UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

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

 

For the quarterly period ended March 31, 2015                    

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   (I.R.S. Employer Identification No.)
incorporation or organization)    

 

216 West Main Street, Frankfort, Kentucky  40601
(Address of principal executive offices)(Zip Code)
 
(502) 223-1638
(Registrant’s telephone number, including area code)
 
 
(Former name, former address and former fiscal year, if changed since last report)

 

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 such shorter period that the issuer was required to file such reports and (2) has been subject to such filing requirements for the past ninety days:

Yes x          No ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes x No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company,” in Rule 12b-2 of the Exchange Act. (Check one):

 

 Large accelerated filer ¨ Accelerated filer ¨
Non-accelerated filer ¨ Smaller Reporting Company x

(Do not check if a smaller reporting company)

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)

Yes ¨          No x

 

APPLICABLE ONLY TO CORPORATE ISSUERS

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: At May 13, 2015, the latest practicable date, the Corporation had 8,439,515 shares of $.01 par value common stock outstanding.

 

 
 

 

INDEX

 

      Page
       
PART I   - ITEM 1 FINANCIAL INFORMATION  
       
    Consolidated Balance Sheets 3
       
    Consolidated Statements of Income 4
       
    Consolidated Statements of Comprehensive Income 5
       
    Consolidated Statements of Cash Flows 6
       
    Notes to Consolidated Financial Statements 8
       
  ITEM 2 Management’s Discussion and Analysis of  Financial Condition and Results of Operations 33
       
  ITEM 3 Quantitative and Qualitative Disclosures About Market Risk 40
       
  ITEM 4 Controls and Procedures 40
       
PART II   - OTHER INFORMATION 41
       
SIGNATURES   42

 

2
 

 

PART I

ITEM 1: Financial Information

Kentucky First Federal Bancorp

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except share data)

 

   March 31,   June 30, 
   2015   2014 
ASSETS          
           
Cash and due from financial institutions  $4,826   $4,191 
Interest-bearing demand deposits   5,007    7,320 
Cash and cash equivalents   9,833    11,511 
           
Securities available for sale   168    247 
Securities held-to-maturity, at amortized cost- approximate fair value of $7,836 and $9,195 at March 31, 2015 and June 30, 2014, respectively   7,689    9,018 
Loans, net of allowance of $1,593 and $1,473 at March 31, 2015 and June 30, 2014, respectively   244,533    246,788 
Real estate owned, net   2,285    1,846 
Premises and equipment, net   4,584    4,629 
Federal Home Loan Bank stock, at cost   6,482    6,482 
Accrued interest receivable   772    891 
Bank-owned life insurance   2,948    2,878 
Goodwill   14,507    14,507 
Prepaid federal income taxes   144    227 
Prepaid expenses and other assets   555    631 
           
Total assets  $294,500   $299,655 
           
LIABILITIES AND SHAREHOLDERS’ EQUITY          
           
Deposits  $202,173   $213,142 
Federal Home Loan Bank advances   22,644    17,200 
Advances by borrowers for taxes and insurance   455    616 
Accrued interest payable   32    32 
Deferred federal income taxes   600    210 
Deferred revenue   614    631 
Other liabilities   938    619 
Total liabilities   227,456    232,450 
           
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   34,646    34,671 
Retained earnings   34,479    34,027 
Unearned employee stock ownership plan (ESOP), 126,980 shares and 140,987 shares at March 31, 2015 and June 30, 2014, respectively   (1,270)   (1,410)
Treasury shares at cost, 112,563 and 27,886 common shares at March 31, 2015 and June 30, 2014, respectively   (937)   (239)
Accumulated other comprehensive income   40    70 
Total shareholders’ equity   67,044    67,205 
           
Total liabilities and shareholders’ equity  $294,500   $299,655 

 

See accompanying notes.

 

3
 

 

Kentucky First Federal Bancorp

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(Dollars in thousands, except per share data)

 

 

   Nine months ended March 31,   Three months ended March 31, 
   2015   2014   2015   2014 
Interest income                    
Loans, including fees  $9,093   $9,519   $3,038   $3,137 
Mortgage-backed securities   84    102    27    32 
Other securities   19    22    6    8 
Interest-bearing deposits and other   195    237    65    77 
Total interest income   9,391    9,880    3,136    3,254 
                     
Interest expense                    
Interest-bearing demand deposits   23    22    7    7 
Savings   177    180    59    58 
Certificates of Deposit   698    839    246    247 
Deposits   898    1,041    312    312 
Borrowings   180    217    61    65 
Total interest expense   1,078    1,258    373    377 
Net interest income   8,313    8,622    2,763    2,877 
Provision for loan losses   302    531    36    78 
Net interest income after provision for loan losses   8,011    8,091    2,727    2,799 
                     
Non-interest income                    
Earnings on bank-owned life insurance   70    68    23    22 
Net gain on sales of loans   28    55    13     
Net gain (loss) on sales of OREO   124    (10)   (18)   7 
Vaulation adjustments of OREO   (27)   (34)   (13)    
Other   201    240    63    78 
Total non-interest income   396    319    68    107 
Non-interest expense                    
Employee compensation and benefits   3,698    3,908    1,189    1,396 
Occupancy and equipment   469    409    198    124 
Outside service fees   153    104    66    25 
Legal fees   58    27    32    10 
Data processing   327    327    118    107 
Auditing and accounting   189    165    59    66 
FDIC insurance premiums   173    172    54    57 
Franchise and other taxes   198    203    64    67 
Foreclosure and OREO expenses (net)   155    107    34    37 
Other   697    721    176    223 
Total non-interest expense   6,117    6,143    1,990    2,112 
                     
Income before income taxes   2,290    2,267    805    794 
                     
Federal income tax expense   756    755    266    303 
                     
NET INCOME  $1,534   $1,512   $539   $491 
                     
EARNINGS PER SHARE                    
Basic and diluted  $0.18   $0.18   $0.06   $0.06 
DIVIDENDS PER SHARE  $0.30   $0.30   $0.10   $0.10 

 

See accompanying notes.

 

4
 

 

Kentucky First Federal Bancorp

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In thousands)

 

   Nine months ended March 31,   Three months ended March 31, 
   2015   2014   2015   2014 
                 
Net income  $1,534   $1,512   $539   $491 
                     
Other comprehensive income (loss), net of taxes (benefits): Unrealized holding gains (losses) on securities designated as available for sale, net of taxes (benefits) of $(15), $24, $2 and $9 during the respective periods   (30)   47    4    18 
Comprehensive income  $1,504   $1,559   $543   $509 

 

See accompanying notes.

 

5
 

 

Kentucky First Federal Bancorp

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

 

   Nine months ended 
   March 31, 
   2015   2014 
Cash flows from operating activities:          
Net income  $1,534   $1,512 
Adjustments to reconcile net income to net cash provided by operating          
Activities          
Depreciation   206    218 
Accretion of purchased loan credit discount   (270)   (125)
Amortization of purchased loan premium   14    7 
Amortization (accretion) of deferred loan origination costs (fees)   44    (17)
Amortization of premiums on investment securities   117    169 
Amortization of premiums on Federal Home Loan Bank advances       (56)
Amortization of premiums on deposits   (191)   (316)
Net gain on sale of loans   (28)   (55)
Net loss (gain) on sale of real estate owned   (89)    
Valuation adjustments of real estate owned   27    34 
Deferred gain on sale of real estate owned   (17)   (6)
ESOP compensation expense   115    116 
Earnings on bank-owned life insurance   (70)   (68)
Provision for loan losses   302    531 
Origination of loans held for sale   (599)   (1,502)
Proceeds from loans held for sale   627    1,752 
Increase (decrease) in cash, due to changes in:          
Accrued interest receivable   119    19 
Prepaid expenses and other assets   76    68 
Accrued interest payable       1 
Other liabilities   319    20 
Federal income taxes   488    177 
Net cash provided by operating activities   2,724    2,479 
           
