interest income                    
Loans, including fees  $8,151   $8,542   $2,746   $2,756 
Mortgage-backed securities   45    73    14    29 
Other securities   10    17    4    7 
Interest-bearing deposits and other   257    195    99    66 
Total interest income   8,463    8,827    2,863    2,858 
                     
Interest expense                    
Interest-bearing demand deposits   16    19    5    5 
Savings   191    195    64    65 
Certificates of Deposit   550    591    189    187 
Deposits   757    805    258    257 
Borrowings   289    228    119    84 
Total interest expense   1,046    1,033    377    341 
Net interest income   7,417    7,794    2,486    2,517 
Provision for loan losses   222    11    166     
Net interest income after provision for loan losses   7,195    7,783    2,320    2,517 
                     
Non-interest income                    
Earnings on bank-owned life insurance   71    70    24    23 
Net gain on sales of loans   10    41    1     
Net gain on sales of real estate owned   65    52    (9)   (1)
Valuation adjustments of real estate owned   (83)   (150)   (58)   (111)
Net gain on sale of investments   64        64     
Other   207    208    68    70 
Total non-interest income   334    221    90    (19)
Non-interest expense                    
Employee compensation and benefits   4,005    4,082    1,350    1,443 
Occupancy and equipment   521    483    168    167 
Outside service fees   129    121    34    30 
Legal fees   26    67    6    27 
Data processing   294    290    101    99 
Auditing and accounting   243    195    85    65 
FDIC insurance premiums   70    159    22    49 
Franchise and other taxes   180    188    59    61 
Foreclosure and real estate owned expenses (net)   95    73    27    20 
Other   854    815    296    278 
Total non-interest expense   6,417    6,473    2,148    2,239 
                     
Income before income taxes   1,112    1,531    262    259 
                     
Federal income tax expense   393    411    94    81 
                     
NET INCOME  $719   $1,120   $168   $178 
                     
EARNINGS PER SHARE                    
Basic and diluted  $0.09   $0.13   $0.02   $0.02 
DIVIDENDS PER SHARE  $0.30   $0.30   $0.10   $0.10 

 

See accompanying notes.

 

 4 

 

 

Kentucky First Federal Bancorp

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In thousands)

 

   Nine months ended March 31,   Three months ended March 31, 
   2017   2016   2017   2016 
                 
Net income  $719   $1,120   $168   $178 
                     
Other comprehensive gains (losses), net of tax:                    
Unrealized holding gains (losses) on securities designated as available for sale, net of taxes (benefits) of $6, $(8), $(12) and $(3) during the respective periods   12    (16)   (24)   (5)
Less: Reclassification adjustment for gains included in net income, net of taxes of $22, $0, $22 and $0 during the respective periods   42        42     
Total other comprehensive loss   (30)   (16)   (66)   (5)
Comprehensive income  $689   $1,104   $102   $173 

 

See accompanying notes.

 

 5 

 

 

Kentucky First Federal Bancorp

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

 

   Nine months ended 
   March 31, 
   2017   2016 
Cash flows from operating activities:          
Net income  $719   $1,120 
Adjustments to reconcile net income to net cash provided by operating activities          
Depreciation   256    212 
Accretion of purchased loan credit discount   (137)   (116)
Amortization of purchased loan premium   11    13 
Amortization of deferred loan origination costs   47    23 
Amortization of premiums on investment securities   43    59 
Amortization of premiums on deposits   (35)   (63)
Net gain on sale of investments   (64)    
Net gain on sale of loans   (10)   (41)
Net gain on sale of real estate owned   (65)   (52)
Valuation adjustments of real estate owned   83    150 
Deferred gain on sale of real estate owned   (13)   (11)
ESOP compensation expense   158    138 
Earnings on bank-owned life insurance   (71)   (70)
Provision for loan losses   222    11 
Origination of loans held for sale   (653)   (1,019)
Proceeds from loans held for sale   468    1,160 
Increase (decrease) in cash, due to changes in:          
Accrued interest receivable   33    35 
Prepaid expenses and other assets   476    111 
Accrued interest payable   8    (2)
Other liabilities   86    (18)
Federal income taxes   (8)   (33)
Net cash provided by operating activities   1,554    1,607 
           
Cash flows from investing activities:          
Purchase of held-to-maturity U.S. Treasury notes   (6,499)   (11,000)
Purchase of term deposits in other financial institutions   (1,488)    
Securities maturities, prepayments and calls:          
Held to maturity   8,404    12,613 
Available for sale   4    9 
Proceeds from sale of investments   72     
Loans originated for investment, net of principal collected   (15,533)   4,422 
Proceeds from sale of real estate owned   710    812 
Additions to real estate owned   (30)   (114)
Additions to premises and equipment, net   (55)   (1,016)
Net cash provided by (used in) investing activities   (14,415)   5,726 
           
Cash flows from financing activities:          
Net decrease in deposits   (6,918)   (9,237)
Payments by borrowers for taxes and insurance, net   (189)   (213)
Proceeds from Federal Home Loan Bank advances   35,600    28,700 
Repayments on Federal Home Loan Bank advances   (14,972)   (21,543)
Dividends paid on common stock   (1,115)   (1,108)
Net cash provided by (used in) financing activities   12,406    (3,401)
           
Net increase (decrease) in cash and cash equivalents   (455)   3,932 
           
Beginning cash and cash equivalents   13,108    13,635 
           
Ending cash and cash equivalents  $12,653   $17,567 

 

See accompanying notes.

 6 

 

 

Kentucky First Federal Bancorp

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(Unaudited)

(In thousands)

 

   Nine months ended 
   March 31, 
   2017   2016 
         
Supplemental disclosure of cash flow information:          
Cash paid during the period for:          
Federal income taxes  $400   $460 
           
Interest on deposits and borrowings  $1,073   $1,098 
           
Transfers of loans to real estate owned, net  $688   $399 
           
Loans made on sale of real estate owned  $214   $534 

 

See accompanying notes.

 

 7 

 

 

Kentucky First Federal Bancorp

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2017

(unaudited)

 

The Kentucky First Federal Bancorp (“Kentucky First” or the “Company”) was incorporated under federal law in March 2005, and is the mid-tier holding company for First Federal Savings and Loan Association of Hazard, Hazard, Kentucky (“First Federal of Hazard”) and Frankfort First Bancorp, Inc. (“Frankfort First”). Frankfort First is the holding company for First Federal Savings Bank of Kentucky, Frankfort, Kentucky (“First Federal of Kentucky”). First Federal of Hazard and First Federal of Kentucky (hereinafter collectively the “Banks”) are Kentucky First’s primary operations, which consist of operating the Banks as two independent, community-oriented savings institutions.

