UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

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

 

For the quarterly period ended March 31, 2024

 

OR

 

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

 

For the transition period from ____________ to _______________

 

Commission File Number: 0-51176

 

KENTUCKY FIRST FEDERAL BANCORP

(Exact name of registrant as specified in its charter)

 

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

 

655 Main Street, Hazard, Kentucky 41702

(Address of principal executive offices)(Zip Code)

 

(502) 223-1638

(Registrant’s telephone number, including area code)

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: At May 12, 2024, the latest practicable date, the Corporation had 8,098,715 shares of $.01 par value common stock outstanding.

 

 

 

 

 

 

INDEX

 

  Page
PART I FINANCIAL INFORMATION 1
   
ITEM 1 FINANCIAL STATEMENTS 1
   
Condensed Consolidated Balance Sheets 1
   
Condensed Consolidated Statements of Operations 2
   
Condensed Consolidated Statements of Comprehensive Income 3
   
Consolidated Statements of Changes in Shareholders’ Equity 4
   
Condensed Consolidated Statements of Cash Flows 6
   
Notes to Condensed Consolidated Financial Statements 8
   
ITEM 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations 29
   
ITEM 3 Quantitative and Qualitative Disclosures About Market Risk 37
   
ITEM 4 Controls and Procedures 37
   
PART II OTHER INFORMATION 38
   
SIGNATURES 40

 

i

 

 

PART I-FINANCIAL INFORMATION

 

ITEM 1: Financial Statements

 

Kentucky First Federal Bancorp

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except share data)

 

   March 31,   June 30, 
   2024   2023 
ASSETS        
         
Cash and due from financial institutions  $1,906   $2,284 
Fed funds sold   693    665 
Interest-bearing demand deposits   12,824    5,218 
Cash and cash equivalents   15,423    8,167 
           
Securities available-for-sale   10,225    12,080 
Securities held-to-maturity, at amortized cost- approximate fair value of $210 and $259 at March 31, 2024 and June 30, 2023, respectively   223    274 
Loans, net of allowance for credit loss of $2,106 and $1,634 at March 31, 2024 and June 30, 2023, respectively1   328,134    313,807 
Real estate owned, net   10    70 
Premises and equipment, net   4,317    4,435 
Federal Home Loan Bank stock, at cost   4,528    4,623 
Accrued interest receivable   1,226    902 
Bank-owned life insurance   2,894    2,831 
Goodwill   947    947 
Prepaid federal income taxes   239    144 
Prepaid expenses and other assets   934    742 
           
Total assets  $369,100   $349,022 
           
LIABILITIES AND SHAREHOLDERS’ EQUITY          
           
Deposits  $246,104   $226,309 
Federal Home Loan Bank advances   72,348    70,087 
Advances by borrowers for taxes and insurance   643    793 
Accrued interest payable   150    70 
Deferred income taxes   156    513 
Other liabilities   685    539 
Total liabilities   320,086    298,311 
           
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   34,891    34,891 
Retained earnings   18,402    20,130 
Unearned employee stock ownership plan (ESOP)   
–
    
–
 
Treasury shares at cost, 509,349 common shares at March 31, 2024 and June 30, 2023, respectively   (3,969)   (3,969)
Accumulated other comprehensive loss   (396)   (427)
Total shareholders’ equity   49,014    50,711 
           
Total liabilities and shareholders’ equity  $369,100   $349,022 

 

1 Beginning July 1, 2023 the ACL was estimated based on current expected credit loss methodology. Prior to July 1, 2023, the estimate was based on the incurred loss methodology. See additional discussion in Note 1, Basis of Presentation.

 

See accompanying notes to condensed consolidated financial statements.

