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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