Kentucky First Federal Bancorp — Form 10-Q
Reporting period: Quarter ended March 31, 2014, the company’s fiscal third quarter; results also cover the nine months ended March 31, 2014. The filing is unaudited. The supplied metadata says “2013 Q3,” but the filing itself reports 2014 Q3.
Financial results and position
Unless stated otherwise, amounts are in millions of dollars. Per-share amounts are in dollars.
| Metric | Three months ended Mar. 31, 2014 | Three months ended Mar. 31, 2013 | Nine months ended Mar. 31, 2014 | Nine months ended Mar. 31, 2013 |
|---|---|---|---|---|
| Interest income | $3.254 | $3.582 | $9.880 | $8.421 |
| Net interest income | $2.877 | $3.141 | $8.622 | $7.166 |
| Net interest income after loan-loss provision | $2.799 | $2.980 | $8.091 | $6.587 |
| Net income | $0.491 | $0.630 | $1.512 | $2.079 |
| EPS, basic and diluted | $0.06 | $0.08 | $0.18 | $0.27 |
| Net interest margin | 4.09% | 4.05% | 3.93% | 4.10% |
- Balance sheet at March 31, 2014: Assets were $306.1 million, down 5.5% from June 30, 2013. Net loans were $251.2 million, down 4.3%; deposits were $218.5 million, down 5.4%; and FHLB advances were $18.2 million, down 25.0%. Shareholders’ equity was $67.1 million, up 0.8%.
- Liquidity and cash flow: Cash and cash equivalents were $13.0 million, down $3.6 million from fiscal year-end. Nine-month operating cash flow was $3.7 million, investing cash flow was $12.2 million, and financing cash flow was negative $19.5 million. The company said it used excess liquidity to repay borrowings.
- Credit: The allowance for loan losses was $1.462 million, or 0.58% of total loans and 18.8% of nonperforming loans. Nonperforming loans were approximately $7.8 million, or 3.09% of total loans. Real estate owned was $1.842 million, up from $1.163 million at June 30, 2013.
- Dividends: Dividends were $0.10 per share for the quarter and $0.30 per share for the nine-month period. Nine-month dividends totaled $1.127 million, or 74.5% of net income.
Material changes versus comparable periods
- Quarterly net income declined 22.1%, primarily because net interest income fell 8.4% before provision. Lower loan balances and yields reduced loan interest income; reduced borrowing costs and a lower provision partly offset the decline. Quarterly net interest margin edged up to 4.09% from 4.05%.
- Nine-month net income fell 27.3%, despite higher net interest income. The prior-year period included a $958,000 bargain-purchase gain from the CKF Bancorp acquisition. The 2014 period included nine months of CKF operations, versus only three months in the prior-year comparison.
- Nine-month non-interest expense increased 26.4% to $6.143 million, principally reflecting added personnel and operating costs from CKF. Non-interest income declined to $319,000, largely because the prior-year bargain-purchase gain did not recur.
- Deposits declined as some certificate-of-deposit customers sought higher yields elsewhere. Management cited weak loan demand and loan payoffs as reasons for the reduction in loans.
- Nonperforming loans were relatively steady as a proportion of loans, at 3.09% versus 3.04% at June 30, 2013; classified assets declined to $14.879 million from $16.315 million. However, REO carrying value increased, mainly because newer foreclosed properties were higher value.
Outlook, risks, and other matters
- Management said it would pursue high-quality originations where profitable and prudent, but expected home-loan demand to remain weak until the housing market strengthened. No quantitative earnings or financial guidance was provided.
- Management considered the loan-loss allowance adequate, while cautioning that it might not cover unidentified losses. Key disclosed uncertainties include economic conditions, local real-estate prices, interest rates, competition, regulation, and technology.
- The company reported $2.6 million of troubled debt restructurings at March 31, 2014; one TDR defaulted during the nine-month period. Of total TDRs, $1.087 million was not performing to modified terms.
- Management said the increase in REO value did not represent a trend in its lending area. The filing reported no legal proceedings and no material changes to the risk factors in the prior annual report.
- Management stated disclosure controls were effective and reported no significant quarterly change in internal control over financial reporting. The Federal Reserve had not objected to a dividend-waiver request, and the mutual holding company was to consider a further waiver in July 2014.
Important facts for investors to verify
- Whether deposit outflows and weak loan demand continued after March 31, 2014, and their effects on liquidity and net interest income.
- The trend and composition of nonperforming loans, delinquencies, TDR performance, and foreclosed real estate; assess whether the allowance remains adequate.
- How much of the year-over-year earnings comparison reflects CKF acquisition timing and the nonrecurring 2013 bargain-purchase gain, versus underlying operating performance.
- Whether the dividend remains supported by earnings, capital, liquidity, and regulatory requirements, including the outcome of the proposed dividend waiver.
- Confirm reported cash-flow classifications and any apparent inconsistencies in the source text against the filed financial statements.