Kentucky First Federal Bancorp — Form 10-Q Summary
Business context and reporting period
The company is a holding company for two Kentucky community-oriented savings institutions. This unaudited filing covers the quarter and six months ended December 31, 2016; income and cash-flow comparisons are against the corresponding 2015 periods. Balance-sheet comparisons are against June 30, 2016. Dollar amounts below are in millions unless stated otherwise.
Financial performance and condition
| Metric | Period/current value | Comparison |
|---|---|---|
| Net income | Six months: $0.551; quarter: $0.254 | Down 41.5% and 37.1%, respectively, year over year |
| EPS; dividends per share | Six months: $0.07 EPS, $0.20 dividends; quarter: $0.03 EPS, $0.10 dividends | EPS was $0.11 and $0.05 in the comparable 2015 periods; dividends were unchanged |
| Interest income; interest expense | Six months: $5.600; $0.669 | Interest income down 6.2%; expense down 3.3% |
| Net interest income; provision | Six months: $4.931; $0.056 | Net interest income down 6.6%; provision was $0.011 in 2015 |
| Net interest margin | Six months: 3.69%; quarter: 3.67% | 3.93% in both comparable 2015 periods |
| Non-interest income; expense | Six months: $0.244; $4.269 | Income up 1.7%; expense up 0.8% |
| Operating cash flow | Six months: $1.087 | $1.391 in 2015 |
| Cash and cash equivalents | December 31: $12.520 | Down $0.588 from June 30 |
| Total assets; net loans | $305.846; $247.257 | Assets up 4.8%; net loans up $8.8 from June 30 |
| Deposits; FHLB advances | $183.097; $53.110 | Deposits down $5.5; advances up $19.9 from June 30 |
| Shareholders’ equity | $67.461 | Down $0.054 from June 30 |
Material changes and operating drivers
- Six-month net income fell mainly because of lower interest income, a higher loan-loss provision, and higher non-interest expense. Lower loan yields were a key factor: the average loan yield declined to 4.44% from 4.70%.
- Loan growth was partly offset by lower deposits. Management said rate-sensitive customers sought higher yields elsewhere and that short-term FHLB advances were being used as replacement funding.
- Borrowings funded, in part, a $6.5 million short-term Treasury purchase. The filing says the note matured after December 31 and the related short-term advance was repaid from its proceeds.
- Net cash used in investing was $14.891, including $9.297 of net loan originations and purchases of securities and term deposits. Financing provided $13.216, principally through net FHLB advances, partly offset by deposit outflows and dividends.
Outlook, risks and unusual items
- No earnings or other numerical guidance is provided. Management said it would pursue high-quality loan originations when profitable, prudent, and consistent with interest-rate-risk strategy.
- Nonperforming loans were approximately $7.7 million, or 3.1% of loans, versus $7.1 million, or 2.9%, at June 30. The allowance was $1.473 million, equal to 0.6% of total loans and 19.2% of nonperforming loans. Management cautioned that the allowance may not cover unidentified losses.
- Past-due and credit concerns include $5.448 million of nonaccrual loans, $2.244 million more than 90 days past due but still accruing, and $1.9 million of troubled debt restructurings. About 25% of TDRs related to borrowers completing Chapter 7 bankruptcy without reaffirming the debt.
- Dividends paid for the six months were $0.20 per share, or 135% of net income. The company said the Federal Reserve did not object to the parent-company dividend waiver through the third calendar quarter of 2017 and management believed current dividends could continue without impairing subsidiary-bank well-capitalized status; future dividends remain subject to financial and regulatory factors.
- Management cited general economic conditions, real-estate prices, interest rates, competition, laws and regulation, and technology as risks. It reported no material change to previously disclosed risk factors, no legal proceedings, effective disclosure controls, and no significant quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Whether deposit outflows persist and how much the company continues to rely on FHLB advances, including their maturity and cost.
- Whether loan yields and net interest margin stabilize, and whether loan growth translates into stronger earnings.
- Trends in nonperforming loans, classified assets, charge-offs, TDR performance, and adequacy of the allowance.
- Whether dividends remain supportable given the six-month payout exceeding reported earnings and the company’s capital, liquidity, and regulatory conditions.