ITEM 1:
Financial Information
Kentucky First Federal Bancorp
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share data)
|
|
March 31,
|
|
|
June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Cash and due from financial institutions
|
|
$
|
4,658
|
|
|
$
|
3,864
|
|
Interest-bearing demand deposits
|
|
|
12,909
|
|
|
|
9,771
|
|
Cash and cash equivalents
|
|
|
17,567
|
|
|
|
13,635
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale
|
|
|
128
|
|
|
|
159
|
|
Securities held-to-maturity, at amortized cost- approximate fair value of $4,825 and $6,534 at March 31, 2016 and June 30, 2015, respectively
|
|
|
4,751
|
|
|
|
6,423
|
|
Loans held for sale
|
|
|
—
|
|
|
|
100
|
|
Loans, net of allowance of $1,573 and $1,568 at March 31, 2016 and June 30, 2015, respectively
|
|
|
239,064
|
|
|
|
243,815
|
|
Real estate owned, net
|
|
|
1,196
|
|
|
|
1,593
|
|
Premises and equipment, net
|
|
|
6,039
|
|
|
|
5,235
|
|
Federal Home Loan Bank stock, at cost
|
|
|
6,482
|
|
|
|
6,482
|
|
Accrued interest receivable
|
|
|
690
|
|
|
|
725
|
|
Bank-owned life insurance
|
|
|
3,041
|
|
|
|
2,971
|
|
Goodwill
|
|
|
14,507
|
|
|
|
14,507
|
|
Prepaid federal income taxes
|
|
|
52
|
|
|
|
—
|
|
Prepaid expenses and other assets
|
|
|
542
|
|
|
|
653
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
294,059
|
|
|
$
|
296,298
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
190,401
|
|
|
$
|
199,701
|
|
Federal Home Loan Bank advances
|
|
|
33,792
|
|
|
|
26,635
|
|
Advances by borrowers for taxes and insurance
|
|
|
486
|
|
|
|
699
|
|
Accrued interest payable
|
|
|
30
|
|
|
|
32
|
|
Accrued federal income taxes
|
|
|
—
|
|
|
|
78
|
|
Deferred federal income taxes
|
|
|
661
|
|
|
|
569
|
|
Deferred revenue
|
|
|
599
|
|
|
|
610
|
|
Other liabilities
|
|
|
643
|
|
|
|
661
|
|
Total liabilities
|
|
|
226,612
|
|
|
|
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
|
|
|
34,636
|
|
|
|
34,638
|
|
Retained earnings
|
|
|
34,723
|
|
|
|
34,711
|
|
Unearned employee stock ownership plan (ESOP), 108,304 shares and 122,311 shares at March 31, 2016 and June 30, 2015, repectively
|
|
|
(1,083
|
)
|
|
|
(1,223
|
)
|
Treasury shares at cost, 112,563 common shares at March 31, 2016 and June
30, 2015
|
|
|
(937
|
)
|
|
|
(937
|
)
|
Accumulated other comprehensive income
|
|
|
22
|
|
|
|
38
|
|
Total shareholders’ equity
|
|
|
67,447
|
|
|
|
67,313
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders’ equity
|
|
$
|
294,059
|
|
|
$
|
296,298
|
|
See accompanying notes.
Kentucky First Federal Bancorp
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Dollars in thousands, except per share
data)
|
|
Nine months ended March 31,
|
|
|
Three months ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Interest income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, including fees
|
|
$
|
8,542
|
|
|
$
|
9,093
|
|
|
$
|
2,756
|
|
|
$
|
3,038
|
|
Mortgage-backed securities
|
|
|
73
|
|
|
|
84
|
|
|
|
29
|
|
|
|
27
|
|
Other securities
|
|
|
17
|
|
|
|
19
|
|
|
|
7
|
|
|
|
6
|
|
Interest-bearing deposits and other
|
|
|
195
|
|
|
|
195
|
|
|
|
66
|
|
|
|
65
|
|
Total interest income
|
|
|
8,827
|
|
|
|
9,391
|
|
|
|
2,858
|
|
|
|
3,136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing demand deposits
|
|
|
19
|
|
|
|
23
|
|
|
|
5
|
|
|
|
7
|
|
Savings
|
|
|
195
|
|
|
|
177
|
|
|
|
65
|
|
|
|
59
|
|
Certificates of Deposit
|
|
|
591
|
|
|
|
698
|
|
|
|
187
|
|
|
|
246
|
|
Deposits
|
|
|
805
|
|
|
|
898
|
|
|
|
257
|
|
|
|
312
|
|
Borrowings
|
|
|
228
|
|
|
|
180
|
|
|
|
84
|
|
|
|
61
|
|
Total interest expense
|
|
|
1,033
|
|
|
|
1,078
|
|
|
|
341
|
|
|
|
373
|
|
Net interest income
|
|
|
7,794
|
|
|
|
8,313
|
|
|
|
2,517
|
|
|
|
2,763
|
|
Provision for loan losses
|
|
|
11
|
|
|
|
302
|
|
|
|
—
|
|
|
|
36
|
|
Net interest income after provision for loan losses
|
|
|
7,783
|
|
|
|
8,011
|
|
|
|
2,517
|
|
|
|
2,727
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings on bank-owned life insurance
|
|
|
70
|
|
|
|
70
|
|
|
|
23
|
|
|
|
23
|
|
Net gain on sales of loans
|
|
|
41
|
|
|
|
28
|
|
|
|
—
|
|
|
|
13
|
|
Net gain (loss) on sales of OREO
|
|
|
52
|
|
|
|
124
|
|
|
|
(1
|
)
|
|
|
(18
|
)
|
Valuation adjustments of OREO
|
|
|
(150
|
)
|
|
|
(27
|
)
|
|
|
(111
|
)
|
|
|
(13
|
)
|
Other
|
|
|
208
|
|
|
|
201
|
|
|
|
70
|
|
|
|
63
|
|
Total non-interest income (loss)
|
|
|
221
|
|
|
|
396
|
|
|
|
(19
|
)
|
|
|
68
|
|
Non-interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee compensation and benefits
|
|
|
4,082
|
|
|
|
3,698
|
|
|
|
1,443
|
|
|
|
1,189
|
|
Occupancy and equipment
|
|
|
483
|
|
|
|
469
|
|
|
|
167
|
|
|
|
198
|
|
Outside service fees
|
|
|
121
|
|
|
|
153
|
|
|
|
30
|
|
|
|
66
|
|
Legal fees
|
|
|
67
|
|
|
|
58
|
|
|
|
27
|
|
|
|
32
|
|
Data processing
|
|
|
290
|
|
|
|
327
|
|
|
|
99
|
|
|
|
118
|
|
Auditing and accounting
|
|
|
195
|
|
|
|
189
|
|
|
|
65
|
|
|
|
59
|
|
FDIC insurance premiums
|
|
|
159
|
|
|
|
173
|
|
|
|
49
|
|
|
|
54
|
|
Franchise and other taxes
|
|
|
188
|
|
|
|
198
|
|
|
|
61
|
|
|
|
64
|
|
Foreclosure and OREO expenses (net)
|
|
|
73
|
|
|
|
155
|
|
|
|
20
|
|
|
|
34
|
|
Other
|
|
|
815
|
|
|
|
697
|
|
|
|
278
|
|
|
|
176
|
|
Total non-interest expense
|
|
|
6,473
|
|
|
|
6,117
|
|
|
|
2,239
|
|
|
|
1,990
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
1,531
|
|
|
|
2,290
|
|
|
|
259
|
|
|
|
805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal income tax expense
|
|
|
411
|
|
|
|
756
|
|
|
|
81
|
|
|
|
266
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME
|
|
$
|
1,120
|
|
|
$
|
1,534
|
|
|
$
|
178
|
|
|
$
|
539
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS PER SHARE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
0.13
|
|
|
$
|
0.18
|
|
|
$
|
0.02
|
|
|
$
|
0.06
|
|
DIVIDENDS PER SHARE
|
|
$
|
0.30
|
|
|
$
|
0.30
|
|
|
$
|
0.10
|
|
|
$
|
0.10
|
|
See accompanying notes.
Kentucky First Federal Bancorp
CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME
(Unaudited)
(In thousands)
|
|
Nine months ended March 31,
|
|
|
Three months ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,120
|
|
|
$
|
1,534
|
|
|
$
|
178
|
|
|
$
|
539
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive gain (loss), net of tax benefits: Unrealized holding gains (losses) on securities designated as available for sale, net of tax benefits of $(8), $(15), $(3) and $2 during the respective periods
|
|
|
(16
|
)
|
|
|
(30
|
)
|
|
|
(5
|
)
|
|
|
4
|
|
Comprehensive income
|
|
$
|
1,104
|
|
|
$
|
1,504
|
|
|
$
|
173
|
|
|
$
|
543
|
|
See accompanying notes.
