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
September 30, 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 November 9, 2015, the latest practicable
date, the Corporation had 8,439,515 shares of $.01 par value common stock outstanding.
INDEX
PART I
ITEM 1: Financial Information
Kentucky First Federal Bancorp
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share data)
| |
September 30, | | |
June 30, | |
| |
2015 | | |
2015 | |
ASSETS | |
| | | |
| | |
Cash and due from financial institutions | |
$ | 2,793 | | |
$ | 3,864 | |
Interest-bearing demand deposits | |
| 9,872 | | |
| 9,771 | |
Cash and cash equivalents | |
| 12,665 | | |
| 13,635 | |
| |
| | | |
| | |
Securities available for sale | |
| 155 | | |
| 159 | |
Securities held-to-maturity, at amortized cost- approximate fair value of $5,723 and $6,534 at September 30, 2015 and June 30, 2015, respectively | |
| 5,625 | | |
| 6,423 | |
Loans held for sale | |
| 121 | | |
| 100 | |
Loans, net of allowance of $1,568 at September 30, 2015 and June 30, 2015 | |
| 245,012 | | |
| 243,815 | |
Real estate owned, net | |
| 1,260 | | |
| 1,593 | |
Premises and equipment, net | |
| 5,768 | | |
| 5,235 | |
Federal Home Loan Bank stock, at cost | |
| 6,482 | | |
| 6,482 | |
Accrued interest receivable | |
| 747 | | |
| 725 | |
Bank-owned life insurance | |
| 2,994 | | |
| 2,971 | |
Goodwill | |
| 14,507 | | |
| 14,507 | |
Prepaid expenses and other assets | |
| 582 | | |
| 653 | |
| |
| | | |
| | |
Total assets | |
$ | 295,918 | | |
$ | 296,298 | |
| |
| | | |
| | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | |
| | | |
| | |
| |
| | | |
| | |
Deposits | |
$ | 196,253 | | |
$ | 199,701 | |
Federal Home Loan Bank advances | |
| 29,231 | | |
| 26,635 | |
Advances by borrowers for taxes and insurance | |
| 972 | | |
| 699 | |
Accrued interest payable | |
| 33 | | |
| 32 | |
Accrued federal income taxes | |
| 112 | | |
| 78 | |
Deferred federal income taxes | |
| 578 | | |
| 569 | |
Deferred revenue | |
| 606 | | |
| 610 | |
Other liabilities | |
| 620 | | |
| 661 | |
Total liabilities | |
| 228,405 | | |
| 228,985 | |
| |
| | | |
| | |
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 | |
| 34,631 | | |
| 34,638 | |
Retained earnings | |
| 34,871 | | |
| 34,711 | |
Unearned employee stock ownership plan (ESOP), 117,642 shares and 122,311 shares at September 30, 2015 and June 30, 2015, repectively | |
| (1,176 | ) | |
| (1,223 | ) |
Treasury shares at cost, 112,563 common shares at both September 30, 2015 and June 30, 2015 | |
| (937 | ) | |
| (937 | ) |
Accumulated other comprehensive income | |
| 38 | | |
| 38 | |
Total shareholders’ equity | |
| 67,513 | | |
| 67,313 | |
| |
| | | |
| | |
Total liabilities and shareholders’ equity | |
$ | 295,918 | | |
$ | 296,298 | |
See accompanying notes.
Kentucky First Federal Bancorp
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Dollars in thousands, except per share
data)
| |
Three months ended September 30, | |
| |
2015 | | |
2014 | |
Interest income | |
| | | |
| | |
Loans, including fees | |
$ | 2,892 | | |
$ | 3,000 | |
Mortgage-backed securities | |
| 23 | | |
| 29 | |
Other securities | |
| 5 | | |
| 6 | |
Interest-bearing deposits and other | |
| 64 | | |
| 64 | |
Total interest income | |
| 2,984 | | |
| 3,099 | |
| |
| | | |
| | |
Interest expense | |
| | | |
| | |
Interest-bearing demand deposits | |
| 7 | | |
| 8 | |
Savings | |
| 65 | | |
| 59 | |
Certificates of Deposit | |
| 208 | | |
| 222 | |
Deposits | |
| 280 | | |
| 289 | |
Borrowings | |
| 70 | | |
| 62 | |
Total interest expense | |
| 350 | | |
| 351 | |
Net interest income | |
| 2,634 | | |
| 2,748 | |
Provision for loan losses | |
| 11 | | |
| 56 | |
Net interest income after provision for loan losses | |
| 2,623 | | |
| 2,692 | |
| |
| | | |
| | |
Non-interest income | |
| | | |
| | |
Earnings on bank-owned life insurance | |
| 23 | | |
| 23 | |
Net gain on sales of loans | |
| 19 | | |
| 6 | |
Net gain (loss) on sales of OREO | |
| 16 | | |
| (1 | ) |
Vaulation adjustments of OREO | |
| (18 | ) | |
| — | |
Other | |
| 74 | | |
| 68 | |
Total non-interest income | |
| 114 | | |
| 96 | |
Non-interest expense | |
| | | |
| | |
Employee compensation and benefits | |
| 1,279 | | |
| 1,377 | |
Occupancy and equipment | |
| 148 | | |
| 131 | |
Outside service fees | |
| 48 | | |
| 38 | |
Legal fees | |
| 29 | | |
| 7 | |
Data processing | |
| 97 | | |
| 102 | |
Auditing and accounting | |
| 67 | | |
| 65 | |
FDIC insurance premiums | |
| 54 | | |
| 63 | |
Franchise and other taxes | |
| 63 | | |
| 67 | |
Foreclosure and OREO expenses (net) | |
| 28 | | |
| 53 | |
Other | |
| 252 | | |
| 266 | |
Total non-interest expense | |
| 2,065 | | |
| 2,169 | |
| |
| | | |
| | |
Income before income taxes | |
| 672 | | |
| 619 | |
| |
| | | |
| | |
Federal income tax expense | |
| 134 | | |
| 203 | |
| |
| | | |
| | |
NET INCOME | |
$ | 538 | | |
$ | 416 | |
| |
| | | |
| | |
EARNINGS PER SHARE | |
| | | |
| | |
Basic and diluted | |
$ | 0.06 | | |
$ | 0.05 | |
DIVIDENDS PER SHARE | |
$ | 0.10 | | |
$ | 0.10 | |
See accompanying notes.
Kentucky First Federal Bancorp
CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME
(Unaudited)
(In thousands)
| |
Three months ended September 30, | |
| |
2015 | | |
2014 | |
| |
| | |
| |
Net income | |
$ | 538 | | |
$ | 416 | |
| |
| | | |
| | |
Other comprehensive loss, net of tax benefits: Unrealized holding gains (losses) on securities designated as available for sale, net of tax benefits of $0 and $11 during the respective periods | |
| — | | |
| (24 | ) |
Comprehensive income | |
$ | 538 | | |
$ | 392 | |
See accompanying notes.