Cash flows from investing activities:          
Purchase of held-to-maturity U.S. Treasury notes   (8,500)   (10,000)
Securities maturities, prepayments and calls:          
Held to maturity   9,712    12,186 
Available for sale   34    26 
Loans originated for investment, net of principal collected   724    10,203 
Proceeds from sale of real estate owned   1,064     
Proceeds from FHLB stock redemption       1,250 
Additions to premises and equipment, net   (161)   (207)
Net cash provided by investing activities   2,873    13,458 
           
Cash flows from financing activities:          
Net decrease in deposits   (10,778)   (12,144)
Payments by borrowers for taxes and insurance, net   (161)   (151)
Proceeds from Federal Home Loan Bank advances   19,300    10,000 
Repayments on Federal Home Loan Bank advances   (13,856)   (16,025)
Dividends paid on common stock   (1,082)   (1,127)
Treasury stock repurchases   (698)   (42)
Net cash used in financing activities   (7,275)   (19,489)
           
Net decrease in cash and cash equivalents   (1,678)   (3,552)
           
Beginning cash and cash equivalents   11,511    16,540 
           
Ending cash and cash equivalents  $9,833   $12,988 

 

See accompanying notes.

 

6
 

 

Kentucky First Federal Bancorp

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(Unaudited)

(In thousands)

 

   Nine months ended 
   March 31, 
   2015   2014 
         
Supplemental disclosure of cash flow information:          
Cash paid during the period for:          
Federal income taxes  $255   $575 
           
Interest on deposits and borrowings  $1,269   $1,629 
           
Transfers of loans to real estate owned, net  $1,780   $1,259 
           
Loans made on sale of real estate owned  $439   $35 

 

See accompanying notes.

 

7
 

 

Kentucky First Federal Bancorp

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2015

(unaudited)

 

On March 2, 2005, First Federal Savings and Loan Association of Hazard (“First Federal of Hazard” or the “Association”) completed a Plan of Reorganization (the “Plan” or the “Reorganization”) pursuant to which the Association reorganized into the mutual holding company form of ownership with the incorporation of a stock holding company, Kentucky First Federal Bancorp (the “Company”) as parent of the Association. Coincident with the Reorganization, the Association converted to the stock form of ownership, followed by the issuance of all the Association’s outstanding stock to Kentucky First Federal Bancorp. Completion of the Plan of Reorganization culminated with Kentucky First Federal Bancorp issuing 4,727,938 common shares, or 55% of its common shares, to First Federal Mutual Holding Company (“First Federal MHC”), a federally chartered mutual holding company, with 2,127,572 common shares, or 24.8% of its shares offered for sale at $10.00 per share to the public and a newly formed Employee Stock Ownership Plan (“ESOP”). The Company received net cash proceeds of $16.1 million from the public sale of its common shares. The Company’s remaining 1,740,554 common shares were issued as part of the $31.4 million cash and stock consideration paid for 100% of the common shares of Frankfort First Bancorp (“Frankfort First”) and its wholly-owned subsidiary, First Federal Savings Bank of Frankfort (“First Federal of Frankfort”). The acquisition was accounted for using the purchase method of accounting and resulted in the recordation of goodwill and other intangible assets totaling $15.4 million.

 

On December 31, 2012, the Company completed its acquisition of CKF Bancorp, Inc. (“CKF Bancorp”), the parent company of Central Kentucky Federal Savings Bank (“Central Kentucky FSB”), pursuant to the provisions of the Agreement of Merger dated as of November 3, 2011 and amended as of September 28, 2012. The acquisition was accounted for using the acquisition method of accounting and resulted in the recordation of bargain purchase gain of $958,000.

 

1. Basis of Presentation

 

The accompanying unaudited consolidated financial statements, which represent the 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 consolidated financial statements have been included. The results of operations for the nine- and three-month periods ended March 31, 2015, are not necessarily indicative of the results which may be expected for an entire fiscal year. The consolidated balance sheet as of June 30, 2014 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 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 2014 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 Frankfort (collectively hereinafter “the Banks”). All intercompany transactions and balances have been eliminated in consolidation.

 

Reclassifications - Certain amounts presented in prior periods have been reclassified to conform to the current period presentation. Such reclassifications had no impact on prior years’ net income or shareholders’ equity.

 

8
 

 

Kentucky First Federal Bancorp

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2015

(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:

 

  

Nine months ended

March 31,

  

Three months ended

March 31,

 
(in thousands)  2015   2014   2015   2014 
                     
Net income allocated to common shareholders, basic and diluted  $1,534   $1,512   $539   $491 

 

  

Nine months ended

March 31,

  

Three months ended

March 31,

 
   2015   2014   2015   2014 
Weighted average common shares outstanding, basic and diluted   8,360,824    8,373,329    8,317,518    8,376,353 

 

There were 309,800 stock option shares outstanding for the nine- and three-month periods ended March 31, 2015 and 2014. The stock option shares outstanding were antidilutive for the respective periods.

 

9
 

 

Kentucky First Federal Bancorp

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2015

(unaudited)

 

3. Investment Securities

 

The following table summarizes the amortized cost and fair value of securities available-for-sale and securities held-to-maturity at March 31, 2015 and June 30, 2014, the corresponding amounts of gross unrealized gains recognized in accumulated other comprehensive income and gross unrecognized gains and losses:

 

   March 31, 2015 
(in thousands) 

Amortized

cost

  

Gross

unrealized/

unrecognized

gains

  

Gross

unrealized/

unrecognized

losses

  

Estimated

fair value

 
                 
Available-for-sale Securities                    
  Agency mortgage-backed: residential  $101   $2   $   $103 
  FHLMC stock   7    58        65 
   $108   $60   $   $168 
                     
Held-to-maturity Securities                    
Agency mortgage-backed: residential  $3,060   $142   $   $3,202 
Agency bonds   4,629    5        4,634 
   $7,689   $147   $   $7,836 

 

       June 30, 2014         
(in thousands) 

Amortized

cost

  

Gross

unrealized/

unrecognized

gains

  

Gross

unrealized/

unrecognized

losses

  

Estimated

fair value

 
                 
Available-for-sale Securities                    
Agency mortgage-backed: residential  $134   $2   $   $136 
FHLMC stock   8    103        111 
   $142   $105   $   $247 
                     
Held-to-maturity Securities                    
Agency mortgage-backed: residential  $3,792   $180   $1   $3,971 
Agency bonds   5,226    3    5    5,224 
   $9,018   $183   $6   $9,195 

 

10
 

 

Kentucky First Federal Bancorp

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2015

(unaudited)

 

3.Investment Securities (continued)

 

The Company’s equity securities consist of Federal Home Loan Mortgage Company (FHLMC or Freddie Mac) stock, while our debt securities consist of agency bonds and mortgage-backed securities. Mortgage-backed securities do not have a single maturity date. The amortized cost and fair value of held-to-maturity debt securities are shown by contractual maturity. Securities not due at a single maturity date are shown separately.

 

   March 31, 2015 
(in thousands)  Amortized Cost   Fair Value 
         
Held-to-maturity Securities          
Within one year  $2,015   $2,016 
One to five years   2,614    2,618 
Mortgage-backed   3,060    3,202 
   $7,689   $7,836 

 

Our pledged securities at March 31, 2015, and June 30, 2014 totaled $2.2 million and $2.6 million, respectively.

 

There were no sales of investment securities during the nine month periods ended March 31, 2015 and 2014.

 

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 bonds, 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.