 

In December 2012, the Company acquired CKF Bancorp, Inc., a savings and loan holding company which operated three banking locations in Boyle and Garrard Counties in Kentucky. In accounting for the transaction the assets and liabilities of CKF Bancorp were recorded on the books of First Federal of Kentucky in accordance with accounting standard ASC 805, Business Combinations.

 

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 nine- and three-month periods ended March 31, 2017, are not necessarily indicative of the results which may be expected for an entire fiscal year. The consolidated balance sheet as of June 30, 2016 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 2016 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 Kentucky (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)

March 31, 2017

(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:

 

   Nine months ended
 March 31,
   Three months ended
March 31,
 
(in thousands)  2017   2016   2017   2016 
                 
Net income allocated to common shareholders, basic and diluted  $719   $1,120   $168   $178 

 

   Nine months ended
 March 31,
   Three months ended
March 31,
 
   2017   2016   2017   2016 
Weighted average common shares outstanding, basic and diluted   8,342,203    8,321,890    8,350,270    8,326,593 

 

There were no stock option shares outstanding for the nine month period ended March 31, 2017 and the three-month periods ended March 31, 2017 and 2016. There were 189,322 weighted stock option shares outstanding for the nine-month period ended March 31, 2016, which were antidilutive for the period. All of the options previously granted expired December 13, 2015.

 

 9 

 

 

Kentucky First Federal Bancorp

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2017

(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 March 31, 2017 and June 30, 2016, the corresponding amounts of gross unrealized gains recognized in accumulated other comprehensive income and gross unrecognized gains and losses:

 

   March 31, 2017 
(in thousands)  Amortized
cost
   Gross
unrealized/
unrecognized
gains
   Gross
unrealized/
unrecognized
losses
   Estimated
fair value
 
                 
Available-for-sale Securities                    
Agency mortgage-backed: residential  $76   $1   $   $77 
                     
Held-to-maturity Securities                    
Agency mortgage-backed: residential  $1,630   $48   $8   $1,670 
Agency bonds   501            501 
   $2,131   $48   $8   $2,171 

 

       June 30, 2016     
(in thousands)  Amortized
cost
   Gross
unrealized/
unrecognized
gains
   Gross
unrealized/
unrecognized
losses
   Estimated
fair value
 
                 
Available-for-sale Securities                    
Agency mortgage-backed: residential  $79   $2   $   $81 
FHLMC stock   8    45        53 
   $87   $47   $   $134 
                     
Held-to-maturity Securities                    
Agency mortgage-backed: residential  $2,048   $70   $2   $2,118 
Agency bonds   2,031    2    1    2,033 
   $4,079   $72   $3   $4,151 

 

 10 

 

 

Kentucky First Federal Bancorp

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2017

(unaudited)

 

3. Investment Securities (continued)

 

At March 31, 2017, the Company’s debt securities consist of agency bonds, 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.

 

   March 31, 2017 
(in thousands)  Amortized Cost   Fair Value 
         
Held-to-maturity Securities          
Within one year  $501   $501 
Mortgage-backed   1,630    1,670 
   $2 131   $2 171 

 

Our pledged securities totaled $2.2 million and $1.7 million at March 31, 2017, and June 30, 2016, respectively.

 

The Company sold its Federal Home Loan Mortgage Company (FHLMC or Freddie Mac) stock in March 2017.

 

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)

March 31, 2017

(unaudited)

 

4. Loans receivable

 

The composition of the loan portfolio was as follows:

 

 

   March 31,   June 30, 
(in thousands)  2017   2016 
         
Residential real estate          
One- to four-family  $194,057   $186,125 
Multi-family   15,725    15,559 
Construction   2,881    2,809 
Land   1,169    1,186 
Farm   2,069    1,735 
Nonresidential real estate   28,407    27,138 
Commercial nonmortgage   2,400    1,847 
Consumer and other:          
Loans on deposits   1,666    1,813 
Home equity   6,906    6,155 
Automobile   44    69 
Unsecured   350    552 
    255,674    244,988 
           
Undisbursed portion of loans in process   (995)   (5,118)
Deferred loan origination costs   36    113 
Allowance for loan losses   (1,515)   (1,515)
   $253,200   $238,468 

 

The following table presents the activity in the allowance for loan losses by portfolio segment for the nine months ended March 31, 2017:

 

(in thousands)  Beginning
balance
   Provision
for loan
 losses
   Loans
charged
off
   Recoveries   Ending
balance
 
                     
Residential real estate:                         
One- to four-family  $862   $182   $(221)  $2   $825 
Multi-family   192    25            217 
Construction   5                5 
Land   2                  2 
Farm   3    1            4 
Nonresidential real estate   217    26            243 
Commercial nonmortgage   18    (14)           4 
Consumer and other:                         
Loans on deposits   4    (1)           3 
Home equity   11    1            12 
Automobile                    
Unsecured   1    2    (5)   2     
Unallocated   200                200 
Totals  $1,515   $222   $(226)  $4   $1,515 

 

 12 

 

 

Kentucky First Federal Bancorp

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

March 31, 2017

(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 March 31, 2017:

 

(in thousands)  Beginning
balance
   Provision for
loan losses
   Loans
charged off
   Recoveries   Ending
balance
 
                     
Residential real estate:                         
One- to four-family  $801   $148   $(126)  $2   $825 
Multi-family   211    6            217 
Construction   4    1            5 
Land   3    (1)           2 
Farm   4                4 
Nonresidential real estate   230    13            243 
Commercial nonmortgage   4                4 
Consumer and other:                         
Loans on deposits   3                3 
Home equity   12                12 
Automobile                    
Unsecured   1    (1)            
Unallocated   200                200 
Totals  $1,473   $166   $(126)  $2   $1,515 

 

The following table presents the activity in the allowance for loan losses by portfolio segment for the nine months ended March 31, 2016:

 

(in thousands)  Beginning
balance
   Provision for
loan losses
   Loans
charged off
   Recoveries   Ending
balance
 
