Kentucky First Federal Bancorp — Form 10-Q Summary
Business context and reporting period
The filing is for the quarter ended March 31, 2018, the third quarter of the company’s fiscal year 2018 (fiscal year ends June 30). This differs from the request metadata’s “2017 Q3.” The unaudited consolidated results cover the company’s two Kentucky community savings institutions. Unless noted otherwise, financial amounts below are in millions of dollars.
Financial performance and condition
| Metric | Three months ended March 31 | Nine months ended March 31 |
|---|---|---|
| Interest income | 2018: $2.968; 2017: $2.863 | 2018: $8.853; 2017: $8.463 |
| Net interest income | 2018: $2.407; 2017: $2.486 | 2018: $7.322; 2017: $7.417 |
| Net interest margin | 2018: 3.38%; 2017: 3.62% | 2018: 3.47%; 2017: 3.67% |
| Net income | 2018: $0.162; 2017: $0.168 | 2018: $1.311; 2017: $0.719 |
| Diluted earnings per share | 2018: $0.02; 2017: $0.02 | 2018: $0.16; 2017: $0.09 |
- Nine-month interest income rose 4.6%, but interest expense increased 46.4%; net interest income declined 1.3%. The nine-month net interest spread narrowed to 3.32% from 3.56%.
- Nine-month non-interest income was $0.633, up from $0.334, including $0.430 of bank-owned life insurance (BOLI) earnings. Non-interest expense increased 1.9% to $6.541. The quarter’s non-interest income was $0.057 versus $0.090.
- The nine-month tax line was a $0.004 benefit versus $0.393 expense a year earlier, including an approximately $0.268 benefit from remeasuring deferred taxes after the federal corporate tax-rate reduction. Quarterly tax expense was $0.021 versus $0.094.
- At March 31, 2018, assets were $312.946, loans net of allowance were $264.320, deposits were $193.736, FHLB advances were $49.498, and shareholders’ equity was $67.510. Since June 30, 2017, assets rose 1.5%, loans rose 2.4%, deposits rose 6.0%, and FHLB advances fell 11.3%.
- Cash and cash equivalents were $9.626, down $3.178 from June 30, 2017; time deposits at other institutions rose to $6.681. Nine-month operating cash flow was $1.233, investing cash outflow $7.632, and financing cash inflow $3.221.
- The allowance for loan losses was $1.549, or 0.6% of total loans and 23.0% of nonperforming loans. Nonperforming loans were approximately $6.7, or 2.5% of loans, versus $6.8, or 2.6%, at June 30, 2017. Classified assets totaled $12.633, including $11.8 of substandard loans and $0.788 of real estate owned.
- Dividends were $0.10 per share for the quarter and $0.30 per share for the nine months; the company reported $1.088 of dividends paid in the nine-month cash flow statement.
Material changes versus the prior comparable period
- Nine-month net income increased 82.3%, while quarterly net income decreased 3.6%. The nine-month improvement was not solely an indication of stronger recurring operations: it included higher BOLI earnings, including death-benefit proceeds, and the tax benefit from the tax-law change.
- For the nine months, provision for loan losses declined to $0.107 from $0.222. For the quarter it declined to $0.104 from $0.166.
- Funding costs rose materially: nine-month deposit interest expense increased 32.1% and borrowing expense increased 83.7%. Management attributed the increases chiefly to higher rates and, for deposits, higher average balances.
- Nonperforming loans edged lower, but classified assets rose to $12.633 from $12.087. Real estate owned increased to $0.788 from $0.358, and the company recorded $0.830 of loan transfers to real estate owned in the nine-month cash flow disclosures.
Outlook, commentary, risks and unusual items
- No quantified earnings or balance-sheet guidance is provided. Management says it will pursue high-quality loan growth where profitable, prudent, and consistent with interest-rate-risk strategies, and seek to deploy liquidity in higher-earning assets.
- Management cites competitive conditions, economic conditions and real-estate prices in its markets, interest rates, regulation, and financial-services technology as risks that could affect results. It says there were no material changes to the risk factors in the prior Form 10-K.
- Management expects defined-benefit pension costs to continue increasing, citing lower expected returns on pension assets and rising estimated future benefit costs.
- The company received BOLI death-benefit proceeds during the period; the filing identifies this as a principal driver of higher nine-month non-interest income. The Tax Cuts and Jobs Act also generated a deferred-tax remeasurement benefit.
- Future adoption of the expected-credit-loss standard (CECL) is expected to add complexity and cost; the company had not yet determined the magnitude of its effect. Management did not expect material effects from the other discussed pending accounting standards.
- The company reported no legal proceedings, no share repurchases during the quarter, and effective disclosure controls. It stated that the Federal Reserve Bank of Cleveland did not object to the MHC’s waiver of quarterly dividends of up to $0.10 per share through the third calendar quarter of 2018.
Important facts for investors to verify
- Confirm the intended period: the filing reports the quarter ended March 31, 2018, not 2017.
- Assess recurring earnings apart from BOLI death-benefit income and the one-time deferred-tax remeasurement benefit.
- Monitor deposit and borrowing costs against loan yields, net interest margin, and the company’s ability to sustain profitability.
- Review delinquency, nonaccrual, classified-loan, TDR, and foreclosed-property trends, including coverage by the allowance.
- Evaluate liquidity, reliance on FHLB advances, dividend sustainability, and the eventual CECL allowance impact; the filing does not provide a clear quantified CECL impact or forward earnings guidance.