 

11
 

 

Kentucky First Federal Bancorp

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2015

(unaudited)

 

4. Loans receivable

 

The composition of the loan portfolio was as follows:

 

   March 31   June 30, 
(in thousands)  2015   2014 
         
Residential real estate          
One- to four-family  $191,553   $196,381 
Multi-family   16,389    14,002 
Construction   2,986    2,122 
Land   2,297    2,362 
Farm   1,880    1,644 
Nonresidential real estate   22,585    21,945 
Commercial nonmortgage   1,765    2,080 
Consumer and other:          
Loans on deposits   2,573    2,564 
Home equity   5,571    5,359 
Automobile   65    64 
Unsecured   425    638 
    248,089    249,161 
           
Undisbursed portion of loans in process   (2,071)   (952)
Deferred loan origination costs   108    52 
Allowance for loan losses   (1,593)   (1,473)
   $244,533   $246,788 

 

The following table presents the activity in the allowance for loan losses by portfolio segment for the nine months ended March 31, 2015:

 

(in thousands) 

Beginning

balance

  

Provision

for loan

losses

  

Loans

charged

off

   Recoveries  

Ending

balance

 
                     
Residential real estate:                         
One- to four-family  $1,003   $254   $(202)  $20   $1,075 
Multi-family   73    21            94 
Construction   11    6            17 
Land   10    1              11 
Farm   9    2            11 
Nonresidential real estate   112    14            126 
Commercial nonmortgage   11    (1)           10 
Consumer and other:                         
Loans on deposits   13    2            15 
Home equity   28    4            32 
Automobile                    
Unsecured   3    (1)           2 
Unallocated   200                200 
Totals  $1,473   $302   $(202)  $20   $1,593 

 

12
 

 

Kentucky First Federal Bancorp

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

March 31, 2015

(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 March 31, 2015:

 

(in thousands) 

Beginning

balance

  

Provision for

loan losses

  

Loans

charged off

   Recoveries  

Ending

balance

 
                     
Residential real estate:                         
One- to four-family  $1,086   $13   $(37)  $13   $1,075 
Multi-family   80    14            94 
Construction   7    10            17 
Land   13    (2)           11 
Farm   9    2            11 
Nonresidential real estate   123    3            126 
Commercial nonmortgage   12    (2)           10 
Consumer and other:                         
Loans on deposits   15                15 
Home equity   32                32 
Automobile                    
Unsecured   4    (2)           2 
Unallocated   200                200 
Totals  $1,581   $36   $(37)  $13   $1,593 

 

The following table presents the activity in the allowance for loan losses by portfolio segment for the nine months ended March 31, 2014:

 

(in thousands) 

Beginning

balance

  

Provision for

loan losses

  

Loans

charged off

   Recoveries  

Ending

balance

 
                     
Residential real estate:                         
One- to four-family  $871   $499   $(392)  $12   $990 
Multi-family   63    10            73 
Construction   8    2            10 
Land   12    (4)           8 
Farm   6    3            9 
Nonresidential real estate   94    21            115 
Commercial nonmortgage   13    (1)           12 
Consumer and other:                         
Loans on deposits   12    2            14 
Home equity   25    3            28 
Automobile                    
Unsecured   6    (4)       1    3 
Unallocated   200                200 
Totals  $1,310   $531   $(392)  $13   $1,462 

 

13
 

 

Kentucky First Federal Bancorp

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

March 31, 2015

(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 March 31, 2014:

 

(in thousands) 

Beginning

balance

  

Provision for

loan losses

  

Loans

charged off

   Recoveries  

Ending

balance

 
                     
Residential real estate:                         
One- to four-family  $982   $62   $(62)  $8   $990 
Multi-family   64    9            73 
Construction   10                10 
Land   10    (2)           8 
Farm   8    1            9 
Nonresidential real estate   102    13            115 
Commercial nonmortgage   16    (4)           12 
Consumer and other:                         
Loans on deposits   14                14 
Home equity   28                28 
Autombile                    
Unsecured   4    (1)           3 
Unallocated   200                200 
Totals  $1,438   $78   $(62)  $8   $1,462 

 

14
 

 

Kentucky First Federal Bancorp

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

March 31, 2015

(unaudited)

 

4. Loans receivable (continued)

 

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 March 31, 2015. The recorded investment in loans excludes accrued interest receivable and deferred loan costs, net due to immateriality.

 

March 31, 2015:                        
(in thousands) 

Loans

individually

evaluated

  

Loans

acquired

with

deteriorated

credit

quality

  

Ending

loans

balance

  

Ending

allowance

attributed to

loans

  

Unallocated

allowance

  

Total

allowance

 
Loans individually evaluated for impairment:                              
Residential real estate:                              
One- to four-family  $1,725   $2,517   $4,242   $8   $   $8 
Land       381    381              
Nonresidential real estate       528    528             
    1,725    3,426    5,151    8        8 
                               
Loans collectively evaluated for impairment:                              
Residential real estate:                              
One- to four-family            $187,378   $1,067   $   $1,067 
Multi-family             16,389    94        94 
Construction             2,986    17        17 
Land             1,916    11        11 
Farm             1,880    11        11 
Nonresidential real estate             22,057    126        126 
Commercial nonmortgage             1,765    10        10 
Consumer:                              
Loans on deposits             2,573    15        15 
Home equity             5,571    32        32 
Automobile             65             
Unsecured             425    2        2 
Unallocated                     200    200 
              243,005    1,385    200    1,585 
             $248,089   $1,393   $200   $1,593 

 

15
 

 

Kentucky First Federal Bancorp

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

March 31, 2015

(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, 2014.

 

June 30, 2014:                        
(in thousands)  Loans
individually
evaluated
   Loans
acquired
with
deteriorated
credit
quality
   Ending
loans
balance
   Ending
allowance
attributed to
loans
   Unallocated
allowance
   Total
allowance
 
Loans individually evaluated for impairment:                              
Residential real estate:                              
One- to four-family  $2,159   $2,735   $4,894   $14   $   $14 
Land       444    444              
Nonresidential real estate       529    529             
Commercial nonmortgage       68    68             
    2,159    3,776    5,935    14        14 
                               
Loans collectively evaluated for impairment:                              
Residential real estate:                              
One- to four-family            $191,487   $989   $   $989 
Multi-family             14,002    73        73 
Construction             2,122    11        11 
Land             1,918    10        10 
Farm             1,644    9        9 
Nonresidential real estate             21,416    112        112 
Commercial nonmortgagel             2,012    11        11 
Consumer:                              
Loans on deposits             2,564    13        13 
Home equity             5,359    28        28 
Automobile             64             
Unsecured             638    3        3 
Unallocated                     200    200 
              243,226    1,259    200    1,459 
             $249,161   $1,273   $200   $1,473 

 

16
 

 

Kentucky First Federal Bancorp

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

March 31, 2015

(unaudited)

 

4. Loans receivable (continued)

 

The following table presents loans individually evaluated for impairment by class of loans as of and for the nine months ended March 31, 2015 and 2014:

 

March 31, 2015:

 

(in thousands)  Unpaid
Principal
Balance and
Recorded
Investment
   Allowance
for Loan
Losses
Allocated
   Average
Recorded
Investment
   Interest
Income
Recognized
   Cash Basis
Income
Recognized
 
                     
With no related allowance recorded:                         
One- to four-family  $1,658   $   $1,516   $26   $26 
Purchased credit-impaired loans   3,426        3,552    191    83 
    5,084        5,068    217    109 
With an allowance recorded:                         
One- to four-family   67    8    104    4    4 
   $5,151   $8   $5,172   $221   $113 

 

March 31, 2014:

 

(in thousands)  Unpaid
Principal
Balance and
Recorded
Investment
   Allowance
for Loan
Losses
Allocated
   Average
Recorded
Investment
   Interest
Income
Recognized
   Cash Basis
Income
Recognized
 
                     
With no related allowance recorded:                         
One- to four-family  $4,388   $   $4,723   $   $ 
Purchased credit-impaired loans   3,747        3,822         
    8,135        8,545         
With an allowance recorded:                         
One- to four-family   208    14    208         
   $8,343   $14   $8,753   $   $ 