Kentucky First Federal Bancorp
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
| |
Three months ended
September, | |
| |
2015 | | |
2014 | |
| |
| | |
| |
Cash flows from operating activities: | |
| | | |
| | |
Net income | |
$ | 538 | | |
$ | 416 | |
Adjustments to reconcile net income to net cash provided by operating | |
| | | |
| | |
Activities | |
| | | |
| | |
Depreciation | |
| 72 | | |
| 66 | |
Accretion of purchased loan credit discount | |
| (39 | ) | |
| (60 | ) |
Amortization of purchased loan premium | |
| 5 | | |
| 4 | |
Amortization (accretion) of deferred loan origination costs (fees) | |
| 5 | | |
| (5 | ) |
Amortization of premiums on investment securities | |
| 25 | | |
| 41 | |
Amortization of premiums on deposits | |
| (21 | ) | |
| (98 | ) |
Net gain on sale of loans | |
| (19 | ) | |
| (6 | ) |
Net loss (gain) on sale of real estate owned | |
| (16 | ) | |
| 1 | |
Valuation adjustments of real estate owned | |
| 18 | | |
| — | |
Deferred gain on sale of real estate owned | |
| (4 | ) | |
| (3 | ) |
ESOP compensation expense | |
| 40 | | |
| 39 | |
Earnings on bank-owned life insurance | |
| (23 | ) | |
| (23 | ) |
Provision for loan losses | |
| 11 | | |
| 56 | |
Origination of loans held for sale | |
| (121 | ) | |
| (326 | ) |
Proceeds from loans held for sale | |
| 119 | | |
| 85 | |
Increase (decrease) in cash, due to changes in: | |
| | | |
| | |
Accrued interest receivable | |
| (22 | ) | |
| (9 | ) |
Prepaid expenses and other assets | |
| 71 | | |
| 46 | |
Accrued interest payable | |
| 1 | | |
| 2 | |
Other liabilities | |
| (41 | ) | |
| 215 | |
Federal income taxes | |
| 43 | | |
| 203 | |
Net cash provided by operating activities | |
| 642 | | |
| 644 | |
| |
| | | |
| | |
Cash flows from investing activities: | |
| | | |
| | |
Securities maturities, prepayments and calls: | |
| | | |
| | |
Held to maturity | |
| 773 | | |
| 304 | |
Available for sale | |
| 4 | | |
| 2 | |
Loans originated for investment, net of principal collected | |
| (1,278 | ) | |
| 2,625 | |
Proceeds from sale of real estate owned | |
| 430 | | |
| 327 | |
Additions to premises and equipment, net | |
| (605 | ) | |
| (69 | ) |
Net cash provided by (used in) investing activities | |
| (676 | ) | |
| 3,189 | |
| |
| | | |
| | |
Cash flows from financing activities: | |
| | | |
| | |
Net decrease in deposits | |
| (3,427 | ) | |
| (1,328 | ) |
Payments by borrowers for taxes and insurance, net | |
| 273 | | |
| 251 | |
Proceeds from Federal Home Loan Bank advances | |
| 6,200 | | |
| 2,500 | |
Repayments on Federal Home Loan Bank advances | |
| (3,604 | ) | |
| (5,512 | ) |
Dividends paid on common stock | |
| (378 | ) | |
| (380 | ) |
Net cash used in financing activities | |
| (936 | ) | |
| (4,469 | ) |
| |
| | | |
| | |
Net decrease in cash and cash equivalents | |
| (970 | ) | |
| (636 | ) |
| |
| | | |
| | |
Beginning cash and cash equivalents | |
| 13,635 | | |
| 11,511 | |
| |
| | | |
| | |
Ending cash and cash equivalents | |
$ | 12,665 | | |
$ | 10,875 | |
See accompanying notes.
Kentucky First Federal Bancorp
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
(Unaudited)
(In thousands)
| |
Three months ended September 30, | |
| |
2015 | | |
2014 | |
| |
| | |
| |
Supplemental disclosure of cash flow information: | |
| | | |
| | |
Cash paid during the period for: | |
| | | |
| | |
Federal income taxes | |
$ | 110 | | |
$ | — | |
| |
| | | |
| | |
Interest on deposits and borrowings | |
$ | 370 | | |
$ | 447 | |
| |
| | | |
| | |
Transfers of loans to real estate owned, net | |
$ | 99 | | |
$ | 156 | |
| |
| | | |
| | |
Loans made on sale of real estate owned | |
$ | — | | |
$ | 195 | |
See accompanying notes.
Kentucky First Federal Bancorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 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.
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
three-month period ended September 30, 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, 2015 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 2015 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.
Kentucky First Federal Bancorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
September 30, 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:
| |
Three
months ended
September 30, | |
(in
thousands) | |
| 2015 | | |
| 2014 | |
| |
| | | |
| | |
Net
income allocated to common shareholders, basic and diluted | |
$ | 538 | | |
$ | 416 | |
| |
Three months ended
September 30, | |
| |
2015 | | |
2014 | |
| |
| | |
| |
Weighted average common shares outstanding, basic and diluted | |
| 8,317,255 | | |
| 8,383,191 | |
There were 309,800 stock option shares outstanding
for the three-month periods ended September 30, 2015 and 2014. The stock option shares outstanding were antidilutive for the respective
periods.
Kentucky First Federal Bancorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
September 30, 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 September 30, 2015 and June 30, 2015, the
corresponding amounts of gross unrealized gains recognized in accumulated other comprehensive income and gross unrecognized gains
and losses:
| |
September 30, 2015 | |
(in thousands) | |
Amortized
cost | | |
Gross
unrealized/
unrecognized
gains | | |
Gross
unrealized/
unrecognized
losses | | |
Estimated
fair value | |
| |
| | |
| | |
| | |
| |
Available-for-sale Securities | |
| | | |
| | | |
| | | |
| | |
Agency mortgage-backed: residential | |
$ | 91 | | |
$ | 1 | | |
$ | — | | |
$ | 92 | |
FHLMC stock | |
| 7 | | |
| 56 | | |
| — | | |
| 63 | |
| |
$ | 98 | | |
$ | 57 | | |
$ | — | | |
$ | 155 | |
| |
| | | |
| | | |
| | | |
| | |
Held-to-maturity Securities | |
| | | |
| | | |
| | | |
| | |
Agency mortgage-backed: residential | |
$ | 2,543 | | |
$ | 97 | | |
$ | 2 | | |
$ | 2,638 | |
Agency bonds | |
| 3,082 | | |
| 3 | | |
| — | | |
| 3,085 | |
| |
$ | 5,625 | | |
$ | 100 | | |
$ | 2 | | |
$ | 5,723 | |
| |
June 30, 2015 | | |
| | |
| |
(in thousands) | |
Amortized
cost | | |
Gross
unrealized/
unrecognized
gains | | |
Gross
unrealized/
unrecognized
losses | | |
Estimated
fair value | |
| |
| | |
| | |
| | |
| |
Available-for-sale Securities | |
| | | |
| | | |
| | | |
| | |
Agency mortgage-backed: residential | |
$ | 94 | | |
$ | 2 | | |
$ | — | | |
$ | 96 | |
FHLMC stock | |
| 8 | | |
| 55 | | |
| — | | |
| 63 | |
| |
$ | 102 | | |
$ | 57 | | |
$ | — | | |
$ | 159 | |
| |
| | | |
| | | |
| | | |
| | |
Held-to-maturity Securities | |
| | | |
| | | |
| | | |
| | |
Agency mortgage-backed: residential | |
$ | 2,821 | | |
$ | 112 | | |
$ | 2 | | |
$ | 2,931 | |
Agency bonds | |
| 3,602 | | |
| 2 | | |
| 1 | | |
| 3,603 | |
| |
$ | 6,423 | | |
$ | 114 | | |
$ | 3 | | |
$ | 6,534 | |
Kentucky First Federal Bancorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
September 30, 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.
| |
September 30, 2015 | |
(in thousands) | |
Amortized Cost | | |
Fair Value | |
| |
| | |
| |
Held-to-maturity Securities | |
| | | |
| | |
Within one year | |
$ | 1,522 | | |
$ | 1,523 | |
One to five years | |
| 1,560 | | |
| 1,562 | |
Mortgage-backed | |
| 2,543 | | |
| 2,638 | |
| |
$ | 5,625 | | |
$ | 5,723 | |
Our pledged securities totaled $2.2 million
at September 30, 2015, and June 30, 2015.
There were no sales of investment securities
during the three month periods ended September 30, 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.
