Kentucky First Federal Bancorp — FY2018 Form 10-K
Reporting period: Fiscal year ended June 30, 2018. The request metadata says 2017 Q4, but the filing is an annual report for FY2018. The supplied text incorporates the annual report’s financial statements by reference but does not include their detailed results.
Business context
Kentucky First is a savings-institution holding company operating First Federal of Hazard and First Federal of Kentucky as community-oriented banks in Kentucky. Their core business is taking deposits and making loans, primarily residential mortgages. At June 30, 2018, the company operated seven offices and had 68 full-time and two part-time employees.
Financial position and key metrics
| Metric | FY2018 / June 30, 2018 |
|---|---|
| Total assets | $318.4 million |
| Deposits | $195.7 million |
| Stockholders’ equity | $67.2 million |
| Return on average equity | 1.97% |
| Residential mortgage loans | $227.2 million; 82.8% of the loan portfolio |
| Adjustable-rate residential mortgages | $176.6 million; 77.7% of residential mortgage loans |
| Loans collateralized by real estate | 95.8% of the loan portfolio |
| Bank-owned life insurance | $2.4 million |
The filing text provided does not give clear values for revenue, net income, cash flows, net interest margin, delinquent or nonperforming loans, allowance for loan losses, borrowings, or regulatory capital ratios. Management states both banks exceeded requirements to be considered well capitalized and believes they met fully phased-in Basel III requirements; specific ratios are not stated in the supplied text.
Changes and notable items
- The Tax Cuts and Jobs Act reduced the federal corporate tax rate. Revaluation of deferred tax assets reduced income tax expense by $268,000 in the quarter. FY2018 used a blended statutory rate of 27.6%; the filing says the 21% rate applies from FY2019.
- The company reported no share repurchases in the fourth quarter of FY2018. Its existing repurchase authorization had 60,323 shares remaining.
- The company dismissed Crowe LLP and engaged BKD, LLP for the FY2018 audit. The filing reports no accounting disagreements or reportable events with the former auditor.
- Management assessed disclosure controls and internal control over financial reporting as effective at June 30, 2018. The auditor did not provide an attestation on internal control, consistent with the company’s filer-status exemption.
Outlook, risks and contingencies
- Management identifies interest-rate increases as a risk to near-term net interest income: funding costs may rise faster than yields on loans and investments. Adjustable-rate mortgages partly mitigate rate exposure, but repricing limits and borrower stress could constrain that benefit.
- Credit and collateral risks include the company’s concentration in real-estate-secured lending and the higher risks of construction, multifamily, commercial real estate and consumer loans.
- First Federal of Hazard operates in an economically distressed eastern Kentucky market affected by coal-industry weakness and limited loan demand. The filing also cites intense competition for deposits and loans.
- The company discusses potential effects of tax-law changes on residential property values, mortgage demand and borrowers’ ability to repay.
- Other stated risks include regulatory and compliance costs, cybersecurity and third-party systems disruptions, employee-benefit costs, and the possibility of a limited trading market. First Federal MHC’s majority ownership can influence shareholder matters.
- Public dividends depend on bank capital distributions and First Federal MHC’s dividend waivers. The MHC had approval to waive quarterly dividends through the third quarter of 2019, subject to regulatory and member approvals; future waivers are not assured.
- The filing says there were no pending legal proceedings believed likely to materially adversely affect financial condition, results or cash flows. It provides no specific earnings or cash-flow guidance.
Important facts for investors to verify
- Review the incorporated FY2018 annual report for net income, revenue, net interest margin, cash flows, comparative FY2017 results, asset-quality measures and full capital ratios; these values are not clear in the supplied filing text.
- Check loan delinquency, nonperforming-asset and allowance trends, particularly for commercial real estate and construction exposures.
- Assess deposit pricing, funding costs, FHLB borrowings and the company’s sensitivity to further interest-rate changes.
- Confirm future First Federal MHC dividend-waiver approvals and the capacity of the banks to distribute capital to the holding company.
- Evaluate the continuing effect of tax-law changes on deferred taxes, borrowers and the local housing markets.