Kentucky First Federal Bancorp
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
|
|
Nine months ended
|
|
|
|
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,120
|
|
|
$
|
1,534
|
|
Adjustments to reconcile net income to net cash provided by operating activities
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
212
|
|
|
|
206
|
|
Accetion of purchased loan credit discount
|
|
|
(116
|
)
|
|
|
(270
|
)
|
Amortization of purchased loan premium
|
|
|
13
|
|
|
|
14
|
|
Amortization of deferred loan origination costs
|
|
|
23
|
|
|
|
44
|
|
Amortization of premiums on investment securities
|
|
|
59
|
|
|
|
117
|
|
Amortization of premiums on deposits
|
|
|
(63
|
)
|
|
|
(191
|
)
|
Net gain on sale of loans
|
|
|
(41
|
)
|
|
|
(28
|
)
|
Net loss on sale of real estate owned
|
|
|
(52
|
)
|
|
|
(89
|
)
|
Valuation adjustments of real estate owned
|
|
|
150
|
|
|
|
27
|
|
Deferred gain on sale of real estate owned
|
|
|
(11
|
)
|
|
|
(17
|
)
|
ESOP compensation expense
|
|
|
138
|
|
|
|
115
|
|
Earnings on bank-owned life insurance
|
|
|
(70
|
)
|
|
|
(70
|
)
|
Provision for loan losses
|
|
|
11
|
|
|
|
302
|
|
Origination of loans held for sale
|
|
|
(1,019
|
)
|
|
|
(599
|
)
|
Proceeds from loans held for sale
|
|
|
1,160
|
|
|
|
627
|
|
Increase (decrease) in cash, due to changes in:
|
|
|
|
|
|
|
|
|
Accrued interest receivable
|
|
|
35
|
|
|
|
119
|
|
Prepaid expenses and other assets
|
|
|
111
|
|
|
|
76
|
|
Accrued interest payable
|
|
|
(2
|
)
|
|
|
—
|
|
Other liabilities
|
|
|
(18
|
)
|
|
|
319
|
|
Federal income taxes
|
|
|
(33
|
)
|
|
|
488
|
|
Net cash provided by operating activities
|
|
|
1,607
|
|
|
|
2,724
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchase of held-to-maturity U.S. Treasury notes
|
|
|
(11,000
|
)
|
|
|
(8,500
|
)
|
Securities maturities, prepayments and calls:
|
|
|
|
|
|
|
|
|
Held to maturity
|
|
|
12,613
|
|
|
|
9,712
|
|
Available for sale
|
|
|
9
|
|
|
|
34
|
|
Loans originated for investment, net of principal collected
|
|
|
4,422
|
|
|
|
724
|
|
Proceeds from sale of real estate owned
|
|
|
812
|
|
|
|
1,064
|
|
Improvements to real estate owned
|
|
|
(114
|
)
|
|
|
—
|
|
Additions to premises and equipment, net
|
|
|
(1,016
|
)
|
|
|
(161
|
)
|
Net cash provided by investing activities
|
|
|
5,726
|
|
|
|
2,873
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Net decrease in deposits
|
|
|
(9,237
|
)
|
|
|
(10,778
|
)
|
Payments by borrowers for taxes and insurance, net
|
|
|
(213
|
)
|
|
|
(161
|
)
|
Proceeds from Federal Home Loan Bank advances
|
|
|
28,700
|
|
|
|
19,300
|
|
Repayments on Federal Home Loan Bank advances
|
|
|
(21,543
|
)
|
|
|
(13,856
|
)
|
Dividends paid on common stock
|
|
|
(1,108
|
)
|
|
|
(1,082
|
)
|
Treasury stock repurchases
|
|
|
—
|
|
|
|
(698
|
)
|
Net cash used in financing activities
|
|
|
(3,401
|
)
|
|
|
(7,275
|
)
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
3,932
|
|
|
|
(1,678
|
)
|
|
|
|
|
|
|
|
|
|
Beginning cash and cash equivalents
|
|
|
13,635
|
|
|
|
11,511
|
|
|
|
|
|
|
|
|
|
|
Ending cash and cash equivalents
|
|
$
|
17,567
|
|
|
$
|
9,833
|
|
See accompanying notes.
Kentucky First Federal Bancorp
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
(Unaudited)
(In thousands)
|
|
Nine months ended
|
|
|
|
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
Federal income taxes
|
|
$
|
460
|
|
|
$
|
255
|
|
|
|
|
|
|
|
|
|
|
Interest on deposits and borrowings
|
|
$
|
1,098
|
|
|
$
|
1,269
|
|
|
|
|
|
|
|
|
|
|
Transfers of loans to real estate owned, net
|
|
$
|
399
|
|
|
$
|
1,780
|
|
|
|
|
|
|
|
|
|
|
Loans made on sale of real estate owned
|
|
$
|
534
|
|
|
$
|
439
|
|
See accompanying notes.
Kentucky First Federal Bancorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2016
(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 Kentucky (“First Federal of Kentucky”). 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.
The accompanying unaudited consolidated
financial statements, which represent the consolidated balance sheets and results of operations of the Company, were prepared in
accordance with the instructions for Form 10-Q and, therefore, do not include information or footnotes necessary for a complete
presentation of financial position, results of operations and cash flows in conformity with U.S. generally accepted accounting
principles. However, in the opinion of management, all adjustments (consisting of only normal recurring adjustments) which are
necessary for a fair presentation of the consolidated financial statements have been included. The results of operations for the
nine- and three-month periods ended March 31, 2016, 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 Kentucky (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)
March 31, 2016
(unaudited)
Diluted earnings per share is
computed taking into consideration common shares outstanding and dilutive potential common shares to be issued or released under
the Company’s share-based compensation plans. The factors used in the basic and diluted earnings per share computations follow:
|
|
Nine months ended
March 31,
|
|
|
Three months ended
March 31,
|
|
(in thousands)
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Net income allocated to common shareholders, basic and diluted
|
|
$
|
1,120
|
|
|
$
|
1,534
|
|
|
$
|
178
|
|
|
$
|
539
|
|
|
|
Nine months ended
March 31,
|
|
|
Three months ended
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Weighted average common shares outstanding, basic and diluted
|
|
|
8,321,890
|
|
|
|
8,360,824
|
|
|
|
8,326,593
|
|
|
|
8,317,518
|
|
There were 189,322 and 309,800
weighted stock option shares outstanding for the nine-month periods ended March 31, 2016 and 2015, respectively. There were no
stock option shares outstanding for the three-month period ended March 31, 2016, because all of the options previously granted
expired on December 13, 2015. There were 309,800 weighted stock option shares outstanding for the three-month period ended March
31, 2015. The stock option shares outstanding were antidilutive for the nine-month periods ended March 31, 2016 and 2015, as well
as the three-month period ended March 31, 2015.
Kentucky First Federal Bancorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
March 31, 2016
(unaudited)
The following table summarizes
the amortized cost and fair value of securities available-for-sale and securities held-to-maturity at March 31, 2016 and June 30,
2015, the corresponding amounts of gross unrealized gains recognized in accumulated other comprehensive income and gross unrecognized
gains and losses:
|
|
March 31, 2016
|
|
(in thousands)
|
|
Amortized
cost
|
|
|
Gross
unrealized/
unrecognized
gains
|
|
|
Gross
unrealized/
unrecognized
losses
|
|
|
Estimated
fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency mortgage-backed: residential
|
|
$
|
87
|
|
|
$
|
3
|
|
|
$
|
—
|
|
|
$
|
90
|
|
FHLMC stock
|
|
|
8
|
|
|
|
30
|
|
|
|
—
|
|
|
|
38
|
|
|
|
$
|
95
|
|
|
$
|
33
|
|
|
$
|
—
|
|
|
$
|
128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency mortgage-backed: residential
|
|
$
|
2,204
|
|
|
$
|
72
|
|
|
$
|
—
|
|
|
$
|
2,276
|
|
Agency bonds
|
|
|
2,547
|
|
|
|
2
|
|
|
|
—
|
|
|
|
2,549
|
|
|
|
$
|
4,751
|
|
|
$
|
74
|
|
|
$
|
—
|
|
|
$
|
4,825
|
|
|
|
|
|
|
|
|
|
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)
March 31, 2016
(unaudited)
|
3.
|
Investment Securities
(continued)
|
The Company’s equity securities
consist of Federal Home Loan Mortgage Company (FHLMC or Freddie Mac) stock, while our debt securities consist of agency bonds and
mortgage-backed securities. Mortgage-backed securities do not have a single maturity date. The amortized cost and fair value of
held-to-maturity debt securities are shown by contractual maturity. Securities not due at a single maturity date are shown separately.
|
|
March 31, 2016
|
|
(in thousands)
|
|
Amortized Cost
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
Held-to-maturity Securities
|
|
|
|
|
|
|
|
|
Within one year
|
|
$
|
2,024
|
|
|
$
|
2,025
|
|
One to five years
|
|
|
523
|
|
|
|
524
|
|
Mortgage-backed
|
|
|
2,204
|
|
|
|
2,276
|
|
|
|
$
|
4,751
|
|
|
$
|
4,825
|
|
Our pledged securities totaled
$2.2 million at both March 31, 2016, and June 30, 2015.
There were no sales of investment
securities during the nine month periods ended March 31, 2016 and 2015.
