Kentucky First Federal Bancorp — Form 10-Q Summary
Business context and reporting period
Quarter ended September 30, 2021 (the company’s fiscal first quarter). Kentucky First is a bank holding company operating two community-oriented savings institutions in Kentucky. Unless noted otherwise, amounts below are in U.S. dollars.
Key financial results
| Metric | Quarter ended Sep. 30, 2021 | Comparable 2020 period / prior balance date |
|---|---|---|
| Interest income | $2.974 million | $3.029 million |
| Net interest income | $2.505 million | $2.390 million |
| Net interest margin | 3.06% | 3.06% |
| Net interest spread | 2.94% | 2.90% |
| Net income | $568,000; $0.07 per share | $285,000; $0.04 per share |
| Operating cash flow | $2.126 million | $255,000 |
| Total assets | $336.9 million | $338.1 million at June 30, 2021 |
| Deposits | $231.5 million | $226.8 million at June 30, 2021 |
| FHLB advances | $50.4 million | $56.9 million at June 30, 2021 |
Net income increased 99.3% year over year. Net interest income rose 4.8%, as interest expense fell $170,000, more than offsetting a $55,000 decline in interest income. Total noninterest income increased to $228,000 from $128,000, driven chiefly by loan-sale gains; noninterest expense decreased to $1.981 million from $2.083 million. No loan-loss provision was recorded, versus $84,000 a year earlier. Income tax expense was $184,000, compared with $66,000.
Cash and cash equivalents were $25.9 million, up $4.3 million from June 30. Net cash from investing activities was $4.257 million, including $4.016 million of net principal collected on investment loans; financing activities used $2.099 million, primarily reflecting $6.518 million net repayments of FHLB advances, partly offset by deposit growth. The company reported $52.5 million of shareholders’ equity at September 30.
Material changes and credit position
- Loans receivable, net, declined $3.9 million from June 30 to $294.0 million; loans held for sale fell to $90,000 from $1.307 million. Total assets decreased 0.3%.
- Deposits grew 2.0% during the quarter, while FHLB advances fell 11.5%. Management attributed the lower funding costs year over year to reduced rates paid on deposits and borrowings.
- Nonperforming loans were approximately $6.9 million, or 2.4% of total loans, versus $6.7 million, or 2.2%, at June 30. The $1.6 million allowance equaled 23.2% of nonperforming loans and 0.5% of total loans.
- Classified assets were $8.133 million, down from $8.925 million at June 30. Loans 30–89 days past due totaled $3.201 million and loans 90 or more days past due totaled $1.886 million. Troubled debt restructurings remained $1.7 million; none were newly added or defaulted in the quarter.
Outlook, commentary, risks, and unusual items
- Management gave no quantified earnings or balance-sheet guidance. It said it would continue pursuing high-quality loan originations where profitable, prudent, and consistent with interest-rate risk strategies.
- Management described the business as operating largely unchanged through the pandemic and said asset quality had improved, while warning that prolonged economic effects could weaken borrowers, increase credit losses, and require additional provisions. Approximately 95% of loans are secured by residential real estate.
- First Federal of Kentucky had closed 75 PPP loans totaling $2.6 million; 48 loans totaling $2.0 million had been repaid by quarter-end. The company said PPP loans were understood to be federally guaranteed, but noted possible allowance effects if that changed.
- The quarter’s higher effective tax rate (24.5% versus 18.8%) reflected the transition from Kentucky franchise taxes to state income taxes. Other noninterest expense included costs of converting the banks’ core data-processing systems. The prior-year comparison also reflects lower FDIC premiums; a $13.6 million goodwill impairment was recorded in the quarter ended June 30, 2020, not this quarter.
- The company paid $0.10 per share in dividends, totaling $351,000. Management said it believed capital was sufficient to maintain the current policy but could not predict future dividends. First Federal MHC may waive receipt of qualifying quarterly dividends up to $0.10 per share through the third calendar quarter of 2022.
- The company reported that it and the banks were well-capitalized, with capital ratios above regulatory requirements; specific ratios are not provided in this filing text. Management reported effective disclosure controls and no significant quarterly change in internal control over financial reporting. No legal proceedings were reported.
- Forward-looking risks include economic and real-estate conditions, interest rates, competition, regulation, technology, and COVID-19 impacts. The company said it could not yet estimate the pandemic’s full effect. Adoption of CECL is scheduled for the company’s fiscal year beginning July 1, 2023; the eventual adjustment and overall impact remained undetermined.
Important facts for investors to verify
- Whether the increase in nonperforming loans and past-due balances stabilizes or leads to higher provisions and allowance coverage.
- The sustainability of earnings growth, particularly gains on loan sales, reduced funding costs, and the absence of a current-quarter loan-loss provision.
- Future effects of interest-rate changes on loan yields, funding costs, net interest margin, and the value of the loan portfolio.
- Whether deposits remain sufficient to support funding needs as FHLB advances decline, and the company’s detailed regulatory capital ratios.
- The amount and timing of CECL adoption impacts, and any subsequent credit deterioration related to COVID-19, PPP exposures, or real-estate concentrations.
- Whether dividends remain affordable under future earnings, liquidity, and regulatory conditions.