Kentucky First Federal Bancorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
September 30, 2015
(unaudited)
4. Loans receivable
The composition of the loan portfolio was
as follows:
| |
September 30, | | |
June 30, | |
(in thousands) | |
2015 | | |
2015 | |
| |
| | |
| |
Residential real estate | |
| | | |
| | |
One- to four-family | |
$ | 192,729 | | |
$ | 191,721 | |
Multi-family | |
| 17,196 | | |
| 16,621 | |
Construction | |
| 2,742 | | |
| 3,780 | |
Land | |
| 1,641 | | |
| 2,021 | |
Farm | |
| 1,562 | | |
| 1,567 | |
Nonresidential real estate | |
| 22,046 | | |
| 22,118 | |
Commercial nonmortgage | |
| 1,787 | | |
| 1,782 | |
Consumer and other: | |
| | | |
| | |
Loans on deposits | |
| 2,262 | | |
| 2,262 | |
Home equity | |
| 5,551 | | |
| 5,477 | |
Automobile | |
| 69 | | |
| 73 | |
Unsecured | |
| 373 | | |
| 605 | |
| |
| 247,958 | | |
| 248,027 | |
| |
| | | |
| | |
Undisbursed portion of loans in process | |
| (1,505 | ) | |
| (2,753 | ) |
Deferred loan origination costs | |
| 127 | | |
| 109 | |
Allowance for loan losses | |
| (1,568 | ) | |
| (1,568 | ) |
| |
$ | 245,012 | | |
$ | 243,815 | |
Kentucky First Federal Bancorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
September 30, 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 September 30, 2015:
(in thousands) | |
Beginning balance | | |
Provision for loan losses | | |
Loans charged off | | |
Recoveries | | |
Ending balance | |
| |
| | |
| | |
| | |
| | |
| |
Residential real estate: | |
| | | |
| | | |
| | | |
| | | |
| | |
One- to four-family | |
$ | 1,059 | | |
$ | 12 | | |
$ | (11 | ) | |
$ | — | | |
$ | 1,060 | |
Multi-family | |
| 94 | | |
| 3 | | |
| — | | |
| — | | |
| 97 | |
Construction | |
| 21 | | |
| (5 | ) | |
| — | | |
| — | | |
| 16 | |
Land | |
| 7 | | |
| 1 | | |
| — | | |
| — | | |
| 8 | |
Farm | |
| 9 | | |
| — | | |
| — | | |
| — | | |
| 9 | |
Nonresidential real estate | |
| 121 | | |
| 1 | | |
| — | | |
| — | | |
| 122 | |
Commercial nonmortgage | |
| 10 | | |
| — | | |
| — | | |
| — | | |
| 10 | |
Consumer and other: | |
| | | |
| | | |
| | | |
| | | |
| | |
Loans on deposits | |
| 13 | | |
| — | | |
| — | | |
| — | | |
| 13 | |
Home equity | |
| 31 | | |
| — | | |
| — | | |
| — | | |
| 31 | |
Automobile | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Unsecured | |
| 3 | | |
| (1 | ) | |
| — | | |
| — | | |
| 2 | |
Unallocated | |
| 200 | | |
| — | | |
| — | | |
| — | | |
| 200 | |
Totals | |
$ | 1,568 | | |
$ | 11 | | |
$ | (11 | ) | |
$ | — | | |
$ | 1,568 | |
Kentucky First Federal Bancorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
September 30, 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 September 30, 2014:
(in thousands) | |
Beginning balance | | |
Provision for loan losses | | |
Loans charged off | | |
Recoveries | | |
Ending balance | |
| |
| | |
| | |
| | |
| | |
| |
Residential real estate: | |
| | | |
| | | |
| | | |
| | | |
| | |
One- to four-family | |
$ | 1,003 | | |
$ | 52 | | |
$ | 37 | | |
$ | 2 | | |
$ | 1,020 | |
Multi-family | |
| 73 | | |
| — | | |
| — | | |
| — | | |
| 73 | |
Construction | |
| 11 | | |
| — | | |
| — | | |
| — | | |
| 11 | |
Land | |
| 10 | | |
| 1 | | |
| — | | |
| — | | |
| 11 | |
Farm | |
| 9 | | |
| — | | |
| — | | |
| — | | |
| 9 | |
Nonresidential real estate | |
| 112 | | |
| 2 | | |
| — | | |
| — | | |
| 114 | |
Commercial nonmortgage | |
| 11 | | |
| (1 | ) | |
| — | | |
| — | | |
| 10 | |
Consumer and other: | |
| | | |
| | | |
| | | |
| | | |
| | |
Loans on deposits | |
| 13 | | |
| 1 | | |
| — | | |
| — | | |
| 14 | |
Home equity | |
| 28 | | |
| 2 | | |
| — | | |
| — | | |
| 30 | |
Autombile | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Unsecured | |
| 3 | | |
| (1 | ) | |
| — | | |
| — | | |
| 2 | |
Unallocated | |
| 200 | | |
| — | | |
| — | | |
| — | | |
| 200 | |
Totals | |
$ | 1,473 | | |
$ | 56 | | |
$ | 37 | | |
$ | 2 | | |
$ | 1,494 | |
Kentucky First Federal Bancorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
September 30, 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 September
30, 2015. The recorded investment in loans excludes accrued interest receivable and deferred loan costs, net due to immateriality.
September 30, 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 | |
$ | 3,566 | | |
$ | 2,172 | | |
$ | 5,738 | | |
$ | — | | |
$ | — | | |
$ | — | |
Land | |
| — | | |
| 285 | | |
| 285 | | |
| — | | |
| — | | |
| | |
Nonresidential real estate | |
| — | | |
| 523 | | |
| 523 | | |
| — | | |
| — | | |
| — | |
| |
| 3,566 | | |
| 2,980 | | |
| 6,546 | | |
| — | | |
| — | | |
| — | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Loans collectively evaluated for impairment: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Residential real estate: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
One- to four-family | |
| | | |
| | | |
$ | 186,991 | | |
$ | 1,060 | | |
$ | — | | |
$ | 1,060 | |
Multi-family | |
| | | |
| | | |
| 17,196 | | |
| 97 | | |
| — | | |
| 97 | |
Construction | |
| | | |
| | | |
| 2,742 | | |
| 16 | | |
| — | | |
| 16 | |
Land | |
| | | |
| | | |
| 1,356 | | |
| 8 | | |
| — | | |
| 8 | |
Farm | |
| | | |
| | | |
| 1,562 | | |
| 9 | | |
| — | | |
| 9 | |
Nonresidential real estate | |
| | | |
| | | |
| 21,523 | | |
| 122 | | |
| — | | |
| 122 | |
Commercial nonmortgage | |
| | | |
| | | |
| 1,787 | | |
| 10 | | |
| — | | |
| 10 | |
Consumer: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Loans on deposits | |
| | | |
| | | |
| 2,262 | | |
| 13 | | |
| — | | |
| 13 | |
Home equity | |
| | | |
| | | |
| 5,551 | | |
| 31 | | |
| — | | |
| 31 | |
Automobile | |
| | | |
| | | |
| 69 | | |
| — | | |
| — | | |
| — | |
Unsecured | |
| | | |
| | | |
| 373 | | |
| 2 | | |
| — | | |
| 2 | |
Unallocated | |
| | | |
| | | |
| — | | |
| — | | |
| 200 | | |
| 200 | |
| |
| | | |
| | | |
| 241,412 | | |
| 1,368 | | |
| 200 | | |
| 1,568 | |
| |
| | | |
| | | |
$ | 247,958 | | |
$ | 1,368 | | |
$ | 200 | | |
$ | 1,568 | |
Kentucky First Federal Bancorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
September 30, 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, 2015.