 

17
 

 

Kentucky First Federal Bancorp

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

March 31, 2015

(unaudited)

 

4. Loans receivable (continued)

 

The following tables present the recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans as of March 31, 2015, and June 30, 2014:

 

   March 31, 2015   June 30, 2014 
(in thousands)  Nonaccrual   Loans Past
Due Over 90
Days Still
Accruing
   Nonaccrual   Loans Past
Due Over 90
Days Still
Accruing
 
                 
One- to four-family residential real estate  $3,853   $1,234   $5,767   $3,513 
Nonresidential real estate and land   660    37    384     
Commercial nonmortgage   26    36    47     
Consumer   34    16    29     
   $4,573   $1,323   $6,227   $3,513 

 

Troubled Debt Restructurings:

 

A Troubled Debt Restructuring (“TDR”) is the situation where the Bank grants a concession to the borrower that the Bank would not otherwise have considered due to the borrower’s financial difficulties. All TDRs are considered “impaired.” At March 31, 2015 and June 30, 2014, the Company had $1.8 million and $2.0 million of loans classified as TDRs, respectively. Of the TDRs at March 31, 2015, approximately 40.2% were related to the borrower’s completion of Chapter 7 bankruptcy proceedings with no reaffirmation of the debt to the Banks.

 

The following table presents TDR’s by loan type at March 31, 2015 and June 30, 2014, and their performance, by modification type:

 

(dollars in thousands)  Number
of Loans
   Pre-
Modification
Outstanding
Recorded
Investment
   Post-
Modification
Outstanding
Recorded
Investment
   TDRs
Performing
to Modified
Terms
   TDRs Not
Performing
to
Modified
Terms
 
                     
March 31, 2015                         
Residential Real Estate:                         
1-4 Family   39   $2,142   $2,142   $1,617   $221 
                          
June 30, 2014                         
Residential Real Estate:                         
1-4 Family   39   $2,230   $2,230   $1,621   $376 

 

18
 

 

Kentucky First Federal Bancorp

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

March 31, 2015

(unaudited)

 

4. Loans receivable (continued)

 

There was one TDR loan modification totaling $20,000 for the three months ended March 31, 2015, which resulted in extension of the term of the loan with no additional principal or change in interest rate. The loan is performing to modified terms at March 31, 2015. The following table summarizes TDR loan modifications for the three months ended March 31, 2014, and their performance, by modification type:

 

(in thousands)  Troubled Debt
Restructurings
Performing to
Modified Terms
   Troubled Debt
Restructurings
Not Performing
to Modified
Terms
   Total Troubled
Debt
Restructurings
 
             
Three months ended March 31, 2014               
Residential real estate:               
Rate reduction  $   $   $ 
Bankruptcies   82        82 
Total troubled debt restructures  $82   $   $82 

 

There was one TDR loan modification totaling $20,000 for the nine months ended March 31, 2015, which resulted in extension of the term of the loan with no additional principal or change in interest rate. The loan is performing to modified terms at March 31, 2015. The following table summarizes TDR loan modifications that occured during the nine months ended March 31, 2014, and their performance, by modification type

 

(in thousands)  Troubled Debt
Restructurings
Performing to
Modified Terms
   Troubled Debt
Restructurings
Not Performing
to Modified
Terms
   Total Troubled
Debt
Restructurings
 
             
Nine months ended March 31, 2014               
Residential real estate:               
Rate reduction  $   $   $ 
Bankruptcies   457        457 
Total troubled debt restructures  $457   $   $457 

 

The Company had no allocated specific reserves to customers whose loan terms had been modified in troubled debt restructurings as of March 31, 2015, or at June 30, 2014. The Company had no commitments to lend on loans classified as TDRs at March 31, 2015 or June 30, 2014.

 

There were no TDRs that defaulted during the nine- or three-month periods ended March 31, 2015, while there was one TDR that defaulted in the nine and three-month periods ended March 31, 2014. That default was a result of bankruptcy and resulted in additional provision for loan losses of $194,000 during the nine- and three-months ended March 31, 2014.

 

19
 

 

Kentucky First Federal Bancorp

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

March 31, 2015

(unaudited)

 

4. Loans receivable (continued)

 

The following table presents the aging of the principal balance outstanding in past due loans as of March 31, 2015, 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  $6,122   $2,841   $8,963   $182,590   $191,553 
Multi-family               16,389    16,389 
Construction               2,986    2,986 
Land   224    37    261    2,036    2,297 
Farm               1,880    1,880 
Nonresidential real estate       320    320    22,265    22,585 
Commercial non-mortgage               1,765    1,765 
Consumer and other:                         
Loans on deposits               2,573    2,573 
Home equity       44    44    5,527    5,571 
Automobile               65    65 
Unsecured   1    36    37    388    425 
Total  $6,347   $3,278   $9,625   $238,464   $248,089 

 

The following tables present the aging of the principal balance outstanding in past due loans as of June 30, 2014, 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  $4,481   $9,060   $13,541   $182,840   $196,381 
Multi-family               14,002    14,002 
Construction   343        343    1,779    2,122 
Land       364    364    1,998    2,362 
Farm               1,644    1,644 
Nonresidential real estate   375    396    771    21,174    21,945 
Commercial nonmortgage       88    88    1,992    2,080 
Consumer:                         
Loans on deposits               2,564    2,564 
Home equity       33    33    5,326    5,359 
Automobile               64    64 
Unsecured   68        68    570    638 
Total  $5,267   $9,941   $15,208   $233,953   $249,161 

 

20
 

 

Kentucky First Federal Bancorp

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

March 31, 2015

(unaudited)

 

4. Loans receivable (continued)

 

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 March 31, 2015, 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   Not rated 
                     
Residential real estate:                         
One- to four-family  $   $5,268   $8,731   $   $177,554 
Multi-family   16,389                 
Construction   2,986                 
Land   1,428        869         
Farm   1,880                 
Nonresidential real estate   19,407    1,136    2,042         
Commercial nonmortgage   1,765                  
Consumer:                         
Loans on deposits   2,573                 
Home equity   5,541        30         
Automobile   65                 
Unsecured   389    36             
   $52,423   $6,440   $11,672   $   $177,554 

 

21
 

 

Kentucky First Federal Bancorp

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31 2015

(unaudited)

 

4. Loans receivable (continued)

 

At June 30, 2014, the risk category of loans by class of loans was as follows:

 

(in thousands)  Pass   Special
Mention
   Substandard   Doubtful   Not rated 
                     
Residential real estate:                         
One- to four-family  $   $2,928   $11,287   $   $182,166 
Multi-family   14,002                 
Construction   2,122                 
Land   1,366        996         
Farm   1,644                 
Nonresidential real estate   18,920    965    2,060         
Commercial nonmortgage   2,014        66         
Consumer:                         
Loans on deposits   2,564                 
Home equity   5,359                 
Automobile   64                 
Unsecured   606    3    29         
   $48,661   $3,896   $14,438   $   $182,166 

 

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 $618,000 and $782,000 at March 31, 2015 and June 30, 2014, respectively, is as follows:

 

(in thousands)  March 31, 2015   June 30, 2014 
         
One- to four-family residential real estate  $2,517   $2,735 
Land   381    444 
Nonresidential real estate   528    529 
Commercial nonmortgage       68 
Outstanding balance  $3,426   $3,776 

 

22
 

 

Kentucky First Federal Bancorp

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2015

(unaudited)

 

4. Loans receivable (continued)

 

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

 

(in thousands)  Three months
ended
March 31,
2015
   Nine months
ended
March 31,
2015
   Twelve
months ended
June 30,
2014
 
             
Balance at beginning of period  $1,249   $1,478   $1,294 
New loans purchased            
Accretion of income   (105)   (270)   (155)
Reclassifications from nonaccretable difference           339 
Disposals   (77)   (141)    
Balance at end of period  $1,067   $1,067   $1,478 

 

For those purchased loans disclosed above, the Company made no increase in allowance for loan losses for the year ended June 30, 2014, nor for the nine- or three-month periods ended March 31, 2015. Neither were any allowance for loan losses reversed during those periods.