 

1

 

 

Kentucky First Federal Bancorp

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(Dollars in thousands, except per share data)

 

   Nine months ended
March 31,		   Three months ended
March 31,		 
   2024   2023   2024   2023 
Interest income                
Loans, including fees  $10,927   $8,522   $3,841   $2,983 
Mortgage-backed securities   288    345    97    116 
Interest-bearing deposits and other   619    359    235    111 
Total interest income   11,834    9,226    4,173    3,210 
                     
Interest expense                    
Interest-bearing demand deposits   23    29    7    9 
Savings   165    235    53    62 
Certificates of Deposit   4,122    844    1,526    383 
Deposits   4,310    1,108    1,586    454 
Borrowings   2,432    1,193    822    711 
Total interest expense   6,742    2,301    2,408    1,165 
Net interest income   5,092    6,925    1,765    2,045 
Provision for (recovery of) credit losses   (13)   113    (28)   
–
 
Net interest income after provision for credit losses   5,105    6,812    1,793    2,045 
                     
Non-interest income                    
Earnings on bank-owned life insurance   63    60    21    20 
Net gain on sales of loans   14    6    8    
–
 
Net gain on sales of real estate owned   4    
–
    
--
    
–
 
Net gain on sale of property and equipment held for sale   
--
    10    
--
    
–
 
Other   118    160    49    49 
Total non-interest income   199    236    78    69 
                     
Non-interest expense                    
Employee compensation and benefits   3,761    3,697    1,246    1,243 
Data processing   395    330    115    100 
Occupancy and equipment   442    469    153    156 
FDIC insurance premiums   164    63    57    22 
Voice and data communications   93    93    35    32 
Advertising   124    110    36    31 
Outside service fees   284    181    72    77 
Auditing and accounting   258    212    86    36 
Regulatory assessments   49    67    17    17 
Foreclosure and real estate owned expenses (net)   64    77    21    32 
Franchise and other taxes   80    107    28    29 
Other   433    468    150    141 
Total non-interest expense   6,147    5,874    2,016    1,916 
                     
Income (loss) before income taxes   (843)   1,174    (145)   198 
                     
Income tax expense (benefit)   (200)   283    (38)   54 
                     
NET INCOME (LOSS)  $(643)  $891   $(107)  $144 
                     
EARNINGS PER SHARE                    
Basic and diluted
  $(0.08)  $0.11   $(0.01)  $0.02 
DIVIDENDS PER SHARE  $0.20   $0.30   $
--
   $0.10 

 

See accompanying notes to condensed consolidated financial statements.

 

2

 

 

Kentucky First Federal Bancorp

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In thousands)

 

   Nine months ended
March 31,		   Three months ended
March 31,		 
   2024   2023   2024   2023 
Net income (loss)  $(643)  $891   $(107)  $144 
                     
Other comprehensive gains (losses), net of tax:                    
Unrealized holding gains (losses) on securities designated as available-for-sale, net of taxes of $11, $(119), $(21) and $(6) during the respective periods   31    (361)   (62)   (18)
Comprehensive income (loss)  $(612)  $530   $(169)  $126 

 

See accompanying notes to condensed consolidated financial statements.

 

3

 

 

Kentucky First Federal Bancorp

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

For the nine months ended

(Unaudited)

 

(Dollar amounts in thousands, except per share data)

 

March 31, 2024

 

   Common
stock		   Additional
paid-in
capital		   Retained
earnings		   Treasury
shares		   Accumulated
other
comprehensive
income (loss)		   Total 
Balance at June 30, 2023  $86   $34,891   $20,130   $(3,969)  $(427)  $50,711 
Cumulative impact of adoption of ASC 326   –    
–
    (414)   
–
    
–
    (414)
Balance at July 1, 2023   86    34,891    19,716    (3,969)   (427)   50,297 
Net loss   –    
–
    (643)   
–
    
–
    (643)
Other comprehensive income   –    
–
    
–
    
–
    31    31 
Cash dividends of $0.20 per common share   –    
–
    (671)   
–
    
–
    (671)
                               
Balance at March 31, 2024  $86   $34,891   $18,402   $(3,969)  $(396)  $49,014 

 

March 31, 2023

 

