Kentucky First Federal Bancorp — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended March 31, 2023. The filing is dated May 15, 2023; balance-sheet comparisons are with June 30, 2022. Amounts are in U.S. dollars; financial statement amounts below are in millions unless otherwise noted.
Business context and key financial metrics
Kentucky First is a bank holding company operating two community-oriented savings institutions in Kentucky.
| Metric | Three months ended March 31, 2023 | Nine months ended March 31, 2023 |
|---|---|---|
| Interest income | $3.210 | $9.226 |
| Net interest income | $2.045 | $6.925 |
| Net interest margin | 2.50% | 2.87% |
| Net income | $0.144 | $0.891 |
| Diluted earnings per share | $0.02 | $0.11 |
| Operating cash flow | Not separately provided for the quarter | $1.002 |
At March 31, 2023, total assets were $342.9 million, net loans were $307.0 million, deposits were $209.4 million, FHLB advances were $80.9 million, and shareholders’ equity was $51.1 million. Cash and cash equivalents totaled $8.1 million. The company paid dividends of $0.10 per share for the quarter and $0.30 per share for the nine-month period.
Material changes versus comparable periods
- Third-quarter net income fell 56.9% year over year, to $144,000 from $334,000; nine-month net income fell 35.6%, to $891,000 from $1.384 million.
- Quarterly net interest income declined 4.4% to $2.045 million as interest expense rose faster than interest income. Nine-month net interest income was down 0.7% to $6.925 million.
- Funding costs increased materially: third-quarter interest expense rose 175.4% to $1.165 million, and nine-month expense rose 71.7% to $2.301 million. The nine-month average cost of interest-bearing liabilities increased to 1.16% from 0.67%; the third-quarter net interest margin declined to 2.50% from 2.62%.
- Non-interest income declined 26.6% for the quarter and 44.1% for the nine months, mainly because higher market rates reduced long-term fixed-rate loan sales and related gains.
- Net loans grew $32.4 million, or 11.8%, from June 30, 2022; total assets rose $14.8 million, or 4.5%. Deposits declined $30.5 million, while FHLB advances increased $46.8 million. Cash and cash equivalents declined $17.7 million.
- Nonperforming loans were approximately $5.9 million, or 1.9% of total loans, versus $5.8 million, or 2.1%, at June 30, 2022. The allowance for loan losses increased to $1.633 million from $1.529 million; it equaled 0.5% of total loans and 27.8% of nonperforming loans.
- Nine-month operating cash flow was $1.002 million, compared with $1.144 million a year earlier. Investing activities used $33.424 million, while financing activities provided $14.684 million. The net cash decrease was $17.738 million.
Outlook, risks, contingencies and unusual items
- Management said further rate increases could pressure earnings because funding costs may rise faster than asset yields. It expected that a pause in rate increases could allow assets to reprice while deposit repricing slows; this is not formal earnings guidance.
- Management described interest-rate risk as moderate. Its model estimated economic value of equity at 16.5%; under modeled immediate and sustained rate increases of 100 and 200 basis points, it estimated 14.7% and 11.7%, respectively. The company cautioned that the model depends on assumptions and is not a forecast of actual results.
- The company reported $20.9 million of available liquidity, including $8.1 million in cash, and $80.7 million of off-balance-sheet liquidity sources, including $59.7 million of additional FHLB borrowing capacity. Estimated uninsured deposits were $27.8 million, or 13.2% of deposits. Management warned that large deposit outflows could still harm results and liquidity.
- The filing identifies risks from economic conditions, real-estate values, interest rates, competition, credit losses, deposit outflows, funding costs, technology and cybersecurity, regulatory changes, and the ability to maintain dividends. Management reported the company and banks were well-capitalized, but did not provide the capital ratios in this excerpt.
- Available-for-sale securities had $480,000 of gross unrealized losses at March 31, 2023, and accumulated other comprehensive loss was $361,000 net of tax. Management attributed the losses to higher rates, reported no impairment through earnings, and said it did not intend or expect to be compelled to sell the securities before maturity.
- The company had $1.2 million of troubled debt restructurings, $1.2 million of one- to four-family loans in foreclosure, and $70,000 of real estate owned. No loans were restructured as TDRs and no TDRs defaulted during the nine-month period.
- CECL is scheduled to take effect for the company’s fiscal year beginning July 1, 2023. Management has tested a third-party model but could not yet estimate the transition adjustment or overall financial-statement impact; it expects added complexity and costs.
- The company repurchased 42,000 shares during the quarter for approximately $286,000; 10,980 shares remained authorized for repurchase at March 31. Management said outside-service costs were expected to remain elevated. The filing reported no legal proceedings and effective disclosure controls.
Important facts for investors to verify
- How deposit trends, uninsured deposits, and available borrowing capacity have changed since March 31, 2023.
- Whether deposit and FHLB funding costs continue to outpace loan and securities yield increases, and the resulting effect on net interest margin and earnings.
- Loan growth, delinquencies, nonperforming loans, classified assets, and allowance adequacy, particularly as the portfolio expands in multifamily and construction lending.
- The eventual CECL adoption adjustment and its impact on reserves, capital, and reported earnings.
- Actual regulatory capital ratios and the sustainability of dividends and share repurchases given lower earnings and liquidity sensitivity.
- Whether the reported interest-rate-risk estimates and liquidity sources remain applicable under changing market conditions; modeled values and stated capacities are not guarantees of realized outcomes.