UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

☒ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2021

 

OR

 

☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

 

For the transition period from ____________ to _______________

 

Commission File Number: 0-51176

 

KENTUCKY FIRST FEDERAL BANCORP

(Exact name of registrant as specified in its charter)

 

United States of America   61-1484858
(State or other jurisdiction of
incorporation or organization) 		  (I.R.S. Employer
Identification No.)

 

655 Main Street, Hazard, Kentucky 41702

(Address of principal executive offices)(Zip Code)

 

(502) 223-1638

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading symbol(s)   Name of each exchange on which registered
Common Stock, $0.01 par value per share   KFFB   The NASDAQ Stock Market LLC

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days: Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐ Accelerated filer ☐
Non-Accelerated filer ☐ Smaller Reporting Company ☒
    Emerging Growth Company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: At November 8, 2021, the latest practicable date, the Corporation had 8,217,377 shares of $.01 par value common stock outstanding.

 

 

 

 

 

 

INDEX

 

  Page
PART I FINANCIAL INFORMATION 1
   
ITEM 1 FINANCIAL STATEMENTS 1
   
Condensed Consolidated Balance Sheets 1
   
Condensed Consolidated Statements of Operations 2
   
Condensed Consolidated Statements of Comprehensive Income 3
   
Consolidated Statements of Changes in Shareholders’ Equity 4
   
Condensed Consolidated Statements of Cash Flows 5
   
Notes to Condensed Consolidated Financial Statements 7
   
ITEM 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations 18
   
ITEM 3 Quantitative and Qualitative Disclosures About Market Risk 25
   
ITEM 4 Controls and Procedures 25
   
PART II OTHER INFORMATION 26
   
SIGNATURES 28

 

i

 

 

PART I

 

ITEM 1: Financial Statements

 

Kentucky First Federal Bancorp

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

 

    September 30,     June 30,  
    2021     2021  
    Unaudited        
ASSETS            
             
Cash and due from financial institutions   $ 1,628     $ 1,834  
Fed funds sold     5,003       5,001  
Interest-bearing demand deposits     19,301       14,813  
Cash and cash equivalents     25,932       21,648  
                 
Time deposits in other financial institutions    
–
      247  
Securities available-for-sale     31       33  
Securities held-to-maturity, at amortized cost- approximate fair value of $452 and $476 at September 30, 2021 and June 30, 2021, respectively     436       462  
Loans held for sale     90       1,307  
Loans, net of allowance of $1,610 and $1,622 at September 30, 2021 and June 30, 2021, respectively     293,990       297,902  
Real estate owned, net     51       82  
Premises and equipment, net     4,671       4,697  
Federal Home Loan Bank stock, at cost     6,498       6,498  
Accrued interest receivable     613       694  
Bank-owned life insurance     2,691       2,672  
Goodwill     947       947  
Prepaid federal income taxes    
–
      40  
Prepaid expenses and other assets     959       834  
                 
Total assets   $ 336,909     $ 338,063  
                 
LIABILITIES AND SHAREHOLDERS’ EQUITY                
                 
Deposits   $ 231,489     $ 226,843  
Federal Home Loan Bank advances     50,355       56,873  
Advances by borrowers for taxes and insurance     962       838  
Accrued interest payable     21       20  
Accrued income taxes     76      
–
 
Deferred income taxes     582       614  
Other liabilities     875       579  
Total liabilities     284,360       285,767  
                 
Commitments and contingencies    
–
     
–
 
                 
Shareholders’ equity                
Preferred stock, 500,000 shares authorized, $.01 par value; no shares issued and outstanding    
–
     
–
 
Common stock, 20,000,000 shares authorized, $.01 par value; 8,596,064 shares issued     86       86  
Additional paid-in capital     34,906       34,916  
Retained earnings     20,581       20,364  
Unearned employee stock ownership plan (ESOP), 5,586 shares and 10,255 shares at September 30, 2021 and June 30, 2021, respectively     (56 )     (102 )
Treasury shares at cost, 369,349 and 369,349 common shares at September 30, 2021 and June 30, 2021, respectively     (2,968 )     (2,968 )
Accumulated other comprehensive income    
–
     
–
 
Total shareholders’ equity     52,549       52,296  
                 
Total liabilities and shareholders’ equity   $ 336,909     $ 338,063  

 

See accompanying notes to condensed consolidated financial statements.

 

1

 

 

Kentucky First Federal Bancorp

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(Dollars in thousands, except per share data)

 

    Three months ended
September 30, 		 
    2021     2020  
Interest income            
Loans, including fees   $ 2,934     $ 2,976  
Mortgage-backed securities     3       4  
Other securities    
–
      3  
Interest-bearing deposits and other     37       46  
Total interest income     2,974       3,029  
                 
Interest expense                
Interest-bearing demand deposits     9       7  
Savings     68       59  
Certificates of Deposit     291       448  
Deposits     368       514  
Borrowings     101       125  
Total interest expense     469       639  
Net interest income     2,505       2,390  
Provision for loan losses    
–
      84  
Net interest income after provision for loan losses     2,505       2,306  
                 
Non-interest income                
Earnings on bank-owned life insurance     19       20  
Net gain on sales of loans     162       58  
Net gain (loss) on sales of real estate owned     (11 )     1  
Other     58       49  
Total non-interest income     228       128  
                 
Non-interest expense                
Employee compensation and benefits     1,342       1,315  
Data processing     121       147  
Occupancy and equipment     151       166  
FDIC insurance premiums     4       57  
Voice and data communications     32       21  
Advertising     43       37  
Outside service fees     27       63  
Auditing and accounting     54       40  
Regulatory assessments     26       26  
Foreclosure and real estate owned expenses (net)     6       17  
Franchise and other taxes     1       65  
Other     174       129  
Total non-interest expense     1,981       2,083  
                 
Income before income taxes     752       351  
                 
Income tax expense     184       66  
                 
NET INCOME   $ 568     $ 285  
                 
EARNINGS PER SHARE                
Basic and diluted   $ 0.07     $ 0.04  
DIVIDENDS PER SHARE   $ 0.10     $ 0.10  

 

See accompanying notes to condensed consolidated financial statements.

 

2

 

 

Kentucky First Federal Bancorp

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In thousands)

 

    Three months ended
September 30, 		 
    2021     2020  
Net income   $ 568     $ 285  
                 
Other comprehensive gains (losses), net of tax:                
Unrealized holding gains (losses) on securities designated as available-for-sale, net of taxes of $0 and $(1) during the respective periods    
–
      (2 )
Comprehensive income   $ 568     $ 283  

 

See accompanying notes to condensed consolidated financial statements.

 

3

 

 

Kentucky First Federal Bancorp

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

For the three months ended

(Unaudited)

(Dollar amounts in thousands, except per share data)

 

September 30, 2021

 

    Common
stock 		    Additional
paid-in
capital 		    Retained
earnings 		    Unearned
employee
stock
ownership
plan
(ESOP) 		    Treasury
shares 		    Accumulated
other
comprehensive
income (loss) 		    Total  
Balance at June 30, 2021   $     86     $ 34,916     $ 20,364     $ (102 )   $ (2,968 )   $
                  –
    $ 52,296  
                                                         
Net income    
–
     
–
      568      
–
     
–
     
–
      568  
Allocation of ESOP shares    
–
      (10 )    
–
      46      
–
     
–
      36  
Cash dividends of $0.10 per common share    
–
     
–
      (351 )    
–
     
–
     
–
      (351 )
                                                         
Balance at September 30, 2021   $ 86     $ 34,906     $ 20,581     $ (56 )   $ (2,968 )   $
–
    $ 52,549  

 

September 30, 2020

 

    Common
stock 		    Additional
paid-in
capital 		    Retained
earnings 		    Unearned
employee
stock
ownership
plan
(ESOP) 		    Treasury
shares 		    Accumulated
other
comprehensive
income 		    Total  
Balance at June 30, 2020   $           86     $ 34,981     $ 19,932     $ (289 )   $ (2,801 )   $                  2     $ 51,911  
                                                         
Net income    
–
     
–
      285      
–
     
–
     
–
      285  
Allocation of ESOP shares    
–
      (18 )    
–
      46      
–
     
–
      28  
Acquisition of shares for treasury    
–
     
–
     
–
     
–
      (49 )    
–
      (49 )
Other comprehensive loss    
–
     
–
     
–
     
–
     
–
      (2 )     (2 )
Cash dividends of $0.10 per common share    
–
     
–
      (344 )    
–
     
–
     
–
      (344 )
                                                         
Balance at September 30, 2020   $ 86     $ 34,963     $ 19,873     $ (243 )   $ (2,850 )   $
–
    $ 51,829  

 

See accompanying notes to condensed consolidated financial statements.