June 30, 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 | |
$ | 1,743 | | |
$ | 2,565 | | |
$ | 4,308 | | |
$ | — | | |
$ | — | | |
$ | — | |
Land | |
| 476 | | |
| 381 | | |
| 857 | | |
| — | | |
| — | | |
| | |
Nonresidential real estate | |
| 241 | | |
| 526 | | |
| 767 | | |
| — | | |
| — | | |
| — | |
Consumer and other: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Home equity | |
| 28 | | |
| — | | |
| 28 | | |
| | | |
| | | |
| | |
Unsecured | |
| 18 | | |
| — | | |
| 18 | | |
| — | | |
| — | | |
| — | |
| |
| 2,506 | | |
| 3,472 | | |
| 5,978 | | |
| — | | |
| — | | |
| — | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Loans collectively evaluated for impairment: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Residential real estate: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
One- to four-family | |
| | | |
| | | |
$ | 187,413 | | |
$ | 1,059 | | |
$ | — | | |
$ | 1,059 | |
Multi-family | |
| | | |
| | | |
| 16,621 | | |
| 94 | | |
| — | | |
| 94 | |
Construction | |
| | | |
| | | |
| 3,780 | | |
| 21 | | |
| — | | |
| 21 | |
Land | |
| | | |
| | | |
| 1,164 | | |
| 7 | | |
| — | | |
| 7 | |
Farm | |
| | | |
| | | |
| 1,567 | | |
| 9 | | |
| — | | |
| 9 | |
Nonresidential real estate | |
| | | |
| | | |
| 21,351 | | |
| 121 | | |
| — | | |
| 121 | |
Commercial nonmortgagel | |
| | | |
| | | |
| 1,782 | | |
| 10 | | |
| — | | |
| 10 | |
Consumer: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Loans on deposits | |
| | | |
| | | |
| 2,262 | | |
| 13 | | |
| — | | |
| 13 | |
Home equity | |
| | | |
| | | |
| 5,449 | | |
| 31 | | |
| — | | |
| 31 | |
Automobile | |
| | | |
| | | |
| 73 | | |
| — | | |
| — | | |
| — | |
Unsecured | |
| | | |
| | | |
| 587 | | |
| 3 | | |
| — | | |
| 3 | |
Unallocated | |
| | | |
| | | |
| — | | |
| — | | |
| 200 | | |
| 200 | |
| |
| | | |
| | | |
| 242,049 | | |
| 1,368 | | |
| 200 | | |
| 1,568 | |
| |
| | | |
| | | |
$ | 248,027 | | |
$ | 1,368 | | |
$ | 200 | | |
$ | 1,568 | |
Kentucky First Federal Bancorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
September 30, 2015
(unaudited)
4. Loans receivable (continued)
The following table presents loans individually
evaluated for impairment by class of loans as of and for the three months ended September 30, 2015 and 2014:
September 30, 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 | |
$ | 3,566 | | |
$ | — | | |
$ | 3,036 | | |
$ | 3 | | |
$ | 3 | |
Purchased credit-impaired loans | |
| 2,980 | | |
| — | | |
| 3,226 | | |
| 23 | | |
| 23 | |
| |
| 6,546 | | |
| — | | |
| 6,262 | | |
| 26 | | |
| 26 | |
With an allowance recorded: | |
| | | |
| | | |
| | | |
| | | |
| | |
One- to four-family | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
| |
$ | 6,546 | | |
$ | — | | |
$ | 6,262 | | |
$ | 26 | | |
$ | 26 | |
September 30, 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 | |
$ | 1,441 | | |
$ | — | | |
$ | 1,701 | | |
$ | 1 | | |
$ | 1 | |
Purchased credit-impaired loans | |
| 3,568 | | |
| — | | |
| 3,635 | | |
| 29 | | |
| 29 | |
| |
| 5,009 | | |
| — | | |
| 5,336 | | |
| 30 | | |
| 30 | |
With an allowance recorded: | |
| | | |
| | | |
| | | |
| | | |
| | |
One- to four-family | |
| 70 | | |
| 9 | | |
| 135 | | |
| 1 | | |
| 1 | |
| |
$ | 5,079 | | |
$ | 9 | | |
$ | 5,471 | | |
$ | 31 | | |
$ | 31 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Kentucky First Federal Bancorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
September 30, 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 September
30, 2015, and June 30, 2015:
| |
September 30, 2015 | | |
June 30, 2015 | |
(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 | |
$ | 4,676 | | |
$ | 1,195 | | |
$ | 4,331 | | |
$ | 1,745 | |
Nonresidential real estate and land | |
| 409 | | |
| — | | |
| 410 | | |
| — | |
Consumer | |
| 25 | | |
| — | | |
| 26 | | |
| — | |
| |
$ | 5,110 | | |
$ | 1,195 | | |
$ | 4,767 | | |
$ | 1,745 | |
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 September 30, 2015 and June 30, 2015,
the Company had $1.6 million and $1.9 million of loans classified as TDRs, respectively. Of the TDRs at September 30, 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 September 30, 2015 and June 30, 2015, 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 | |
| |
| | |
| | |
| | |
| | |
| |
September 30, 2015 | |
| | | |
| | | |
| | | |
| | | |
| | |
Residential Real Estate: | |
| | | |
| | | |
| | | |
| | | |
| | |
1-4 Family | |
| 36 | | |
$ | 1,888 | | |
$ | 1,626 | | |
$ | 1,199 | | |
$ | 427 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
June 30, 2015 | |
| | | |
| | | |
| | | |
| | | |
| | |
Residential Real Estate: | |
| | | |
| | | |
| | | |
| | | |
| | |
1-4 Family | |
| 38 | | |
$ | 2,110 | | |
$ | 1,851 | | |
$ | 1,710 | | |
$ | 141 | |
Kentucky First Federal Bancorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
September 30, 2015
(unaudited)
4. Loans receivable (continued)
The following table summarizes TDR loan
modifications for the three months ended September 30, 2015 and 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 September 30, 2015 | |
| | | |
| | | |
| | |
Residential real estate: | |
| | | |
| | | |
| | |
Rate reduction | |
$ | 3 | | |
$ | — | | |
$ | 3 | |
Bankruptcies | |
| — | | |
| — | | |
| — | |
Total troubled debt restructures | |
$ | 3 | | |
$ | — | | |
$ | 3 | |
| |
| | | |
| | | |
| | |
Three months ended September 30, 2014 | |
| | | |
| | | |
| | |
Residential real estate: | |
| | | |
| | | |
| | |
Rate reduction | |
$ | — | | |
$ | — | | |
$ | — | |
Bankruptcies | |
| — | | |
| — | | |
| — | |
Total troubled debt restructures | |
$ | — | | |
$ | — | | |
$ | — | |
The Company had no allocated
specific reserves to customers whose loan terms had been modified in troubled debt restructurings as of September 30, 2015, or
at June 30, 2015. The Company had no commitments to lend on loans classified as TDRs at September 30, 2015 or June 30, 2015.
There were no TDRs that defaulted
during the three-month periods ended September 30, 2015 or 2014.
