Kentucky First Federal Bancorp — Form 10-Q Summary
Reporting period: Three months ended September 30, 2013 (the first quarter of fiscal 2014; unaudited). The company is a bank holding company. Results include Central Kentucky FSB, acquired December 31, 2012, so year-over-year comparisons reflect a larger company as well as underlying operating changes.
Financial results
| Metric | Quarter ended Sep. 30, 2013 | Comparable 2012 period |
|---|---|---|
| Interest income | $3.236 million | $2.425 million |
| Net interest income | $2.783 million | $1.986 million |
| Provision for loan losses | $282,000 | $26,000 |
| Non-interest income | $115,000 | $109,000 |
| Non-interest expense | $1.987 million | $1.290 million |
| Net income | $423,000 | $522,000 |
| Basic and diluted EPS | $0.05 | $0.07 |
| Dividends per share | $0.10 | $0.10 |
| Net interest margin | 3.76% | 4.01% |
Interest income rose 33.4%, principally reflecting the acquired loan portfolio; net interest income increased 40.1%. Net income fell 19.0% as higher operating expenses and loan-loss provision more than offset the increase in net interest income. The provision increase was attributed chiefly to a borrower default involving several single-family rental properties. The company reported an effective tax rate of 32.8%.
Financial position and cash flow
- At September 30, 2013, total assets were $315.0 million, down 2.8% from June 30; shareholders’ equity was $66.7 million, up $99,000.
- Net loans were $258.2 million, down $4.3 million from June 30, attributed to weak loan demand and payoffs. Cash and cash equivalents were $12.7 million, down $3.8 million.
- Deposits were $227.0 million on the balance sheet, down $4.0 million; the MD&A separately reports period-end deposits of $233.3 million. The filing text does not clearly reconcile these values.
- Federal Home Loan Bank advances were $18.7 million, down $5.6 million. The company said it used excess liquidity to repay borrowings.
- Quarterly operating, investing, and financing cash flows were positive $970,000, positive $4.719 million, and negative $9.493 million, respectively. Cash decreased by $3.804 million to $12.736 million.
- Non-performing loans were approximately $8.2 million, or 3.20% of total loans, versus $8.0 million, or 3.04%, at June 30. The allowance was $1.386 million (0.44% of loans and 20.7% of non-performing loans), compared with $1.310 million (0.50% and 16.4%).
Material changes, outlook, and risks
- Non-interest expense increased 54.0% to $1.987 million, largely due to the CKF acquisition and associated personnel and operating costs. Full-time equivalent employees rose from 40 to 66.
- Average loan yield declined to 4.76% from 5.10%; average deposit cost declined to 0.65% from 0.93%. Despite lower funding costs, net interest margin fell to 3.76% from 4.01%.
- Past-due and nonaccrual credit remain a concern: nonaccrual loans were $6.685 million and loans over 90 days past due still accruing were $1.586 million. Troubled debt restructurings totaled $3.2 million; one TDR defaulted during the quarter, including a borrower bankruptcy involving a credit with a $624,000 carrying value.
- Real estate owned increased to $1.478 million from $1.163 million. The quarter included a $17,000 REO write-down and a $10,000 net loss on REO sales.
- Management described loan demand as weak and expected home-loan demand to remain subdued until the housing market strengthens. It said it would pursue high-quality originations subject to profitability, prudence, and interest-rate risk considerations. No specific earnings or growth guidance was provided.
- The company paid $360,000 in dividends, 85.1% of quarterly net income. Management said it believed capital was sufficient to maintain the current dividend policy, while noting future dividends depend on capital, earnings, liquidity, regulatory requirements, and overall financial condition. A dividend waiver was approved for quarterly dividends up to $0.10 per share through the third quarter of 2014.
- Management warned that economic conditions, local real estate prices, interest rates, competition, legal and regulatory changes, and technology could affect results. It stated that the allowance may not cover unidentified loan losses. No legal proceedings or material changes to previously disclosed risk factors were reported.
Important facts for investors to verify
- Reconcile the period-end deposit figures: $227.0 million in the balance sheet versus $233.3 million in the MD&A.
- Track non-performing loans, delinquencies, TDR defaults, charge-offs, and whether allowance coverage improves or deteriorates.
- Separate acquisition-driven growth in interest income and expenses from organic performance; monitor margin compression and loan demand.
- Assess the sustainability of the $0.10 quarterly dividend given the 85.1% payout and the company’s stated capital, liquidity, and regulatory considerations.
- Review the next filing for changes in REO balances, FHLB borrowing, deposits, and the company’s ability to maintain liquidity while repaying advances.