Kentucky First Federal Bancorp — Form 10-Q summary
Reporting period: Quarter and nine months ended March 31, 2022, the company’s fiscal third quarter of 2022. The request metadata says “2021 Q3,” but the filing itself covers 2022 Q3.
Business: Bank holding company for two Kentucky community savings institutions. Figures below are consolidated; dollar amounts are in millions unless noted.
Financial performance
| Metric | Three months ended Mar. 31, 2022 | Three months ended Mar. 31, 2021 | Nine months ended Mar. 31, 2022 | Nine months ended Mar. 31, 2021 |
|---|---|---|---|---|
| Interest income | $2.561 | $2.940 | $8.316 | $8.971 |
| Net interest income | $2.138 | $2.448 | $6.976 | $7.311 |
| Net income | $0.334 | $0.473 | $1.384 | $1.128 |
| Diluted EPS | $0.04 | $0.06 | $0.17 | $0.14 |
| Net interest margin | 2.62% | 3.04% | 2.84% | 3.07% |
- For the quarter, net income declined 29.4% year over year; lower net interest income and non-interest income outweighed reduced expenses and a $106,000 provision credit for loan losses.
- For the nine months, net income rose 22.7%. Lower non-interest expense and a swing from a $192,000 loan-loss provision to a $106,000 credit more than offset lower net interest income and slightly lower non-interest income.
- Quarterly net interest spread fell to 2.51% from 2.92%; nine-month spread was 2.71% versus 2.93%. Management attributed pressure mainly to lower yields on earning assets, including loans.
- Non-interest expense was $1.871 million for the quarter and $5.746 million for the nine months, down 7.3% and 6.3%, respectively. Management cited lower pension contributions among the drivers.
Financial position, cash flow and credit
- At March 31, 2022, total assets were $333.9 million, down 1.2% from June 30, 2021. Cash and cash equivalents were $46.1 million, up $24.4 million; management attributed the increase primarily to deposit growth and loan repayments.
- Net loans were $269.4 million, down $28.5 million (9.6%) from June 30, 2021. Deposits rose $11.8 million (5.2%) to $238.6 million; Federal Home Loan Bank advances fell $16.1 million (28.3%) to $40.8 million.
- Shareholders’ equity was $52.6 million, up $0.35 million. The company paid $1.045 million in dividends over nine months, or $0.30 per share; dividends equaled 75.5% of nine-month net income.
- For the nine months, operating cash flow was $1.144 million, investing cash flow was positive $28.976 million, and financing cash flow was negative $5.707 million. Investing cash flow included $28.724 million from loans originated for investment, net of principal collected.
- Nonperforming loans were approximately $5.7 million, or 2.1% of total loans, versus $6.7 million, or 2.2%, at June 30, 2021. The $1.484 million allowance was 25.9% of nonperforming loans and 0.5% of total loans.
- Loans 30–89 days past due totaled $2.765 million; loans 90 or more days past due totaled $1.052 million. Loans classified as substandard were $7.5 million; substantially all were real-estate-secured. Nearly 95% of the loan portfolio was secured by residential real estate.
Outlook, risks and notable items
- The filing provides no quantified earnings or balance-sheet guidance. Management said it is working to manage excess liquidity and rebuild loan balances, while noting that loans have declined as borrowers sold properties and some business was lost to competitors.
- Management reported the Banks were well-capitalized, with regulatory capital ratios above requirements. It said the dividend policy depends on capital, earnings, liquidity, regulatory requirements and overall condition; the Federal Reserve did not object to a waiver of certain parent-company dividends through the third calendar quarter of 2022.
- Risks cited include inflation and economic conditions, real-estate values, interest rates, competition, regulation, technology, COVID-19 effects, and Russia’s war in Ukraine and related market impacts. Management warned that prolonged economic weakness could worsen credit quality and increase credit-loss provisions.
- COVID-related payment deferrals covered 101 loans with $18.4 million of principal; all but one borrower had resumed regular payments, and the remaining borrower had returned to regular payments in April 2021. The filing says 75 Paycheck Protection Program loans totaling $2.6 million had been made; $2.2 million had been repaid.
- The company expects to adopt CECL in its fiscal year beginning July 1, 2023. It had not determined the size of the expected opening allowance adjustment or the overall financial-statement impact, and anticipated added process complexity and costs.
- No legal proceedings were reported. Management said disclosure controls were effective and that there were no significant changes to internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether loan balances and net interest margin stabilize or continue to decline, particularly as rates and deposit costs change.
- Credit performance behind the $5.7 million of nonperforming loans, $7.5 million of substandard assets, and the allowance coverage ratio.
- How the company deploys elevated cash balances and whether loan repayments, deposit trends or funding needs materially change liquidity.
- The eventual CECL implementation effect, including any opening allowance adjustment and related costs.
- The sustainability of the $0.10 quarterly dividend in light of earnings, capital, liquidity and regulatory conditions.