Kentucky First Federal Bancorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
September 30, 2015
(unaudited)
4. Loans receivable (continued)
The following table presents
the aging of the principal balance outstanding in past due loans as of September 30, 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 | |
$ | 6,572 | | |
$ | 3,230 | | |
$ | 9,802 | | |
$ | 182,927 | | |
$ | 192,729 | |
Multi-family | |
| — | | |
| — | | |
| — | | |
| 17,196 | | |
| 17,196 | |
Construction | |
| — | | |
| — | | |
| — | | |
| 2,742 | | |
| 2,742 | |
Land | |
| — | | |
| 509 | | |
| 509 | | |
| 1,132 | | |
| 1,641 | |
Farm | |
| — | | |
| — | | |
| — | | |
| 1,562 | | |
| 1,562 | |
Nonresidential real estate | |
| 505 | | |
| 388 | | |
| 893 | | |
| 21,153 | | |
| 22,046 | |
Commercial non-mortgage | |
| — | | |
| — | | |
| — | | |
| 1,787 | | |
| 1,787 | |
Consumer and other: | |
| | | |
| | | |
| | | |
| | | |
| | |
Loans on deposits | |
| — | | |
| — | | |
| — | | |
| 2,262 | | |
| 2,262 | |
Home equity | |
| 37 | | |
| — | | |
| 37 | | |
| 5,514 | | |
| 5,551 | |
Automobile | |
| — | | |
| — | | |
| — | | |
| 69 | | |
| 69 | |
Unsecured | |
| 1 | | |
| 18 | | |
| 19 | | |
| 354 | | |
| 373 | |
Total | |
$ | 7,115 | | |
$ | 4,145 | | |
$ | 11,260 | | |
$ | 236,698 | | |
$ | 247,958 | |
The following tables present the aging
of the principal balance outstanding in past due loans as of June 30, 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 | |
$ | 5,129 | | |
$ | 3,233 | | |
$ | 8,362 | | |
$ | 183,359 | | |
$ | 191,721 | |
Multi-family | |
| — | | |
| — | | |
| — | | |
| 16,621 | | |
| 16,621 | |
Construction | |
| — | | |
| — | | |
| — | | |
| 3,780 | | |
| 3,780 | |
Land | |
| 344 | | |
| 262 | | |
| 606 | | |
| 1,415 | | |
| 2,021 | |
Farm | |
| — | | |
| — | | |
| — | | |
| 1,567 | | |
| 1,567 | |
Nonresidential real estate | |
| 142 | | |
| 388 | | |
| 530 | | |
| 21,588 | | |
| 22,118 | |
Commercial nonmortgage | |
| — | | |
| — | | |
| — | | |
| 1,782 | | |
| 1,782 | |
Consumer: | |
| | | |
| | | |
| | | |
| | | |
| | |
Loans on deposits | |
| — | | |
| — | | |
| — | | |
| 2,262 | | |
| 2,262 | |
Home equity | |
| 20 | | |
| — | | |
| 20 | | |
| 5,457 | | |
| 5,477 | |
Automobile | |
| — | | |
| — | | |
| — | | |
| 73 | | |
| 73 | |
Unsecured | |
| 13 | | |
| 18 | | |
| 31 | | |
| 574 | | |
| 605 | |
Total | |
$ | 5,648 | | |
$ | 3,901 | | |
$ | 9,549 | | |
$ | 238,478 | | |
$ | 248,027 | |
Kentucky First Federal Bancorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
September 30, 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 September 30, 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 | |
$ | — | | |
$ | 7,970 | | |
$ | 10,664 | | |
$ | — | | |
$ | 174,095 | |
Multi-family | |
| 16,848 | | |
| — | | |
| 348 | | |
| — | | |
| — | |
Construction | |
| 2,742 | | |
| — | | |
| — | | |
| — | | |
| — | |
Land | |
| 1,128 | | |
| — | | |
| 513 | | |
| — | | |
| — | |
Farm | |
| 1,562 | | |
| — | | |
| — | | |
| — | | |
| — | |
Nonresidential real estate | |
| 20,139 | | |
| 1,119 | | |
| 788 | | |
| — | | |
| — | |
Commercial nonmortgage | |
| 1,755 | | |
| 32 | | |
| | | |
| — | | |
| — | |
Consumer: | |
| | | |
| | | |
| | | |
| | | |
| | |
Loans on deposits | |
| 2,262 | | |
| — | | |
| — | | |
| — | | |
| — | |
Home equity | |
| 5,525 | | |
| — | | |
| 26 | | |
| — | | |
| — | |
Automobile | |
| 69 | | |
| — | | |
| — | | |
| — | | |
| — | |
Unsecured | |
| 373 | | |
| — | | |
| — | | |
| — | | |
| — | |
| |
$ | 52,403 | | |
$ | 9,121 | | |
$ | 12,339 | | |
$ | — | | |
$ | 174,095 | |
Kentucky First Federal Bancorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
September 30, 2015
(unaudited)
4. Loans receivable (continued)
At June 30, 2015, 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 | |
$ | — | | |
$ | 6,914 | | |
$ | 9,371 | | |
$ | — | | |
$ | 175,436 | |
Multi-family | |
| 16,621 | | |
| — | | |
| — | | |
| — | | |
| — | |
Construction | |
| 3,780 | | |
| — | | |
| — | | |
| — | | |
| — | |
Land | |
| 1,164 | | |
| — | | |
| 857 | | |
| — | | |
| — | |
Farm | |
| 1,567 | | |
| — | | |
| — | | |
| — | | |
| — | |
Nonresidential real estate | |
| 20,198 | | |
| 1,131 | | |
| 789 | | |
| — | | |
| — | |
Commercial nonmortgage | |
| 1,750 | | |
| 32 | | |
| — | | |
| — | | |
| — | |
Consumer: | |
| | | |
| | | |
| | | |
| | | |
| | |
Loans on deposits | |
| 2,262 | | |
| — | | |
| — | | |
| — | | |
| — | |
Home equity | |
| 5,448 | | |
| — | | |
| 29 | | |
| — | | |
| — | |
Automobile | |
| 73 | | |
| — | | |
| — | | |
| — | | |
| — | |
Unsecured | |
| 605 | | |
| — | | |
| — | | |
| — | | |
| — | |
| |
$ | 53,468 | | |
$ | 8,077 | | |
$ | 11,046 | | |
$ | — | | |
$ | 175,436 | |
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 $512,000 and $616,000 at September 30, 2015 and June 30, 2015, respectively, is as follows:
(in thousands) | |
September 30, 2015 | | |
June 30, 2015 | |
| |
| | |
| |
One- to four-family residential real estate | |
$ | 2,172 | | |
$ | 2,565 | |
Land | |
| 285 | | |
| 381 | |
Nonresidential real estate | |
| 523 | | |
| 526 | |
Commercial nonmortgage | |
| — | | |
| — | |
Outstanding balance | |
$ | 2,980 | | |
$ | 3,472 | |
| |
| | | |
| | |
Kentucky First Federal Bancorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
September 30, 2015
(unaudited)
4. Loans receivable (continued)
Accretable yield, or income expected to be collected, is as
follows
(in thousands) | |
Three months ended September 30, 2015 | | |
Twelve months ended June 30, 2015 | |
| |
| | |
| |
Balance at beginning of period | |
$ | 1,021 | | |
$ | 1,478 | |
Accretion of income | |
| (39 | ) | |
| (457 | ) |
Reclassifications from nonaccretable difference | |
| 106 | | |
| — | |
Disposals | |
| — | | |
| — | |
Balance at end of period | |
$ | 1,088 | | |
$ | 1,021 | |
For those purchased loans disclosed above, the Company made
no increase in allowance for loan losses for the year ended June 30, 2015, nor for the three-month period ended September 30, 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.
Kentucky First Federal Bancorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
September 30, 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) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency mortgage-backed: residential |
|
$ |
92 |
|
|
$ |
— |
|
|
$ |
92 |
|
|
$ |
— |
|
FHLMC stock |
|
|
63 |
|
|
|
— |
|
|
|
63 |
|
|
|
— |
|
|
|
$ |
155 |
|
|
$ |
— |
|
|
$ |
155 |
|
|
$ |
— |
|
June 30, 2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency mortgage-backed: residential |
|
$ |
96 |
|
|
$ |
— |
|
|
$ |
96 |
|
|
$ |
— |
|
FHLMC stock |
|
|
63 |
|
|
|
— |
|
|
|
63 |
|
|
|
— |
|
|
|
$ |
159 |
|
|
$ |
— |
|
|
$ |
159 |
|
|
$ |
— |
|
Kentucky First Federal Bancorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
September 30, 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) | |
| |
| | |
| | |
| | |
| |
September 30, 2015 | |
| | | |
| | | |
| | | |
| | |
Other real estate owned, net | |
| | | |
| | | |
| | | |
| | |
One- to four-family | |
$ | 511 | | |
| — | | |
| — | | |
| 511 | |
Land | |
| 121 | | |
| — | | |
| — | | |
| 121 | |
| |
| | | |
| | | |
| | | |
| | |
June 30, 2015 | |
| | | |
| | | |
| | | |
| | |
Other real estate owned, net | |
| | | |
| | | |
| | | |
| | |
One- to four-family | |
$ | 525 | | |
| — | | |
| — | | |
$ | 525 | |
Land | |
| 15 | | |
| — | | |
| — | | |
| 15 | |
There were no impaired loans, which were
measured using the fair value of the collateral for collateral-dependent loans, at September 30, 2015, and June 30, 2015. There
was no specific provision made for the three month periods ended September 30, 2015 or 2014.