                     
Residential real estate:                         
One- to four-family  $1,059   $(190)  $(17)  $11   $863 
Multi-family   94    102            196 
Construction   21    (14)           7 
Land   7    (3)             4 
Farm   9    (5)           4 
Nonresidential real estate   121    123            244 
Commercial nonmortgage   10    (1)           9 
Consumer and other:                         
Loans on deposits   13    (6)           7 
Home equity   31    (11)           20 
Automobile                    
Unsecured   3    (1)           2 
Unallocated   200    17            217 
Totals  $1,568   $11   $(17)  $11   $1,573 

 

 13 

 

 

Kentucky First Federal Bancorp

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

March 31, 2017

(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 March 31, 2016:

 

(in thousands)  Beginning
balance
   Provision for
loan losses
   Loans
charged off
   Recoveries   Ending
balance
 
                     
Residential real estate:                         
One- to four-family  $1,045   $(187)  $(4)  $9   $863 
Multi-family   96    100            196 
Construction   14    (7)           7 
Land   8    (4)           4 
Farm   9    (5)           4 
Nonresidential real estate   143    101            244 
Commercial nonmortgage   10    (1)           9 
Consumer and other:                         
Loans on deposits   11    (4)           7 
Home equity   30    (10)           20 
Automobile                    
Unsecured   2                2 
Unallocated   200    17            217 
Totals  $1,568   $   $(4)  $9   $1,573 

 

 14 

 

 

Kentucky First Federal Bancorp

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

March 31, 2017

(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 March 31, 2017. The recorded investment in loans excludes accrued interest receivable and deferred loan costs, net due to immateriality.

 

March 31, 2017:                        
(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  $4,159   $1,706   $5,865   $   $   $ 
                               
Loans collectively evaluated for impairment:                              
Residential real estate:                              
One- to four-family            $188,192   $825   $   $825 
Multi-family             15,725    217        217 
Construction             2,881    5        5 
Land             1,169    2        2 
Farm             2,069    4        4 
Nonresidential real estate             28,407    243        243 
Commercial nonmortgage             2,400    4        4 
Consumer:                              
Loans on deposits             1,666    3        3 
Home equity             6,906    12        12 
Automobile             44             
Unsecured             350             
Unallocated                     200    200 
              249,809    1,315    200    1,515 
             $255,674   $1,315   $200   $1,515 

 

 15 

 

 

Kentucky First Federal Bancorp

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

March 31, 2017

(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, 2016.

 

June 30, 2016:                        
(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  $3,400   $2,146   $5,546   $   $   $ 
Nonresidential real estate       164    164             
    3,400    2,310    5,710             
                               
Loans collectively evaluated for impairment:                              
Residential real estate:                              
One- to four-family            $180,579   $862   $   $862 
Multi-family             15,559    192        192 
Construction             2,809    5        5 
Land             1,186    2        2 
Farm             1,735    3        3 
Nonresidential real estate             26,974    217        217 
Commercial nonmortgage             1,847    18        18 
Consumer:                              
Loans on deposits             1,813    4        4 
Home equity             6,155    11        11 
Automobile             69             
Unsecured             552    1        1 
Unallocated                     200    200 
              239,278    1,315    200    1,515 
             $244,988   $1,315   $200   $1,515 

 

 16 

 

 

Kentucky First Federal Bancorp

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

March 31, 2017

(unaudited)

 

4. Loans receivable (continued)

 

The following table presents loans individually evaluated for impairment by class of loans as of and for the nine months ended March 31, 2017 and 2016:

 

March 31, 2017:

(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  $4,159   $   $3,871   $7   $7 
Purchased credit-impaired loans   1,706        1,981    57    57 
    5,865        5,852    64    64 
With an allowance recorded:                         
One- to four-family                    
   $5,865   $   $5,852   $64   $64 

 

March 31, 2016:

(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  $3,260   $   $3,081   $7   $7 
Purchased credit-impaired loans   2,391        2,833    53    53 
    5,651        5,914    60    60 
With an allowance recorded:                         
One- to four-family                    
   $5,651   $   $5,914   $60   $60 

 

 17 

 

 

Kentucky First Federal Bancorp

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

March 31, 2017

(unaudited)

 

4. Loans receivable (continued)

 

The following table presents loans individually evaluated for impairment by class of loans as of and for the three months ended March 31, 2017 and 2016:

 

March 31, 2017:

(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  $4,159   $   $4,050   $4   $4 
Purchased credit-impaired loans   1,706        1,762    17    17 
    5,865        5,812    21    21 
With an allowance recorded:                         
One- to four-family                    
   $5,865   $   $5,812   $21   $21 

 

March 31, 2016:

(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  $3,260   $   $3,127   $2   $2 
Purchased credit-impaired loans   2,391        2,439    19    19 
    5,651        5,566    21    21 
With an allowance recorded:                         
One- to four-family                    
   $5,651   $   $5,566   $21   $21 

 

 18 

 

 

Kentucky First Federal Bancorp

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

March 31, 2017

(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 March 31, 2017 and June 30, 2016:

 

   March 31, 2017   June 30, 2016 
(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  $5,131   $1,363   $4,785   $2,166 
Nonresidential real estate and land   150        173     
Consumer   5        11     
   $5,286   $1,363   $4,969   $2,166 

 

Troubled Debt Restructurings:

 

A Troubled Debt Restructuring (“TDR”) is the situation where the Bank grants a concession to the borrower that the Banks would not otherwise have considered due to the borrower’s financial difficulties. All TDRs are considered “impaired.” At March 31, 2017 and June 30, 2016, the Company had $1.6 million and $1.8 million of loans classified as TDRs, respectively. Of the TDRs at March 31, 2017, approximately 18.5% were related to the borrower’s completion of Chapter 7 bankruptcy proceedings with no reaffirmation of the debt to the Banks.

 

The following table presents TDRs by loan type at March 31, 2017 and June 30, 2016, 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
 
                     
March 31, 2017                         
Residential Real Estate:                         
1-4 Family   33   $1,970   $1,572   $666   $906 
                          
                          
June 30, 2016                         
Residential Real Estate:                         
1-4 Family   35   $2,136   $1,835   $1,318   $517 

 

 19 

 

 

Kentucky First Federal Bancorp

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

March 31, 2017

(unaudited)

 

4. Loans receivable (continued)

 

There were no troubled loans modified during the three months ended March 31, 2017 or 2016.