 

4

 

 

Kentucky First Federal Bancorp

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

 

    Three months ended
September 30, 		 
    2021     2020  
Cash flows from operating activities:            
Net income   $ 568     $ 285  
Adjustments to reconcile net income to net cash provided by operating activities                
Depreciation     78       72  
Accretion of purchased loan credit discount     (13 )     (15 )
Amortization of purchased loan premium    
–
      2  
Amortization of deferred loan origination costs (fees)     (91 )     10  
Amortization of premiums on investment securities     2       2  
Net gain on sale of loans     (162 )     (58 )
Net (gain) loss on sale of real estate owned     11       (1 )
ESOP compensation expense     36       28  
Earnings on bank-owned life insurance     (19 )     (20 )
Provision for loan losses    
–
      84  
Origination of loans held for sale     (2,544 )     (1,613 )
Proceeds from loans held for sale     3,923       1,303  
Increase (decrease) in cash, due to changes in:                
Accrued interest receivable     81       130  
Prepaid expenses and other assets     (125 )     70  
Accrued interest payable     1       (3 )
Other liabilities     296       (8 )
Income taxes     84       (13 )
Net cash provided by operating activities     2,126       255  
                 
Cash flows from investing activities:                
Maturities of time deposits in other financial institutions     247       988  
Securities maturities, prepayments and calls:                
Held to maturity     24       32  
Available for sale     2       502  
Loans originated for investment, net of principal collected     4,016       (4,899 )
Proceeds from sale of real estate owned     20       159  
Additions to real estate owned    
–
      (1 )
Additions to premises and equipment, net     (52 )     (19 )
Net cash provided by (used in) investing activities     4,257       (3,238 )
                 
Cash flows from financing activities:                
Net increase in deposits     4,646       2,829  
Payments by borrowers for taxes and insurance, net     124       284  
Proceeds from Federal Home Loan Bank advances     500       17,900  
Repayments on Federal Home Loan Bank advances     (7,018 )     (14,223 )
Treasury stock purchased    
–
      (49 )
Dividends paid on common stock     (351 )     (344 )
Net cash provided by (used in) financing activities     (2,099 )     6,397  
                 
Net increase in cash and cash equivalents     4,284       3,414  
                 
Beginning cash and cash equivalents     21,648       13,702  
                 
Ending cash and cash equivalents   $ 25,932     $ 17,116  

 

See accompanying notes to condensed consolidated financial statements.

 

5

 

 

Kentucky First Federal Bancorp

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(Unaudited)

(In thousands)

 

    Three months ended
September 30, 		 
    2021     2020  
Supplemental disclosure of cash flow information:            
             
Cash paid during the period for:            
             
Federal income taxes   $ 100     $ 75  
                 
Interest on deposits and borrowings   $ 468     $ 642  
                 
Transfers of loans to real estate owned, net   $
–
    $ 196  
                 
Loans made on sale of real estate owned   $
–
    $
–
 

 

See accompanying notes to condensed consolidated financial statements.

 

6

 

 

Kentucky First Federal Bancorp

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2021

(unaudited)

 

The Kentucky First Federal Bancorp (“Kentucky First” or the “Company”) was incorporated under federal law in March 2005 and is the mid-tier holding company for First Federal Savings and Loan Association of Hazard, Hazard, Kentucky (“First Federal of Hazard”) and Frankfort First Bancorp, Inc. (“Frankfort First”). Frankfort First is the holding company for First Federal Savings Bank of Kentucky, Frankfort, Kentucky (“First Federal of Kentucky”). First Federal of Hazard and First Federal of Kentucky (hereinafter collectively the “Banks”) are Kentucky First’s primary operations, which consist of operating the Banks as two independent, community-oriented savings institutions.

 

In December 2012, the Company acquired CKF Bancorp, Inc., a savings and loan holding company which operated three banking locations in Boyle and Garrard Counties in Kentucky. In accounting for the transaction, the assets and liabilities of CKF Bancorp were recorded on the books of First Federal of Kentucky in accordance with accounting standard ASC 805, Business Combinations.

 

1. Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements, which represent the condensed consolidated balance sheets and results of operations of the Company, were prepared in accordance with the instructions for Form 10-Q and, therefore, do not include information or footnotes necessary for a complete presentation of financial position, results of operations and cash flows in conformity with U.S. generally accepted accounting principles. However, in the opinion of management, all adjustments (consisting of only normal recurring adjustments) which are necessary for a fair presentation of the condensed consolidated financial statements have been included. The results of operations for the three-month period ended September 30, 2021, are not necessarily indicative of the results which may be expected for an entire fiscal year. The condensed consolidated balance sheet as of June 30, 2021, has been derived from the audited consolidated balance sheet as of that date. Certain information and note disclosures normally included in the Company’s annual financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Form 10-K annual report for 2021 filed with the Securities and Exchange Commission.

 

Principles of Consolidation - The consolidated financial statements include the accounts of the Company, Frankfort First, and its wholly-owned banking subsidiaries, First Federal of Hazard and First Federal of Kentucky (collectively hereinafter “the Banks”). All intercompany transactions and balances have been eliminated in consolidation.

 

New Accounting Standards

 

FASB ASC 326 - In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The final standard will change estimates for credit losses related to financial assets measured at amortized cost such as loans, held-to-maturity debt securities, and certain other contracts. For estimating credit losses, the FASB is replacing the incurred loss model with an expected loss model, which is referred to as the current expected credit loss (CECL) model. The Company will now use forward-looking information to enhance its credit loss estimates. The amendment requires enhanced disclosures to aid investors and other users of financial statements to better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of our portfolio. The largest impact to the Company will be on its allowance for loan and lease losses, although the ASU also amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The standard is effective for public companies for annual periods and interim periods within those annual periods beginning after December 15, 2019. However, the FASB has delayed the implementation of the ASU for smaller reporting companies until years beginning after December 15, 2022, or in the Company’s case the fiscal year beginning July 1, 2023. ASU 2016-13 will be applied through a cumulative effect adjustment to retained earnings (modified-retrospective approach), except for debt securities for which an other-than-temporary impairment had been recognized before the effective date. A prospective transition approach is required for these debt securities. We have formed a functional committee that is assessing our data and system needs and are evaluating the impact of adopting the new guidance. We expect to recognize a one-time cumulative effect adjustment to the allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective but cannot yet determine the magnitude of any such one-time adjustment or the overall impact of the new guidance on the consolidated financial statements. However, the Company does expect ASU 2016-13 to add complexity and costs to its current credit loss evaluation process.

 

FASB ASC 740– In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes. The amendments in this ASU removes certain exceptions for recognizing deferred taxes for investments, performing intraperiod allocation and calculating income taxes during interim periods. The ASU also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. The Company adopted ASU 2019-12 effective July 1, 2021, with no material impact to our consolidated financial statements.

 

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

 

7

 

 

Kentucky First Federal Bancorp

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

September 30, 2021

(unaudited)

 

2. Earnings Per Share

 

Diluted earnings per share is computed taking into consideration common shares outstanding and dilutive potential common shares to be issued or released under the Company’s share-based compensation plans. The factors used in the basic and diluted earnings per share computations follow:

 

    Three months ended
September 30, 		 
    2021     2020  
Net income allocated to common shareholders, basic and diluted   $ 568,000     $ 285,000  
Earnings per share, basic and diluted   $ 0.07     $ 0.04  
Weighted average common shares outstanding, basic and diluted     8,216,511       8,222,813  

 

There were no stock option shares outstanding for the three-month periods ended September 30, 2021 and 2020.