   Common
stock		   Additional
paid-in
capital		   Retained
earnings		   Unearned
employee
stock
ownership
plan
(ESOP)		   Treasury
shares		   Accumulated
other
comprehensive
loss		   Total 
Balance at June 30, 2022  $        86   $34,892   $20,560   $         (5)  $(3,508)  $
                –
   $52,025 
                                    
Net income   –    
–
    891    
–
    
–
    
–
    891 
Allocation of ESOP shares   –    (1)   
–
    5    
–
    
–
    4 
Acquisition of shares for Treasury   –    
–
    
–
    
–
    (394)   
–
    (394)
Other comprehensive loss                            (361)   (361)
Cash dividends of $0.30 per common share   –    
–
    (1,026)   
–
    
–
    
–
    (1,026)
                                    
Balance at March 31, 2023  $86   $34,891   $20,425   $
-
   $(3,902)  $(361)  $51,139 

 

See accompanying notes to condensed consolidated financial statements.

 

4

 

 

Kentucky First Federal Bancorp

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

For the three months ended

(Unaudited)

 

(Dollar amounts in thousands, except per share data)

 

March 31, 2024

 

   Common
stock		   Additional
paid-in
capital		   Retained
earnings		   Treasury
shares		   Accumulated
other
comprehensive
loss		   Total 
Balance at December 31, 2023  $86   $34,891   $18,509   $(3,969)  $(334)  $49,183 
                               
Net income   –    
–
    (107)   
–
    
–
    (107)
Other comprehensive loss                       (62)   (62)
                               
Balance at March 31, 2024  $86   $34,891   $18,402   $(3,969)  $(396)  $49,014 

 

March 31, 2023

 

   Common
stock		   Additional
paid-in
capital		   Retained
earnings		   Treasury
shares		   Accumulated
other
comprehensive
loss		   Total 
Balance at December 31, 2022  $86   $34,892   $20,622   $(3,616)  $(343)  $51,641 
                               
Net income   –    
–
    144    –    
–
    144 
Allocation of ESOP shares   –    (1)   
–
    
–
         (1)
Acquisition of shares for Treasury   –    
–
    
–
    (286)   
 
    (286)
Other comprehensive loss                       (18)   (18)
Cash dividends of $0.10 per common share   –    
–
    (341)   
–
    
–
    (341)
                               
Balance at March 31, 2023  $86   $34,891   $20,425   $(3,902)  $(361)  $51,139 

 

See accompanying notes to condensed consolidated financial statements.

 

5

 

 

Kentucky First Federal Bancorp

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

 

   Nine months ended
March 31,		 
   2024   2023 
Cash flows from operating activities:        
Net income (loss)  $(643)  $891 
Adjustments to reconcile net income to net cash provided by operating activities          
Depreciation   178    195 
Accretion of purchased loan credit discount   (30)   (34)
Amortization of deferred loan origination costs (fees)   2    (19)
Amortization of premiums on investment securities   (18)   (22)
Net gain on sale of loans   (14)   (6)
Net loss (gain) on sale of real estate owned   (8)   
–
 
Net gain on sale of property & equipment   
–
    (10)
ESOP compensation expense   
–
    4 
Earnings on bank-owned life insurance   (63)   (60)
Provision for (recovery of) credit losses   (13)   113 
Origination of loans held for sale   (512)   (157)
Proceeds from loans held for sale   526    315 
Deferred income tax   (231)   
–
 
Increase (decrease) in cash, due to changes in:          
Accrued interest receivable   (324)   (238)
Prepaid expenses and other assets   (287)   (38)
Accrued interest payable   80    36 
Other liabilities   89    
–
 
Income taxes   
–
    32 
Net cash provided by (used in) operating activities   (1,268)   1,002 
           
Cash flows from investing activities:          
Purchase of investments available for sale   
–
    (4,974)
Purchase of FHLB stock   (1,310)   (251)
Maturities of time deposits in other financial institutions   
–
    