 

The following table summarizes TDR loan modifications that occurred during the nine months ended March 31, 2017 and 2016, 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
 
             
Nine months ended March 31, 2017               
Residential real estate:               
Terms extended  $97   $   $97 
                
Nine months ended March 31, 2016               
Residential real estate:               
Terms extended  $3   $   $3 

 

The Company had no allocated specific reserves to customers whose loan terms had been modified in troubled debt restructurings as of March 31, 2017 or at June 30, 2016. The Company had no commitments to lend on loans classified as TDRs at March 31, 2017 or June 30, 2016.

 

One TDR with a carrying value of $3,000 defaulted during the nine- and three-month periods ended March 31, 2017, and is in the foreclosure process as of the date of this filing. There were no TDRs that defaulted during the nine- or three- month periods ended March 31, 2016.

 

 20 

 

 

Kentucky First Federal Bancorp

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

March 31, 2017

(unaudited)

 

4. Loans receivable (continued)

 

The following table presents the aging of the principal balance outstanding in past due loans as of March 31, 2017, 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  $4,388   $2,304   $6,692   $187,365   $194,057 
Multi-family               15,725    15,725 
Construction               2,881    2,881 
Land               1,169    1,169 
Farm   548        548    1,521    2,069 
Nonresidential real estate       133    133    28,274    28,407 
Commercial non-mortgage               2,400    2,400 
Consumer and other:                         
Loans on deposits               1,666    1,666 
Home equity   11    11    22    6,884    6,906 
Automobile               44    44 
Unsecured   5        5    345    350 
Total  $4,952   $2,448   $7,400   $248,274   $255,674 

 

The following tables present the aging of the principal balance outstanding in past due loans as of June 30, 2016, 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  $5,712   $4,377   $10,089   $176,036   $186,125 
Multi-family               15,559    15,559 
Construction   548        548    2,261    2,809 
Land               1,186    1,186 
Farm               1,735    1,735 
Nonresidential real estate       153    153    26,985    27,138 
Commercial nonmortgage               1,847    1,847 
Consumer:                         
Loans on deposits               1,813    1,813 
Home equity   37        37    6,118    6,155 
Automobile               69    69 
Unsecured   9        9    543    552 
Total  $6,306   $4,530   $10,836   $234,152   $244,988 

 

 21 

 

 

Kentucky First Federal Bancorp

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

March 31, 2017

(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 March 31, 2017, 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  $   $6,002   $11,348   $   $176,741 
Multi-family   15,394        331         
Construction   2,881                 
Land   1,135                 
Farm   1,533        536         
Nonresidential real estate   28,258        149         
Commercial nonmortgage   2,400                 
Consumer:                         
Loans on deposits   1,666                 
Home equity   6,890        16         
Automobile   44                 
Unsecured   316    29    5         
   $60,517   $6,031   $12,385   $   $176,741 

 

 22 

 

 

Kentucky First Federal Bancorp

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2017

(unaudited)

 

4. Loans receivable (continued)

 

At June 30, 2016, 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  $   $6,387   $11,970   $   $167,768 
Multi-family   15,220        339         
Construction   2,809                 
Land   1,186                 
Farm   1,735                 
Nonresidential real estate   26,061    904    173         
Commercial nonmortgage   1,817    30             
Consumer:                         
Loans on deposits   1,813                 
Home equity   6,149        6         
Automobile   69                 
Unsecured   552                 
   $57,411   $7,321   $12,488   $   $167,768 

 

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 $388,000 and $464,000 at March 31, 2017 and June 30, 2016, respectively, is as follows:

 

(in thousands)  March 31, 2017   June 30, 2016 
         
One- to four-family residential real estate  $1,706   $2,146 
Nonresidential real estate       164 
Outstanding balance  $1,706   $2,310 

 

 23 

 

 

Kentucky First Federal Bancorp

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2017

(unaudited)

 

4. Loans receivable (continued)

 

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

 

(in thousands)  Three months
ended March
31, 2017
   Nine months
ended March
31, 2017
   Twelve
months ended
June 30, 2016
 
             
Balance at beginning of period  $900   $981   $1,021 
Accretion of income   (45)   (137)   (164)
Reclassifications from nonaccretable difference       60    124 
Disposals, net of recoveries   (114)   (163)    
Balance at end of period  $741   $741   $981 

 

For those purchased loans disclosed above, the Company made no increase in allowance for loan losses for the year ended June 30, 2016, nor for the nine- or three-month periods ended March 31, 2017. 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 and FHLMC stock.

 

 24 

 

 

Kentucky First Federal Bancorp

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2017

(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)
 
                 
March 31, 2017                    
Agency mortgage-backed: residential  $77   $   $77   $ 
                     
June 30, 2016                    
Agency mortgage-backed: residential  $81   $   $81   $ 
FHLMC stock   53        53     
   $134   $   $134   $ 

 

 25 

 

 

Kentucky First Federal Bancorp

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2017

(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)
 
                 
March 31, 2017                    
Other real estate owned, net                    
One- to four-family  $40           $40 
Land   79            79 
                     
June 30, 2016                    
Other real estate owned, net                    
One- to four-family  $274           $274 
Land   79            79 

 

 

There were no impaired loans, which were measured using the fair value of the collateral for collateral-dependent loans, at March 31, 2017, and June 30, 2016. There was no specific provision made for the nine month periods ended March 31, 2017 or 2016.

 

Other real estate owned measured at fair value less costs to sell, had carrying amounts of $119,000 and $353,000 at March 31, 2017 and June 30, 2016, respectively. Other real estate owned was written down $83,000 and $150,000 during the nine months ended March 31, 2017 and 2016, respectively.

 

 26 

 

 

Kentucky First Federal Bancorp

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2017

(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 March 31, 2017 and June 30, 2016:

 

             Range
   Fair Value   Valuation  Unobservable  (Weighted
March 31, 2017  (in thousands)   Technique(s)  Input(s)  Average)
Foreclosed and repossessed assets:              
1-4 family  $40   Sales comparison approach  Adjustments for differences between comparable sales  -14.4% to 45.8% (28.1%)
Land  $79   Sales comparison approach  Adjustments for differences between comparable sales  3.5% to 6.6% (5.0%)

 

             Range
   Fair Value   Valuation  Unobservable  (Weighted
June 30, 2016  (in thousands)   Technique(s)  Input(s)  Average)
Foreclosed and repossessed assets:              
1-4 family  $274   Sales comparison approach  Adjustments for differences between comparable sales  -24.0% to 15.2% (-5.1%)
Land  $79   Sales comparison approach  Adjustments for differences between comparable sales  3.5% to 6.6% (5.0%)

 

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.

