Kentucky First Federal Bancorp annual report, FY2014

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Kentucky First Federal Bancorp — FY2014 Form 10-K

Reporting period: Fiscal year ended June 30, 2014. The request labels the period “2013 Q4,” but this filing covers FY2014, not a standalone quarter. The company is a bank holding company operating First Federal of Hazard and First Federal of Frankfort; the filing incorporates its annual report for detailed financial statements and MD&A.

Business and financial position

  • At June 30, 2014, consolidated assets were $299.7 million, deposits $213.1 million, and stockholders’ equity $67.2 million.
  • First Federal of Hazard reported assets of $80.1 million, net loans of $62.6 million, deposits of $59.9 million, and capital of $15.9 million. First Federal of Frankfort reported assets of $228.9 million, net loans of $184.1 million, deposits of $166.3 million, and capital of $46.2 million.
  • The loan portfolio was predominantly real-estate-secured: 95.7% of loans were collateralized by real estate. Residential mortgages totaled $210.4 million, or 84.4% of the portfolio; 67.1% of residential mortgages were adjustable-rate. Commercial real estate and multifamily loans represented 10.5% and 5.6% of total loans, respectively.
  • Management reported return on average equity of 2.9% for FY2014 and warned that returns may remain low relative to other companies.
  • The filing text provided does not give clear consolidated figures for revenue, net income, cash flow, net interest margin, cash balances, or borrowings/debt. It states that both banks met applicable capital requirements and the qualified thrift lender test.

Changes and capital actions

  • The filing lists consolidated statements for FY2014 and FY2013, but the supplied text does not include their figures; clear year-over-year changes in revenue, profit, cash flow, or balance-sheet measures therefore cannot be established from this text.
  • The company acquired CKF Bancorp in December 2012; its Central Kentucky Federal Savings Bank operations now form a division of First Federal of Frankfort. The acquisition is background, not a FY2014 transaction.
  • No shares were repurchased under the announced buyback program during the quarter ended June 30, 2014. The program, announced in January 2014, authorized up to 150,000 shares; 145,000 remained available at quarter-end.
  • First Federal MHC was approved to waive quarterly dividends through the third quarter of 2014, with member approval also reported for continued waivers through the third quarter of 2015, subject to regulatory approval. The filing says such waivers support dividends to public stockholders but are not assured to continue.

Outlook, risks, and contingencies

  • No numerical earnings or operating guidance is provided. Management expected excess funds at Hazard to be redeployed from securities into loans, including loans purchased from Frankfort, over several years because local loan demand is weak.
  • Key risks include interest-rate changes, real-estate collateral deterioration and credit losses, intense competition, and the distressed eastern Kentucky economy—particularly the coal-dependent Hazard market. The company also cites regulatory and compliance costs, employee benefit expense, cybersecurity and systems disruptions, and limited trading liquidity in its shares.
  • Rising rates could initially increase funding costs faster than asset yields; adjustable-rate loan repricing is constrained by reset periods and rate caps. Further, the company notes that rising rates can reduce securities values and stockholders’ equity.
  • No pending legal proceeding was identified as likely to have a material adverse effect. No separate liability for commitment losses was recorded at June 30, 2014.
  • Management concluded disclosure controls and internal control over financial reporting were effective as of year-end. The company’s auditor did not provide an internal-control attestation under the applicable smaller-issuer exemption.

Investor facts to verify

  • Review the incorporated annual report for FY2014 and FY2013 income statements, cash-flow statements, asset-quality data, allowance for loan losses, liquidity, borrowings, and net interest margin; these values are not clear in the supplied filing text.
  • Check delinquency, nonperforming-loan, foreclosure, and charge-off trends, especially for commercial real estate and Hazard-market exposures.
  • Verify current capital ratios and the effect of Basel III requirements, as the filing reports compliance but does not provide the ratios in the supplied text.
  • Confirm whether MHC dividend waivers continued and assess the resulting capacity for public-company dividends and capital distributions.
  • Assess the pace and economics of deploying Hazard’s excess funds into loans, as management expected this process to take several years.