Kentucky First Federal Bancorp — Form 10-Q
Reporting period: Quarter ended March 31, 2024, with year-to-date results for the nine months ended that date. The filing is for fiscal 2024’s third quarter, not 2023 Q3 as indicated in the request metadata. Amounts are in millions unless otherwise stated.
Business context and financial position
The company is a holding company for two Kentucky community savings institutions. At March 31, 2024, total assets were $369.1 million, up 5.8% from June 30, 2023, primarily reflecting loan growth. Net loans were $328.1 million, up 4.6%; deposits were $246.1 million, up 8.7%; and Federal Home Loan Bank advances were $72.3 million, up 3.2%.
Cash and cash equivalents were $15.4 million, versus $8.2 million at June 30, 2023. Shareholders’ equity was $49.0 million, down 3.3%. Management said the company and Banks were well-capitalized, with regulatory capital ratios above requirements.
Results and key metrics
| Metric | Three months ended March 31, 2024 | Nine months ended March 31, 2024 | Comparable 2023 period |
|---|---|---|---|
| Interest income | $4.17 | $11.83 | $3.21 quarter; $9.23 nine months |
| Interest expense | $2.41 | $6.74 | $1.17 quarter; $2.30 nine months |
| Net interest income | $1.77 | $5.09 | $2.05 quarter; $6.93 nine months |
| Net income (loss) | $(0.11) | $(0.64) | $0.14 quarter; $0.89 nine months |
| Diluted EPS | $(0.01) | $(0.08) | $0.02 quarter; $0.11 nine months |
| Net interest margin | 1.98% | — | 2.50% quarter |
For the nine months, net interest margin was 1.94%, compared with 2.87% a year earlier; net interest spread fell to 1.46% from 2.66%. The provision for credit losses was a $13,000 recovery for the nine months, including a $28,000 recovery in the quarter. Noninterest expense was $6.15 million year to date, up 4.6%; noninterest income was $199,000, down 15.7%.
Cash used in operating activities was $1.27 million for the nine months, versus $1.00 million provided in the prior-year period. Investing activities used $12.71 million, while financing activities provided $21.24 million, including a $19.80 million increase in deposits and net FHLB advance proceeds of $2.26 million.
Material changes and management commentary
- Funding costs rose faster than asset yields: nine-month interest expense increased 193.0%, while interest income increased 28.3%. Management attributed weaker net interest income to funding repricing faster than assets.
- Average interest-bearing deposit cost increased to 2.52% from 0.71% for the nine-month comparison; average borrowing cost rose to 4.94% from 2.73%. Certificates of deposit were $164.0 million at quarter-end, including $43.9 million of brokered deposits.
- Loan growth was concentrated in residential real estate. Management said it would pursue high-quality originations where profitable, prudent, and consistent with interest-rate-risk objectives.
- The company adopted CECL on July 1, 2023. Adoption increased the loan allowance by $497,000 and the unfunded-commitment allowance by $54,000, reduced retained earnings by $414,000, and created a $137,000 deferred tax asset. The filing presents prior-period results under the prior accounting method.
- Management reported nonperforming loans of approximately $5.2 million, or 1.6% of total loans, versus $5.4 million, or 1.7%, at June 30, 2023. The allowance for credit losses was $2.1 million, equal to 40.4% of nonperforming loans and 0.6% of total loans. Substandard assets were $7.6 million; management considered the allowance adequate.
- The $527,000 gross unrealized loss on available-for-sale mortgage-backed securities had persisted for at least 12 months. Management said the securities were agency-backed, it did not intend to sell and did not expect to be required to sell them, and no credit-loss reserve was considered necessary.
Outlook, risks and unusual items
No specific earnings or financial guidance was provided. Management said it believed the rate cycle was near its peak, which could slow increases in liability costs, but noted that this view is uncertain. It described interest-rate risk as moderate and disclosed modeled economic-value-of-equity sensitivity at December 31, 2023 of approximately 14.7% and 10.6% under immediate, sustained rate increases of 100 and 200 basis points, respectively. The filing cautions that these estimates depend on assumptions and are not predictions of actual results.
On January 16, 2024, the board suspended common dividends until earnings and liquidity improve. The company paid $0.20 per share during the nine months; no dividend was declared for the March quarter. Future dividends depend on earnings, funding strategy, and required regulatory approvals or non-objections. Other stated risks include economic and real-estate conditions, interest rates, credit losses, competition, liquidity and funding costs, and operational and regulatory matters. Management reported no legal proceedings and no significant changes in internal control over financial reporting.
Important facts for investors to verify
- Whether margin pressure and the sharp increase in deposit and borrowing costs continue, and how quickly asset yields reprice.
- Deposit stability and funding mix, particularly the level and cost of brokered CDs and FHLB advances.
- Credit trends, including delinquency migration, nonperforming loans, classified loans, and the adequacy of the CECL allowance.
- Liquidity and regulatory capital under adverse conditions; management noted that a prolonged recession could increase credit losses and weaken capital ratios.
- Conditions and timing for any dividend resumption, including regulatory approvals and improvement in earnings and liquidity.