 

 27 

 

 

Kentucky First Federal Bancorp

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2017

(unaudited)

 

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

 

The following methods were used to estimate the fair value of all other financial instruments at March 31, 2017 and June 30, 2016:

 

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 values of the loans does not necessarily represent an exit price.

 

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.

 

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.

 

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 March 31, 2017 and June 30, 2016, was not material.

 

 28 

 

 

Kentucky First Federal Bancorp

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2017

(unaudited)

 

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

 

Based on the foregoing methods and assumptions, the carrying value and fair value of the Company’s financial instruments at March 31, 2017 and June 30, 2016 are as follows:

 

       Fair Value Measurements at 
(in thousands)  Carrying   March 31, 2017 Using 
   Value   Level 1   Level 2   Level 3   Total 
Financial assets                         
Cash and cash equivalents  $12,653   $12,653         $12,653 
Term deposits in other financial institutions   5,199    5,199              5,199 
Available-for-sale securities   77        $77         77 
Held-to-maturity securities   2,131         2,171         2,171 
Loans held for sale   195         195         195 
Loans receivable - net   253,200              258,867    258,867 
Federal Home Loan Bank stock   6,482                   n/a 
Accrued interest receivable   677         17    660    677 
                          
Financial liabilities                         
Deposits  $181,619   $80,344   $101,262         181,606 
Federal Home Loan Bank advances   53,839         54,039         54,039 
Advances by borrowers for taxes and insurance   552    552              552 
Accrued interest payable   30         30         30 

 

       Fair Value Measurements at 
(in thousands)  Carrying   June 30, 2016 Using 
   Value   Level 1   Level 2   Level 3   Total 
Financial assets                         
Cash and cash equivalents  $13,108   $13,108         $13,108 
Term deposits in other financial institutions   3,711    3,711              3,711 
Available-for-sale securities   134        $134         134 
Held-to-maturity securities   4,079         4,151         4,151 
Loans receivable – net   238,468             $242,456    242,456 
Federal Home Loan Bank stock   6,482                   n/a 
Accrued interest receivable   710         21    689    710 
                          
Financial liabilities                         
Deposits  $188,572   $81,814   $106,820        $188,634 
Federal Home Loan Bank advances   33,211         33,517         33,517 
Advances by borrowers for taxes and insurance   741    741              741 
Accrued interest payable   22         22         22 

 

 29 

 

 

Kentucky First Federal Bancorp

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2017

(unaudited)

 

6. Other Comprehensive Income (Loss)

 

The Company’s other comprehensive income is comprised solely of unrealized gains and losses on available-for-sale securities. The following is a summary of the accumulated other comprehensive income balances, net of tax:

 

   Three months
ended
March 31, 2017
   Nine months
ended
March 31, 2017
 
         
Beginning balance  $67   $31 
           
Other comprehensive income before reclassification   (24)   12 
Amounts reclassified from accumulated other comprehensive income   (42)   (42)
Net current period other comprehensive loss   (66)   (30)
Ending balance  $1   $1 

 

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

 

   Nine months ended March 31, 
(in thousands)  2017   2016 
         
Unrealized holding gains (losses) on available-for-sale securities  $(45)  $(24)
Tax effect   (15)   (8)
Net-of-tax amount  $(30)  $(16)

 

   Three months ended March 31, 
(in thousands)  2017   2016 
         
Unrealized holding gains (losses) on available-for-sale securities  $(100)  $(8)
Tax effect   (34)   (3)
Net-of-tax amount  $(66)  $(5)

 

 30 

 

 

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, 2016. Except as required by applicable law or regulation, the Company does not undertake the responsibility, and specifically disclaims any obligation, to release publicly the result of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of the statements or to reflect the occurrence of anticipated or unanticipated events.

 

 31 

 

 

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 nine month periods ended March 31, 2017 and 2016, along with the related calculations of tax-equivalent net interest income, net interest margin and net interest spread for the related periods.

 

   Nine Months Ended March 31, 
   2017   2016 
   Average
Balance
   Interest 
And
Dividends
   Yield/
Cost
   Average
Balance
   Interest
And Dividends
   Yield/
Cost
 
   (Dollars in thousands) 
Interest-earning assets:                              
Loans 1  $246,085   $8,151    4.42%  $245,362   $8,542    4.64%
Mortgage-backed securities   1,931    45    3.11    2,582    73    3.77 
Other securities   2,147    10    0.62    3,951    17    0.57 
Other interest-earning assets   19,544    257    1.75    16,954    195    1.53 
Total interest-earning assets   269,707    8,463    4.18    268,849    8,827    4.38 
                               
Less: Allowance for loan losses   (1,484)             (1,568)          
Non-interest-earning assets   30,006              30,126           
Total assets  $298,229             $297,407           
                               
Interest-bearing liabilities:                              
Demand deposits  $15,734   $16    0.14%  $6,511   $19    0.39%
Savings   62,755    191    0.41    74,156    195    0.35 
Certificates of deposit   103,161    550    0.71    110,958    591    0.71 
Total deposits   181,650    757    0.56    191,625    805    0.56 
Borrowings   42,288    289    0.91    32,234    228    0.94 
Total interest-bearing liabilities   223,938    1,046    0.62    223,859    1,033    0.62 
                               
Noninterest-bearing demand deposits   4,330              3,752           
Noninterest-bearing liabilities   2,513              2,522           
Total liabilities   230,781              230,133           
                               
Shareholders’ equity   67,448              67,274           
Total liabilities and shareholders’ equity  $298,229             $297,407           
Net interest income/average yield       $7,417    3.56%       $7,794    3.76%
Net interest margin             3.67%             3.87%
Average interest-earning assets to average interest-bearing liabilities             120.44%             120.10%

 

 

1 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)

 

Average Balance Sheets (continued)

 

The following table represents the average balance sheets for the three month periods ended March 31, 2017 and 2016, 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 March 31, 
   2017   2016 
   Average
Balance
   Interest
And
Dividends
   Yield/
Cost
   Average
Balance
   Interest
And
Dividends
   Yield/
Cost
 