Other real estate owned measured at fair
value less costs to sell, had carrying amounts of $632,000 and $540,000 at September 30, 2015 and June 30, 2015, respectively.
Other real estate owned was written down $18,000 during the three months ended September 30, 2015, while there was no write-down
of other real estate owned during the three months ended September 30, 2014.
Kentucky First Federal Bancorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
September 30, 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
September 30, 2015 and June 30, 2015:
| |
| | |
| |
| |
Range |
| |
Fair Value | | |
Valuation | |
Unobservable | |
(Weighted |
September 30, 2015 | |
(in thousands) | | |
Technique(s) | |
Input(s) | |
Average) |
Foreclosed and repossessed assets: | |
| | | |
| |
| |
|
1-4 family | |
$ | 511 | | |
Sales comparison approach | |
Adjustments for differences between comparable sales | |
-10.8% to 11.7% (0.1%) |
Land | |
| 121 | | |
Sales comparison approach | |
Adjustments for differences between comparable sales | |
3.5% to 6.6% (5.4%) |
| |
| | | |
| |
| |
|
| |
| | |
| |
| |
Range |
| |
Fair Value | | |
Valuation | |
Unobservable | |
(Weighted |
June 30, 2015 | |
(in thousands) | | |
Technique(s) | |
Input(s) | |
Average) |
Foreclosed and repossessed assets: | |
| | | |
| |
| |
|
1-4 family | |
$ | 525 | | |
Sales comparison approach | |
Adjustments for differences between comparable sales | |
1.5% to 11.7% (2.9%) |
Land | |
| 15 | | |
Sales comparison approach | |
Adjustments for differences between comparable sales | |
20.2% to 38.9% (20.8%) |
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.
Kentucky First Federal Bancorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
September 30, 2015
(unaudited)
5. Disclosures About Fair Value of Assets
and Liabilities (continued)
The following methods were used to estimate
the fair value of all other financial instruments at September 30, 2015 and June 30, 2015:
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.
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 September 30, 2015 and June 30, 2014, was
not material.
Kentucky First Federal Bancorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
September 30, 2015
(unaudited)
5. Disclosures About Fair Value of Assets
and Liabilities (continued)
Based on the foregoing methods and assumptions,
the carrying value and fair value of the Company’s financial instruments at September 30, 2015 and June 30, 2015 are as follows:
| |
| Fair Value Measurements at |
(in thousands) | |
| September 30, 2015 Using |
| |
Carrying
Value | | |
Level 1 | | |
Level 2 | | |
Level 3 | | |
Total |
Financial assets | |
| | | |
| | | |
| | | |
| | | |
|
Cash and cash equivalents | |
$ | 12,665 | | |
$ | 12,665 | | |
| | | |
| | | |
$12,665 |
Available-for-sale securities | |
| 155 | | |
| | | |
$ | 155 | | |
| | | |
155 |
Held-to-maturity securities | |
| 5,625 | | |
| | | |
| 5,723 | | |
| | | |
5,723 |
Loans held for sale | |
| 121 | | |
| | | |
| 125 | | |
| | | |
125 |
Loans receivable – net | |
| 245,012 | | |
| | | |
| | | |
$ | 249,484 | | |
249,484 |
Federal Home Loan Bank stock | |
| 6,482 | | |
| | | |
| | | |
| | | |
n/a |
Accrued interest receivable | |
| 747 | | |
| | | |
| 25 | | |
| 722 | | |
747 |
| |
| | | |
| | | |
| | | |
| | | |
|
Financial liabilities | |
| | | |
| | | |
| | | |
| | | |
|
Deposits | |
$ | 196,253 | | |
$ | 83,781 | | |
$ | 112,672 | | |
| | | |
196,453 |
Federal Home Loan Bank advances | |
| 29,231 | | |
| | | |
| 29,922 | | |
| | | |
29,922 |
Advances by borrowers for taxes and insurance | |
| 972 | | |
| 972 | | |
| | | |
| | | |
972 |
Accrued interest payable | |
| 33 | | |
| | | |
| 33 | | |
| | | |
33 |
| |
| Fair Value Measurements at |
(in thousands) | |
| June 30, 2015 Using |
| |
Carrying
Value | | |
Level 1 | | |
Level 2 | | |
Level 3 | | |
Total |
Financial assets | |
| | | |
| | | |
| | | |
| | | |
|
Cash and cash equivalents | |
$ | 13,635 | | |
$ | 13,635 | | |
| | | |
| | | |
$13,635 |
Available-for-sale securities | |
| 159 | | |
| | | |
$ | 159 | | |
| | | |
159 |
Held-to-maturity securities | |
| 6,423 | | |
| | | |
| 6,534 | | |
| | | |
6,534 |
Loans held for sale | |
| 100 | | |
| | | |
| 101 | | |
| | | |
101 |
Loans receivable – net | |
| 243,815 | | |
| | | |
| | | |
$ | 248,265 | | |
248,265 |
Federal Home Loan Bank stock | |
| 6,482 | | |
| | | |
| | | |
| | | |
n/a |
Accrued interest receivable | |
| 725 | | |
| | | |
| 27 | | |
| 698 | | |
725 |
| |
| | | |
| | | |
| | | |
| | | |
|
Financial liabilities | |
| | | |
| | | |
| | | |
| | | |
|
Deposits | |
$ | 199,701 | | |
$ | 83,603 | | |
$ | 116,304 | | |
| | | |
$199,907 |
Federal Home Loan Bank advances | |
| 26,635 | | |
| | | |
| 27,265 | | |
| | | |
27,265 |
Advances by borrowers for taxes and insurance | |
| 699 | | |
| 699 | | |
| | | |
| | | |
699 |
Accrued interest payable | |
| 32 | | |
| | | |
| 32 | | |
| | | |
32 |
Kentucky First Federal Bancorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
September 30, 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, 2015 | | |
Current Year Change | | |
Balance at September 30, 2015 | |
| |
| | |
| | |
| |
Unrealized gains on available-for-sale securities | |
$ | 38 | | |
$ | — | | |
$ | 38 | |
Other comprehensive income (loss) components and related
tax effects for the periods indicated were as follows:
| |
Three months ended September 30, | |
(in thousands) | |
2015 | | |
2014 | |
| |
| | |
| |
Unrealized holding gains (losses) on available-for-sale securities | |
$ | — | | |
$ | (35 | ) |
Tax effect | |
| — | | |
| 11 | |
Net-of-tax amount | |
$ | — | | |
$ | (24 | ) |
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, 2015.