 

3. Investment Securities

 

The following table summarizes the amortized cost and fair value of securities available-for-sale and securities held-to-maturity at September 30, 2021 and June 30, 2021, the corresponding amounts of gross unrealized gains recognized in accumulated other comprehensive income and gross unrecognized gains and losses:

 

    September 30, 2021  
(in thousands)   Amortized cost     Gross unrealized/ unrecognized
gains 		    Gross unrealized/ unrecognized
losses 		    Estimated fair value  
Available-for-sale Securities                        
Agency mortgage-backed: residential   $            31     $
          –
    $
          –
    $ 31  
                                 
Held-to-maturity Securities                                
Agency mortgage-backed: residential   $ 436     $ 18     $ 2     $ 452  

 

    June 30, 2021  
(in thousands)   Amortized cost     Gross unrealized/ unrecognized
gains 		    Gross unrealized/ unrecognized
losses 		    Estimated fair value  
Available-for-sale Securities                        
Agency mortgage-backed: residential   $           33     $
          –
    $
          –
    $ 33  
                                 
Held-to-maturity Securities                                
Agency mortgage-backed: residential   $ 462     $ 16     $ 2     $ 476  

 

Our pledged securities (including overnight and time deposits in other financial institutions) totaled $1.8 million and $1.8 million at September 30, 2021 and June 30, 2021, respectively.

 

We evaluated securities in unrealized loss positions for evidence of other-than-temporary impairment, considering duration, severity, financial condition of the issuer, our intention to sell or requirement to sell. Those securities were agency mortgage-backed securities, which carry a very limited amount of risk. Also, we have no intention to sell nor feel that we will be compelled to sell such securities before maturity. Based on our evaluation, no impairment has been recognized through earnings.

 

8

 

 

Kentucky First Federal Bancorp

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

September 30, 2021

(unaudited)

 

4. Loans receivable

 

The composition of the loan portfolio was as follows:

 

    September 30,     June 30,  
(in thousands)   2021     2021  
Residential real estate            
One- to four-family   $ 222,842     $ 224,125  
Multi-family     20,473       19,781  
Construction     5,459       5,433  
Land     208       1,308  
Farm     2,386       2,234  
Nonresidential real estate     33,932       35,492  
Commercial nonmortgage     1,135       2,259  
Consumer and other:                
Loans on deposits     1,129       1,129  
Home equity     7,481       7,135  
Automobile     85       75  
Unsecured     470       533  
      295,600       299,524  
Allowance for loan losses     (1,610 )     (1,622 )
    $ 293,990     $ 297,902  

 

The amounts above include net deferred loan costs of $262,000 and $167,000 as of September 30, 2021 and June 30, 2021, respectively.

 

The following table presents the activity in the allowance for loan losses by portfolio segment for the three months ended September 30, 2021:

 

(in thousands)   Beginning balance     Provision for loan losses     Loans charged off     Recoveries     Ending balance  
Residential real estate:                              
One- to four-family   $ 794     $       (31 )   $ (9 )   $
           –
    $ 754  
Multi-family     291       (1 )    
–
     
–
      290  
Construction     12       1      
–
     
–
      13  
Land     3       (3 )    
–
     
–
      --  
Farm     5       1      
–
     
–
      6  
Nonresidential real estate     494       32      
–
     
–
      526  
Commercial nonmortgage     5       (2 )    
–
     
–
      3  
Consumer and other:                                        
Loans on deposits     2      
--
     
–
     
–
      2  
Home equity     15       1       –       –       16  
Automobile    
–
     
–
     
–
     
–
     
–
 
Unsecured     1       2       (3 )     –       --  
Totals   $ 1,622     $ --     $ (12 )   $ --     $ 1,610  

 

9

 

 

Kentucky First Federal Bancorp

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

September 30, 2021

(unaudited)

 

4. Loans receivable (continued)

 

The following table presents the activity in the allowance for loan losses by portfolio segment for the three months ended September 30, 2020:

 

(in thousands)   Beginning balance     Provision for loan losses     Loans
charged off 		    Recoveries     Ending balance  
Residential real estate:                              
One- to four-family   $    671     $ (1 )   $
          –
    $
            --
    $     670  
Multi-family     184       33      
–
     
–
      217  
Construction     6       1      
–
     
–
      7  
Land     1      
             –
     
–
     
–
      1  
Farm     4       1      
–
     
–
      5  
Nonresidential real estate     405       13      
–
     
–
      418  
Commercial nonmortgage     3       1      
–
     
–
      4  
Consumer and other:                                        
Loans on deposits     2      
–
     
–
     
–
      2  
Home equity     11       38       45       7       11  
Automobile    
–
     
–
     
–
     
–
     
–
 
Unsecured     1       (2 )    
–
      2       1  
Unallocated     200      
–
     
–
     
–
      200  
Totals   $ 1,488     $ 84     $ 45     $ 1     $ 1,536  

 

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio class and based on impairment method as of September 30, 2021. The recorded investment in loans excludes accrued interest receivable due to immateriality.

 

September 30, 2021:

 

(in thousands)   Loans individually evaluated     Loans acquired with deteriorated credit quality     Unpaid principal balance
and recorded investment 		    Ending allowance attributed to loans  
Loans individually evaluated for impairment:                        
Residential real estate:                        
One- to four-family   $ 3,546     $   459     $ 4,005     $
–
 
Multi-family     587      
–
      587      
–
 
Farm     272      
–
      272      
–
 
Nonresidential real estate     1,349      
–
      1,349      
–
 
Consumer:                                
Home Equity     16      
--
      16      
--
 
Unsecured     10      
--
      10      
--
 
      5,780       459       6,239      
–
 
                                 
Loans collectively evaluated for impairment:                                
Residential real estate:                                
One- to four-family                   $ 218,837     $ 754  
Multi-family                     19,886       290  
Construction                     5,459       13  
Land                     208      
--
 
Farm                     2,114       6  
Nonresidential real estate                     32,583       526  
Commercial nonmortgage                     1,135       3  
Consumer:                                
Loans on deposits                     1,129       2  
Home equity                     7,465       16  
Automobile                     85      
–
 
Unsecured                     460      
–
 
Unallocated                    
–
     
–
 
                      289,361       1,610  
                    $ 295,600     $ 1,610  

 

10

 

 

Kentucky First Federal Bancorp

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

September 30, 2021

(unaudited)

 

4. Loans receivable (continued)

 

The following tables present the balance in the allowance for loan losses and the recorded investment in loans by portfolio class and based on impairment method as of June 30, 2021.