 

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 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 three 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.

 

23
 

 

Kentucky First Federal Bancorp

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2015

(unaudited)

 

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

 

Impaired Loans

 

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.

 

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.

 

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)
 
                 
March 31, 2015                    
Agency mortgage-backed: residential  $103   $   $103   $ 
FHLMC stock   65        65     
   $168   $   $168   $ 
June 30, 2014                    
Agency mortgage-backed: residential  $136   $   $136   $ 
FHLMC stock   111        111     
   $247   $   $247   $ 

 

24
 

 

Kentucky First Federal Bancorp

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2015

(unaudited)

 

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

 

Assets measured at fair value on a non-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)
 
                 
March 31, 2015                    
Impaired loans                    
One- to four-family  $67   $   $   $67 
                     
Other real estate owned, net                    
One- to four-family   963            963 
                     
June 30, 2014                    
Impaired loans                    
One- to four-family  $186   $   $   $186 
                     
Other real estate owned, net                    
One- to four-family   1,140            1,140 
Land   15            15 

 

Impaired loans, which were measured using the fair value of the collateral for collateral-dependent loans totaled $75,000 and $200,000 at March 31, 2015, and June 30, 2014, respectively with specific valuation allowance of $8,000 and $14,000, respectively. There was no specific provision made for the nine month periods ended March 31, 2015 or 2014.

 

Other real estate owned measured at fair value less costs to sell, had carrying amounts of $963,000 and $1.2 million at March 31, 2015 and June 30, 2014, respectively. Other real estate owned was written down $27,000 and $34,000 during the nine months ended March 31, 2015 and 2014, respectively.

 

25
 

 

Kentucky First Federal Bancorp

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2015

(unaudited)

 

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

 

The following table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at March 31, 2015 and June 30, 2014:

 

             Range
   Fair Value   Valuation  Unobservable  (Weighted
March 31, 2015  (in thousands)   Technique(s)  Input(s)  Average)
Impaired Loans:              
Residential real estate              
One- to four- family  $67   Sales comparison approach  Adjustments for differences between comparable sales  4.64% to 10.31% (7.91%)
               
Foreclosed and repossessed assets:              
1-4 family  $963   Sales comparison approach  Adjustments for differences between comparable sales  -1.4% to 18.6% (0.94%)

 

             Range
   Fair Value   Valuation  Unobservable  (Weighted
June 30, 2014  (in thousands)   Technique(s)  Input(s)  Average)
Impaired Loans:              
Residential real estate              
One- to four- family  $186   Sales comparison approach  Adjustments for differences between comparable sales  3.1% to 19.8% (4.3%)
               
Foreclosed and repossessed assets:              
1-4 family  $1,140   Sales comparison approach  Adjustments for differences between comparable sales  -37.1% to 30.2% (1.1%)
Land  $15   Sales comparison approach  Adjustments for differences between comparable sales  20.2% to 38.9% (20.8%)

 

26
 

 

Kentucky First Federal Bancorp

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2015

(unaudited)

 

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

 

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.

 

The following methods were used to estimate the fair value of all other financial instruments at March 31, 2015 and June 30, 2014:

 

Cash and cash equivalents and interest-bearing deposits: The carrying amounts presented in the consolidated statements of financial condition for cash and cash equivalents are deemed to approximate fair value.

 

Held-to-maturity securities: For held-to-maturity securities, fair value is estimated by using pricing models, quoted price of securities with similar characteristics, which is level 2 pricing for the other securities.

 

Loans held for sale: Loans originated and intended for sale in the secondary market are determined by FHLB pricing schedules.

 

Loans: The loan portfolio has been segregated into categories with similar characteristics, such as one- to four-family residential, multi-family residential and nonresidential real estate. These loan categories were further delineated into fixed-rate and adjustable-rate loans. The fair values for the resultant loan categories were computed via discounted cash flow analysis, using current interest rates offered for loans with similar terms to borrowers of similar credit quality. For loans on deposit accounts and consumer and other loans, fair values were deemed to equal the historic carrying values. The fair values of the loans does not necessarily represent an exit price.

 

Loans receivable represents the Company’s most significant financial asset, which is in Level 3 for fair value measurements. A third party provides financial modeling for the Company and results are based on assumptions and factors determined by management.

 

Federal Home Loan Bank stock: It is not practicable to determine the fair value of FHLB stock due to restrictions placed on its transferability.

 

Accrued interest receivable: The carrying amount is the estimated fair value.

 

Deposits: The fair value of NOW accounts, passbook accounts, and money market deposits are deemed to approximate the amount payable on demand. Fair values for fixed-rate certificates of deposit have been estimated using a discounted cash flow calculation using the interest rates currently offered for deposits of similar remaining maturities.

 

Federal Home Loan Bank advances: The fair value of these advances is estimated using the rates currently offered for similar advances of similar remaining maturities or, when available, quoted market prices.

 

Advances by borrowers for taxes and insurance and accrued interest payable: The carrying amount presented in the consolidated statement of financial condition is deemed to approximate fair value.

 

27
 

 

Kentucky First Federal Bancorp

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2015

(unaudited)

 

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

 

Commitments to extend credit: For fixed-rate and adjustable-rate loan commitments, the fair value estimate considers the difference between current levels of interest rates and committed rates. The fair value of outstanding loan commitments at March 31, 2015 and June 30, 2014, was not material.

 

Based on the foregoing methods and assumptions, the carrying value and fair value of the Company’s financial instruments at March 31, 2015 and June 30, 2014 are as follows:

 

       Fair Value Measurements at 
(in thousands)      March 31, 2015 Using 
   Carrying
Value
   Level 1   Level 2   Level 3   Total 
Financial assets                         
Cash and cash equivalents  $9,833   $9,833           $9,833 
Available-for-sale securities   168        $168         168 
Held-to-maturity securities   7,689         7,836         7,836 
Loans receivable – net   244,533             $247,308    247,308 
Federal Home Loan Bank stock   6,482                   n/a 
Accrued interest receivable   772         44    728    772 
                          
Financial liabilities                         
Deposits  $202,173   $79,341   $123,006         202,347 
Federal Home Loan Bank advances   22,644         23,026         23,026 
Advances by borrowers for taxes and insurance   455    455              455 
Accrued interest payable   32         32         32 

 

       Fair Value Measurements at 
(in thousands)      June 30, 2014 Using 
   Carrying
Value
   Level 1   Level 2   Level 3   Total 
Financial assets                         
Cash and cash equivalents  $11,511   $11,511             $11,511 
Available-for-sale securities   247        $247         247 
Held-to-maturity securities   9,018         9,195         9,195 
Loans receivable – net   246,788             $253,780    253,780 
Federal Home Loan Bank stock   6,482                   n/a 
Accrued interest receivable   891              891    891 
                          
Financial liabilities                         
Deposits  $213,142   $88,854   $124,390        $213,244 
Federal Home Loan Bank advances   17,200         18,303         18,303 
Advances by borrowers for taxes and insurance   616    616              616 
Accrued interest payable   32         32         32 

 

28
 

 

Kentucky First Federal Bancorp

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2015

(unaudited)

 

6. Other Comprehensive Income (Loss)

 

The following is a summary of the accumulated other comprehensive income balances, net of tax:

 

   Balance at
June 30, 2014
   Current Year
Change
   Balance at
March 31, 2015
 
             
Unrealized gains (losses) on available-for-sale securities  $70   $(30)  $40 

 

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

 

   Nine months ended March 31, 
(in thousands)  2015   2014 
         
Unrealized holding gains (losses) on available-for-sale securities  $(45)  $71 
Tax effect   (15)   24 
Net-of-tax amount  $(30)  $47 

 

   Three months ended March 31, 
(in thousands)  2015   2014 
         
Unrealized holding gains on available-for-sale securities  $6   $27 
Tax effect   2    9 
Net-of-tax amount  $4   $18 

 

29
 

 

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 and the other matters mentioned in Item 1A of the Company’s Annual Report on Form 10-K for the year ended June 30, 2014.

