Kentucky First Federal Bancorp — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended December 31, 2019. Balance-sheet comparisons are against June 30, 2019. Amounts are in thousands unless stated otherwise. The company operates two Kentucky community savings banks.
Financial performance
| Metric | Six months ended Dec. 31, 2019 | Prior-year period |
|---|---|---|
| Interest income | $6,591 | $6,224 |
| Net interest income | $4,722 | $4,727 |
| Provision for loan losses | $64 | $11 |
| Non-interest income | $152 | $112 |
| Non-interest expense | $4,210 | $4,454 |
| Net income | $482 | $305 |
| Diluted EPS | $0.06 | $0.04 |
| Cash dividends per share | $0.20 | $0.20 |
For the three months ended December 31, net income was $248, up from $167, and diluted EPS was $0.03 versus $0.02. Net interest income was $2,341 versus $2,381.
- Margins: Six-month net interest margin declined to 3.09% from 3.22%; net interest spread fell to 2.85% from 3.02%. For the quarter, margin was 3.06% versus 3.23%.
- Cash flow: Six-month operating cash flow was $780; investing activities provided $3,738 and financing activities used $2,495. Cash and cash equivalents increased $2,023 to $11,884.
- Balance sheet and liquidity: Total assets were $328,776, down 0.6% from June 30. Deposits increased 2.1% to $199,959; cash and cash equivalents were $11,884, with an additional $2,970 in time deposits at other institutions.
- Debt and capital: Federal Home Loan Bank advances declined 7.6% to $61,615. Shareholders’ equity was $65,809, down 0.7%. The company repurchased 21,500 shares during November at an average $7.51 per share.
Changes, credit quality and notable items
- Loan interest income rose with higher average loan balances and yields, but higher deposit and borrowing costs largely offset that growth. Average certificate-of-deposit costs increased, and certificates continued to gain relative to lower-cost deposit accounts.
- Lower non-interest expense—especially compensation, occupancy, communications and FDIC insurance costs—supported earnings. Pension-plan contributions fell after the defined-benefit plan was frozen effective April 1, 2019; management estimated this would reduce fiscal 2020 costs by $279.
- Nonperforming loans were approximately $7.7 million, or 2.7% of total loans, versus $8.0 million, or 2.8%, at June 30. The allowance for loan losses was $1.447 million, 18.7% of nonperforming loans and 0.5% of total loans.
- Past-due loans totaled $6.993 million, including $3.662 million at least 90 days past due. Troubled debt restructurings were $1.9 million, up from $1.6 million at June 30; none defaulted during the six-month periods reported. Substandard assets totaled $10.859 million, down from $11.590 million.
- Dividends paid of $686 were 142.3% of six-month net income. Management said it believed capital was sufficient to maintain the current policy, but future dividends depend on capital, earnings, liquidity, regulatory requirements and overall financial condition. The Federal Reserve did not object to the parent-company dividend waiver through the third calendar quarter of 2020.
- The company adopted lease-accounting guidance with no material right-of-use assets or liabilities recorded. It was assessing the expected-credit-loss standard, whose implementation for the company was deferred to its fiscal year beginning July 1, 2023; the adoption impact was not yet quantifiable.
Outlook, risks and contingencies
The filing provides no specific earnings or revenue guidance. Management said it would pursue loan originations where profitable, prudent and consistent with interest-rate-risk strategies. Stated risks include economic conditions, real-estate values in its markets, interest rates, competition, regulation and technology changes. The company also noted that future use of remaining FDIC assessment credits depends on the Deposit Insurance Fund reserve ratio remaining at or above the applicable threshold. No legal proceedings were reported; management reported effective disclosure controls and no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether deposit repricing and funding costs continue to pressure net interest margin and spread.
- Whether nonperforming loans, past-due balances, TDRs and real-estate-owned assets improve or deteriorate, and whether the allowance remains adequate.
- Whether the dividend payout remains sustainable relative to earnings, capital and liquidity.
- The eventual CECL adoption effect on the allowance, retained earnings and credit-loss disclosures.
- Whether FDIC assessment credits continue to offset insurance costs and whether cost reductions persist.