 

June 30, 2021:

 

(in thousands)   Loans individually evaluated     Loans acquired with deteriorated credit quality     Unpaid principal balance
and recorded investment 		    Ending allowance attributed to loans  
Loans individually evaluated for impairment:                        
Residential real estate:                        
One- to four-family   $ 3,738     $ 595     $ 4,333     $
–
 
Multi-family     646      
–
      646      
–
 
Farm     274      
–
      274      
–
 
Nonresidential real estate     1,367      
–
      1,367      
–
 
Consumer and other:                                
Unsecured     16      
–
      16      
–
 
      6,041       595       6,636      
–
 
                                 
Loans collectively evaluated for impairment:                                
Residential real estate:                                
One- to four-family                   $ 219,792     $ 794  
Multi-family                     19,135       291  
Construction                     5,433       12  
Land                     1,308       3  
Farm                     1,960       5  
Nonresidential real estate                     34,125       494  
Commercial nonmortgage                     2,259       5  
Consumer:                                
Loans on deposits                     1,129       2  
Home equity                     7,135       15  
Automobile                     75      
–
 
Unsecured                     537       1  
                      292,888       1,622  
                    $ 299,524     $ 1,622  

 

The following table presents interest income on loans individually evaluated for impairment by class of loans for the three months ended September 30:

 

(in thousands)   Average Recorded Investment     Interest
Income Recognized 		    Cash Basis Income Recognized     Average Recorded Investment     Interest
Income
Recognized 		    Cash Basis Income Recognized  
    2021     2020  
With no related allowance recorded:                                    
Residential real estate:                                    
One- to four-family   $ 3,642     $ 36     $ 36     $ 3,938     $ 47     $ 47  
Multi-family     617       5       5       668       6       6  
Construction            
 
     
 
      63      
–
     
–
 
Farm     273      
               –
     
             –
      301       23       23  
Nonresidential real estate     1,358       16       16       657       3       3  
Consumer and other     21      
–
     
–
     
– 
   
–
     
–
 
Purchased credit-impaired loans     527       7       7       744       14       14  
      6,438       64       64       6,371       93       93  
With an allowance recorded:                                                
One- to four-family    
–
     
–
     
–
     
–
     
–
     
–
 
    $ 6,438     $ 64     $ 64     $ 6,371     $ 93     $ 93  

 

11

 

 

Kentucky First Federal Bancorp

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

September 30, 2021

(unaudited)

 

4. Loans receivable (continued)

 

The following table presents the recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans as of September 30, 2021, and June 30, 2021:

 

    September 30, 2021     June 30, 2021  
(in thousands)   Nonaccrual    

Loans

Past Due Over
90 Days Still
Accruing

    Nonaccrual     Loans
Past Due Over
90 Days Still
Accruing 		 
Residential real estate:                        
One- to four-family residential real estate   $ 4,168     $ 519     $ 4,104     $ 243  
Multifamily     587      
–
      646      
–
 
Farm     272      
–
      274      
–
 
Nonresidential real estate and land     1,349      
–
      1,367      
–
 
Commercial and industrial    
–
     
–
     
--
     
–
 
Consumer     24       8       21      
–
 
    $ 6,400     $ 527     $ 6,412     $ 243  

 

One- to four-family loans in process of foreclosure totaled $525,000 and $577,000 at September 30, 2021 and June 30, 2021, respectively.

 

Troubled Debt Restructurings:

 

A Troubled Debt Restructuring (“TDR”) is the situation where the Bank grants a concession to the borrower that the Banks would not otherwise have considered due to the borrower’s financial difficulties. All TDRs are considered “impaired.”

 

In December 2020, Congress amended the CARES Act through the Consolidated Appropriation Act of 2021, which provided additional COVID-19 relief to American families and businesses, including extending the TDR relief under the CARES Act until the earlier of December 31, 2021 or 60 days following the termination of the national emergency. The relief can only be applied to modifications for borrowers that were not more than 30 days past due as of December 31, 2019. The Company elected to adopt these provisions of the CARES Act. In response to the COVID-19 pandemic and the widespread economic downturn that immediately resulted, the Company adopted a loan forbearance plan in which then-current affected borrowers could request deferral of their loan payments for a period of three months. A total of $815,000 in loans were accepted into the plan for the twelve months ended June 30, 2021. At June 30, 2021 all of those loans had reached the end of their three-month deferral data period and returned to regular payment status.

 

At September 30, 2021 and June 30, 2021, the Company had $1.7 million of loans classified as TDRs. Of the TDRs at September 30, 2021, approximately 27.2% were related to the borrower’s completion of Chapter 7 bankruptcy proceedings with no reaffirmation of the debt to the Banks.

 

During the three months ended September 30, 2021, and 2020 the Company added no loans restructured as TDRs. No TDRs defaulted during the three-month periods ended September 30, 2021, or 2020.

 

The following table presents the aging of the principal balance outstanding in past due loans as of September 30, 2021, by class of loans:

 

(in thousands)   30-89 Days
Past Due 		    90 Days or
Greater
Past Due 		    Total Past
Due 		    Loans Not
Past Due 		    Total  
Residential real estate:                              
One-to four-family   $ 2,141     $ 1,641     $ 3,782     $ 219,060     $ 222,842  
Multi-family    
–
     
–
     
–
      20,473       20,473  
Construction     110      
–
      110       5,349       5,459  
Land    
–
     
–
     
–
      208       208  
Farm     99      
–
      99       2,287       2,386  
Nonresidential real estate    
–
      237       237       33,695       33,932  
Commercial and industrial     823      
–
      823       312       1,135  
Consumer and other:                                        
Loans on deposits    
–
     
–
     
–
      1,129       1,129  
Home equity     28       5       33       7,448       7,481  
Automobile    
–
     
–
     
–
      85       85  
Unsecured    
–
      3       3       467       470  
Total   $ 3,201     $ 1,886     $ 5,087     $ 290,513     $ 295,600  

 

12

 

 

Kentucky First Federal Bancorp

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

September 30, 2021

(unaudited)

 

4. Loans receivable (continued)

 

The following tables present the aging of the principal balance outstanding in past due loans as of June 30, 2021, by class of loans:

 

(in thousands)   30-89 Days
Past Due 		    90 Days or
Greater
Past Due 		    Total Past
Due 		    Loans Not
Past Due 		    Total  
Residential real estate:                              
One-to four-family   $ 2,392     $ 1,338     $ 3,730     $ 220,395     $ 224,125  
Multi-family    
–
     
–
     
–
      19,781       19,781  
Construction     80      
–
      80       5,353       5,433  
Land    
–
     
–
     
–
      1,308       1,308  
Farm     101      
–
      101       2,133       2,234  
Nonresidential real estate    
–
      241       241       35,251       35,492  
Commercial and industrial     6      
–
      6       2,253       2,259  
Consumer:                                        
Loans on deposits    
–
     
–
     
–
      1,129       1,129  
Home equity     116      
–
      116       7,019       7,135  
Automobile    
–
     
–
     
–
      75       75  
Unsecured     4      
–
      4       549       553  
Total   $ 2,699     $ 1,579     $ 4,278     $ 295,246     $ 299,524  

 

Credit Quality Indicators:

 

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis is performed on an annual basis. The Company uses the following definitions for risk ratings:

 

Special Mention. Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

 

Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

 

Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.

 

Loans not meeting the criteria above that are analyzed individually as part of the above-described process are considered to be pass rated loans. Loans listed that are not rated are included in groups of homogeneous loans and are evaluated for credit quality based on performing status. See the aging of past due loan table above. As of September 30, 2021, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

 

(in thousands)   Pass     Special
Mention 		    Substandard     Doubtful  
Residential real estate:                        
One- to four-family   $ 216,442     $ 584     $ 5,816     $
             –
 
Multi-family     19,885      
–
      587      
–
 
Construction     5,459      
–
     
–
     
–
 
Land     208      
–
     
–
     
–
 
Farm     2,114      
–
      272      
–
 
Nonresidential real estate     31,663       920       1,349      
–
 
Commercial nonmortgage     1,135      
–
     
–
     
–
 
Consumer:                                
Loans on deposits     1,129      
–
     
–
     
–
 
Home equity     7,481       39       51      
–
 
Automobile     85      
–
     
–
     
–
 
Unsecured     464      
–
      6      
–
 
    $ 285,976     $ 1,542     $ 8,082     $
–
 

 

13

 

 

Kentucky First Federal Bancorp

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

September 30, 2021

(unaudited)

 

4. Loans receivable (continued)

 

At June 30, 2021, the risk category of loans by class of loans was as follows:

 

(in thousands)   Pass     Special
Mention 		    Substandard     Doubtful  
Residential real estate:                        
One- to four-family   $ 217,485     $ 596     $ 6,044     $
             –
 