–
 
Securities maturities, prepayments and calls:          
Held to maturity   47    46 
Available for sale   1,918    2,133 
Proceeds from redemption of FHLB stock   1,405    2,061 
Loans originated for investment, net of principal collected   (14,780)   (32,497)
Proceeds from sale of property and equipment held for sale   
–
    180 
Proceeds from REO   68    
–
 
Proceeds from sale of real estate owned   
–
    
–
 
Additions to premises and equipment, net   (60)   (122)
Net cash provided by (used in) investing activities   (12,712)   (33,424)
           
Cash flows from financing activities:          
Net increase (decrease) in deposits   19,796    (30,466)
Payments by borrowers for taxes and insurance, net   (150)   (263)
Proceeds from Federal Home Loan Bank advances   70,003    119,750 
Repayments on Federal Home Loan Bank advances   (67,742)   (72,917)
Treasury stock purchased   
–
    (394)
Dividends paid on common stock   (671)   (1,026)
Net cash provided by (used in) financing activities   21,236    14,684 
           
Net increase (decrease) in cash and cash equivalents   7,256    (17,738)
           
Beginning cash and cash equivalents   8,167    25,823 
           
Ending cash and cash equivalents  $15,423   $8,085 

 

See accompanying notes to condensed consolidated financial statements.

 

6

 

 

Kentucky First Federal Bancorp

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(Unaudited)

(In thousands)

 

   Nine months ended
March 31,		 
   2024   2023 
Supplemental disclosure of cash flow information:        
         
Cash paid during the period for:        
         
Income taxes  $125   $250 
           
Interest on deposits and borrowings  $6,662   $2,265 
           
Transfers of loans to real estate owned, net  $
–
   $60 

 

See accompanying notes to condensed consolidated financial statements.

 

7

 

 

Kentucky First Federal Bancorp

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2024

(unaudited)

 

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

 

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

 

Note 1. Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements, which represent the condensed consolidated balance sheets and results of operations of the Company, were prepared in accordance with the instructions for Form 10-Q and, therefore, do not include information or footnotes necessary for a complete presentation of financial position, results of operations and cash flows in conformity with U.S. generally accepted accounting principles. However, in the opinion of management, all adjustments (consisting of only normal recurring adjustments) which are necessary for a fair presentation of the condensed consolidated financial statements have been included. The results of operations for the nine-month period ended March 31, 2024, are not necessarily indicative of the results which may be expected for an entire fiscal year. The condensed consolidated balance sheet as of June 30, 2023, has been derived from the audited consolidated balance sheet as of that date. Certain information and note disclosures normally included in the Company’s annual financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Form 10-K annual report for 2023 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.

 

Critical Accounting Policies and Estimates

 

Investments – Management determines the classification of debt securities at purchase as held-to-maturity, trading, or available-for-sale. Held-to-maturity securities are those we have both the intent and ability to hold to maturity and are reported at amortized cost. Securities that are not considered held-to-maturity are considered either trading or available-for-sale securities in accordance with Financial Accounting Standards Board Accounting Standards Codification (“ASC”) 320, Investments – Debt Securities, and are reported at fair value in the statement of financial position. We have no trading securities. The adjustment to fair value for available-for-sale securities for unrealized gains and losses is included as a separate component of shareholders’ equity, net of tax.

 

Loans – Loans for which we have the ability and intent to hold until maturity and/or payoff are reported at the carrying value of the unpaid principal reduced by unearned interest, an allowance for credit losses and unamortized deferred fees and costs and premiums. Interest income is accrued on a level yield basis. In circumstances where management believes that collection of interest income is uncollectible on specific loans, after considering economic and business conditions, collateral value and collection efforts, interest accrual is discontinued. Interest income may be recognized on the cash basis when received unless a determination has been made by management to apply all of the payment against principal.

 

8

 

 

Kentucky First Federal Bancorp

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2024

(unaudited)

 

Note 1. Basis of Presentation (continued)

 

Critical Accounting Policies and Estimates (continued)

 

Allowance for Credit Losses – We account for the allowance for credit losses under ASC 326, Measurement of Credit Losses on Financial Instruments, which is commonly known as CECL. We measure expected credit losses of financial assets on a weighted average remaining maturity (WARM) basis.