 

30
 

 

Kentucky First Federal Bancorp

ITEM 2: 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 nine month periods ended March 31, 2015 and 2014, along with the related calculations of tax-equivalent net interest income, net interest margin and net interest spread for the related periods.

 

   Nine Months Ended March 31, 
   2015   2014 
   Average
Balance
   Interest 
And
Dividends
   Yield/
Cost
   Average
Balance
   Interest
And
Dividends
   Yield/
Cost
 
   (Dollars in thousands) 
Interest-earning assets:                              
Loans 1  $246,297   $9,093    4.92%  $261,697   $9,519    4.85%
Mortgage-backed securities   3,529    84    3.17    4,889    102    2.78 
Other securities   5,814    19    0.44    7,850    22    0.37 
Other interest-earning assets   13,974    195    1.86    18,346    237    1.72 
Total interest-earning assets   269,614    9,391    4.64    292,782    9,880    4.50 
                               
Less: Allowance for loan losses   (1,513)             (1,376)          
Non-interest-earning assets   29,490              29,710           
Total assets  $297,591             $321,116           
                               
Interest-bearing liabilities:                              
Demand deposits  $16,296   $23    0.19%  $17,930   $22    0.16%
Savings   58,815    177    0.40    57,806    180    0.42 
Certificates of deposit   129,991    698    0.72    150,814    839    0.74 
Total deposits   205,102    898    0.58    226,550    1,041    0.61 
Borrowings   18,960    180    1.27    21,175    217    1.37 
Total interest-bearing liabilities   224,062    1,078    0.64    247,725    1,258    0.68 
                               
Noninterest-Bearing demand deposits   4,154              3,639           
Noninterest-bearing liabilities   2,117              2,279           
Total liabilities   230,333              253,643           
                               
Shareholders’ equity   67,258              67,473           
Total liabilities and shareholders’ equity  $297,591             $321,116           
Net interest income/average yield       $8,313    4.00%       $8,622    3.82%
Net interest margin             4.11%             3.93%
Average interest-earning assets to average interest-bearing liabilities             120.33%             118.19%

 

 

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

 

31
 

 

Kentucky First Federal Bancorp

ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (continued)

 

Average Balance Sheets (continued)

 

The following table represents the average balance sheets for the three month periods ended March 31, 2015 and 2014, 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 March 31, 
   2015   2014 
   Average
Balance
   Interest 
And
Dividends
   Yield/
Cost
   Average
Balance
   Interest
And
Dividends
   Yield/
Cost
 
   (Dollars in thousands) 
Interest-earning assets:                              
Loans 2  $245,935   $3,038    4.94%  $254,815   $3,137    4.92%
Mortgage-backed securities   3,277    27    3.30    4,433    32    2.89 
Other securities   6,038    6    0.40    7,556    8    0.42 
Other interest-earning assets   13,070    65    1.99    14,644    77    2.10 
Total interest-earning assets   268,320    3,136    4.68    281,448    3,254    4.62 
                               
Less: Allowance for loan losses   (1,281)             (1,424)          
Non-interest-earning assets   29,785              30,234           
Total assets  $296,824             $310,258           
                               
Interest-bearing liabilities:                              
Demand deposits  $16,185   $7    0.17%  $14,503   $7    0.19%
Savings   59,228    59    0.40    60,074    58    0.39 
Certificates of deposit   124,467    246    0.79    143,133    247    0.69 
Total deposits   199,880    312    0.62    217,710    312    0.57 
Borrowings   23,637    61    1.03    20,166    65    1.29 
Total interest-bearing liabilities   223,517    373    0.67    237,876    377    0.63 
                               
Noninterest-bearing demand deposits   4,306              3,478           
Noninterest-bearing liabilities   1,759              1,904           
Total liabilities   229,582              243,258           
                               
Shareholders’ equity   67,242              67,000           
Total liabilities and shareholders’ equity  $296,824             $310,258           
Net interest income/average yield       $2,763    4.01%       $2,877    3.99%
Net interest margin             4.12%             4.09%
Average interest-earning assets to average interest-bearing liabilities             120.05%             118.32%

 

 

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

 

32
 

 

Kentucky First Federal Bancorp

ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (continued)

 

Discussion of Financial Condition Changes from June 30, 2014 to March 31, 2015

 

Assets: At March 31, 2015, the Company’s assets totaled $294.5 million, a decrease of $5.2 million, or 1.7%, from total assets at June 30, 2014. This decrease was attributed primarily to decreases in loans, cash and cash equivalents and investment securities.

 

Cash and cash equivalents: Cash and cash equivalents decreased by $1.7 million or 14.6% to $9.8 million at March 31, 2015.

 

Loans: Loans receivable, net, decreased by $2.3 million or 0.9% to $244.5 million at March 31, 2015, due primarily to low levels of loan demand and loan payoffs received. While we experienced modest loan growth in the past two calendar quarters after several quarters of decline, 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 Loans:  At March 31, 2015, the Company had non-performing loans (loans 90 or more days past due or on nonaccrual status) of approximately $5.9 million, or 2.4% of total loans (including loans purchased in the acquisition), compared to $9.7 million or 3.95%, of total loans at June 30, 2014.  The Company’s allowance for loan losses totaled $1.6 million and $1.5 million at March 31, 2015, and June 30, 2014, respectively. The allowance for loan losses at March 31, 2015, represented 27.2% of nonperforming loans and 0.65% of total loans (including loans purchased in the acquisition), while at June 30, 2014, the allowance represented 15.1% of nonperforming loans and 0.60% of total loans.

 

The Company had $14.0 million in assets classified as substandard for regulatory purposes at March 31, 2015, including loans ($11.7 million) and real estate owned (“REO”) ($2.3 million), including loans acquired in the CKF Bancorp transaction. Classified loans as a percentage of total loans (including loans acquired on December 31, 2012) was 4.7% and 5.9% at March 31, 2015 and June 30, 2014, respectively. Of substandard loans, 99.7% were secured by real estate on which the Banks have priority lien position.

 

33
 

 

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, 2014 to March 31, 2015 (continued)

 

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

 

(dollars in thousands)  March 31, 2015   June 30, 2014 
Substandard assets  $13,957   $16,284 
Doubtful assets        
Loss assets        
Total classified assets  $13,957   $16,284 

 

At March 31, 2015, the Company’s real estate acquired through foreclosure represented 16.4% of substandard assets compared to 11.3% at June 30, 2014. During the nine months ended March 31, 2015 and the fiscal year ended June 30, 2014, the Company made loan(s) to facilitate the purchase of its other real estate owned by qualified borrowers. During the nine months ended March 31, 2015, the Company sold property with carrying value of $397,000 for $484,000, while during the year ended June 30, 2014, property with a carrying value of $189,000 was sold for $200,000. Such loans are considered loans to facilitate an exchange and, as such, the Company defers recognition of any gain until the proper time in the future. Loans to facilitate the sale of other real estate owned, which were included in substandard loans, totaled $305,000 and $309,000 at March 31, 2015 and June 30, 2014, respectively.