Multi-family     19,135      
–
      646      
–
 
Construction     5,433      
–
     
–
     
–
 
Land     1,308      
–
     
–
     
–
 
Farm     1,960      
–
      274      
–
 
Nonresidential real estate     32,748       924       1,820      
–
 
Commercial nonmortgage     2,259      
–
     
--
     
–
 
Consumer:                                
Loans on deposits     1,229      
–
     
–
     
–
 
Home equity     7,044       39       52      
–
 
Automobile     75      
–
     
–
     
–
 
Unsecured     546      
–
      7      
–
 
    $ 289,122     $ 1,559     $ 8,843     $
–
 

 

Purchased Credit Impaired Loans:

 

The Company purchased loans during fiscal year 2013 for which there was, at acquisition, evidence of deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected. The carrying amount of those loans, net of a purchase credit discount of $88,000 and $88,000 at September 30, 2021 and June 30, 2021, respectively, is as follows:

 

(in thousands)   September 30,
2021 		    June 30,
2021 		 
One- to four-family residential real estate   $ 459     $ 595  

 

Accretable yield, or income expected to be collected, is as follows:

 

(in thousands)   Three months
ended
September 30,
2021 		    Twelve months
ended
June 30,
2021 		 
Balance at beginning of period   $ 390     $ 447  
Accretion of income     (13 )     (57 )
Disposals, net of recoveries    
–
     
–
 
Balance at end of period   $ 377     $ 390  

 

For those purchased loans disclosed above, the Company made no increase in allowance for loan losses for the year ended June 30, 2021, nor for the three-month period ended September 30, 2021. Neither were any allowance for loan losses reversed during those periods.

 

14

 

 

Kentucky First Federal Bancorp

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

September 30, 2021

(unaudited)

 

5. Disclosures About Fair Value of Assets and Liabilities

 

ASC topic 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants (exit price) at the measurement date. ASC topic 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes six levels of inputs that may be used to measure fair value:

 

Level 1 – Quoted prices in active markets for identical assets or liabilities.

 

Level 2 – Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in active markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

 

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

 

Following is a description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy.

 

Securities

 

Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics. Level 2 securities include agency mortgage-backed securities and agency bonds.

 

Financial assets measured at fair value on a recurring basis are summarized below:

 

    Fair Value Measurements Using  
(in thousands)   Fair Value     Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1) 		    Significant
Other
Observable
Inputs
(Level 2) 		    Significant
Unobservable
Inputs
(Level 3) 		 
September 30, 2021                        
Agency mortgage-backed: residential   $              31     $
               –
    $             31     $
               –
 
                                 
June 30, 2021                                
Agency mortgage-backed: residential   $ 33     $
–
    $ 33     $
–
 

 

Impaired Loans

 

Following is a description of the valuation methodologies and inputs used for assets measured at fair value on a nonrecurring basis and recognized in the accompanying consolidated balance sheet as well as the general classification of such assets pursuant to the valuation hierarchy. For assets classified within Level 3 of the fair value hierarchy, the process used to develop the reported fair value is described below.

 

At the time a loan is considered impaired, it is evaluated for loss based on the fair value of collateral securing the loan if the loan is collateral dependent. If a loss is identified, a specific allocation will be established as part of the allowance for loan losses such that the loan’s net carrying value is at its estimated fair value. Impaired loans carried at fair value generally receive specific allocations of the allowance for loan losses. For collateral-dependent loans, fair value is commonly based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification. Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

 

There were no impaired loans, which were measured on a nonrecurring basis during the period using the fair value of the collateral for collateral-dependent loans, at September 30, 2021, or at June 30, 2021.

 

15

 

 

Kentucky First Federal Bancorp

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

September 30, 2021

(unaudited)

 

5. Disclosures About Fair Value of Assets and Liabilities (continued)

 

Other Real Estate

 

Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. Fair value is commonly based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.

 

There was no other real estate owned (“OREO”) written down during the three-months ended September 30, 2021 or 2020. There was no OREO measured on a nonrecurring basis during the period at fair value less costs to sell at September 30, 2021 or June 30, 2021.

 

The following is a disclosure of the fair value of financial instruments, both assets and liabilities, whether or not recognized in the consolidated balance sheet, for which it is practicable to estimate that value. For financial instruments where quoted market prices are not available, fair values are based on estimates using present value and other valuation methods.

 

The methods used are greatly affected by the assumptions applied, including the discount rate and estimates of future cash flows. Therefore, the fair values presented may not represent amounts that could be realized in an exchange for certain financial instruments.

 

Based on the foregoing methods and assumptions, the carrying value and fair value of the Company’s financial instruments at September 30, 2021 and June 30, 2021 are as follows:

 

          Fair Value Measurements at  
    Carrying     September 30, 2021 Using  
(in thousands)   Value     Level 1     Level 2     Level 3     Total  
Financial assets                              
Cash and cash equivalents   $ 25,932     $ 25,932      
 
     
 
    $ 25,932  
Available-for-sale securities     31      
 
    $ 31      
 
      31  
Held-to-maturity securities     436      
 
      452      
 
      452  
Loans held for sale     90      
 
     
 
    $ 92       92  
Loans receivable - net     293,990      
 
     
 
      302,332       302,332  
Federal Home Loan Bank stock     6,498      
 
     
 
     
 
     
n/a
 
Accrued interest receivable     613      
 
      613      
 
      613  
                                         
Financial liabilities                                        
Deposits   $ 231,489     $ 104,608     $ 127,226               231,834  
Federal Home Loan Bank advances     50,355      
 
      50,745      
 
      50,745  
Advances by borrowers for taxes and insurance     962      
 
      962      
 
      962  
Accrued interest payable     21      
 
      21      
 
      21  

 

          Fair Value Measurements at  
    Carrying     June 30, 2021 Using  
(in thousands)   Value     Level 1     Level 2     Level 3     Total  
Financial assets                              
Cash and cash equivalents   $ 21,648     $ 21,648      
 
     
 
    $ 21,648  
Term deposits in other financial institutions     247       248      
 
     
 
      248  
Available-for-sale securities     33      
 
    $ 33      
 
      33  
Held-to-maturity securities     462      
 
      476      
 
      476  
Loans held for sale     1,307      
 
      1,336      
 
      1,336  
Loans receivable – net     297,902      
 
     
 
    $ 306,346       306,346  
Federal Home Loan Bank stock     6,498      
 
     
 
     
 
     
n/a
 
Accrued interest receivable     694      
 
      694      
 
      694  
                                         
Financial liabilities                                        
Deposits   $ 226,843     $ 101,951     $ 125,232             $ 227,183  
Federal Home Loan Bank advances     56,873      
 
      57,314      
 
      57,314  
Advances by borrowers for taxes and insurance     838      
 
      838      
 
      838  
Accrued interest payable     20      
 
      20      
 
      20  

 

16

 

 

Kentucky First Federal Bancorp

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

September 30, 2021

(unaudited)

 

6. Other Comprehensive Income (Loss)

 

The Company’s other comprehensive income is comprised solely of unrealized gains and losses on available-for-sale securities. The following is a summary of the accumulated other comprehensive income balances, net of tax:

 

      Three months ended
September 30,
2021 		 
Beginning balance   $
–
 
Current year change    
–
 
Ending balance   $
–
 

 

Other comprehensive income (loss) components and related tax effects for the periods indicated were as follows:

 

      Three months ended
September 30, 		 
(in thousands)     2021       2020  
Unrealized holding gains (losses) on available-for-sale securities   $
–
    $
–
 
Tax effect    
–
     
–
 
Net-of-tax amount   $
–
    $
–
 

 

17

 

 

Kentucky First Federal Bancorp
ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

 

Forward-Looking Statements

 

Certain statements contained in this report that are not historical facts are forward-looking statements that are subject to certain risks and uncertainties. When used herein, the terms “anticipates,” “plans,” “expects,” “believes,” and similar expressions as they relate to Kentucky First Federal Bancorp or its management are intended to identify such forward-looking statements. Kentucky First Federal Bancorp’s actual results, performance or achievements may materially differ from those expressed or implied in the forward-looking statements. Risks and uncertainties that could cause or contribute to such material differences include, but are not limited to, general economic conditions, prices for real estate in the Company’s market areas, interest rate environment, competitive conditions in the financial services industry, changes in law, governmental policies and regulations, rapidly changing technology affecting financial services, the potential effects of the COVID-19 pandemic on the local and national economic environment, on our customers and on our operations (as well as any changes to federal, state and local government laws, regulations and orders in connection with the pandemic), and the other matters mentioned in Item 1A of the Company’s Annual Report on Form 10-K for the year ended June 30, 2021. Except as required by applicable law or regulation, the Company does not undertake the responsibility, and specifically disclaims any obligation, to release publicly the result of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of the statements or to reflect the occurrence of anticipated or unanticipated events.

