Kentucky First Federal Bancorp — Form 10-Q Summary
Reporting period: The filing covers the quarter and nine months ended March 31, 2020, in the company’s fiscal year ending June 30, 2020. Although the request metadata says “2019 Q3,” the filing itself is for 2020 Q3. The company is a holding company for two Kentucky community savings institutions. Dollar amounts below are in millions unless otherwise stated.
Financial performance
| Metric | Three months ended March 31 | Nine months ended March 31 |
|---|---|---|
| Interest income | $3.205 (2019: $3.192) | $9.796 (2019: $9.416) |
| Net interest income | $2.323 (2019: $2.347) | $7.045 (2019: $7.074) |
| Provision for loan losses | None (2019: none) | $0.064 (2019: $0.011) |
| Non-interest income | $0.081 (unchanged) | $0.233 (2019: $0.193) |
| Non-interest expense | $2.106 (2019: $2.173) | $6.316 (2019: $6.627) |
| Net income | $0.240; $0.03 per share (2019: $0.207; $0.02) | $0.722; $0.09 per share (2019: $0.512; $0.06) |
- Nine-month net interest margin declined to 3.07% from 3.21%; net interest spread fell to 2.84% from 3.00%. For the quarter, margin was 3.04% versus 3.18%, and spread was 2.82% versus 2.96%.
- Nine-month earnings rose 41.0%, mainly as non-interest expense fell 4.7% and non-interest income increased. Net interest income was nearly flat, as higher loan income was offset by higher deposit interest expense and lower returns on interest-bearing deposits.
- Cash from operations was $0.951 for the nine months (2019: $0.795). Investing activities provided $6.914, while financing activities used $0.701. Cash and cash equivalents increased $7.164 to $17.025.
Financial position and changes
- At March 31, total assets were $330.980, little changed from $330.771 at June 30, 2019. Net loans were $278.639, down $2.330; deposits were $208.555, up $12.719; and FHLB advances were $55.042, down $11.661.
- Shareholders’ equity was $65.569, down $0.709 from June 30. The company paid $1.038 in dividends during the nine-month period, equal to 143.8% of net income, and repurchased $0.475 of treasury stock.
- Loans were concentrated in residential real estate: one- to four-family loans totaled $217.808 of the $280.087 gross loan portfolio. The allowance for loan losses was $1.448, or 0.5% of loans and 19.2% of nonperforming loans.
- Nonperforming loans were approximately $7.5, or 2.7% of loans, compared with $8.0, or 2.8%, at June 30, 2019. Classified assets declined to $10.532 from $11.590. The company reported $6.090 of nonaccrual loans and $1.448 of loans over 90 days past due still accruing at quarter-end.
Outlook, risks and other notable items
- Management said COVID-19 and related economic disruption could materially affect operations, but could not estimate the magnitude. The company’s banks remained open with modified customer-service arrangements; management reported no material operational or internal-control challenges at the time of filing.
- As of May 12, 2020, 66 borrowers with $12.9 of principal had received payment deferrals. First Federal of Kentucky had approved or closed 30 PPP loans totaling $1.1. Management then expected the deferral program to have an immaterial near-term effect, while warning that prolonged economic weakness could worsen repayment capacity, credit quality, provisions and capital.
- The company and banks were described as well-capitalized, but the filing does not provide their specific capital ratios in the supplied text. Management said a prolonged recession could adversely affect capital.
- Management cited expense controls, lower pension-plan costs following a plan freeze, and FDIC assessment credits as contributors to lower expenses. Digital banking investment raised data-processing costs.
- The company reported no legal proceedings. It elected CARES Act relief allowing qualifying COVID-related loan modifications to avoid TDR accounting treatment. The allowance was based on the incurred-loss model; the company expected CECL adoption in fiscal 2024 and had not determined its effect.
- Management expressed support for a strong dividend but said future dividends depend on capital, earnings, liquidity, regulatory requirements and overall financial condition. Federal Reserve non-objection permitted the MHC to waive receipt of quarterly dividends up to $0.10 per share through the third calendar quarter of 2020.
Important facts for investors to verify
- Track COVID-related deferrals, PPP loan performance, delinquencies, nonperforming loans and subsequent allowance needs.
- Confirm current bank capital ratios and liquidity, and assess whether deposit growth and lower FHLB borrowing are sustainable.
- Monitor deposit pricing, certificate-of-deposit growth and net interest margin as rates and funding costs change.
- Assess the sustainability of dividends given the nine-month payout above earnings, and review subsequent repurchases and dividend decisions.
- Check the complete filing for any period-label inconsistencies: the supplied MD&A average-balance table labels the quarterly comparison “Three Months Ended December 31,” while the financial statements and related discussion identify the quarter ended March 31.