Kentucky First Federal Bancorp — Form 10-Q Summary
Reporting period: Three months ended September 30, 2022, the company’s fiscal first quarter of 2023. The filing is dated November 14, 2022. Amounts are in thousands of dollars unless stated otherwise.
Business context and reporting period
Kentucky First Federal Bancorp is the holding company for two Kentucky community savings institutions. Its lending is concentrated in residential real estate. The unaudited consolidated statements include the company and its banking subsidiaries.
Key financial metrics
| Metric | Quarter ended September 30, 2022 | Comparable period / prior balance |
|---|---|---|
| Interest income | $2,885 | $2,974 in 2021 |
| Interest expense | $453 | $469 in 2021 |
| Net interest income | $2,432 | $2,505 in 2021 |
| Net interest margin | 3.09% | 3.06% in 2021 |
| Net interest spread | 2.96% | 2.94% in 2021 |
| Provision for loan losses | $113 | None in 2021 |
| Non-interest income / expense | $98 / $1,928 | $228 / $1,981 in 2021 |
| Net income; diluted EPS | $373; $0.05 | $568; $0.07 in 2021 |
| Cash dividends per share | $0.10 | $0.10 in 2021 |
| Operating cash flow | $436 | $2,126 in 2021 |
| Investing / financing cash flow | $(20,732) / $3,108 | $4,257 / $(2,099) in 2021 |
At September 30, 2022, total assets were $330.9 million, up 0.9% from June 30. Net loans were $292.7 million, up 6.6%; deposits were $226.3 million, down 5.7%; and FHLB advances were $50.8 million, up 50.0%. Cash and cash equivalents fell to $8.6 million from $25.8 million. Shareholders’ equity was $51.6 million, down 0.8%, including $430,000 of after-tax unrealized losses on available-for-sale securities.
The allowance for loan losses was $1.642 million, or 0.6% of loans and 31.1% of nonperforming loans. Nonperforming loans were approximately $5.3 million, or 1.8% of loans, compared with $5.8 million, or 2.1%, at June 30. The company reported that both banks remained well-capitalized, but did not provide the capital ratios in the supplied filing text.
Material changes versus comparable periods
- Net income declined 34.3% year over year, mainly due to lower non-interest income, a new loan-loss provision, and lower net interest income.
- Loan interest income fell $290,000 year over year, reflecting lower average loan balances and a lower average yield. The weighted-average loan coupon at quarter-end rose to 3.74% from 3.47% a year earlier.
- Loan growth during the quarter was substantial, including a $9.0 million increase in multifamily loans. Management recorded a $113,000 provision, citing portfolio growth and the higher risk profile of multifamily lending.
- Non-interest income fell 57.0%, principally because gains on loan sales dropped to $7,000 from $162,000. Non-interest expense decreased 2.7%, helped by lower employee benefit costs.
- Quarter-end securities increased $3.7 million from June 30, while cash declined sharply. The AFS portfolio recorded unrealized losses of $573,000 before tax, reducing equity by $430,000 after tax; management recognized no impairment through earnings.
Outlook, management commentary, risks and unusual items
- No quantitative earnings or financial guidance was provided. Management said deposit outflows reflected customers seeking higher yields and expects to use FHLB advances and deposit-pricing strategies to retain core funding. It expects interest expense to increase as funding costs rise.
- Management intends to pursue high-quality lending where profitable and prudent, while maintaining its interest-rate-risk strategy. Higher market rates have reduced demand for long-term fixed-rate loans, including loans previously sold to the FHLB.
- Key disclosed risks include changes in interest rates, deposit competition and funding costs, real-estate values, borrower credit quality, economic conditions, regulation, and potential effects of COVID-19. Management said asset quality had improved, but warned that a prolonged downturn could increase credit losses and affect capital.
- The company expects to adopt CECL in its fiscal year beginning July 1, 2023. It has engaged a modeling provider but cannot yet estimate the transition adjustment or overall impact; it expects added complexity and costs.
- The quarterly dividend of $0.10 per share totaled $342,000, or 91.7% of quarterly net income. The filing says the Federal Reserve did not object to the mutual holding company waiving receipt of quarterly dividends up to $0.10 per share through the third calendar quarter of 2023. Future dividend levels remain subject to financial and regulatory considerations.
- Management concluded disclosure controls were effective and reported no significant quarterly change in internal control over financial reporting. The filing reported no legal proceedings or material changes to the risk factors in the prior annual report.
Important facts for investors to verify
- Whether deposit outflows and the increased reliance on FHLB advances persist, and how higher funding costs affect net interest margin and liquidity.
- Whether the recent loan growth—particularly multifamily growth—maintains credit quality, and whether delinquency trends or the allowance for loan losses require further changes.
- The scale and duration of securities valuation losses, and their effect on equity and reported comprehensive income.
- The expected CECL adoption impact and transition adjustment when management can quantify them.
- The filing’s COVID-related disclosures state that 101 loans with $18.4 million in principal were modified, while also stating $815,000 entered the deferral plan and that those loans had returned to regular payment status by June 30, 2022. Verify the scope and timing of these figures.
- Management states the company is well-capitalized, but the supplied filing text does not provide the specific regulatory capital ratios.