Kentucky First Federal Bancorp — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended December 31, 2023. The company operates two community-oriented savings institutions in Kentucky. Financial statements are unaudited.
Key financial metrics
| Metric | Six months ended Dec. 31, 2023 | Comparable 2022 period / balance-sheet comparison |
|---|---|---|
| Interest income | $7.661 million | $6.016 million |
| Net interest income | $3.328 million | $4.880 million |
| Net income (loss) | $(536,000); diluted EPS $(0.07) | $747,000; diluted EPS $0.09 |
| Net interest margin | 1.92% | 3.06% |
| Net interest spread | 1.44% | 2.90% |
| Operating cash flow | $(1.092) million | $803,000 |
| Cash and cash equivalents | $14.584 million at Dec. 31 | $8.167 million at June 30, 2023 |
| Total assets | $366.247 million at Dec. 31 | $349.022 million at June 30, 2023 |
| Loans, net | $325.648 million at Dec. 31 | $313.807 million at June 30, 2023 |
| Deposits | $244.629 million at Dec. 31 | $226.309 million at June 30, 2023 |
| FHLB advances | $71.008 million at Dec. 31 | $70.087 million at June 30, 2023 |
| Shareholders’ equity | $49.183 million at Dec. 31 | $50.711 million at June 30, 2023 |
Performance and material changes
- For the December quarter, net loss was $361,000, or $(0.05) per diluted share, versus net income of $374,000, or $0.04 per share, a year earlier. Net interest income fell 32.3% to $1.657 million.
- For the six-month period, net interest income decreased 31.8% despite a 27.3% increase in interest income. Interest expense rose 281.4%, as funding costs increased faster than asset yields. Average cost of interest-bearing liabilities rose to 2.99% from 0.87%; average yield on interest-earning assets increased to 4.43% from 3.77%.
- Higher funding costs were concentrated in certificates of deposit and borrowings. Average CD cost increased to 3.35% from 0.79% for the six-month comparison; average borrowing cost rose to 5.17% from 1.93%.
- Deposits grew $18.3 million from June 30. Certificates of deposit increased to $160.1 million, including $44.1 million of brokered deposits; savings balances declined $6.4 million. Management said retail and wholesale funding costs had risen rapidly.
- Six-month investing cash use was $10.601 million, primarily reflecting $12.338 million of net loan originations. Financing provided $18.111 million, including the deposit increase and FHLB activity. Cash increased by $6.418 million over the period.
Credit, liquidity, and other notable items
- Nonperforming loans were approximately $5.2 million, or 1.6% of loans, versus $5.4 million, or 1.7%, at June 30. The allowance for credit losses was $2.132 million, equal to 0.7% of loans and 41.0% of nonperforming loans. Management considered the allowance adequate.
- Loans 30–89 days past due totaled $4.366 million; loans 90 or more days past due totaled $1.644 million. One- to four-family loans in foreclosure were $1.2 million, up from $766,000 at June 30.
- The company adopted CECL on July 1, 2023. Adoption increased the loan allowance by $497,000 and established a $54,000 allowance for unfunded commitments, with a $414,000 net-of-tax reduction to retained earnings.
- Available-for-sale mortgage-backed securities had a $446,000 gross unrealized loss at Dec. 31; management stated it did not intend, and did not expect to be required, to sell the securities before recovery or maturity. No credit-loss reserve was recorded.
- Management reported the company and subsidiary banks were well-capitalized, but the filing text provided here does not give the capital ratios. It cautioned that a prolonged recession could adversely affect capital through higher credit losses.
- On January 16, 2024, after the quarter-end, the board announced an indefinite suspension of quarterly dividends, citing weaker bank earnings and the need for earnings and liquidity to improve. Dividends paid during the six-month period were $671,000.
Outlook, commentary, and risks
Management said it believed the interest-rate cycle was near its peak, which could slow growth in liability costs if that view proves correct. The company intends to pursue high-quality loan growth where profitable and prudent, while seeking to increase earnings and core deposits, reduce reliance on higher-cost funding, and shift toward higher-earning loans. No quantified earnings or margin guidance was provided.
Key risks identified include interest-rate and funding-cost changes, real-estate values and economic conditions in the company’s markets, future credit losses, competition, deposit and loan demand, execution of funding and earnings strategies, technology and cybersecurity, and regulatory approval or non-objection for dividends. The filing reported no legal proceedings. Management said disclosure controls were effective and there were no significant quarterly changes in internal control over financial reporting.
Important facts for investors to verify
- Whether deposit growth is sustainable and whether brokered deposits or other higher-cost funding continue to increase.
- Whether net interest margin stabilizes as funding costs and asset yields reprice; monitor the sharp year-over-year rise in deposit and borrowing expense.
- Credit quality trends, including the $7.7 million of substandard assets, past-due balances, foreclosures, and adequacy of the CECL allowance.
- The duration and terms of FHLB advances, available borrowing capacity, and the company’s liquidity under adverse deposit or rate scenarios; the filing text does not provide a clear liquidity stress measure.
- Conditions for any future dividend resumption, including regulatory approvals and improved earnings and liquidity.
- The circumstances surrounding the auditor-related exhibit listed as a November 29, 2023 letter; the provided filing text does not explain its details.