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)
March 31, 2016
(unaudited)
The composition of the loan portfolio
was as follows:
|
|
March 31,
|
|
|
June 30,
|
|
(in thousands)
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Residential real estate
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
$
|
189,402
|
|
|
$
|
191,721
|
|
Multi-family
|
|
|
15,908
|
|
|
|
16,621
|
|
Construction
|
|
|
1,889
|
|
|
|
3,780
|
|
Land
|
|
|
1,318
|
|
|
|
2,021
|
|
Farm
|
|
|
1,317
|
|
|
|
1,567
|
|
Nonresidential real estate
|
|
|
25,429
|
|
|
|
22,118
|
|
Commercial nonmortgage
|
|
|
2,676
|
|
|
|
1,782
|
|
Consumer and other:
|
|
|
|
|
|
|
|
|
Loans on deposits
|
|
|
1,901
|
|
|
|
2,262
|
|
Home equity
|
|
|
5,626
|
|
|
|
5,477
|
|
Automobile
|
|
|
71
|
|
|
|
73
|
|
Unsecured
|
|
|
434
|
|
|
|
605
|
|
|
|
|
245,971
|
|
|
|
248,027
|
|
|
|
|
|
|
|
|
|
|
Undisbursed portion of loans in process
|
|
|
(5,446
|
)
|
|
|
(2,753
|
)
|
Deferred loan origination costs
|
|
|
112
|
|
|
|
109
|
|
Allowance for loan losses
|
|
|
(1,573
|
)
|
|
|
(1,568
|
)
|
|
|
$
|
239,064
|
|
|
$
|
243,815
|
|
The following table presents the activity in the
allowance for loan losses by portfolio segment for the nine months ended March 31, 2016:
(in thousands)
|
|
Beginning
balance
|
|
|
Provision
for loan
losses
|
|
|
Loans
charged
off
|
|
|
Recoveries
|
|
|
Ending
balance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
$
|
1,059
|
|
|
$
|
(190
|
)
|
|
$
|
(17
|
)
|
|
$
|
11
|
|
|
$
|
863
|
|
Multi-family
|
|
|
94
|
|
|
|
102
|
|
|
|
—
|
|
|
|
—
|
|
|
|
196
|
|
Construction
|
|
|
21
|
|
|
|
(14
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
7
|
|
Land
|
|
|
7
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
4
|
|
Farm
|
|
|
9
|
|
|
|
(5
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
4
|
|
Nonresidential real estate
|
|
|
121
|
|
|
|
123
|
|
|
|
—
|
|
|
|
—
|
|
|
|
244
|
|
Commercial nonmortgage
|
|
|
10
|
|
|
|
(1
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
9
|
|
Consumer and other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans on deposits
|
|
|
13
|
|
|
|
(6
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
7
|
|
Home equity
|
|
|
31
|
|
|
|
(11
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
20
|
|
Automobile
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Unsecured
|
|
|
3
|
|
|
|
(1
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
2
|
|
Unallocated
|
|
|
200
|
|
|
|
17
|
|
|
|
—
|
|
|
|
—
|
|
|
|
217
|
|
Totals
|
|
$
|
1,568
|
|
|
$
|
11
|
|
|
$
|
(17
|
)
|
|
$
|
11
|
|
|
$
|
1,573
|
|
Kentucky First Federal Bancorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
March 31, 2016
(unaudited)
|
4.
|
Loans receivable
(continued)
|
The following table presents the activity in the
allowance for loan losses by portfolio segment for the three months ended March 31, 2016:
(in thousands)
|
|
Beginning
balance
|
|
|
Provision for
loan losses
|
|
|
Loans
charged off
|
|
|
Recoveries
|
|
|
Ending
balance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
$
|
1,045
|
|
|
$
|
(187
|
)
|
|
$
|
(4
|
)
|
|
$
|
9
|
|
|
$
|
863
|
|
Multi-family
|
|
|
96
|
|
|
|
100
|
|
|
|
—
|
|
|
|
—
|
|
|
|
196
|
|
Construction
|
|
|
14
|
|
|
|
(7
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
7
|
|
Land
|
|
|
8
|
|
|
|
(4
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
4
|
|
Farm
|
|
|
9
|
|
|
|
(5
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
4
|
|
Nonresidential real estate
|
|
|
143
|
|
|
|
101
|
|
|
|
—
|
|
|
|
—
|
|
|
|
244
|
|
Commercial nonmortgage
|
|
|
10
|
|
|
|
(1
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
9
|
|
Consumer and other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans on deposits
|
|
|
11
|
|
|
|
(4
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
7
|
|
Home equity
|
|
|
30
|
|
|
|
(10
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
20
|
|
Automobile
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Unsecured
|
|
|
2
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2
|
|
Unallocated
|
|
|
200
|
|
|
|
17
|
|
|
|
—
|
|
|
|
—
|
|
|
|
217
|
|
Totals
|
|
$
|
1,568
|
|
|
$
|
—
|
|
|
$
|
(4
|
)
|
|
$
|
9
|
|
|
$
|
1.573
|
|
The following table presents the activity in the
allowance for loan losses by portfolio segment for the nine months ended March 31, 2015:
(in thousands)
|
|
Beginning
balance
|
|
|
Provision for
loan losses
|
|
|
Loans
charged off
|
|
|
Recoveries
|
|
|
Ending
balance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
$
|
1,003
|
|
|
$
|
254
|
|
|
$
|
(202
|
)
|
|
$
|
20
|
|
|
$
|
1,075
|
|
Multi-family
|
|
|
73
|
|
|
|
21
|
|
|
|
—
|
|
|
|
—
|
|
|
|
94
|
|
Construction
|
|
|
11
|
|
|
|
6
|
|
|
|
—
|
|
|
|
—
|
|
|
|
17
|
|
Land
|
|
|
10
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
11
|
|
Farm
|
|
|
9
|
|
|
|
2
|
|
|
|
—
|
|
|
|
—
|
|
|
|
11
|
|
Nonresidential real estate
|
|
|
112
|
|
|
|
14
|
|
|
|
—
|
|
|
|
—
|
|
|
|
126
|
|
Commercial nonmortgage
|
|
|
11
|
|
|
|
(1
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
10
|
|
Consumer and other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans on deposits
|
|
|
13
|
|
|
|
2
|
|
|
|
—
|
|
|
|
—
|
|
|
|
15
|
|
Home equity
|
|
|
28
|
|
|
|
4
|
|
|
|
—
|
|
|
|
—
|
|
|
|
32
|
|
Automobile
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Unsecured
|
|
|
3
|
|
|
|
(1
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
2
|
|
Unallocated
|
|
|
200
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
200
|
|
Totals
|
|
$
|
1,473
|
|
|
$
|
302
|
|
|
$
|
(202
|
)
|
|
$
|
20
|
|
|
$
|
1,593
|
|
Kentucky First Federal Bancorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
March 31, 2016
(unaudited)
|
4.
|
Loans receivable
(continued)
|
The following table presents the activity in the
allowance for loan losses by portfolio segment for the three months ended March 31, 2015:
(in thousands)
|
|
Beginning
balance
|
|
|
Provision for
loan losses
|
|
|
Loans
charged off
|
|
|
Recoveries
|
|
|
Ending
balance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
$
|
1,086
|
|
|
$
|
13
|
|
|
$
|
(37
|
)
|
|
$
|
13
|
|
|
$
|
1,075
|
|
Multi-family
|
|
|
80
|
|
|
|
14
|
|
|
|
—
|
|
|
|
—
|
|
|
|
94
|
|
Construction
|
|
|
7
|
|
|
|
10
|
|
|
|
—
|
|
|
|
—
|
|
|
|
17
|
|
Land
|
|
|
13
|
|
|
|
(2
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
11
|
|
Farm
|
|
|
9
|
|
|
|
2
|
|
|
|
—
|
|
|
|
—
|
|
|
|
11
|
|
Nonresidential real estate
|
|
|
123
|
|
|
|
3
|
|
|
|
—
|
|
|
|
—
|
|
|
|
126
|
|
Commercial nonmortgage
|
|
|
12
|
|
|
|
(2
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
10
|
|
Consumer and other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans on deposits
|
|
|
15
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
15
|
|
Home equity
|
|
|
32
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
32
|
|
Autombile
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Unsecured
|
|
|
4
|
|
|
|
(2
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
2
|
|
Unallocated
|
|
|
200
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
200
|
|
Totals
|
|
$
|
1,581
|
|
|
$
|
36
|
|
|
$
|
(37
|
)
|
|
$
|
13
|
|
|
$
|
1.593
|
|
Kentucky First Federal Bancorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
March 31, 2016
(unaudited)
|
4.
|
Loans receivable
(continued)
|
The following table presents
the balance in the allowance for loan losses and the recorded investment in loans by portfolio class and based on impairment method
as of March 31, 2016. The recorded investment in loans excludes accrued interest receivable and deferred loan costs, net due to
immateriality.