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 three month periods ended September 30, 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 September 30, | |
| |
2015 | | |
2014 | |
| |
Average Balance | | |
Interest And Dividends | | |
Yield/ Cost | | |
Average
Balance | | |
Interest And
Dividends | | |
Yield/ Cost | |
| |
(Dollars in thousands) | |
Interest-earning assets: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Loans
1 | |
$ | 246,319 | | |
$ | 2,892 | | |
| 4.70 | % | |
$ | 246,603 | | |
$ | 3,000 | | |
| 4.87 | % |
Mortgage-backed securities | |
| 2,814 | | |
| 23 | | |
| 3.27 | | |
| 3,795 | | |
| 29 | | |
| 3.06 | |
Other securities | |
| 3,328 | | |
| 5 | | |
| 0.60 | | |
| 5,327 | | |
| 6 | | |
| 0.45 | |
Other interest-earning assets | |
| 15,439 | | |
| 64 | | |
| 1.66 | | |
| 14,213 | | |
| 64 | | |
| 1.80 | |
Total interest-earning assets | |
| 267,900 | | |
| 2,984 | | |
| 4.46 | | |
| 269,938 | | |
| 3,099 | | |
| 4.59 | |
Less: Allowance for loan losses | |
| (1,568 | ) | |
| | | |
| | | |
| (1,466 | ) | |
| | | |
| | |
Non-interest-earning assets | |
| 30,664 | | |
| | | |
| | | |
| 29,331 | | |
| | | |
| | |
Total assets | |
$ | 296,996 | | |
| | | |
| | | |
$ | 297,803 | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Interest-bearing liabilities: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Demand deposits | |
$ | 17,444 | | |
$ | 7 | | |
| 0.16 | % | |
$ | 15,974 | | |
$ | 8 | | |
| 0.20 | % |
Savings | |
| 63,734 | | |
| 65 | | |
| 0.41 | | |
| 58,792 | | |
| 59 | | |
| 0.40 | |
Certificates of deposit | |
| 113,926 | | |
| 208 | | |
| 0.73 | | |
| 134,988 | | |
| 222 | | |
| 0.66 | |
Total deposits | |
| 195,104 | | |
| 280 | | |
| 0.57 | | |
| 209,754 | | |
| 289 | | |
| 0.55 | |
Borrowings | |
| 27,866 | | |
| 70 | | |
| 1.01 | | |
| 14,660 | | |
| 62 | | |
| 1.69 | |
Total interest-bearing liabilities | |
| 222,970 | | |
| 350 | | |
| 0.63 | | |
| 224,414 | | |
| 351 | | |
| 0.63 | |
Noninterest-bearing demand deposits | |
| 3,800 | | |
| | | |
| | | |
| 4,002 | | |
| | | |
| | |
Noninterest-bearing liabilities | |
| 2,944 | | |
| | | |
| | | |
| 2,321 | | |
| | | |
| | |
Total liabilities | |
| 229,714 | | |
| | | |
| | | |
| 230,737 | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Shareholders’ equity | |
| 67,282 | | |
| | | |
| | | |
| 67,066 | | |
| | | |
| | |
Total liabilities and shareholders’ equity | |
$ | 296,996 | | |
| | | |
| | | |
$ | 297,803 | | |
| | | |
| | |
Net interest income/average yield | |
| | | |
$ | 2,634 | | |
| 3.83 | % | |
| | | |
$ | 2,748 | | |
| 3.97 | % |
Net interest margin | |
| | | |
| | | |
| 3.93 | % | |
| | | |
| | | |
| 4.07 | % |
Average interest-earning assets to average interest-bearing liabilities | |
| | | |
| | | |
| 120.15 | % | |
| | | |
| | | |
| 120.29 | % |
1 Includes loan fees, immaterial
in amount, in both interest income and the calculation of yield on loans. Also includes loans on nonaccrual status.
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, 2015 to September 30, 2015
Assets: At September 30, 2015,
the Company’s assets totaled $295.9 million, a decrease of $380,000, or 0.1%, from total assets at June 30, 2015. This decrease
was attributed primarily to decreases in both cash and cash equivalents and investment securities and was somewhat offset by an
increase in loans.
Cash and cash equivalents: Cash
and cash equivalents decreased $970,000 or 7.1% to $12.7 million at September 30, 2015, primarily as we seek to maintain the appropriate
level of liquidity. Our strategy is to balance our need for liquidity to meet day-to-day operational cash flows against keeping
too much idle cash on hand. We keep a minimum of 8.0% of our liquidity base for normal cash flow needs and borrow short-term using
FHLB advances when cash is low. Likewise, we pay down FHLB advances with any excess funds we might have.
Investment securities: Investment securities
decreased $802,000 or 12.2% to $5.8 million at September 30, 2015, due to maturity of a $500,000 agency bond and cash flows associated
with mortgage-backed securities.
Loans: Loans receivable,
net, increased by $1.2 million or 0.5% to $245.0 million at September 30, 2015. Management continues to look for high-quality loans
to add to its portfolio and will continue to emphasize loan originations to the extent that it is profitable, prudent and consistent
with our interest rate risk strategies.
Non-Performing and Classified Loans:
At September 30, 2015, the Company had non-performing loans (loans 90 or more days past due or on nonaccrual status)
of approximately $6.3 million, or 2.6% of total loans (including loans purchased in the acquisition), compared to $6.5 million
or 2.7%, of total loans at June 30, 2015. The Company’s allowance for loan losses totaled $1.6 million at both September
30, 2015, and June 30, 2015. The allowance for loan losses at September 30, 2015, represented 24.9% of nonperforming loans and
0.6% of total loans (including loans purchased in the acquisition), while at June 30, 2015, the allowance represented 24.1% of
nonperforming loans and 0.6% of total loans.
The Company had $13.6 million in assets classified
as substandard for regulatory purposes at September 30, 2015, including loans ($12.3 million) and real estate owned (“REO”)
($1.3 million), including loans acquired in the CKF Bancorp transaction. Classified loans as a percentage of total loans (including
loans acquired on December 31, 2012) were 5.0% and 4.5% at September 30, 2015 and June 30, 2015, respectively. The increase in
substandard loans was due primarily to classification of two of our larger residential real estate borrowers. Our analysis of the
cash flow of these two unrelated credits indicated that a downgrade in classification was warranted. Each of these loans are well-secured
and neither was delinquent at September 30, 2015. Of substandard loans at September 30, 2015, 99.8% were secured by real estate
on which the Banks have priority lien position.
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, 2015 to September 30, 2015 (continued)
The table below shows the aggregate amounts
of our assets classified for regulatory purposes at the dates indicated:
(dollars in thousands) | |
September 30, 2015 | | |
June 30, 2015 | |
| |
| | |
| |
Substandard assets | |
$ | 13,599 | | |
$ | 12,639 | |
Doubtful assets | |
| — | | |
| — | |
Loss assets | |
| — | | |
| — | |
Total classified assets | |
$ | 13,599 | | |
$ | 12,639 | |
At September 30, 2015, the Company’s real estate acquired
through foreclosure represented 9.3% of substandard assets compared to 12.6% at June 30, 2015. During the three months ended September
30, 2015, the Company sold property with carrying value of $478,000 for $493,000, while during the year ended June 30, 2015, property
with a carrying value of $590,000 was sold for $702,000. During the three months ended September 30, 2015, the Company made no
loan(s) to facilitate the purchase of its other real estate owned by qualified borrowers, while for the fiscal year ended June
30, 2015, $424,000 loans to facilitate an exchange were made. The Company defers recognition of any gain on loans to facilitate
an exchange until the proper time in the future. Loans to facilitate the sale of other real estate owned, which were included in
substandard loans, totaled $236,000 and $292,000 at September 30, 2015 and June 30, 2015, respectively.
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, 2015 to September 30, 2015 (continued)
The following table presents the aggregate
carrying value of REO at the dates indicated:
| |
September 30, 2015 | | |
June 30, 2015 | |
| |
Number | | |
Net | | |
Number | | |
Net | |
| |
of | | |
Carrying | | |
of | | |
Carrying | |
| |
Properties | | |
Value | | |
Properties | | |
Value | |
| |
| | |
| | |
| | |
| |
Single family, non-owner occupied | |
| 11 | | |
$ | 1,099 | | |
| 15 | | |
$ | 1,440 | |
Building lot | |
| 4 | | |
| 161 | | |
| 5 | | |
| 153 | |
Total REO | |
| 15 | | |
$ | 1,260 | | |
| 20 | | |
$ | 1,593 | |
At September 30, 2015, and June 30, 2015, the
Company had $9.1 million and $8.1 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.