   (Dollars in thousands) 
Interest-earning assets:                              
Loans 2  $251,355   $2,746    4.37%  $243,726   $2,756    4.52%
Mortgage-backed securities   1,788    14    3.13    2,377    29    4.88 
Other securities   2,281    4    0.70    5,020    7    0.56 
Other interest-earning assets   18,993    99    2.09    18,757    66    1.41 
Total interest-earning assets   274,417    2,863    4.17    269,880    2,858    4.23 
                               
Less: Allowance for loan losses   (1,471)             (1,568)          
Non-interest-earning assets   30,375              31,441           
Total assets  $303,321             $299,753           
                               
Interest-bearing liabilities:                              
Demand deposits  $15,647   $5    0.13%  $8,179   $5    0.25%
Savings   62,282    64    0.41    71,795    65    0.36 
Certificates of deposit   101,356    189    0.75    108,452    187    0.69 
Total deposits   179,285    258    0.58    188,426    257    0.55 
Borrowings   49,873    119    0.95    37,283    84    0.90 
Total interest-bearing liabilities   229,158    377    0.66    225,709    341    0.60 
                               
Noninterest-bearing demand deposits   2,257              3,704           
Noninterest-bearing liabilities   4,407              2,285           
Total liabilities   235,822              231,698           
                               
Shareholders’ equity   67,499              68,055           
Total liabilities and shareholders’ equity  $303,321             $299,753           
Net interest income/average yield       $2,486    3.51%       $2,517    3.63%
Net interest margin             3.62%             3.73%
Average interest-earning assets to average interest-bearing liabilities             119.75%             119.57%

 

 

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

 

 33 

 

 

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, 2016 to March 31, 2017

 

Assets: At March 31, 2017, the Company’s assets totaled $305.3 million, an increase of $13.4 million, or 4.6%, from total assets at June 30, 2016. This increase was attributed primarily to an increase in loans and time deposits in other financial institutions.

 

Cash and cash equivalents: Cash and cash equivalents decreased by $455,000 or 3.5% to $12.7 million at March 31, 2017.

 

Time deposits in other financial institutions: Time deposits in other financial institutions increased by $1.5 million or 40.1% to $5.2 million at March 31, 2017, as we seek to earn a higher interest rate on short-term liquidity.

 

Investment securities: At March 31, 2017 our securities portfolio consisted of agency bonds and mortgage-backed securities. Investment securities decreased $2.0 million or 47.6% to $2.1 million at March 31, 2017.

 

Loans: Loans receivable, net, increased by $14.7 million or 6.2% to $253.2 million at March 31, 2017. 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.

 

Non-Performing and Classified Loans:  At March 31, 2017, the Company had non-performing loans (loans 90 or more days past due or on nonaccrual status) of approximately $6.6 million, or 2.6% of total loans (including loans purchased in the acquisition), compared to $7.1 million or 2.9%, of total loans at June 30, 2016.  The Company’s allowance for loan losses totaled $1.5 million at both March 31, 2017 and June 30, 2016. The allowance for loan losses at March 31, 2017, represented 22.8% of nonperforming loans and 0.6% of total loans (including loans purchased in the acquisition), while at June 30, 2016, the allowance represented 21.2% of nonperforming loans and 0.6% of total loans.

 

The Company had $12.9 million in assets classified as substandard for regulatory purposes at March 31, 2017, including loans ($12.4 million) and real estate owned (“REO”) ($487,000), including loans acquired in the CKF Bancorp transaction. Classified loans as a percentage of total loans (including loans acquired) was 4.9% and 5.1% at March 31, 2017 and June 30, 2016, respectively. Of substandard loans, 95.5% were secured by real estate on which the Banks have priority lien position.

 

 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, 2016 to March 31, 2017 (continued)

 

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

 

(dollars in thousands)  March 31, 2017   June 30, 2016 
         
Substandard assets  $12,872   $13,015 
Doubtful assets        
Loss assets        
Total classified assets  $12,872   $13,015 

 

At March 31, 2017, the Company’s real estate acquired through foreclosure represented 3.8% of substandard assets compared to 4.0% at June 30, 2016. During the nine months ended March 31, 2017, the Company sold property with a carrying value of $646,000 for $678,000, while during the year ended June 30, 2016, property with a carrying value of $727,000 was sold for $822,000. During the nine months ended March 31, 2017, the Company made $214,000 in loans to facilitate the purchase of its other real estate owned by qualified borrowers, while for the fiscal year ended June 30, 2016, $741,000 in loans to facilitate an exchange were made. The Company defers recognition of any gain on loans to facilitate an exchange until the proper time in the future according to ASC topic 360, Property, Plant and Equipment. Loans to facilitate the sale of other real estate owned, which were included in substandard loans, totaled $347,000 and $375,000 at March 31, 2017 and June 30, 2016, respectively.

 

 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, 2016 to March 31, 2017 (continued)

 

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

 

   March 31, 2017   June 30, 2016 
   Number   Net   Number   Net 
   of   Carrying   of   Carrying 
   Properties   Value   Properties   Value 
                 
Single family, non-owner occupied   10   $459    5   $445 
Building lot   2    28    3    82 
Total REO   12   $487    8   $527 

 

At March 31, 2017 and June 30, 2016, the Company had $6.0 million and $7.3 million of loans classified as special mention, respectively (including loans acquired in the CKF Bancorp transaction on 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.

 

Liabilities: At March 31, 2017, the Company’s liabilities totaled $238.0 million, an increase of $13.7 million, or 6.1%, from total liabilities at June 30, 2016. The increase in liabilities was attributed primarily to an increase of $20.6 million or 62.1% in FHLB advances, which totaled $53.8 million at quarter end compared to June 30, 2016, and was partially offset by a $7.0 million or 3.7% decrease in deposits which totaled $181.6 million at March 31, 2017. Deposit customers continue seeking higher yields on their funds in the current low-rate environment with some turning to non-insured investments. As deposits have continued to decrease, we have utilized short-term FHLB advances as replacement funding.

 

Shareholders’ Equity: At March 31, 2017, the Company’s shareholders’ equity totaled $67.2 million, a decrease of $268,000 or 0.4% from the June 30, 2016 total. The change in shareholders equity was primarily associated with net profits for the period less dividends paid on common stock.