March 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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
|
|
$
|
3,260
|
|
|
$
|
2,109
|
|
|
$
|
5,369
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Land
|
|
|
—
|
|
|
|
132
|
|
|
|
132
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Nonresidential real estate
|
|
|
—
|
|
|
|
150
|
|
|
|
150
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
3,260
|
|
|
|
2,391
|
|
|
|
5,651
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans collectively evaluated for impairment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
|
|
|
|
|
|
|
|
$
|
184,033
|
|
|
$
|
863
|
|
|
$
|
—
|
|
|
$
|
863
|
|
Multi-family
|
|
|
|
|
|
|
|
|
|
|
15,908
|
|
|
|
196
|
|
|
|
—
|
|
|
|
196
|
|
Construction
|
|
|
|
|
|
|
|
|
|
|
1,889
|
|
|
|
7
|
|
|
|
—
|
|
|
|
7
|
|
Land
|
|
|
|
|
|
|
|
|
|
|
1,186
|
|
|
|
4
|
|
|
|
—
|
|
|
|
4
|
|
Farm
|
|
|
|
|
|
|
|
|
|
|
1,317
|
|
|
|
4
|
|
|
|
—
|
|
|
|
4
|
|
Nonresidential real estate
|
|
|
|
|
|
|
|
|
|
|
25,279
|
|
|
|
244
|
|
|
|
—
|
|
|
|
244
|
|
Commercial nonmortgage
|
|
|
|
|
|
|
|
|
|
|
2,676
|
|
|
|
9
|
|
|
|
—
|
|
|
|
9
|
|
Consumer and other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans on deposits
|
|
|
|
|
|
|
|
|
|
|
1,901
|
|
|
|
7
|
|
|
|
—
|
|
|
|
7
|
|
Home equity
|
|
|
|
|
|
|
|
|
|
|
5,626
|
|
|
|
20
|
|
|
|
—
|
|
|
|
20
|
|
Automobile
|
|
|
|
|
|
|
|
|
|
|
71
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Unsecured
|
|
|
|
|
|
|
|
|
|
|
434
|
|
|
|
2
|
|
|
|
—
|
|
|
|
2
|
|
Unallocated
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
217
|
|
|
|
217
|
|
|
|
|
|
|
|
|
|
|
|
|
240,320
|
|
|
|
1,356
|
|
|
|
217
|
|
|
|
1,573
|
|
|
|
|
|
|
|
|
|
|
|
$
|
245,971
|
|
|
$
|
1,356
|
|
|
$
|
217
|
|
|
$
|
1,573
|
|
Kentucky First Federal Bancorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
March 31, 2016
(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 and other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
March 31, 2016
(unaudited)
|
4.
|
Loans receivable
(continued)
|
The following table presents
loans individually evaluated for impairment by class of loans as of and for the nine months ended March 31, 2016 and 2015:
March 31, 2016:
(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
|
|
$
|
3,260
|
|
|
$
|
—
|
|
|
$
|
3,081
|
|
|
$
|
7
|
|
|
$
|
7
|
|
Purchased credit-impaired loans
|
|
|
2,391
|
|
|
|
—
|
|
|
|
2,833
|
|
|
|
53
|
|
|
|
53
|
|
|
|
|
5,651
|
|
|
|
—
|
|
|
|
5,914
|
|
|
|
60
|
|
|
|
60
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
$
|
5,651
|
|
|
$
|
—
|
|
|
$
|
5,914
|
|
|
$
|
60
|
|
|
$
|
60
|
|
March 31, 2015:
(in thousands)
|
|
Unpaid
Principal
Balance and
Recorded
Investment
|
|
|
Allowance
for Loan
Losses
Allocated
|
|
|
Average
Recorded
Investment
|
|
|
Interest
Income
Recognized
|
|
|
Cash Basis
Income
Recognized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
$
|
1,658
|
|
|
$
|
—
|
|
|
$
|
1,516
|
|
|
$
|
26
|
|
|
$
|
26
|
|
Purchased credit-impaired loans
|
|
|
3,426
|
|
|
|
—
|
|
|
|
3,552
|
|
|
|
191
|
|
|
|
83
|
|
|
|
|
5,084
|
|
|
|
—
|
|
|
|
5,068
|
|
|
|
217
|
|
|
|
109
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
|
67
|
|
|
|
8
|
|
|
|
104
|
|
|
|
4
|
|
|
|
4
|
|
|
|
$
|
5,151
|
|
|
$
|
8
|
|
|
$
|
5,172
|
|
|
$
|
221
|
|
|
$
|
113
|
|
Kentucky First Federal Bancorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
March 31, 2016
(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 March 31, 2016 and 2015:
March 31, 2016:
(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
|
|
$
|
3,260
|
|
|
$
|
—
|
|
|
$
|
3,127
|
|
|
$
|
2
|
|
|
$
|
2
|
|
Purchased credit-impaired loans
|
|
|
2,391
|
|
|
|
—
|
|
|
|
2,439
|
|
|
|
19
|
|
|
|
19
|
|
|
|
|
5,651
|
|
|
|
—
|
|
|
|
5,566
|
|
|
|
21
|
|
|
|
21
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
$
|
5,651
|
|
|
$
|
—
|
|
|
$
|
5,566
|
|
|
$
|
21
|
|
|
$
|
21
|
|
March 31, 2015:
(in thousands)
|
|
Unpaid
Principal
Balance and
Recorded
Investment
|
|
|
Allowance
for Loan
Losses
Allocated
|
|
|
Average
Recorded
Investment
|
|
|
Interest
Income
Recognized
|
|
|
Cash Basis
Income
Recognized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
$
|
1,658
|
|
|
$
|
—
|
|
|
$
|
1,332
|
|
|
$
|
26
|
|
|
$
|
26
|
|
Purchased credit-impaired loans
|
|
|
3,426
|
|
|
|
—
|
|
|
|
3,468
|
|
|
|
116
|
|
|
|
65
|
|
|
|
|
5,084
|
|
|
|
—
|
|
|
|
4,800
|
|
|
|
142
|
|
|
|
91
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
|
67
|
|
|
|
8
|
|
|
|
73
|
|
|
|
4
|
|
|
|
4
|
|
|
|
$
|
5,151
|
|
|
$
|
8
|
|
|
$
|
4,873
|
|
|
$
|
146
|
|
|
$
|
95
|
|
Kentucky First Federal Bancorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
March 31, 2016
(unaudited)
|
4.
|
Loans receivable
(continued)
|
The following tables
present the recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans as of March 31,
2016, and June 30, 2015:
|
|
March 31, 2016
|
|
|
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
|
|
$
|
4,666
|
|
|
$
|
1,651
|
|
|
$
|
4,331
|
|
|
$
|
1,745
|
|
Nonresidential real estate and land
|
|
|
171
|
|
|
|
130
|
|
|
|
410
|
|
|
|
—
|
|
Consumer
|
|
|
7
|
|
|
|
—
|
|
|
|
26
|
|
|
|
—
|
|
|
|
$
|
4,844
|
|
|
$
|
1,781
|
|
|
$
|
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 March 31, 2016
and June 30, 2015, the Company had $1.6 million and $1.9 million of loans classified as TDRs, respectively. Of the TDRs at March
31, 2016, approximately 31.9% were related to the borrower’s completion of Chapter 7 bankruptcy proceedings with no reaffirmation
of the debt to the Banks.
The following table presents
TDR’s by loan type at March 31, 2016 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-4 Family
|
|
|
34
|
|
|
$
|
1,858
|
|
|
$
|
1,572
|
|
|
$
|
1,053
|
|
|
$
|
519
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
March 31, 2016
(unaudited)
|
4.
|
Loans receivable
(continued)
|
There was one TDR loan modification
which totaled $3,000 for the nine month period ended March 31, 2016. There were no TDR loan modifications for the three month period
ended March 31, 2016. There was one TDR loan modification totaling $20,000 for the nine- and three-month periods ended March 31,
2015, which resulted in extension of the term of the loan with no additional principal or change in interest rate. The following
table summarizes TDR loan modifications that occured during the nine months ended March 31, 2016, and their performance, by modification
type:
(in thousands)
|
|
Troubled Debt
Restructurings
Performing to
Modified Terms
|
|
|
Troubled Debt
Restructurings
Not Performing
to Modified
Terms
|
|
|
Total Troubled
Debt
Restructurings
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended March 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Extension of loan term
|
|
$
|
3
|
|
|
$
|
—
|
|
|
$
|
3
|
|
The Company had no allocated
specific reserves to customers whose loan terms had been modified in troubled debt restructurings as of March 31, 2016, or at June
30, 2015. The Company had no commitments to lend on loans classified as TDRs at March 31, 2016 or June 30, 2015.
There were no TDRs that defaulted
during the nine- or three- month periods ended March 31, 2016 or 2015.
Kentucky First Federal Bancorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
March 31, 2016
(unaudited)
|
4.
|
Loans receivable
(continued)
|
The following table presents
the aging of the principal balance outstanding in past due loans as of March 31, 2016, by class of loans:
(in thousands)
|
|
30-89 Days
Past Due
|
|
|
90 Days or
Greater
Past Due
|
|
|
Total
Past
Due
|
|
|
Loans Not
Past Due
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to four-family
|
|
$
|
4,067
|
|
|
$
|
3,602
|
|
|
$
|
7,669
|
|
|
$
|
181,733
|
|
|
$
|
189,402
|
|
Multi-family
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
15,908
|
|
|
|
15,908
|
|
Construction
|
|
|
8
|
|
|
|
—
|
|
|
|
8
|
|
|
|
1,881
|
|
|
|
1,889
|
|
Land
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,318
|
|
|
|
1,318
|
|
Farm
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,317
|
|
|
|
1,317
|
|
Nonresidential real estate
|
|
|
—
|
|
|
|
280
|
|
|
|
280
|
|
|
|
25,149
|
|
|
|
25,429
|
|
Commercial non-mortgage
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,676
|
|
|
|
2,676
|
|
Consumer and other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans on deposits
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,901
|
|
|
|
1,901
|
|
Home equity
|
|
|
19
|
|
|
|
27
|
|
|
|
46
|
|
|
|
5,580
|
|
|
|
5,626
|
|
Automobile
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
71
|
|
|
|
71
|
|
Unsecured
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
434
|
|
|
|
434
|
|
Total
|
|
$
|
4,094
|
|
|
$
|
3,909
|
|
|
$
|
8,003
|
|
|
$
|
237,968
|
|
|
$
|
245,971
|
|
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 and other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
March 31, 2016
(unaudited)
|
4.
|
Loans receivable
(continued)
|
Credit Quality Indicators:
The Company categorizes loans
into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial
information, historical payment experience, credit documentation, public information, and current economic trends, among other
factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis is performed on an annual
basis. The Company uses the following definitions for risk ratings:
Special Mention.