Liabilities: At September 30,
2015, the Company’s liabilities totaled $228.4 million, a decrease of $580,000, or 0.3%, from total liabilities at June 30,
2015. The decrease in liabilities was attributed primarily as a result of a decrease in deposits, which decreased $3.4 million
or 1.7% to $196.3 million at September 30, 2015, and was partially offset by an increase in FHLB advances, which totaled $29.2
million at quarter end, an increase of $2.6 million or 9.7% compared to June 30, 2015. Deposit customers continue seeking higher
yields on their funds after growing impatient in the current low-rate environment and some are turning to non-insured investments.
As deposits have continued to decrease, we have utilized short-term FHLB advances as replacement funding.
Shareholders’ Equity: At
September 30, 2015, the Company’s shareholders’ equity totaled $67.5 million, an increase of $200,000 or 0.3% from
the June 30, 2015 total. The change in shareholders’ equity was chiefly associated with net profits for the period less dividends
paid on common stock.
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, 2015 to September 30, 2015 (continued)
The Company paid dividends of $378,000 or 70.3%
of net income for the three month period just ended. On July 7, 2015, the members of First Federal MHC for the fourth 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. The Federal Reserve Bank of Cleveland has notified the Company that
there would be no objection to a waiver of dividends paid by the Company to First Federal MHC, and, as a result, First Federal
MHC will be permitted to waive the receipt of dividends for quarterly dividends up to $0.10 per common share through the third
quarter of 2016. 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, 2015 for additional discussion regarding dividends.
Comparison of Operating Results for the
Three Month Periods Ended September 30, 2015 and 2014
General
Net income totaled $538,000 for the three months
ended September 30, 2015, an increase of $122,000 or 29.3% from net income of $416,000 for the same period in 2014. The net increase
in net earnings for the recently-ended quarter was primarily attributable to lower non-interest expenses and lower income tax expense.
Net Interest Income
Net interest income after provision for loan
losses decreased $69,000 or 2.6% to $2.6 million for the three month period just ended compared to $2.7 million for the prior year
quarter primarily due to reduced net interest income and partially offset by a decrease in provision for loan loss. Net interest
income before provision for loan loss decreased $114,000 or 4.1% to $2.6 million for the quarter ended September 30, 2015. Provision
for losses on loans decreased $45,000 to $11,000 for the recently-ended quarter compared to a provision of $56,000 in the prior
year period. Interest income decreased by $115,000, or 3.7%, to $3.0 million, while interest expense decreased $1,000 or 0.3% to
$350,000 for the three months ended September 30, 2015, after amortization of fair value adjustments on interest bearing accounts.
Interest income on loans decreased $108,000
or 3.6% to $2.9 million, due primarily to a decrease in the average rate earned on the loan portfolio, which decreased 17 basis
points to 4.70% for the recently ended quarter compared to the prior year period. The average balance of loans outstanding for
the three month period ended September 30, 2015, decreased $284,000 or 0.1% to $246.3 million. Interest income on mortgage-backed
securities decreased $6,000 or 20.7% to $23,000 for the three months ended September 30, 2015, due to lower balances resulting
from normal cash flows associated with the securities.
Kentucky First Federal Bancorp
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Comparison of Operating Results for the
Three Month Periods Ended September 30, 2015 and 2014 (continued)
Interest expense on deposits totaled $280,000
and $289,000 for the three month periods ended September 30, 2015 and 2014, respectively, while interest expense on borrowings
increased $8,000 or 12.9% to $70,000 for the most recently ended period. The average balance of deposits decreased $14.7 million
or 7.0% to $195.1 million for the most recent period, while the average ratepaid on deposits increased 2 basis points to 0.57%.
The decrease in average deposits was primarily attributed to rate-sensitive deposit customers withdrawing funds to seek additional
yield as the historically low interest rate environment continues. The increase in interest expense on borrowings also was attributed
to higher outstanding balances of FHLB advances, which were used to offset deposit funding. The average balance of outstanding
borrowings increased $13.2 million or 90.1% to $27.9 million for the quarter ended September 30, 2015, compared to $14.7 million
for the prior year quarterly period. The average rate paid on borrowings decreased 68 basis points to 1.01% for the recently ended
quarter.
Net interest margin decreased from 4.07% for
the prior year quarterly period to 3.93% for the quarter ended September 30, 2015.
Provision for Losses on Loans
The Company recorded $11,000 in provision for
losses on loans during the three months ended September 30, 2015, compared to a $56,000 provision for the three months ended September
30, 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 $114,000 for the
three months ended September 30, 2015, an increase of $18,000 from the same period in 2014 due primarily to gains on sales of loans
and sales of REO. Net gains on sales of loans totaled $19,000 for the quarter just ended compared to $6,000 for the prior year
quarter, an increase of $13,000 or 216.7%. Sales of REO during the period resulted in net gains of $16,000 compared to a net loss
of $1,000 in the prior year period. The Company recorded a write-down on REO during the recently-ended quarter of $18,000, while
there was no such write-down in the previous year period. There were no sales of investments during the three month periods ended
September 30, 2015 and 2014.
Non-interest Expense
Non-interest expense decreased $104,000 or
4.8% and totaled $2.1 million for the three months ended September 30, 2015 compared to $2.2 million for the same period in 2014.
Employee compensation and benefits decreased $98,000 or 7.1% to $1.3 million for the quarterly period, primarily due to lower expense
to the Company’s defined benefit pension plan. The Company participates in a multiple-employer pension plan and has benefited
from changes in the pension funding requirement laws. Contributions to the defined benefit pension plan totaled $151,000 and $226,000
for the three months ended September 30, 2015 and 2014, respectively. Foreclosure and REO expenses, net decreased $25,000 or 47.2%
to $28,000 for the quarter just ended primarily due to reduced foreclosure activity and lower levels of REO period to period. Somewhat
offsetting the decreased expenses were increases in legal fees and occupancy and equipment costs. Legal fees increased $22,000
or 314.3% to $29,000 for the quarter ended September 30, 2015, due to the Company’s attempt to merge its two banks, an event
that is not expected to recur. Occupancy and equipment costs increased $17,000 or 13.0% to $148,000 for the quarter recently ended
due chiefly to repairs made to aging facilities. The Company expects occupancy and equipment costs to increase in the future as
recently-purchased buildings are placed in service. First Federal of Frankfort purchased a building which will enable it to expand
service capabilities to east Frankfort customers, while First Federal of Hazard purchased facilities which are expected to increase
service to Perry and surrounding counties in eastern Kentucky.
Federal Income Tax Expense
Federal income taxes expense decreased $69,000
or 34.0% and totaled $134,000 for the three months ended September 30, 2015, compared to $203,000 in the prior year quarter primarily
due to the reversal of a FIN 48 reserve related to a previously received federal tax refund. The effective tax rates were 19.9%
and 32.8% for the three-month periods ended September 30, 2015 and 2014, respectively.
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 September 30, 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.
Kentucky First Federal Bancorp
PART II
None.
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, 2015.
| ITEM 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
(c) The
following table sets forth information regarding Company’s repurchases of its common stock during the quarter ended September
30, 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 | |
| |
| | |
| | |
| | |
| |
July 1-31, 2015 | |
| — | | |
$ | — | | |
| — | | |
| 60,323 | |
August 1-31, 2015 | |
| — | | |
$ | — | | |
| — | | |
| 60,323 | |
September 1-30, 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.
None.
| 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 First Federal Bancorp’s
Quarterly Report |
On Form 10-Q for the quarter ended
September 30, 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). |
Kentucky First Federal Bancorp
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
KENTUCKY FIRST FEDERAL BANCORP |
|
|
|
|
|
Date: |
November 16, 2015 |
|
By: |
/s/ Don D.
Jennings |
|
|
|
|
Don D. Jennings |
|
|
|
|
Chief Executive Officer |
|
|
|
|
|
Date: |
November 16, 2015 |
|
By: |
/s/ R. Clay Hulette |
|
|
|
|
R. Clay Hulette |
|
|
|
|
Vice President and Chief Financial Officer |
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: November 16, 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: November 16, 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 September 30, 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 |
|
November 16, 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 September 30, 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 |
|
November 16, 2015 |
|
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