 

 36 

 

 

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, 2016 to March 31, 2017 (continued)

 

The Company paid dividends of $1.1 million or 155.1% of net income for the nine month period just ended. On July 7, 2016, the members of First Federal MHC for the fifth 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. The Federal Reserve Bank of Cleveland has notified the Company that it did not object to the waiver of dividends paid by the Company to First Federal MHC, and, 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 calendar quarter of 2017. 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, 2016 for additional discussion regarding dividends.

 

Comparison of Operating Results for the Nine Month Periods Ended March 31, 2017 and 2016

 

General

 

Net earnings totaled $719,000 or $0.09 diluted earnings per share for the nine months ended March 31, 2017, compared to net earnings of $1.1 million or $0.13 diluted earnings per share for the nine months ended March 31, 2016, a decrease of $401,000 or 35.8%. The decrease in net earnings was primarily attributable to lower net interest income and higher provision for loan losses while being somewhat offset by higher non-interest income and lower non-interest expense.

 

Net Interest Income

 

Net interest income before provision for loan losses decreased $377,000 or 4.8% and totaled $7.4 million for the nine months ended March 31, 2017, compared to the nine months ended a year earlier chiefly due to a decrease in interest income. Interest income decreased $364,000 or 4.1%, to $8.5 million, while interest expense increased $13,000 or 1.3% to $1.0 million for the nine months ended March 31, 2017, after amortization of fair value adjustments on interest bearing accounts.

 

Interest income on loans decreased $391,000 or 4.6% to $8.2 million, due primarily to a decrease in the average rate earned on the loan portfolio, which is a result of the continued low interest rate environment. The average rate earned on loans outstanding decreased 22 basis points to 4.42% for the nine month period just ended, while the average balance of loans outstanding increased $723,000 to $246.1 million. Interest from interest-bearing deposits and other increased $62,000 or 31.8% to $257,000 for the nine months ended March 31, 2017, as the average balance increased $2.6 million or 15.3% to $19.5 million for the recently ended period, while the average rate earned increased 22 basis points to 1.75% compared to the period a year ago.

 

 37 

 

 

Kentucky First Federal Bancorp

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (continued)

 

Comparison of Operating Results for the Nine Month Periods Ended March 31, 2017 and 2016 (continued)

 

Net Interest Income (continued)

 

Interest expense on deposits decreased $48,000 or 6.0% to $757,000 for the nine month period ended March 31, 2017, due to a decrease in the average balance of deposits outstanding. Average deposits outstanding decreased $10.0 million or 5.2% to $181.7 million for the recently ended nine month period, while the average rate paid on deposits remained steady at 56 basis points for both nine-month periods. Interest expense on borrowings increased $61,000 or 26.8% to $289,000 for the nine month period ended March 31, 2017, compared to the prior year period. The increase in interest expense on borrowings was attributed to a higher average balance outstanding, which increased $10.0 million or 31.2% to $42.3 million, while the average rate paid on borrowings decreased three basis points to 91 basis points for the recently ended period.

 

Net interest margin decreased from 3.87% for the prior year period to 3.67% for the nine months ended March 31, 2017.

 

Provision for Losses on Loans

 

The Company recorded $222,000 in provision for losses on loans during the nine months ended March 31, 2017, compared to a provision of $11,000 for the nine months ended March 31, 2016. The increased provision was primarily due to loans charged off during the quarter recently ended. 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 increased $113,000 or 51.1% to $334,000 for the nine months ended March 31, 2017, due chiefly to gain recognized on the sale of investments and decreased charges associated with REO. The Company sold its investment in Fedeal Home Loan Mortgage Company (“Freddie Mac”) stock during the recently ended quarter and recognized gain of $64,000, while REO charges decreased for the recently-ended period. Net gain on sale of REO increased $13,000 or 25.0% to $65,000 for the recently ended nine month period compared to gain of $52,000 for the nine-month period in the prior year. Unfavorable valuation adjustments on REO decreased $67,000 or 44.7% to $83,000 for the nine month period just ended compared to the prior year. Somewhat offsetting the positive results from the gain on sale of investments and REO activity was a decrease of $31,000 or 75.6% in net gain on sales of loans, which totaled $10,000 for the nine months ended March 31, 2017.

 

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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 Nine Month Periods Ended March 31, 2017 and 2016 (continued)

 

Non-interest Expense

 

Non-interest expense totaled $6.4 million and $6.5 million for the nine months ended March 31, 2017 and 2016, respectively, a decrease of $56,000 or 0.9% period to period. The decrease was primarily related to lower FDIC insurance premiums, employee compensation and other benefits as well as legal fees, while being somewhat offset by increases in occupancy and equipment expense, foreclosure and REO expenses, net, as well as other non-interest expenses. FDIC insurance premiums decreased $89,000 or 56.0% and totaled $70,000 for the nine months just ended as a result of a change in the assessment system. FDIC regulations provide for several changes when the Deposit Insurance Fund reserve ratio first reaches or exceeds 1.15 percent, which it did on June 30, 2016. In addition, the April 2016 final rule adopted by the FDIC Board of Directors amends the way insurance assessment rates are calculated for established small banks (generally banks that have less than $10 billion in assets and that have been federally insured for at least five years.) The Company expects to continue to benefit from the revised FDIC assessment methodology. Employee compensation and benefits decreased $77,000 or 1.9% to $4.0 million for the nine months ended March 31, 2017, due primarily to lower retirement plan expense and employee compensation. Plan contributions totaled $521,000 during the nine-month period just ended compared to $557,000 in the nine-month period a year ago, while employee compensation expense decreased period to period. Compensation paid to employees decreased $32,000 or 1.2% to $2.6 million for the nine months ended March 31, 2017, while deferral of compensation costs attributed to loan origination also resulted in lower overall expense. Because deferred loan costs are comprised primarily of personnel costs, the Company generally recognizes lower compensation expense when loan originations exceed loan payoffs. Legal expense decreased $41,000 or 61.2% to $26,000 for the nine month period recently ended. Occupancy and equipment expense increased $38,000 or 7.9% to $521,000 for the nine month period recently ended compared to the 2016 period, primarily due to the Company’s additional office space. Foreclosure and REO expenses, net increased $22,000 or 30.1% to $95,000 for the nine months ended March 31, 2017 due to the transition of loan collateral to REO during the period. Other non-interest expense totaled $854,000 and $815,000 for the nine months ended March 31, 2017 and 2016, respectively, an increase of $39,000 or 4.8%, primarily as a result of advertising and data communications expenses.