 

18

 

 

Kentucky First Federal Bancorp
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)

 

Average Balance Sheets

 

The following table represents the average balance sheets for the three-month periods ended September 30, 2021 and 2020, along with the related calculations of tax-equivalent net interest income, net interest margin and net interest spread for the related periods.

 

    Three Months Ended September 30,  
    2021     2020  
    Average
Balance 		    Interest
And
Dividends 		    Yield/
Cost 		    Average
Balance 		    Interest
And
Dividends 		    Yield/
Cost 		 
    (Dollars in thousands)  
Interest-earning assets:                                    
Loans 1   $ 298,174     $ 2,934       3.94 %   $ 289,262     $ 2,976       4.12 %
Mortgage-backed securities     481       3       2.50       631       4       2.58  
Other securities     –       –       –       393       3       3.05  
Other interest-earning assets     28,694       37       0.52       21,824       46       0.84  
Total interest-earning assets     327,349       2,974       3.63       312,100       3,029       3.88  
                                                 
Less: Allowance for loan losses     (1,616 )                     (1,490 )                
Non-interest-earning assets     11,566                       12,526                  
Total assets   $ 337,299                     $ 323,136                  
                                                 
Interest-bearing liabilities:                                                
Demand deposits   $ 19,970     $ 9       0.18 %   $ 17,171     $ 7       0.16 %
Savings     70,123       68       0.39       57,485       59       0.41  
Certificates of deposit     125,887       291       0.93       133,743       448       1.34  
Total deposits     215,980       368       0.68       208,399       514       0.99  
Borrowings     53,614       101       0.75       51,793       125       0.97  
Total interest-bearing liabilities     269,594       469       0.69       260,192       639       0.98  
                                                 
Noninterest-bearing demand deposits     13,186                       8,453                  
Noninterest-bearing liabilities     2,162                       2,437                  
Total liabilities     284,942                       271,082                  
                                                 
Shareholders’ equity     52,357                       52,054                  
Total liabilities and shareholders’ equity   $ 337,299                     $ 323,136                  
Net interest spread           $ 2,505       2.94 %           $ 2,390       2.90 %
Net interest margin                     3.06 %                     3.06 %
Average interest-earning assets to average interest-bearing liabilities                     121.42 %                     119.95 %

 

1 Includes loan fees, immaterial in amount, in both interest income and the calculation of yield on loans. Also includes loans on nonaccrual status.

 

19

 

 

Kentucky First Federal Bancorp
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)

 

Discussion of Financial Condition Changes from June 30, 2021 to September 30, 2021

 

Risks and Uncertainties Related to COVID-19- In March 2020 the World Health Organization determined that the spread of a new coronavirus, COVID-19, had risen to such a level as to constitute a worldwide pandemic. The spread of this virus has created a global public health crisis. Uncertainty related to the effects of the virus have disrupted financial markets, activity in all aspects of life including governmental, business and consumer routines and the markets in which the Company operates. In response to the crisis governmental authorities closed or limited the operations of many non-essential businesses and required various responses from individuals including stay-at-home restrictions and social distancing. These governmental restrictions, along with a fear of contracting the virus, have resulted in severe reduction of commercial and consumer activity, which is resulting in loss of revenues by businesses, a dramatic spike in unemployment, material decreases in oil and gas prices and in business valuations, disrupted global supply chains and market volatility.

 

Management continues to monitor the general impact of COVID-19, as well as certain provisions of the Coronavirus Aid, Relief and Economic Security (“CARES”) Act, enacted on March 27, 2020, and other more recent legislative and regulatory relief efforts including the Consolidated Appropriations Act, 2021. Because the impact is contingent upon the duration and severity of the economic downturn, management cannot determine or estimate the magnitude of the impact at this time. While the pandemic has affected the physical operations of the Banks, the business has been mostly unchanged with consistent levels of consumer transactions and loan originations. The potential for a deterioration in asset quality remains, but actual asset quality has improved. Classified assets at September 30, 2021, totaled $8.5 million compared to $10.5 million at March 31, 2020. Management attributes some of this improved performance to the overall strengthening in the residential real estate market. Approximately 95% of the Company’s loans are secured by residential real estate.

 

Business Continuity, Processes and Controls

 

In response to the COVID-19 pandemic the Banks are considered essential businesses and have remained open for business.  We implemented our pandemic preparedness plan and generally maintained regular business hours through drive-through facilities, automated teller machines, remote deposit capture and online and mobile banking applications.  We offer by-appointment options for transactions requiring in-person contact while maintaining social distancing mandates and surface cleaning protocols.  Our staff is practicing recommended personal hygiene protocols and social distancing while working on premises. We do not face current material resource constraints through the implementation of our pandemic preparedness plan and do not anticipate incurring any material cost related to its implementation. We have not identified any material operational or internal control challenges or risks, nor do we anticipate any significant challenges to our ability to maintain our systems and controls, related to operational changes resulting from implementation of the pandemic preparedness plan.

 

Financial Position and Results of Operations

 

Bank regulators have issued guidance and are encouraging banks to work with customers affected by COVID-19. Accordingly, we have been actively working with borrowers affected by COVID-19 by offering a payment deferral program providing for either a three-month interest-only period or a full payment deferral for three months. While interest and fees will continue to accrue to income, under normal GAAP accounting if eventual credit losses on these deferred payments emerge, interest and/or fee income accrued may need to be reversed. As a result, interest income in future periods could be negatively impacted. At this time management anticipates that the deferral program will have an immaterial impact to the Company’s financial condition and results of operation, while recognizing that a sustained negative economic impact from COVID-19 could change this assessment, as borrowers’ ability to repay is impacted in future periods.

 

At September 30, 2021 the Company and the Banks were considered well-capitalized with capital ratios in excess of regulatory requirements. However, an extended economic recession resulting from the COVID-19 pandemic could adversely impact the Company’s and the Banks’ capital position and regulatory capital ratios due to a potential increase in credit losses.

 

Lending Operations and Credit Risk

 

As noted herein the Company continues working with its borrowers who are negatively impacted by COVID-19 by offering a payment deferral program. During the year ended June 30, 2021, a total of $815,000 in loans were accepted into the Company’s loan payment deferral plan. At June 30, 2021 all of those loans had reached the end of their three-month deferral periods and returned to regular payment status.

 

20

 

 

Kentucky First Federal Bancorp
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)

 

Discussion of Financial Condition Changes from June 30, 2021 to September 30, 2021 (continued)

 

The CARES Act and subsequent Consolidated Appropriations Act, 2021, includes a Paycheck Protection Program (“PPP”), which is administered by the Small Business Administration (“SBA”) and is designed to aid small- and medium-sized businesses through federally-guaranteed loans disbursed through banks. These loans are intended to provide eight weeks of payroll and other costs to assist those businesses to either remain open or to re-open quickly and allow their workers to pay their bills. First Federal of Kentucky qualified as an SBA lender to assist the small business community in securing this important funding. As of September 30, 2021, First Federal of Kentucky had approved and closed with the SBA 75 PPP loans representing $2.6 million in funding. Of those loans a total of 48 loans aggregating $2.0 million had been repaid at the end of the period. It is our understanding that loans funded through the PPP are fully guaranteed by the United States government. Should those circumstances change, the bank could be required to increase its allowance for loan and lease losses related to these loans resulting in an increase in the provision for loan and lease losses.