Loans
classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected,
these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit
position at some future date.
Substandard.
Loans classified
as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged,
if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized
by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.
Doubtful.
Loans classified
as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses
make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and
improbable.
Loans not meeting the criteria
above that are analyzed individually as part of the above-described process are considered to be pass rated loans. Loans listed
that are not rated are included in groups of homogeneous loans and are evaluated for credit quality based on performing status.
See the aging of past due loan table above. As of March 31, 2016, 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
|
|
$
|
—
|
|
|
$
|
7,367
|
|
|
$
|
12,155
|
|
|
$
|
—
|
|
|
$
|
169,880
|
|
Multi-family
|
|
|
15,566
|
|
|
|
—
|
|
|
|
342
|
|
|
|
—
|
|
|
|
—
|
|
Construction
|
|
|
1,889
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Land
|
|
|
1,185
|
|
|
|
—
|
|
|
|
133
|
|
|
|
—
|
|
|
|
—
|
|
Farm
|
|
|
1,317
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Nonresidential real estate
|
|
|
24,363
|
|
|
|
895
|
|
|
|
171
|
|
|
|
—
|
|
|
|
—
|
|
Commercial nonmortgage
|
|
|
2,644
|
|
|
|
32
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans on deposits
|
|
|
1,901
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Home equity
|
|
|
5,619
|
|
|
|
—
|
|
|
|
7
|
|
|
|
—
|
|
|
|
—
|
|
Automobile
|
|
|
71
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Unsecured
|
|
|
434
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
$
|
54,989
|
|
|
$
|
8,294
|
|
|
$
|
12,808
|
|
|
$
|
—
|
|
|
$
|
169,880
|
|
Kentucky First Federal Bancorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
March 31, 2016
(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 $472,000 and $616,000 at March 31, 2016 and June 30, 2015, respectively, is as follows:
(in thousands)
|
|
March 31, 2016
|
|
|
June 30, 2015
|
|
|
|
|
|
|
|
|
One- to four-family residential real estate
|
|
$
|
2,109
|
|
|
$
|
2,565
|
|
Land
|
|
|
132
|
|
|
|
381
|
|
Nonresidential real estate
|
|
|
150
|
|
|
|
526
|
|
Commercial nonmortgage
|
|
|
—
|
|
|
|
—
|
|
Outstanding balance
|
|
$
|
2,391
|
|
|
$
|
3,472
|
|
Kentucky First Federal Bancorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
March 31, 2016
(unaudited)
|
4.
|
Loans receivable
(continued)
|
Accretable yield, or income expected to be collected,
is as follows
(in thousands)
|
|
Three months
ended
March 31, 2016
|
|
|
Nine months
ended
March 31, 2016
|
|
|
Twelve
months ended
June 30, 2015
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
1,072
|
|
|
$
|
1,021
|
|
|
$
|
1,478
|
|
Accretion of income
|
|
|
(38
|
)
|
|
|
(116
|
)
|
|
|
(457
|
)
|
Reclassifications from nonaccretable difference
|
|
|
2
|
|
|
|
151
|
|
|
|
—
|
|
Disposals
|
|
|
(17
|
)
|
|
|
(37
|
)
|
|
|
—
|
|
Balance at end of period
|
|
$
|
1,019
|
|
|
$
|
1,019
|
|
|
$
|
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 nine- or three-month periods ended
March 31, 2016. 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)
March 31, 2016
(unaudited)
|
5.
|
Disclosures About Fair Value of Assets and Liabilities
(continued)
|
Impaired Loans
At the time a loan is considered impaired,
it is evaluated for loss based on the fair value of collateral securing the loan if the loan is collateral dependent. If a loss
is identified, a specific allocation will be established as part of the allowance for loan losses such that the loan’s net
carrying value is at its estimated fair value. Impaired loans carried at fair value generally receive specific allocations of the
allowance for loan losses. For collateral-dependent loans, fair value is commonly based on recent real estate appraisals. These
appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach.
Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable
sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the
inputs for determining fair value. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s
financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market
conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business,
resulting in a Level 3 fair value classification. Impaired loans are evaluated on a quarterly basis for additional impairment and
adjusted accordingly.
Other Real Estate
Assets acquired through or instead of loan
foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. These assets
are subsequently accounted for at lower of cost or fair value less estimated costs to sell. Fair value is commonly based on recent
real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable
sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust
for differences between the comparable sales and income data available. Such adjustments are usually significant and typically
result in a Level 3 classification of the inputs for determining fair value.
Financial assets measured at fair value
on a recurring basis are summarized below:
|
|
|
|
|
Fair Value Measurements Using
|
(in thousands)
|
|
Fair Value
|
|
|
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency mortgage-backed: residential
|
|
$
|
90
|
|
|
$
|
—
|
|
|
$
|
90
|
|
|
$
|
—
|
|
FHLMC stock
|
|
|
38
|
|
|
|
—
|
|
|
|
38
|
|
|
|
—
|
|
|
|
$
|
128
|
|
|
$
|
—
|
|
|
$
|
128
|
|
|
$
|
—
|
|
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)
March 31, 2016
(unaudited)
|
5.
|
Disclosures About Fair Value of Assets and Liabilities
(continued)
|
Assets measured at fair value on a non-recurring
basis are summarized below:
|
|
|
|
|
Fair Value Measurements Using
|
(in thousands)
|
|
Fair Value
|
|
|
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other real estate owned, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
$
|
835
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
835
|
|
Land
|
|
|
79
|
|
|
|
—
|
|
|
|
—
|
|
|
|
79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 March 31, 2016, and June 30, 2015. There was
no specific provision made for the nine month periods ended March 31, 2016 or 2015.
Other real estate owned measured at fair
value less costs to sell, had carrying amounts of $914,000 and $540,000 at March 31, 2016 and June 30, 2015, respectively. Other
real estate owned was written down $150,000 and $27,000 during the nine months ended March 31, 2016 and 2015, respectively.
Other real estate was written down $111,000 and $13,000
during the three months ended March 31, 2016 and 2015, respectively.
Kentucky First Federal Bancorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
March 31, 2016
(unaudited)
|
5.
|
Disclosures About Fair Value of Assets and Liabilities
(continued)
|
The following table presents quantitative
information about Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at
March 31, 2016 and June 30, 2015:
|
|
|
|
|
|
|
|
|
Range
|
|
|
Fair Value
|
|
|
Valuation
|
|
Unobservable
|
|
(Weighted
|
March 31, 2016
|
|
(in thousands)
|
|
|
Technique(s)
|
|
Input(s)
|
|
Average)
|
Foreclosed and repossessed assets:
|
|
|
|
|
|
|
|
|
|
|
1-4 family
|
|
$
|
835
|
|
|
Sales comparison approach
|
|
Adjustments for differences between comparable sales
|
|
-28.4% to 17.4% (1.3%)
|
Land
|
|
$
|
79
|
|
|
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)
March 31, 2016
(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 March 31, 2016 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 March 31, 2016 and June 30, 2015, was not material.
Kentucky First Federal Bancorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
March 31, 2016
(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 March 31, 2016 and June 30, 2015 are as follows:
|
|
|
|
|
Fair Value Measurements at
|
|
|
|
Carrying
|
|
|
March 31, 2016 Using
|
|
(in thousands)
|
|
Value
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Financial assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
17,567
|
|
|
$
|
17,567
|
|
|
|
|
|
|
|
|
|
|
$
|
17,567
|
|
Available-for-sale securities
|
|
|
128
|
|
|
|
|
|
|
$
|
128
|
|
|
|
|
|
|
|
128
|
|
Held-to-maturity securities
|
|
|
4,751
|
|
|
|
|
|
|
|
4,825
|
|
|
|
|
|
|
|
4,825
|
|
Loans held for sale
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
Loans receivable - net
|
|
|
239,064
|
|
|
|
|
|
|
|
|
|
|
|
243,038
|
|
|
|
243,038
|
|
Federal Home Loan Bank stock
|
|
|
6,482
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
n/a
|
|
Accrued interest receivable
|
|
|
690
|
|
|
|
|
|
|
|
23
|
|
|
|
667
|
|
|
|
690
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
190,401
|
|
|
$
|
82,908
|
|
|
$
|
107,498
|
|
|
|
|
|
|
|
190,406
|
|
Federal Home Loan Bank advances
|
|
|
33,792
|
|
|
|
|
|
|
|
34,112
|
|
|
|
|
|
|
|
34,112
|
|
Advances by borrowers for taxes and insurance
|
|
|
486
|
|
|
|
|
|
|
|
486
|
|
|
|
|
|
|
|
486
|
|
Accrued interest payable
|
|
|
30
|
|
|
|
|
|
|
|
30
|
|
|
|
|
|
|
|
30
|
|
|
|
|
|
|
Fair Value Measurements at
|
|
|
|
Carrying
|
|
|
June 30, 2015 Using
|
|
(in thousands)
|
|
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)
March 31, 2016
(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
March 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) on available-for-sale securities
|
|
$
|
38
|
|
|
$
|
(16
|
)
|
|
$
|
22
|
|
Other comprehensive income (loss) components and related tax
effects for the periods indicated were as follows:
|
|
Nine months ended March 31,
|
|
(in thousands)
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Unrealized holding gains (losses) on available-for-sale securities
|
|
$
|
(24
|
)
|
|
$
|
(45
|
)
|
Tax effect
|
|
|
(8
|
)
|
|
|
(15
|
)
|
Net-of-tax amount
|
|
$
|
(16
|
)
|
|
$
|
(30
|
)
|
|
|
Three months ended March 31,
|
|
(in thousands)
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Unrealized holding gains (losses) on available-for-sale securities
|
|
$
|
(8
|
)
|
|
$
|
6
|
|
Tax effect
|
|
|
(3
|
)
|
|
|
2
|
|
Net-of-tax amount
|
|
$
|
(5
|
)
|
|
$
|
4
|
|
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 nine month periods ended March 31, 2016 and 2015, along with the related calculations of tax-equivalent
net interest income, net interest margin and net interest spread for the related periods.