 

We maintain an allowance for credit losses (“ACL”) at a level that is appropriate to cover estimated credit losses on individually evaluated loans, as well as estimated credit losses inherent in the estimated life of the loan portfolio. Credit losses are charged to and recoveries are credited to the ACL.

 

Loans with similar risk characteristics are evaluated on a collective basis within homogeneous loan pools under ASC 326. Our homogeneous loan pools are primarily determined by loan purpose and collateral type. Pools include residential real estate (composed of one-to four-family, multi-family, and construction), land, farm, nonresidential real estate, commercial and industrial, and consumer loans (composed of Loans on deposit, home equity, automobile, and unsecured). Credits that are nonaccrual status are subject to individual evaluation.

 

Historical loss rates for loans are adjusted for significant factors that, in management’s judgment, reflect the impact of any current conditions on loss recognition. Qualitative factors used to derive our ACL include delinquency trends, current economic conditions and trends, strength of supervision and administration of the loan portfolio, levels of underperforming loans, trends in loan losses and underwriting exceptions. Reasonable and supportable economic forecasts that may offset collectibility are also included as factors in our ACL model. Management continually reevaluates the other subjective factors included in its ACL analysis.

 

Income Taxes – Income tax expense is based on the taxes due on the consolidated tax return plus deferred taxes on the expected future tax benefits and consequences of temporary differences between carrying amounts and tax bases of assets and liabilities, using enacted tax rates.

 

New Accounting Standards

 

FASB ASC 326 - In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This standard requires credit losses on most financial assets and certain other instruments to be measured using an expected loss model, which is referred to as the current expected credit loss (CECL) model. Under this model entities estimate credit losses over the entire contractual term of the instrument (considering estimated prepayments, but not expected extensions or modifications) from the date of initial recognition of that instrument. The ASU replaces the current accounting model for purchased credit impaired and debt securities. The allowance for credit losses for purchased financial assets with a more-than-insignificant amount of credit deterioration since origination (referred to as “PCD assets”), should be determined in a similar manner to other financial assets measured on an amortized cost basis. However, upon initial recognition, the allowance for credit losses is added to the purchase price to determine the initial amortized cost basis. The subsequent accounting for PCD financial assets is the same expected loss model described herein.

 

9

 

 

Kentucky First Federal Bancorp

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2024

(unaudited)

 

Note 1. Basis of Presentation (continued)

 

New Accounting Standards (continued)

 

The Company will now use forward-looking information to enhance its credit loss estimates. The amendment requires enhanced disclosures to aid investors and other users of financial statements to better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of our portfolio. The largest impact to the Company was on its allowance for loan and lease losses, although the ASU also amends the accounting for credit losses on available-for-sale debt securities, held-to-maturity securities, and purchased financial assets with credit deterioration. The standard was effective for public companies for annual periods and interim periods within those annual periods beginning after December 15, 2019. However, the FASB delayed the implementation of the ASU for smaller reporting companies until years beginning after December 15, 2022, or in the Company’s case the fiscal year beginning July 1, 2023. ASU 2016-13 was applied through a cumulative effect adjustment to retained earnings (modified-retrospective approach).

 

In addition, ASC 326 made changes to the accounting for available-for-sale (“AFS”) debt securities. One such change requires credit losses to be presented as an allowance rather than as a write-down on AFS securities. Management does not intend to sell or believes that it is more likely than not that they will be required to sell.

 

We adopted ASC 326 effective July 1, 2023, using the modified retrospective method for all financial assets measured at amortized cost and off-balance sheet (“OBS”) credit exposures. Results for reporting periods beginning after July 1, 2023 are presented under ASC 326, while prior period amounts continue to be reported in accordance with previously applicable GAAP.