 

Federal Income Tax Expense

 

Federal income taxes expense totaled $393,000 for the nine months ended March 31, 2017, compared to $411,000 in the prior year period. The effective tax rates were 35.3% and 26.8% for the nine month periods ended March 31, 2017 and 2016, respectively.

 

Comparison of Operating Results for the Three Month Periods Ended March 31, 2017 and 2016

 

General

 

Net income totaled $168,000 for the three months ended March 31, 2017, a decrease of $10,000 or 5.6% from net income of $178,000 for the same period in 2016.

 

Net Interest Income

 

Net interest income before provision for loan losses decreased $31,000 or 1.2% to $2.5 million for the three month period just ended. Interest income increased by $5,000, or 0.2%, to $2.9 million, while interest expense increased $36,000 or 10.6% to $377,000 for the three months ended March 31, 2017, after amortization of fair value adjustments on interest bearing accounts.

 

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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 March 31, 2017 and 2016

(continued)

 

Interest income on loans decreased $10,000 or 0.4% to $2.7 million, due primarily to a decrease in the average rate earned on the loan portfolio. The average rate earned on the loan portfolio decreased 15 basis points to 4.37% for the three month period ended March 31, 2017, while the average balance of the loan portfolio increased $7.6 million or 3.1% to $251.4 million. Interest income on mortgage-backed securities decreased $15,000 or 51.7% to $14,000 for the quarterly period just ended due to lower interest rate and volume of asset level. Interest income from interest-bearing deposits and other increased $33,000 or 50.0% to $99,000 for the quarter just ended primarily as a result of an increase in the average rate earned on those assets which increased 68 basis points to 2.1% compared to the period a year ago.

 

Interest expense on deposits increased $1,000 or 0.4% to $258,000 for the three month period ended March 31, 2017, while interest expense on borrowings increased $35,000 or 41.7% to $119,000 for the same period. The increase in interest expense on deposits was attributed primarily to an increase in the average rate paid on deposits partially offset by a decrease in the average balance of deposits. The average balance of deposits decreased $9.1 million or 4.9% to $179.3 million for the most recent period, while the average rate paid on deposits increased 3 basis points to 58 basis points. The decrease in average deposits was attributed to rate-sensitive deposit customers withdrawing funds to seek additional yield. The increase in interest expense on borrowings was attributed primarily to higher average outstanding balances. The average balance of borrowings outstanding increased $12.6 million or 33.8% to $49.9 million for the recently ended three month period, while the average rate paid on borrowings increased 5 basis points to 95 basis points for the most recent period.

 

Net interest margin decreased from 3.73% for the prior year quarterly period to 3.62% for the quarter ended March 31, 2017.

 

Provision for Losses on Loans

 

The Company recorded provision for losses on loans of $166,000 during the three months ended March 31, 2017, compared to no provision for the three months ended March 31, 2016, primarily due to loans charged off during the recently-ended quarter. 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 increased $109,000 to $90,000 for the quarter ended March 31, 2017, compared to the prior year quarter, primarily because of gain on the sale of investments and decreased charges associated with REO. The Company sold its investment in Freddie Mac stock during the recently ended quarter and recognized a gain of $64,000, while REO charges decreased $45,000 or 40.2% to $67,000 for the recently-ended quarterly period. Net loss on sale of REO increased $8,000 to $9,000 for the recently ended quarter compared to the prior year, while unfavorable valuation adjustments for REO decreased from $111,000 for the prior year period to $58,000 for the period just ended, a decrease of $53,000 or 47.7%.

 

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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 March 31, 2017 and 2016

(continued)

 

Non-interest Expense

 

Non-interest expense decreased $91,000 or 4.1% and totaled $2.1 million for the three months ended March 31, 2017, primarily due to decreased costs associated with employee compensation and benefits, FDIC insurance premiums and legal fees and were somewhat offset by increases in auditing and accounting and other non-interest expenses. Employee compensation and benefits decreased $93,000 or 6.4% to $1.4 million for the quarter just ended due to decreased employee compensation and decreased funding of the Company’s defined benefit retirement plan. Plan contributions totaled $173,000 during the three-month period just ended compared to $203,000 in the three-month period a year ago. FDIC insurance premiums for the three months ended March 31, 2017 decreased $27,000 or 55.1% to $22,000 and was due to changes in the assessment methodology utilized by the FDIC. Such changes were discussed herein above. Foreclosure and OREO expenses, net increased $7,000 or 35.0% and totaled $27,000 for the recently ended period, primarily associated with additional REO added during the quarter. Auditing and accounting expense totaled $85,000, an increase of $20,000 or 30.8%, for the recently ended quarter as a result of increased professional fees paid for compliance purposes.

 

Federal Income Tax Expense

 

Federal income taxes expense totaled $94,000 for the three months ended March 31, 2017, compared to $81,000 in the prior year period. The effective tax rates were 35.9% and 31.3% for the three-month periods ended March 31, 2017 and 2016, respectively. Federal income tax expense was reduced in the prior year due to the reversal of a FIN 48 reserve related to a previously received federal income tax refund.

 

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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 effectiveness of 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 for the purpose of ensuring that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the Securities and Exchange Commission (the “SEC”) (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

 

Based upon their evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have also concluded that there were no significant changes during the quarter ended March 31, 2017 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, 2016.

 

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 March 31, 2017.

 

           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 
                 
January 1-31, 2017      $        60,323 
February 1-28, 2017      $        60,323 
March 1-31, 2017      $        60,323 

 

(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
  3.22 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
  32.2 CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
  101.0 The following materials from Kentucky First Federal Bancorp’s Quarterly Report
    On Form 10-Q for the quarter ended March 31, 2017 formatted in Extensible Business Reporting Language (XBRL): (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements 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).
(2)Incorporated herein by reference to the Company’s Annual Report on Form 10-K for the Year Ended June 30, 2012 (File No. 0-51176).

 

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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: May 16, 2017   By:   /s/ Don D. Jennings
        Don D. Jennings
        Chief Executive Officer

 

Date: May 16, 2017   By:   /s/ R. Clay Hulette
        R. Clay Hulette
        Vice President and Chief Financial Officer

 

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