 

The Banks are prepared to continue to offer short-term assistance in accordance with regulatory guidelines. Management continues to identify and monitor weaknesses in the loan portfolio resulting from fallout from the pandemic. On a portfolio level, management continues to monitor aggregate exposures to highly sensitive segments such as residential rental properties for changes in asset quality and payment performance. Management also monitors unfunded commitments such as lines of credit and overdraft protection to determine liquidity and funding issues that may arise with our customers. If economic conditions worsen, the Company could need to increase its required allowance for loan losses through additional provisions for loan losses. It is possible that the Company’s asset quality metrics could be materially and adversely impacted in future periods, if the effects of COVID-19 are prolonged.

 

Assets: At September 30, 2021, the Company’s assets totaled $336.9 million, a decrease of $1.2 million, or 0.3%, from total assets at June 30, 2021. This decrease was attributed primarily to a decrease in loans, net and loans available-for sale, which were somewhat offset by an increase in cash and cash equivalents.

 

Cash and cash equivalents: Cash and cash equivalents increased $4.3 million or 19.8% to $25.9 million at September 30, 2021. Most of the Company’s cash and cash equivalents are held in interest-bearing demand deposits.

 

Time deposits in other financial institutions: Time deposits in other financial institutions decreased by $247,000 or 100.0% to $0 at September 30, 2021. Extremely low interest rates make time deposits in other financial institutions unattractive at this time.

 

Investment securities: At September 30, 2021, our securities portfolio consisted of mortgage-backed securities, which decreased $28,000 or 5.7% to $467,000 at September 30, 2021.

 

Loans: Loans, net and loans available-for sale in the aggregate decreased $5.1 million or 1.7% and totaled $294.0 million and $90,000, respectively at September 30, 2021. Loans receivable, net, decreased by $3.9 million or 1.3% to $294.0 million at September 30, 2021. Loans available-for-sale decreased $1.2 million or 93.1% to $90,000 at September 30, 2021. Management continues to look for high-quality loans to add to its portfolio and will continue to emphasize loan originations to the extent that it is profitable, prudent and consistent with our interest rate risk strategies.

 

Non-Performing and Classified Loans: At September 30, 2021, the Company had non-performing loans (loans 90 or more days past due or on nonaccrual status) of approximately $6.9 million, or 2.4% of total loans (including acquired loans), compared to $6.7 million or 2.2%, of total loans at June 30, 2021. The Company’s allowance for loan losses totaled $1.6 million at September 30, 2021 and June 30, 2021. The allowance for loan losses at September 30, 2021, represented 23.2% of nonperforming loans and 0.5% of total loans (including acquired loans), while at June 30, 2021, the allowance represented 24.4% of nonperforming loans and 0.5% of total loans.

 

The Company had $8.1 million in assets classified as substandard for regulatory purposes at September 30, 2021, including loans ($8.1 million), loans acquired in the CKF Bancorp transaction, and real estate owned (“REO”) ($51,000.) Classified loans as a percentage of total loans (including loans acquired) was 2.7% and 3.0% at September 30, 2021 and June 30, 2021, respectively. Of substandard loans, 100.0% were secured by real estate on which the Banks have priority lien position.

 

The table below shows the aggregate amounts of our assets classified for regulatory purposes at the dates indicated:

 

(dollars in thousands)   September 30,
2021 		    June 30,
2021 		 
Substandard assets   $ 8,133     $ 8,925  
Doubtful assets     –       –  
Loss assets     –       –  
Total classified assets   $ 8,133     $ 8,925  

 

At September 30, 2021, the Company’s real estate acquired through foreclosure represented 0.6% of substandard assets compared to 0.9% at June 30, 2021. During the period presented the Company made no loans to facilitate the purchase of its other real estate owned by qualified buyers. Loans to facilitate the sale of other real estate owned, which were included in substandard loans, totaled $43,000 and $43,000 at September 30, 2021 and June 30, 2021, respectively.

 

21

 

 

Kentucky First Federal Bancorp
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)

 

Discussion of Financial Condition Changes from June 30, 2021 to September 30, 2021 (continued)

 

The following table presents the aggregate carrying value of REO at the dates indicated:

 

    September 30, 2021     June 30, 2021  
    Number
of
Properties 		    Net
Carrying
Value 		    Number
of
Properties 		    Net
Carrying
Value 		 
One- to four-family             1     $         51                2     $          82  
Building lot     1       –       1       –  
Total REO     2     $ 51       3     $ 82  

 

At September 30, 2021 and June 30, 2021, the Company had $1.5 million and $1.6 million of loans classified as special mention, respectively (including loans acquired in the CKF Bancorp transaction on December 31, 2012). This category includes assets which do not currently expose us to a sufficient degree of risk to warrant classification, but do possess credit deficiencies or potential weaknesses deserving our close attention.

 

Liabilities: Total liabilities decreased $1.4 million, or 0.5% to $284.4 million at September 30, 2021, primarily as a result of decreases in advances and was somewhat offset by an increase in deposits. Advances decreased $6.5 million or 11.5% to $50.4 million at September 30, 2021. Deposits increased $4.6 million or 2.0% to $231.5 million at September 30, 2021.

 

Shareholders’ Equity: At September 30, 2021, the Company’s shareholders’ equity totaled $52.5 million, an increase of $253,000 or 0.5% from the June 30, 2021 total. The change in shareholders’ equity was primarily associated with net profits for the period less dividends paid on common stock.

 

The Company paid dividends of $351,000 or 61.8% of net income for the three-month period just ended. On July 8, 2021, the members of First Federal MHC again approved a dividend waiver on annual dividends of up to $0.40 per share of Kentucky First Federal Bancorp common stock. The Board of Directors of First Federal MHC applied for approval of another waiver. The Federal Reserve Bank of Cleveland has notified the Company that it did not object to the waiver of dividends paid by the Company to First Federal MHC, and, as a result, First Federal MHC will be permitted to waive the receipt of dividends for quarterly dividends up to $0.10 per common share through the third calendar quarter of 2022. Management believes that the Company has sufficient capital to continue the current dividend policy without affecting the well-capitalized status of either subsidiary bank. Management cannot speculate on future dividend levels, because various factors, including capital levels, income levels, liquidity levels, regulatory requirements and overall financial condition of the Company are considered before dividends are declared. However, management continues to believe that a strong dividend is consistent with the Company’s long-term capital management strategy. See “Risk Factors” in Part II, Item 1A, of the Company’s Annual Report on Form 10-K for the year ended June 30, 2021 for additional discussion regarding dividends.

 

22

 

 

Kentucky First Federal Bancorp
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)

 

Comparison of Operating Results for the Three-month Periods Ended September 30, 2021 and 2020

 

General

 

Net income totaled $568,000 or $0.07 diluted earnings per share for the three months ended September 30, 2021, an increase of $283,000 or 99.3% from net income of $285,000 or $0.04 diluted earnings per share for the same period in 2020. The increase in net income was primarily attributable to higher net interest income, higher non-interest income, lower non-interest expense, and lower provision for loan loss, which were partially offset by increased provision for income tax.

 

Net Interest Income

 

Net interest income increased $115,000 or 4.8% to $2.5 million for the recently-ended quarter primarily due to decreased interest expense, which decreased $170,000 or 26.6% to $469,000 for the three months ended September 30, 2021 compared to the 2020 quarterly period, while interest income decreased by $55,000, or 1.8%, to $3.0 million for the current period.

 

The decrease in interest income period-to-period was due primarily to a decrease in the average rate earned on interest-earning assets.. The average rate decreased 25 basis points to 3.63% for the recently-ended three-month period compared to the prior year period, while the average balance of interest-earning assets increased $15.2 million or 4.9% to $327.3 million for the three months ended September 30, 2021. Interest income on loans decreased $42,000 or 1.4% to $2.9 million, due to a decrease of 18 basis points in the average rate earned on the loan portfolio, which totaled 3.94% for the three-month period ended September 30, 2021, while the average balance increased $8.9 million or 3.1% to $298.2 million for the period. Interest income from interest-bearing deposits and other income decreased $9,000 or 19.6% to $37,000 for the three months just ended due primarily to a decrease in the average rate earned, which decreased 33 basis points to 0.52% for the recently-ended period compared to the period a year ago.