 

Upon adoption of the ASU we recorded an increase in the allowance for credit loss (“ACL”) for loans which represented a $497,000 increase from the Allowance for Loan Losses (“ALLL”) at June 30, 2023. This transaction further resulted in an increase of $54,000 to the ACL for unfunded commitments, a decrease of $414,000 to retained earnings and a deferred tax asset of $137,000.

 

The following table illustrates the impact of ASC 326 at July 1, 2023:

 

   As Reported   Pre-ASC   Impact of 
   Under   326   ASC 326 
(Dollars in thousands)  ASC 326   Adoption   Adoption 
Assets:            
Loans            
Residential real estate:            
One- to four-family  $1,597   $857   $740 
Multi-family   133    278    (145)
Construction   138    41    97 
Land   15    1    14 
Farm   6    4    2 
                
Nonresidential real estate   184    405    (221)
Commercial and industrial   5    23    (18)
Consumer and other:               
Loans on deposits   
-
    1    (1)
Home equity   51    23    28 
Automobile   1    
-
    1 
Unsecured   1    1    - 
Allowance for credit losses on loans  $2,131    1,634    497 
                
Liabilities:               
Allowance for credit losses on unfunded credit exposures  $54    
-
    54 

 

10

 

 

Kentucky First Federal Bancorp

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2024

(unaudited)

 

Note 1. Basis of Presentation (continued)

 

New Accounting Standards (continued)

 

ASU 2019-05, Financial Instruments-Credit Losses, Targeted Transition Relief, allows entities to irrevocably elect, upon adoption of ASU 2016-13, the fair value option on financial instruments that (1) were previously recorded at amortized cost and (2) are within the scope of ASC 326-20, if the instruments are eligible for the fair value option under ASC 825-10. The fair value option election does not apply to held-to-maturity debt securities. Entities are required to make this election on an instrument-by-instrument basis. ASU 2019-05 has the same effective date as ASU 2016-13. We adopted ASU 2019-05 on July 1, 2023, and did not elect the fair value option on any financial instruments.

 

ASU No. 2022-02, Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures, eliminates the accounting guidance for troubled debt restructurings (“TDRs”) by creditors in Subtopic 310-40, Receivables-Troubled Debt Restructurings by Creditors, for entities that have adopted the current expected credit loss model introduced by ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.  ASU 2022-02 also requires disclosure by public business entities of current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20, Financial Instruments-Credit Losses-Measured at Amortized Cost. The Company adopted the standard on July 1, 2023.

 

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

 

Note 2. Earnings Per Share

 

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

 

   Nine months ended
March 31,		   Three months ended
March 31,		 
   2024   2023   2024   2023 
Net income (loss) allocated to common shareholders, basic and diluted  $(643,000)  $891,000   $(107,000)  $144,000 
                     
EARNINGS PER SHARE  $(0.08)  $0.11   $(0.01)  $0.02 
Weighted average common shares outstanding, basic and diluted
   8,098,715    8,144,767    8,098,715    8,129,006 

 

There were no stock option shares outstanding for the nine- or three-month periods ended March 31, 2024 and 2023.

 

11

 

 

Kentucky First Federal Bancorp

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2024

(unaudited)

 

Note 3. Investment Securities

 

The following table summarizes the amortized cost and fair value of securities available-for-sale and securities held-to-maturity at March 31, 2024 and June 30, 2023, the corresponding amounts of gross unrealized gains recognized in accumulated other comprehensive income and gross unrecognized gains and losses:

 

   March 31, 2024 
(in thousands)  Amortized
cost		   Gross
unrealized
gains		   Gross
unrealized
losses		   Estimated
fair value		 
Available-for-sale Securities                
Agency mortgage-backed: residential  $10,752   $
        –
   $527   $10,225 
                     
Held-to-maturity Securities                    
Agency mortgage-backed: residential  $223   $
–
   $13   $210 

 