34
 

 

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, 2014 to March 31, 2015 (continued)

 

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

 

   March 31, 2015   June 30, 2014 
   Number   Net   Number   Net 
   of   Carrying   of   Carrying 
   Properties   Value   Properties   Value 
Single family, non-owner occupied    15   $2,252    20   $1,831 
Building lot   5    33    3    15 
Total REO   20   $2,285    23   $1,846 

 

At March 31, 2015, and June 30, 2014, the Company had $6.5 million and $3.9 million of loans classified as special mention, respectively (including loans purchased at 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. The primary reason for this increase was related to two larger borrowers who each experienced some weakness in cash flow, but had no delinquency and their loans were well secured by real estate.

 

Securities: At March 31, 2015, the Company’s investment securities had decreased $1.4 million or 15.2% to $7.9 million compared to June 30, 2014.

 

Liabilities: At March 31, 2015, the Company’s liabilities totaled $227.5 million, a decrease of $5.0 million, or 2.1%, from total liabilities at June 30, 2014. The decrease in liabilities was attributed primarily to a decrease in deposits and was partially offset by an increase in FHLB advances. Deposits decreased $11.0 million or 5.1% to $202.2 million at March 31, 2015, as certificate of deposit customers have sought higher yields elsewhere. FHLB advances increased $5.4 million or 31.7% from $17.2 million at June 30, 2014 to $22.6 million at March 31, 2015.

 

Shareholders’ Equity: At March 31, 2015, the Company’s shareholders’ equity totaled $67.0 million, a decrease of $161,000 or 0.2% from the June 30, 2014 total, primarily as a result of the Company’s repurchase of its outstanding common shares for treasury purposes, which totaled $698,000 during the nine months just ended. In addition to the purchase of treasury stock, the change in shareholders’ equity was chiefly associated with net profits for the period less dividends paid on common stock.

 

35
 

 

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, 2014 to March 31, 2015 (continued)

 

The Company paid dividends of $1.1 million or 70.5% of net income for the nine month period just ended. On July 8, 2014, the members of First Federal MHC for the third time 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. On August 3, 2014 the Company received notice from the Federal Reserve Bank of Cleveland that there would be no objection to a waiver of dividends paid by the Company to First Federal MHC. 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 quarter of 2015. 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, 2014 for additional discussion regarding dividends.

 

Comparison of Operating Results for the Nine Month Periods Ended March 31, 2015 and 2014

 

General

 

Net income totaled $1.5 million for the nine months ended March 31, 2015, an increase of $22,000 or 1.5% from net income for the same period in 2014.

 

Net Interest Income

 

Net interest income after provision for loan losses decreased $80,000 or 1.0% and totaled $8.0 million and $8.1 million for the nine months ended March 31, 2015 and 2014, respectively. Provision for loan losses decreased by $229,000 or 43.1% to $302,000 for the nine month period just ended compared to $531,000 for the prior year period. Interest income decreased $489,000 or 4.9%, to $9.4 million, while interest expense decreased $180,000 or 14.3% to $1.1 million for the nine months ended March 31, 2015, after amortization of fair value adjustments on interest bearing accounts.

 

Interest income on loans decreased $426,000 or 4.5% to $9.1 million, due primarily to a decrease in the average balance of the loan portfolio. The average balance of loans outstanding decreased $15.4 million to $246.3 million for the nine month period just ended, while the average rate earned on loans outstanding increased 7 basis points to 4.92% for the recently ended period. Interest income on mortgage-backed residential securities (“MBS”) decreased $18,000 or 17.6% to $84,000 for the nine months ended March 31, 2015, as the average balance decreased $1.4 million or 27.8% to $3.5 million for the recently ended period, while the average rate earned increased 39 basis points to 3.2% compared to the period a year ago. Interest income on other securities, primarily composed of agency bonds, totaled $19,000 during the recent nine month period, compared to $22,000 for the prior year period. The average balance of the other investment securities was $5.8 million for the nine month period just ended and the average rate earned on those securities was 44 basis points.

 

36
 

 

Kentucky First Federal Bancorp

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (continued)

 

Comparison of Operating Results for the Nine Month Periods Ended March 31, 2015 and 2014 (continued)

 

Net Interest Income (continued)

 

Interest income on interest-bearing deposits and other decreased for the period just ended primarily because of lower dividends received on FHLB of Cincinnati stock. The Company’s dividends from FHLB of Cincinnati decreased $41,000 or 17.3% to $196,000 for the nine month period ended March 31, 2015 compared to the 2014 period. The Company’s stock in FHLB of Cincinnati was partially redeemed pursuant to the FHLB of Cincinnati’s most recent amended Capital Plan, which became effective February 17, 2014. Because of the redemption, the Company’s average balance of FHLB of Cincinnati stock decreased $942,000 or 12.7% to $6.5 million for the nine months ended March 31, 2015, compared to the prior year period. In addition to the lower average balance of FHLB of Cincinnati stock, the average rate paid by the FHLB of Cincinnati decreased 23 basis points to 4.03% for the recently ended period compared to last year.

 

Interest expense on deposits decreased $143,000 or 13.7% to $898,000 for the nine month period ended March 31, 2015, due primarily to a decrease in average deposits outstanding. Average deposits outstanding decreased $21.4 million or 9.5% to $205.1 million for the recently ended nine month period, while the average rate paid on deposits increased 1 basis point to 58 basis points for the current year period. Interest expense on borrowings decreased $37,000 or 17.1% to $180,000 for the nine month period ended March 31, 2015, compared to the prior year period. The decrease in interest expense on borrowings was attributed to both lower average balance outstanding and lower rates paid, as the average balance outstanding decreased $2.2 million or 10.5% to $19.0 million and the average rate paid on borrowings decreased 10 basis points to 1.27% for the recently ended nine month period.

 

Net interest margin increased from 3.93% for the prior year period to 4.11% for the nine months ended March 31, 2015.

 

Provision for Losses on Loans

 

The Company recorded $302,000 in provision for losses on loans during the nine months ended March 31, 2015, compared to a provision of $531,000 for the nine months ended March 31, 2014. There can be no assurance that the loan loss allowance will be adequate to absorb unidentified losses on loans in the portfolio, which could adversely affect the Company’s results of operations.

 

Non-interest Income

 

Non-interest income totaled $396,000 for the nine months ended March 31, 2015, an increase of $77,000 or 24.1% from the same period in 2014. The increase in non-interest income was primarily attributable to a $134,000 increase in net gain on sales of REO. Somewhat offsetting the gain on sale of REO were decreases in other non-interest income and gains on sale of loans. Other non-interest income decreased $39,000 or 16.3% to $201,000 for the nine month period ended March 31, 2015, due primarily to decreases in fee income on deposit accounts. Gains on sale of loans decreased $27,000 or 49.1% to $28,000 for the recently ended nine month period. The Company had both fewer loans and lower dollar volume of long-term, fixed rate loans that it sold to the FHLB during the period due to lower customer demand. There were no sales of investments during the nine month period just ended.

 

37
 

 

Kentucky First Federal Bancorp

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (continued)

 

Comparison of Operating Results for the Nine Month Periods Ended March 31, 2015 and 2014 (continued)

 

Non-interest Expense

 

Non-interest expense totaled $6.1 million for each of the nine month periods ended March 31, 2015 and 2014. A $210,000 or 5.4% decrease in employee compensation and benefits expense, which totaled $3.7 million for the nine months ended March 31, 2015, was offset by increases in other expenses. Employee compensation and benefits expense decreased primarily because the Company ceased for the fiscal year contributions to its multiple-employer defined benefit pension plan in response to favorable funding levels. Occupancy and equipment, which totaled $469,000 for the recent period ended, increased $60,000 or 14.7% due to aging facilities and necessary repairs thereon. Outside service fees, primarily associated with outside loan review and ESOP administration, increased $49,000 or 47.1% to $153,000 for the nine months ended March 31, 2015. Foreclosure and OREO expenses, net, increased $48,000 or 44.9% to $155,000 for the nine month period just ended as the Company continued to work through the REO process. Legal fees totaled $58,000, an increase of $31,000 or 114.8%, for the recently ended nine month period, primarily because of costs associated with the proposed merger of the two banks.