|
|
Nine Months Ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
Average
Balance
|
|
|
Interest
And
Dividends
|
|
|
Yield/
Cost
|
|
|
Average
Balance
|
|
|
Interest
And
Dividends
|
|
|
Yield/
Cost
|
|
|
|
(Dollars in thousands)
|
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
1
|
|
$
|
245,362
|
|
|
$
|
8,542
|
|
|
|
4.64
|
%
|
|
$
|
246,297
|
|
|
$
|
9,093
|
|
|
|
4.92
|
%
|
Mortgage-backed securities
|
|
|
2,582
|
|
|
|
73
|
|
|
|
3.77
|
|
|
|
3,529
|
|
|
|
84
|
|
|
|
3.17
|
|
Other securities
|
|
|
3,951
|
|
|
|
17
|
|
|
|
0.57
|
|
|
|
5,814
|
|
|
|
19
|
|
|
|
0.44
|
|
Other interest-earning assets
|
|
|
16,954
|
|
|
|
195
|
|
|
|
1.53
|
|
|
|
13,974
|
|
|
|
195
|
|
|
|
1.86
|
|
Total interest-earning assets
|
|
|
268,849
|
|
|
|
8,827
|
|
|
|
4.38
|
|
|
|
269,614
|
|
|
|
9,391
|
|
|
|
4.64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Allowance for loan losses
|
|
|
(1,568
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,513
|
)
|
|
|
|
|
|
|
|
|
Non-interest-earning assets
|
|
|
30,126
|
|
|
|
|
|
|
|
|
|
|
|
29,490
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
297,407
|
|
|
|
|
|
|
|
|
|
|
$
|
297,591
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits
|
|
$
|
6,511
|
|
|
$
|
19
|
|
|
|
0.39
|
%
|
|
$
|
16,296
|
|
|
$
|
23
|
|
|
|
0.19
|
%
|
Savings
|
|
|
74,156
|
|
|
|
195
|
|
|
|
0.35
|
|
|
|
58,815
|
|
|
|
177
|
|
|
|
0.40
|
|
Certificates of deposit
|
|
|
110,958
|
|
|
|
591
|
|
|
|
0.71
|
|
|
|
129,991
|
|
|
|
698
|
|
|
|
0.72
|
|
Total deposits
|
|
|
191,625
|
|
|
|
805
|
|
|
|
0.56
|
|
|
|
205,102
|
|
|
|
898
|
|
|
|
0.58
|
|
Borrowings
|
|
|
32,234
|
|
|
|
228
|
|
|
|
0.94
|
|
|
|
18,960
|
|
|
|
180
|
|
|
|
1.27
|
|
Total interest-bearing liabilities
|
|
|
223,859
|
|
|
|
1,033
|
|
|
|
0.62
|
|
|
|
224,062
|
|
|
|
1,078
|
|
|
|
0.64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-Bearing demand deposits
|
|
|
3,752
|
|
|
|
|
|
|
|
|
|
|
|
4,154
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing liabilities
|
|
|
2,522
|
|
|
|
|
|
|
|
|
|
|
|
2,117
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
230,133
|
|
|
|
|
|
|
|
|
|
|
|
230,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity
|
|
|
67,274
|
|
|
|
|
|
|
|
|
|
|
|
67,258
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders’ equity
|
|
$
|
297,407
|
|
|
|
|
|
|
|
|
|
|
$
|
297,591
|
|
|
|
|
|
|
|
|
|
Net interest income/average yield
|
|
|
|
|
|
$
|
7,794
|
|
|
|
3.76
|
%
|
|
|
|
|
|
$
|
8,313
|
|
|
|
4.00
|
%
|
Net interest margin
|
|
|
|
|
|
|
|
|
|
|
3.87
|
%
|
|
|
|
|
|
|
|
|
|
|
4.11
|
%
|
Average interest-earning assets to average interest-bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
120.10
|
%
|
|
|
|
|
|
|
|
|
|
|
120.33
|
%
|
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)
Average Balance Sheets
(continued)
The following table represents the average
balance sheets for the three month periods ended March 31, 2016 and 2015, along with the related calculations of tax-equivalent
net interest income, net interest margin and net interest spread for the related periods.
|
|
Three Months Ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
Average
Balance
|
|
|
Interest
And
Dividends
|
|
|
Yield/
Cost
|
|
|
Average
Balance
|
|
|
Interest
And
Dividends
|
|
|
Yield/
Cost
|
|
|
|
(Dollars in thousands)
|
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
2
|
|
$
|
243,726
|
|
|
$
|
2,756
|
|
|
|
4.52
|
%
|
|
$
|
245,935
|
|
|
$
|
3,038
|
|
|
|
4.94
|
%
|
Mortgage-backed securities
|
|
|
2,377
|
|
|
|
29
|
|
|
|
4.88
|
|
|
|
3,277
|
|
|
|
27
|
|
|
|
3.30
|
|
Other securities
|
|
|
5,020
|
|
|
|
7
|
|
|
|
0.56
|
|
|
|
6,038
|
|
|
|
6
|
|
|
|
0.40
|
|
Other interest-earning assets
|
|
|
18,757
|
|
|
|
66
|
|
|
|
1.41
|
|
|
|
13,070
|
|
|
|
65
|
|
|
|
1.99
|
|
Total interest-earning assets
|
|
|
269,880
|
|
|
|
2,858
|
|
|
|
4.23
|
|
|
|
268,320
|
|
|
|
3,136
|
|
|
|
4.68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Allowance for loan losses
|
|
|
(1,568
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,281
|
)
|
|
|
|
|
|
|
|
|
Non-interest-earning assets
|
|
|
31,441
|
|
|
|
|
|
|
|
|
|
|
|
29,785
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
299,753
|
|
|
|
|
|
|
|
|
|
|
$
|
296,824
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits
|
|
$
|
8,179
|
|
|
$
|
5
|
|
|
|
0.25
|
%
|
|
$
|
16,185
|
|
|
$
|
7
|
|
|
|
0.17
|
%
|
Savings
|
|
|
71,795
|
|
|
|
65
|
|
|
|
0.36
|
|
|
|
59,228
|
|
|
|
59
|
|
|
|
0.40
|
|
Certificates of deposit
|
|
|
108,452
|
|
|
|
187
|
|
|
|
0.69
|
|
|
|
124,467
|
|
|
|
246
|
|
|
|
0.79
|
|
Total deposits
|
|
|
188,426
|
|
|
|
257
|
|
|
|
0.55
|
|
|
|
199,880
|
|
|
|
312
|
|
|
|
0.62
|
|
Borrowings
|
|
|
37,283
|
|
|
|
84
|
|
|
|
0.90
|
|
|
|
23,637
|
|
|
|
61
|
|
|
|
1.03
|
|
Total interest-bearing liabilities
|
|
|
225,709
|
|
|
|
341
|
|
|
|
0.60
|
|
|
|
223,517
|
|
|
|
373
|
|
|
|
0.67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing demand deposits
|
|
|
3,704
|
|
|
|
|
|
|
|
|
|
|
|
4,306
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing liabilities
|
|
|
2,285
|
|
|
|
|
|
|
|
|
|
|
|
1,759
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
231,698
|
|
|
|
|
|
|
|
|
|
|
|
229,582
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity
|
|
|
68,055
|
|
|
|
|
|
|
|
|
|
|
|
67,242
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders’ equity
|
|
$
|
299,753
|
|
|
|
|
|
|
|
|
|
|
$
|
296,824
|
|
|
|
|
|
|
|
|
|
Net interest income/average yield
|
|
|
|
|
|
$
|
2,517
|
|
|
|
3.63
|
%
|
|
|
|
|
|
$
|
2,763
|
|
|
|
4.01
|
%
|
Net interest margin
|
|
|
|
|
|
|
|
|
|
|
3.73
|
%
|
|
|
|
|
|
|
|
|
|
|
4.12
|
%
|
Average interest-earning assets to average interest-bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
119.57
|
%
|
|
|
|
|
|
|
|
|
|
|
120.05
|
%
|
2
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 March 31, 2016
Assets:
At March 31, 2016,
the Company’s assets totaled $294.1 million, a decrease of $2.2 million, or 0.8%, from total assets at June 30, 2015. This
decrease was attributed primarily to a decrease in loans and investment securities.