   June 30, 2023 
(in thousands)  Amortized
cost		   Gross
unrealized
gains		   Gross
unrealized
losses		   Estimated
fair value		 
Available-for-sale Securities                
Agency mortgage-backed: residential  $12,649   $
         –
   $569   $12,080 
                     
Held-to-maturity Securities                    
Agency mortgage-backed: residential  $274   $
–
   $15   $259 

 

At March 31, 2024 and June 30, 2023 the Company’s debt securities consisted of mortgage-backed securities, which do not have a single maturity date. Actual maturities may differ from contractual maturities, because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

 

Our pledged securities totaled $0 and $5.9 million at March 31, 2024 and June 30, 2023, respectively. In addition, at March 31, 2024 and June 30, 2023, our pledged assets included overnight deposits of $0 and $1.5 million, respectively. The Banks began utilizing FHLB letters of credit to secure public deposits in the recently ended quarter.

 

We evaluated securities in unrealized loss positions for evidence of credit loss, considering duration, severity, financial condition of the issuer, our intention to sell or requirement to sell. Those securities were agency mortgage-backed securities, which carry a very limited amount of risk. Also, we have no intention to sell nor feel that we will be compelled to sell such securities before maturity. Based on our evaluation, no reserve for credit loss was considered necessary. Debt securities in an unrealized loss position as a percent of total debt securities were 100% and 100% at March 31, 2024 and June 30, 2023, respectively. The following table provides the amortized cost, gross unrealized losses, fair value, and length of time the individual securities have been in a continuous unrealized loss position as of March 31, 2024.

 

12

 

 

Kentucky First Federal Bancorp

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2024

(unaudited)

 

Note 3. Investment Securities (continued) 

 

As of March 31, 2024:

 

Available-for-Sale

 

(in thousands)  Amortized
Cost		   Gross
Unrealized
Losses		   Fair Value 
Less Than 12 Months            
Mortgage-backed securities  $
       –
    
–
    
–
 
12 Months or More               
Mortgage-backed securities   10,752    527    10,225 
Total temporarily impaired AFS securities  $10,752    527    10,225 

 

Held to Maturity

 

(in thousands)  Amortized
Cost		   Gross
Unrealized
Losses		   Fair Value 
Less Than 12 Months            
Mortgage-backed securities  $
                –
   $
       –
   $
    –
 
12 Months or More               
Mortgage-backed securities   223    13    210 
Total temporarily impaired HTM securities  $223    13    210 

 

As of June 30, 2023:

 

Available-for-Sale

 

(in thousands)  Amortized
Cost		   Gross
Unrealized
Losses		   Fair Value 
Less Than 12 Months            
Mortgage-backed securities  $12,649   $569   $12,080 
12 Months or More               
Mortgage-backed securities   
-
    
-
    
-
 
Total temporarily impaired AFS securities  $12,649   $569   $12,080 

.

 

Held to Maturity

 

(in thousands)  Amortized
Cost		   Gross
Unrealized
Losses		   Fair Value 
Less Than 12 Months            
Agency mortgage-backed securities  $
       -
   $
               -
   $
-
 
12 Months or More               
Agency mortgage-backed securities   274    15    259 
Total temporarily impaired HTM securities  $274   $15   $259 

 

13

 

 

Kentucky First Federal Bancorp

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2024

(unaudited)

 

Note 4. Loans receivable

  

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal amount outstanding, adjusted for deferred loan origination costs, net, discounts on purchased loans, and the allowance for credit losses. Interest income is accrued on the unpaid principal balance unless the collectability of the loan is in doubt. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using the level-yield method without anticipating prepayments. Interest income on one- to four-family residential loans is generally discontinued at the time a loan is 180 days delinquent and on other loans at the time a loan is 90 days delinquent. All other loans are moved to non-accrual status in accordance with the Company’s policy, typically 90 days after the loan becomes delinquent. Past due status is based on the contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of principal or interest is considered doubtful. Nonaccrual loans and loans past due 90 days still on accrual include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans.

