Kentucky First Federal Bancorp — FY2017 Form 10-K
Reporting period: Fiscal year ended June 30, 2017. The request metadata refers to 2016 Q4, but the filing is an annual report for FY2017. The supplied text incorporates the company’s annual report for financial statements and MD&A but does not include those details.
Business context and financial position
Kentucky First is a holding company operating two community-oriented savings institutions, First Federal of Hazard and First Federal of Kentucky. Their primary activities are gathering local deposits and making real-estate-secured loans in Kentucky.
| Metric at June 30, 2017, unless noted | Reported value |
|---|---|
| Total assets | $308.5 million |
| Deposits | $182.8 million |
| Stockholders’ equity | $67.1 million |
| Net loans | $258.2 million combined at the two banks |
| Return on average equity, FY2017 | 1.39% |
| Freddie Mac stock sale gain, FY2017 | $64,000 |
The loan portfolio was concentrated in real estate: residential mortgages were $216.0 million (83.1% of loans); nonresidential real estate loans were $29.2 million (11.2%); multi-family loans were $15.7 million (6.0%). Adjustable-rate mortgages made up $163.0 million, or 75.5% of residential mortgages. Overall, 95.6% of loans were collateralized by real estate.
The filing text supplied does not provide a clear value for revenue, net income, net interest income, net interest margin, operating expenses, cash flow, allowance for loan losses, nonperforming assets, or total borrowings. It describes FHLB advances as a source of supplemental funding but does not state their period-end balance.
Changes versus the prior comparable period
The supplied text does not provide comparable FY2016 results or a clear year-over-year financial comparison. It reports that the company sold its Freddie Mac stock in FY2017 and recognized a $64,000 gain. No shares were repurchased during the fourth quarter of FY2017 under the announced repurchase program.
Outlook, risks, and other notable items
- Management reported that both banks exceeded regulatory capital levels to be considered well capitalized and believed they met the fully phased-in Basel III requirements, including the capital conservation buffer.
- First Federal of Hazard operates in an economically distressed eastern Kentucky market affected by the decline in coal. Perry County unemployment was 9.8% in June 2017, versus 5.1% statewide and 4.4% nationally.
- Management cautioned that rising rates could initially raise funding costs faster than asset yields, pressure margins and reduce securities values. Adjustable-rate lending may mitigate, but does not eliminate, interest-rate exposure and borrower credit risk.
- Other stated risks include real-estate collateral concentration, competition for loans and deposits, regulatory and compliance costs, employee benefit expenses, cybersecurity and third-party technology exposure, and a limited market for the shares.
- The company reported a 1.39% FY2017 return on average equity and cautioned that high capital levels could keep returns below those of comparable companies.
- The filing says the mutual holding company obtained approval to waive dividends through May 2018, covering quarterly dividends of $0.10 per common share. Future waivers depend on regulatory and member approvals. The banks’ ability to distribute capital to the holding company also constrains dividends.
- No pending legal proceeding was identified as likely to have a material adverse effect. Management concluded that disclosure controls and internal control over financial reporting were effective as of June 30, 2017.
Important facts for investors to verify
- Review the incorporated annual report and audited statements for FY2017 and FY2016 net income, revenue, net interest margin, credit quality, cash flows and full year-over-year comparisons.
- Confirm period-end FHLB borrowings, available liquidity, regulatory capital ratios and the allowance for loan losses.
- Assess loan delinquencies, nonperforming assets, charge-offs and exposure to local economic weakness and declining real-estate values.
- Check the status of dividends, the mutual holding company’s waiver approvals and remaining authorization under the share repurchase program.