Cash and cash equivalents:
Cash
and cash equivalents increased by $3.9 million or 28.8% to $17.6 million at March 31, 2016, as the Company has begun to invest
some of the excess cash in First Federal of Hazard.
Securities:
At March 31,
2016 and 2015 our securities portfolio consisted of agency bonds, mortgage-backed securities and FHLMC stock. Investment securities
totaled $4.9 million at March 31, 2016, compared to $6.6 million at June 30, 2015, a decrease of $1.7 million or 25.9% due to scheduled
maturities of agency bonds and principal repayments received on mortgage-backed securities.
Loans
:
Loans receivable, net, decreased by $4.8 million or 1.9% to $239.1 million at March 31, 2016. During the period gross
loans decreased $2.1 million or 0.8% to $246.0 million, while undisbursed portion of loans in process increased $2.7 million
or 97.8% to $5.4 million. One- to four-family residential loans and construction loans decreased $2.3 million or 1.2% and
$1.9 million or 50.0%, respectively during the period, while nonresidential real estate loans increased $3.3 million or
15.0%. Construction loans typically have building periods that range from four to twelve months and management expects that
most of the Company’s construction loans will be fully disbursed within the next six months. 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. However, our local markets have not
fully recovered from the downturn in the housing markets and we have not yet seen a sustained increase in demand for home
loans.
Non-Performing Loans:
At
March 31, 2016, the Company had non-performing loans (loans 90 or more days past due or on nonaccrual status) of approximately
$6.6 million, or 2.7% 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 March 31, 2016, and June 30,
2015, respectively. The allowance for loan losses at March 31, 2016, represented 23.7% of nonperforming loans and 0.64% of total
loans (including loans purchased in the acquisition), while at June 30, 2015, the allowance represented 24.1% of nonperforming
loans and 0.63% of total loans.
Assets classified as substandard for regulatory
purposes totaled $14.0 million at March 31, 2016, an increase of $1.4 million or 10.8% compared to June 30, 2015, and was comprised
of loans ($12.8 million) and real estate owned (“REO”) ($1.2 million), including loans acquired in the CKF Bancorp
transaction. Substandard loans increased $1.8 million during the nine months just ended, while REO decreased $397,000.
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 March 31, 2016
(continued)
Classified loans as a percentage of total
loans (including loans acquired) were 5.2% and 4.5% at March 31, 2016 and June 30, 2015, respectively. Of substandard loans, 99.8%
were secured by real estate on which the Banks have priority lien position. The increase in substandard loans from June 30, 2015,
was primarily associated with residential rental properties, while decreases occurred in loan classifications for commercial properties
and land. One- to four-family and multi-family residential rental loans accounted for approximately $2.4 million of the increase
in classified loans, while upgrades and/or payoffs resulted in decreases of $724,000 and $618,000 in land loans and commercial
loans, respectively during the nine month period. The increase in substandard loans was attributed to a relatively few large borrowers
whose financial positions have developed some weakness according to the Company’s analysis of their cash flow, although no
serious delinquencies have developed. These loans are secured by one- to four-family residential rental properties and to a lesser
degree multi-family residential rental properties and management considers these credits generally well-secured. In addition there
has also been an increase of approximately $720,000 among single-family owner-occupied properties in the Hazard area, which is
due to difficult economic circumstances. Those classifications are most often the result of delinquency.
REO decreased $397,000 or 24.9% to $1.2
million at March 31, 2016, as the Company continued working through properties taken back pursuant to foreclosure action.
The table below shows the aggregate amounts
of our assets classified for regulatory purposes at the dates indicated:
(dollars in thousands)
|
|
March 31, 2016
|
|
|
June 30, 2015
|
|
|
|
|
|
|
|
|
Substandard assets
|
|
$
|
14,004
|
|
|
$
|
12,639
|
|
Doubtful assets
|
|
|
—
|
|
|
|
—
|
|
Loss assets
|
|
|
—
|
|
|
|
—
|
|
Total classified assets
|
|
$
|
14,004
|
|
|
$
|
12,639
|
|
At March 31, 2016, the Company’s
real estate acquired through foreclosure represented 8.5% of substandard assets compared to 12.6% at June 30, 2015. During the
nine months ended March 31, 2016, the Company sold property with a carrying value of $762,000 for $812,000, while during the year
ended June 30, 2015, property with a carrying value of $590,000 was sold for $702,000. During the nine months ended March 31, 2016,
the Company made $534,000 in loans to facilitate the purchase of its other real estate owned by qualified borrowers, while in the
fiscal year ended June 30, 2015, $424,000 in 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 $271,000 and $292,000 at March 31, 2016 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 March 31, 2016
(continued)
The following table presents the aggregate
carrying value of REO at the dates indicated:
|
|
March 31, 2016
|
|
|
June 30, 2015
|
|
|
|
Number
|
|
|
Net
|
|
|
Number
|
|
|
Net
|
|
|
|
of
|
|
|
Carrying
|
|
|
of
|
|
|
Carrying
|
|
|
|
Properties
|
|
|
Value
|
|
|
Properties
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single family, non-owner occupied
|
|
|
11
|
|
|
$
|
1,114
|
|
|
|
15
|
|
|
$
|
1,440
|
|
Building lot
|
|
|
3
|
|
|
|
82
|
|
|
|
5
|
|
|
|
153
|
|
Total REO
|
|
|
14
|
|
|
$
|
1,196
|
|
|
|
20
|
|
|
$
|
1,593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2016, and June 30, 2015, the
Company had $8.3 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 March 31,
2016, the Company’s liabilities totaled $226.6 million, a decrease of $2.4 million, or 1.0%, from total liabilities at June
30, 2015. The decrease in liabilities was attributed primarily to a decrease of $9.3 million or 4.7% in deposits which totaled
$190.4 million at March 31, 2016, and was partially offset by an increase of $7.2 million or 26.9% in FHLB advances 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 March 31, 2016, the Company’s shareholders’ equity totaled $67.4 million, an increase of $134,000 or 0.2% 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 March 31, 2016 (continued)
The Company paid dividends of $1.1 million
or 98.9% of net income for the nine 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 was 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 Nine Month Periods Ended March 31, 2016 and 2015
General
Net income totaled $1.1 million for the
nine months ended March 31, 2016, a decrease of $414,000 or 27.0% from net income of $1.5 million for the same period in 2015.
The decrease in net earnings for the recently-ended nine-month period was primarily attributable to lower net interest income,
higher non-interest expense, and lower non-interest income, while partially offset by lower provision for loan losses.
Net Interest Income
Net interest income after provision for
loan losses decreased $228,000 or 2.8% and totaled $7.8 million and $8.0 million for the nine months ended March 31, 2016 and 2015,
respectively. Provision for loan losses decreased by $291,000 or 96.3% to $11,000 for the nine month period just ended compared
to $302,000 for the prior year period. Interest income decreased $564,000 or 6.0%, to $8.8 million, while interest expense decreased
$45,000 or 4.2% to $1.0 million for the nine months ended March 31, 2016, after amortization of fair value adjustments on interest
bearing accounts.
Interest income on loans decreased $551,000
or 6.1% to $8.5 million, due primarily to a decrease in the average rate earned on the loan portfolio as borrowers modified their
loans to lower interest rates currently offered by the Banks and new loans were originated at those lower rates. The average rate
earned on loans outstanding decreased 28 basis points to 4.64% for the nine month period just ended, while the average balance
of loans outstanding decreased $935,000 to $245.4 million. Interest income on mortgage-backed residential securities (“MBS”)
decreased $11,000 or 13.1% to $73,000 for the nine months ended March 31, 2016, as the average balance decreased $947,000 or 26.8%
to $2.6 million for the recently ended period, while the average rate earned increased 60 basis points to 3.77% compared to the
period a year ago. Interest income on other securities, primarily composed of agency bonds, totaled $17,000 during the recent nine
month period, compared to $19,000 for the prior year period. The average balance of other investment securities was $4.0 million
for the nine month period just ended and the average rate earned on those securities was 57 basis points.
Kentucky First Federal Bancorp
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Comparison of Operating Results for
the Nine Month Periods Ended March 31, 2016 and 2015 (continued)
Net Interest Income
(continued)
Interest income on interest-bearing deposits
and other was unchanged for the period just ended compared to the prior year period.
Interest expense on deposits decreased
$93,000 or 10.4% to $805,000 for the nine month period ended March 31, 2016, due primarily to a decrease in the average balance
of deposits outstanding. Average deposits outstanding decreased $13.5 million or 6.6% to $191.6 million for the recently ended
nine month period, while the average rate paid on deposits decreased 2 basis points to 56 basis points for the current year period.
Interest expense on borrowings increased $48,000 or 26.7% to $228,000 for the nine month period ended March 31, 2016, compared
to the prior year period. The increase in interest expense on borrowings was attributed to a higher average balance outstanding
as the average balance outstanding increased $13.3 million or 70.0% to $32.2 million, while the average rate paid on borrowings
decreased 33 basis points to 94 basis points for the recently ended period.
Net interest margin decreased from 4.11%
for the prior year period to 3.87% for the nine months ended March 31, 2016, primarily due to a decrease in rates earned on loans.