 

Federal Income Tax Expense

 

Federal income tax expense totaled $756,000 for the nine months ended March 31, 2015, compared to $755,000 in the prior year period. The effective tax rates were 33.0% and 33.3% for the nine month periods ended March 31, 2015 and 2014, respectively.

 

Comparison of Operating Results for the Three Month Periods Ended March 31, 2015 and 2014

 

General

 

Net income totaled $539,000 for the three months ended March 31, 2015, an increase of $48,000 or 9.8% from net income of $491,000 for the same period in 2014.

 

Net Interest Income

 

Net interest income after provision for loan losses decreased $72,000 or 2.6% to $2.7 million for the three month period just ended compared to $2.8 million for the prior year quarter. Net interest income before provision for loan loss decreased $114,000 or 4.0% to $2.8 million for the quarter ended March 31, 2015. Provision for losses on loans decreased $42,000 to $36,000 for the recently-ended quarter compared to a provision of $78,000 in the prior year period. Interest income decreased by $118,000, or 3.6%, to $3.1 million, while interest expense decreased $4,000 or 1.1% to $373,000 for the three months ended March 31, 2015, after amortization of fair value adjustments on interest bearing accounts.

 

Interest income on loans decreased $99,000 or 3.2% to $3.0 million, due to a decrease in the average size of the loan portfolio. The average balance of loans outstanding for the three month period ended March 31, 2015, decreased $8.9 million or 3.5% to $245.9 million, while the average rate earned increased 2 basis points to 4.94% for the period. Interest income on interest-bearing deposits and other decreased $12,000 or 15.6% to $65,000 for the three months ended March 31, 2015, primarily as a result of the redemption of FHLB of Cincinnati stock discussed above. As a result of the lower level of FHLB stock owned and lower dividend rates paid by the FHLB, dividend income decreased $13,000 or 16.7% to $65,000 for the three month period ended March 31, 2015 compared to the prior year period.

 

38
 

 

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 March 31, 2015 and 2014

(continued)

 

Interest expense on deposits totaled $312,000 for the three month periods ended March 31, 2015 and 2014, while interest expense on borrowings decreased $4,000 or 6.2% to $61,000 for the most recently ended period. The average balance of deposits decreased $17.8 million to $199.9 million for the most recent period, while the average balance paid on deposits increased 5 basis points to 0.62%. The decrease in average deposits was attributed to rate-sensitive deposit customers withdrawing funds to seek additional yield as the historically low interest rate environment continues. The decrease in interest expense on borrowings also was attributed to lower outstanding rates paid on amounts outstanding, as the average balance of outstanding borrowings increased $3.5 million or 17.2% to $23.6 million for the recently ended quarterly period.

 

Net interest margin increased slightly from 4.09% for the prior year quarterly period to 4.12% for the quarter ended March 31, 2015.

 

Provision for Losses on Loans

 

The Company recorded $36,000 in provision for losses on loans during the three months ended March 31, 2015, compared to a $78,000 provision for the three months ended March 31, 2014. There can be no assurance that the loan loss allowance will be adequate to absorb unidentified losses on loans in the portfolio, which could adversely affect the Company’s results of operations.

 

Non-interest Income

 

Non-interest income totaled $68,000 for the three months ended March 31, 2015, a decrease of $39,000 from the same period in 2014. The Company recorded net loss from sales of REO of $18,000 during the recently ended quarter compared to a net gain in the prior year period. There were no sales of investments during the three month period just ended.

 

Non-interest Expense

 

Non-interest expense decreased $122,000 or 5.8% and totaled $2.0 million for the three months ended March 31, 2015 compared to $2.1 million for the same period in 2014. Employee compensation and benefits decreased $207,000 or 14.8% to $1.2 million for the quarterly period, because of changes in pension laws which reduced expenses. New pension laws temporarily reduce funding requirements for multiple-employer pension plan in which the Company participates. Although the Company’s liabilities for future pension benefit expenses was at least 100% funded at March 31, 2015, and no further defined benefit pension costs are anticipated for the balance of the fiscal year, the Company expects that its pension funding costs will be higher in the future.

 

Federal Income Tax Expense

 

Federal income taxes expense totaled $266,000 for the three months ended March 31, 2015, compared to $303,000 in the prior year period. The effective tax rates were 33.0% and 38.2% for the three-month periods ended March 31, 2015 and 2014, respectively.

 

39
 

 

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 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.

 

The Company’s Chief Executive Officer and Chief Financial Officer have also concluded that there were no significant changes during the quarter ended March 31, 2015, 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.

 

40
 

 

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 our Annual Report on Form 10-K for the fiscal year ended June 30, 2014.

 

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 March 31, 2015.

 

           Total # of     
       Average   shares purchased   Maximum # of shares 
   Total   price paid   as part of publicly   that may yet be 
   # of shares   per share   announced plans   purchased under 
Period  purchased   (incl commissions)   or programs   the plans or programs 
                 
January 1-31, 2015      $        78,323 
February 1-28, 2015   18,000   $8.20    18,000    60,323 
March 1-31, 2015      $        60,323 

 

(1)  On January 16, 2014, the Company announced a program (its seventh) to repurchase 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.

 

ITEM 6.Exhibits

 

  3.11 Charter of Kentucky First Federal Bancorp
  3.21 Bylaws of Kentucky First Federal Bancorp, as amended and restated
  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
     
  101.0 The following materials from Kentucky Firt Federal Bancorp’s Quarterly Report
     
    On Form 10-Q for the quarter ended March 31, 2015 formatted in Extensivle Business Reporting Language (XBRL): (i) the Consolidated Balance Sheets; (ii) the Consolidated Sttements of Income; (iii) the Consolidated Statements of Comprehensive Income; (iv) the Consolidated Statements of Cash Flows: and (v) the related Notes.

 

 

(1)Incorporated herein by reference to the Company’s Registration Statement on Form S-1 (File No. 333-119041).

 

41
 

 

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: May 15, 2015   By:  /s/Don D. Jennings
        Don D. Jennings
        Chief Executive Officer
         
Date: May 15, 2015   By: /s/ R. Clay Hulette
        R. Clay Hulette
        Vice President and Chief Financial Officer

 

42

 



 

Exhibit 31.1

 

CERTIFICATION

 

I, Don D. Jennings, certify that:

 

1.          I have reviewed this Quarterly Report on Form 10-Q of Kentucky First Federal Bancorp;

 

2.          Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.          Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4          The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;

 

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.          The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: May 15, 2015 /s/Don D. Jennings
  Don D. Jennings
  Chief Executive Officer

 

 



 

Exhibit 31.2

 

CERTIFICATION

 

I, R. Clay Hulette, certify that:

 

1.          I have reviewed this Quarterly Report on Form 10-Q of Kentucky First Federal Bancorp

 

2.          Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.          Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4          The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;

 

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.          The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: May 15, 2015 /s/R. Clay Hulette
  R. Clay Hulette
  Vice President and Chief Financial Officer

 

 


 

Exhibit 32.1

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report of Kentucky First Federal Bancorp (the "Company") on Form 10-Q for the period ending March 31, 2015 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Don D. Jennings, the Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

 

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

 

/s/Don D. Jennings  
Don D. Jennings  
Chief Executive Officer  
May 15, 2015  

 

 


 

Exhibit 32.2

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report of Kentucky First Federal Bancorp (the "Company") on Form 10-Q for the period ending March 31, 2015 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, R. Clay Hulette, the Treasurer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

 

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

 

/s/R. Clay Hulette  
R. Clay Hulette  
Vice President and Chief Financial Officer  
May 15, 2015  

 

 

 
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