 

The decrease in interest expense was due primarily to a decrease of 29 basis points on the average rate paid on funding sources, which totaled 0.69% for the three months ended September 30, 2021. The Company’s interest-bearing liabilities have repriced quickly in the low interest rate environment that currently exists. Interest expense on deposits decreased $146,000 or 28.4% to $368,000 for the three months ended September 30, 2021, while interest expense on borrowings decreased $24,000 or 19.2% to $101,000 for the same period. The decrease in interest expense on deposits was attributed to a decrease in the average rate paid on interest-bearing deposits, which decreased 31 basis points to 0.68% for the recently ended period, while the average balance of interest-bearing deposits increased $7.6 million or 3.6% to $216.0 million for the most recent period. The decrease in interest expense on borrowings was attributed to a lower average rate paid on the borrowings, which decreased 22 basis points to 0.75% for the three months ended September 30, 2021. The average balance of borrowings outstanding increased $1.8 million or 3.5% to $53.6 million for the recently ended three-month period.

 

Net interest spread increased from 2.90% for the prior year quarterly period to 2.94% for the three-month period ended September 30, 2021.

 

Provision for Losses on Loans

 

There was no provision for loan losses for the three-month period ended September 30, 2021, compared to a provision of $84,000 for the prior year period. The lower provision was primarily in response to favorable experience in the loan portfolio, strong real estate prices and positive overall sentiment in the economy.

 

Non-interest Income

 

Non-interest income increased $100,000 or 78.1% to $228,000 for the three months ended September 30, 2021, compared to the prior year period, primarily because of an increase in net gains on sales of loans. Net gain on sales of loans increased $104,000 to $162,000 for the recently-ended three-month period. In the current interest rate environment, many borrowers are choosing long-term, fixed rate loans, which the bank usually sells to the Federal Home Loan Bank of Cincinnati (“FHLB”). An increase in volume of these loans sold was responsible for the increase in gain on sale of loans.

 

Non-interest Expense

 

Non-interest expense decreased $102,000 or 4.9% and totaled $2.0 million for the three months ended September 30, 2021, primarily due to decreased franchise and other taxes as well as decreased FDIC insurance premiums.

 

23

 

 

Kentucky First Federal Bancorp
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)

 

Comparison of Operating Results for the Three-month Periods Ended September 30, 2021 and 2020 (continued)

 

Franchise and other taxes decreased $64,000 to $1,000 for the three months ended September 30, 2021, due to a change to the tax system in the Commonwealth of Kentucky to which the Company and its Banks are subject. The income tax change primarily involves moving from a franchise tax for the Banks to an income tax system. The franchise tax incurred previously by the Banks was included in non-interest expense. Beginning January 1, 2021, the Company’s income tax expense includes both federal and Kentucky income taxes. FDIC insurance premiums decreased $53,000 or 93.0% to $4,000 for the three months ended September 30, 2021, due to an improvement in factors used to determine premiums. A non-cash $13.6 million goodwill impairment charge recorded in the quarter ended June 30, 2020, significantly impacted earnings during that period and indirectly resulted in higher FDIC premiums for the subsequent fiscal year by negatively impacting the financial ratio component used by the FDIC to determine the bank’s assessment rate. Improved financial results for the three- and twelve-months ended June 30, 2021, had a positive impact on the financial ratio component of the bank’s assessment rate and resulted in the lower expense period to period. Other non-interest expenses increased $45,000 or 34.9% to $174,000 for the quarter ended September 30, 2021, primarily due to expenses incurred in the banks’ conversion of its core data processing systems during the period. Various small, noncapital expenditures were made to effect the transition to a new core system.

 

Income Tax Expense

 

Income tax expense increased $118,000 or 178.8% to $184,000 for the three months ended September 30, 2021, compared to the prior year period. The effective tax rates for the three-month periods ended September 30, 2021 and 2020, were 24.5% and 18.8%, respectively. The increase in the effective tax rate for the recently-ended period compared to the prior year period was related to the Banks becoming subject to state income taxes rather than state franchise taxes, as mentioned herein.

 

24

 

 

Kentucky First Federal Bancorp

 

ITEM 3: Quantitative and Qualitative Disclosures About Market Risk

 

This item is not applicable as the Company is a smaller reporting company.

 

ITEM 4: Controls and Procedures

 

The Company’s Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined under Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report, and have concluded that the Company’s disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the Securities and Exchange Commission (the “SEC”) (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

 

Based upon their evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have also concluded that there were no significant changes during the quarter ended September 30, 2021 in the Company’s internal control over financial reporting or in other factors that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

25

 

 

Kentucky First Federal Bancorp

 

PART II

 

ITEM 1. Legal Proceedings

 

None.

 

ITEM 1A. Risk Factors

 

There have been no material changes in the risk factors disclosed in Part I, “Item 1A- Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended June 30, 2021, which risk factors could materially affect our business, financial condition or future results. The risks described therein are not the only risks that we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

 

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

(c) The following table sets forth information regarding Company’s repurchases of its common stock during the quarter ended September 30, 2021.

 

Period   Total # of
shares
purchased 		    Average
price paid
per share
(including
commissions) 		    Total # of
shares
purchased
as part of
publicly
announced
plans or
programs 		    Maximum #
of shares
that may
yet be
purchased
under the
plans or
programs 		 
July 1-31, 2021     –     $ –       –       140,000  
August 1-31, 2021     –     $             –       –       140,000  
September 1-30, 2021               –     $ –               –       140,000  

 

(1) On February 3, 2021, the Company announced that it had substantially completed its program initiated on December 19, 2018 to repurchase of up to 150,000 shares of its common stock and that it was initiating a new stock repurchase plan in which the Board of Directors authorized the purchase of up to 150,000 shares of its common stock.

 

ITEM 3. Defaults Upon Senior Securities

 

Not applicable.

 

ITEM 4. Mine Safety Disclosures.

 

Not applicable.

 

ITEM 5. Other Information

 

None.

 

26

 

 

ITEM 6. Exhibits

 

3.11   Charter of Kentucky First Federal Bancorp
3.22   Bylaws of Kentucky First Federal Bancorp, as amended and restated
3.33   Amendment No. 1 to the Bylaws of Kentucky First Federal Bancorp
3.44   Amendment No. 2 to the Bylaws of Kentucky First Federal Bancorp
4.11   Specimen Stock Certificate of Kentucky First Federal Bancorp
31.1   CEO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2   CFO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1   CEO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2   CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101  

The following materials from Kentucky First Federal Bancorp’s Quarterly Report On Form 10-Q for the quarter ended September 30, 2021 formatted in Extensible Business Reporting Language (XBRL): (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of Operations; (iii) the Consolidated Statements of Comprehensive Income; (iv) the Consolidated Statements of Changes in Shareholders’ Equity; (v) the Consolidated Statements of Cash Flows: and (vi) the related Notes.

104   Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

 

(1) Incorporated herein by reference to the Company’s Registration Statement on Form S-1 (File No. 333-119041).
(2) Incorporated herein by reference to the Company’s Annual Report on Form 10-K for the Year Ended June 30, 2012 (File No. 0-51176).
(3) Incorporated herein by reference to the Company’s Current Report on Form 8-K filed August 25, 2017 (File No. 0-51176).
(4) Incorporated herein by reference to the Company’s Current Report on Form 8-K filed September 28, 2020 (File No. 0-51176).

 

27

 

 

Kentucky First Federal Bancorp

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

    KENTUCKY FIRST FEDERAL BANCORP
       
Date: November 15, 2021   By: /s/ Don D. Jennings
      Don D. Jennings
      Chief Executive Officer
       
Date: November 15, 2021   By: /s/ R. Clay Hulette
      R. Clay Hulette
      Vice President and Chief Financial Officer

 

 

28

 

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