In the current low interest rate environment the Company seeks to retain loans by allowing borrowers to modify their existing
loans to prevailing interest rates. In addition to lower rates earned on loan modifications, the Company’s new loan production
also carries lower interest rates. Because of the length of time that the interest rate cycle has remained low, most of the Company’s
interest-bearing liabilities have already repriced lower, which prevents further reductions in interest expense. Although the loan
portfolio is heavily weighted toward adjustable rate loan products, the loans are not expected to produce quick results when interest
rates begin to rise. Therefore, the Company anticipates continued downward pressure on its net interest margin if the low interest
rate environment continues.
Provision for Losses on Loans
The Company recorded $11,000 in
provision for losses on loans during the nine months ended March 31, 2016, compared to a provision of $302,000 for the nine
months ended March 31, 2015. The decreased provision was primarily due to improving asset quality, reduced loan charge-offs,
some loan recoveries and slightly declining loan balances. 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 $221,000 for
the nine months ended March 31, 2016, a decrease of $175,000 or 44.2% from the same period in 2015. The decrease in non-interest
income was primarily attributable to items associated with REO, as the Company recorded valuation adjustments totaling $150,000
or $123,000 higher in the recently ended period compared to the prior year period and net gain on sales of REO of $52,000, which
totaled $72,000 lower than the prior year gain. Somewhat offsetting the decrease in non-interest income from REO activities was
an increase in net gains on sales of loans, which totaled $41,000 for the nine month period ended March 31, 2016, an increase of
$13,000 or 46.4% compared to the 2015 period.
Kentucky First Federal Bancorp
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Comparison of Operating Results for
the Nine Month Periods Ended March 31, 2016 and 2015 (continued)
Non-interest Expense
Non-interest expense totaled $6.5 million
and $6.1 million for the nine months ended March 31, 2016 and 2015, respectively, an increase of $356,000 or 5.8% period to period.
The increase was primarily related to higher costs associated with employee compensation and benefits and an increase in other
non-interest expense, while being somewhat offset by decreases in foreclosure and REO expenses as well as data processing and outside
service fees. Employee compensation and benefits totaled $4.1 million for the nine months ended March 31, 2016, an increase of
$384,000 or 10.4% over the prior year period due primarily to expenses associated with the Company’s defined benefit (“DB”)
pension plan. Plan expenses totaled $557,000 during the nine-month period just ended compared to $226,000 in the nine-month period
a year ago, an increase of $331,000 or 146.5%. In the previous fiscal year plan expenses for the DB plan were reduced because of
sufficient funding levels, while acknowledging that additional expenses would be incurred in the current fiscal year. Management
expects to reduce the DB expense levels for the next three months as it seeks to combine the plans of the banks into a single plan.
Funding levels for both DB plans remain satisfactory in management’s opinion, while management continues its plans to realign
its compensation practices. Other non-interest expenses increased $118,000 or 16.9% and totaled $815,000 for the recently ended
period, primarily due to the Company’s promotional activities and communications costs. Along with newly-acquired facilities,
the Company is currently promoting its lending and deposit services through media advertising and rebranding. First Federal of
Hazard began occupying its newly-acquired main office during the quarter just ended, while First Federal of Kentucky began operating
in its newly-acquired east Frankfort branch facility during the second quarter of this fiscal year. Advertising and communications
expenses increased $46,000 or 61.6% and $34,000 or 49.1%, respectively from year to year. Advertising and rebranding expenses totaled
$120,000 for the nine month period just ended compared to $74,000 in the prior year period, while telephone/communications expense
totaled $103,000 compared to $69,000 in the last year period. Foreclosure and REO expenses totaled $73,000, a decrease of $82,000
or 52.9% for the nine months ended March 31, 2016, as the Company continued to work through its REO process. Data processing expense
totaled $290,000, a decrease of $37,000 or 11.3%, for the recently ended nine month period compared to the prior year period. Outside
service fees decreased $32,000 or 20.9% to $121,000 for the recently ended period.
Federal Income Tax Expense
Federal income taxes expense totaled $411,000
for the nine months ended March 31, 2016, compared to $756,000 in the prior year period primarily due to lower income but also
due to the reversal of a FIN 48 reserve related to a previously received federal tax refund. The effective tax rates were 26.9%
and 33.0% for the nine month periods ended March 31, 2016 and 2015, respectively.
Comparison of Operating Results for
the Three Month Periods Ended March 31, 2016 and 2015
General
Net income totaled $178,000 for the three
months ended March 31, 2016, a decrease of $361,000 or 67.0% from net income of $539,000 for the same period in 2015, primarily
due to lower net interest income, higher non-interest expense and lower non-interest income, while partially offset by lower provision
for loan losses.
Kentucky First Federal Bancorp
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Comparison of Operating Results for
the Three Month Periods Ended March 31, 2016 and 2015
(continued)
Net Interest Income
Net interest income decreased $246,000
or 8.9% to $2.5 million for the three month period ended March 31, 2016, while net interest income after provision for loan loss
decreased $210,000 or 7.7% to $2.5 million. There was no provision for losses on loans in the recently-ended quarter compared to
a provision of $36,000 in the prior year period. Interest income decreased by $278,000, or 8.9%, to $2.9 million, while interest
expense decreased $32,000 or 8.6% to $341,000 for the three months ended March 31, 2016, after amortization of fair value adjustments
on interest bearing accounts.
Interest income on loans decreased $282,000
or 9.3% to $2.8 million, due primarily to a decrease in the average rate earned on the loan portfolio as borrowers modified their
loans to lower interest rates currently offered by the Banks and new loans were originated at those lower rates. The average rate
earned on the loan portfolio decreased 42 basis points to 4.52% for the three month period ended March 31, 2016, while the average
balance of the loan portfolio decreased $2.2 million or 0.9% to $243.7 million. Interest income on other interest-bearing investments
increased only slightly from the prior year period to the recently ended quarterly period.
Interest expense on deposits decreased
$55,000 or 17.7% to $257,000 for the three month period ended March 31, 2016, while interest expense on borrowings increased $23,000
or 37.7% to $84,000 for the same period. The decrease in interest expense on deposits was attributed to both a decrease in the
average balance of deposits and to a decrease in the average rate paid on deposits. The average balance of deposits decreased $11.5
million or 5.7% to $188.4 million for the most recent period, while the average balance paid on deposits decreased 7 basis points
to 55 basis points. The decrease in average deposits was attributed to rate-sensitive deposit customers withdrawing funds to seek
additional yield as the historically low interest rate environment continues. The increase in interest expense on borrowings was
attributed primarily to higher average outstanding balances, while the rate paid on amounts outstanding decreased period to period.
The average balance of borrowings outstanding increased $13.6 million or 57.7% to $37.3 million for the recently ended three month
period, while the average rate paid on borrowings decreased 13 basis points to 90 basis points for the most recent period.
Net interest margin decreased from 4.12%
for the prior year quarterly period to 3.73% for the quarter ended March 31, 2016, as interest-earning assets reprice to lower
interest rates. Borrowers are permitted to modify their existing loans to lower prevailing interest rates and new loan production
also carries lower interest rates, while interest-bearing liabilities have already repriced to lower interest rates. Therefore,
the Company anticipates continued downward pressure on its net interest margin if the lower interest rate environment continues.
Provision for Losses on Loans
The Company recorded no provision for
losses on loans during the three months ended March 31, 2016, compared to a $36,000 provision for the three months ended
March 31, 2015, primarily due to improving asset quality, reduced loan charge-offs, some loan recoveries and slightly
declining loan balances. 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 a $19,000 loss
for the three months ended March 31, 2016, a decrease of $87,000 from the $68,000 income reported in same period in 2015, primarily
due to valuation adjustments on REO. The Company wrote down $111,000 on its REO holdings during the recently ended quarter based
on newly-acquired appraisals.
Kentucky First Federal Bancorp
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Comparison of Operating Results for
the Three Month Periods Ended March 31, 2016 and 2015
(continued)
Non-interest Expense
Non-interest expense totaled $2.2 million
and $2.0 million for the three months ended March 31, 2016 and 2015, respectively, an increase of $249,000 or 12.5% period to period.
The increase was primarily related to higher costs associated with employee compensation and benefits and an increase in other
non-interest expense. Employee compensation and benefits totaled $1.4 million for the three months ended March 31, 2016, an increase
of $254,000 or 21.4% over the prior year period due primarily to expenses associated with the Company’s defined benefit (“DB”)
pension plan. Plan expenses totaled $203,000 during the three-month period just ended compared to nil in the three-month period
a year ago. Other non-interest expenses increased $102,000 or 57.9% and totaled $278,000 for the recently ended quarter, primarily
due to the Company’s promotional activities and communications costs. Advertising and communications expenses increased $23,000
or 93.0% and $18,000 or 64.5%, respectively from year to year. Advertising and rebranding expenses totaled $49,000 for the three
month period just ended compared to $25,000 in the prior year period, while telephone/communications expense totaled $45,000 compared
to $27,000 in the last year period. Outside service fees totaled $30,000, a decrease of $36,000 or 54.5% for the three months ended
March 31, 2016, while occupancy and equipment expense totaled $167,000, a decrease of $31,000 or 15.7%, for the recently ended
three month period compared to the prior year period.
Federal Income Tax Expense
Federal income taxes expense
totaled $81,000 for the three months ended March 31, 2016, compared to $266,000 in the prior year period, principally due to
lower pre-tax income. The effective tax rates were 31.4% and 33.0% for the three-month periods ended March 31, 2016 and 2015,
respectively.
Kentucky First Federal Bancorp