 

The composition of the loan portfolio was as follows:

 

   March 31,   June 30, 
(in thousands)  2024   2023 
Residential real estate        
One- to four-family  $254,789   $240,076 
Multi-family   15,755    19,067 
Construction   14,239    12,294 
Land   1,069    470 
Farm   1,313    1,346 
Nonresidential real estate   30,329    30,217 
Commercial nonmortgage   867    1,184 
Consumer and other:          
Loans on deposits   795    855 
Home equity   10,326    9,217 
Automobile   122    104 
Unsecured   636    611 
    330,240    315,441 
Allowance for credit losses   (2,106)   (1,634)
   $328,134   $313,807 

 

The amounts above include net deferred loan costs of $312,000 and $330,000 as of March 31, 2024 and June 30, 2023, respectively.

 

The allowance for credit losses is a valuation allowance that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected for the loans. Loan losses are charged off against the allowance when management believes the uncollectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.

 

Management estimates the allowance balance required using relevant available information, from internal and external sources, relating to past events, current conditions and reasonable and supportable forecasts. Historical credit loss experience, derived from the Company’s data, provides the basis for estimation of expected credit losses, although management also compares the Company’s data with peer group data. Adjustments to historical loss information may be made for differences in: lending policy, procedures and practice; economic conditions; the nature and volume of the loan portfolio; volume delinquent and problem loans; the current and anticipated economic conditions in the primary lending area; and other external factors. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged off.

  

Loans that do not share risk characteristics are evaluated on an individual basis. Loans evaluated individually are not included in the pool evaluation. When management determines that foreclosure is probable or when the borrower is experiencing financial difficulty at the reporting date and repayment is expected to be provided substantially through the sale of the collateral, the expected credit losses are based on the fair value of the collateral at the reporting date, less any discounts and selling costs.

 

Management monitors loan performance on a monthly basis and performs a quarterly evaluation of the adequacy of the ACL. The Banks begin enhanced monitoring of all loans rated 5-Watch or worse and obtain a new appraisal or asset valuation for most loans placed on nonaccrual status. New appraisals are usually not obtained on loans with outstanding principal amounts of $50,000 or less. Management, at its discretion, may determine that additional adjustments to the appraisal or valuation are required. Valuation adjustments will be made as necessary based on factors, including, but not limited to: the economy, deferred maintenance, industry, type of collateral, age of the appraisal, etc., and the knowledge Management has about a particular situation. In addition, the cost to sell or liquidate the collateral is also estimated and deducted from the valuation in order to determine the net realizable value to the Banks. When determining the ACL, certain factors involved in the evaluation are inherently subjective and require material estimates that may be susceptible to significant change, including the amounts and timing of future cash flows. Management monitors the adequacy of the ACL on an ongoing basis and reports its adequacy quarterly to the Board of Directors. Management believes the ACL at March 31, 2024 is adequate.

 

14

 

 

Kentucky First Federal Bancorp

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2024

(unaudited)

 

Note 4. Loans receivable (continued)

 

Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments, when appropriate. The contractual term excludes expected extensions, renewals, and modifications unless either of the following applies: management has a reasonable expectation at the reporting date that a modification will be executed with an individual borrower or the extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancellable by the Banks.

 

The Banks categorize 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, and current economic trends, among other factors. Management utilizes a risk rating scale ranging from 1-Highest Pass to 9-Loss to evaluate loan quality. Consumer purpose loans are identified as either performing or nonperforming based on the payment status of the loans. Nonperforming consumer loans are loans that are nonaccrual or 90 days or more past due and still accruing.

 

Our portfolio segments include residential real estate, nonresidential real estate, farm, land, commercial and industrial, and consumer and other loans. Risk factors associated with our portfolio segments are as follows:

 

Residential Real Estate

 

Our primary lending activity is the origination of mortgage loans, which enable a borrower to purchase or refinance existing homes in the Banks’ respective market areas. We further classify our residential real estate loans as one- to four-family (owner-occupied vs nonowner-occupied), multi-family or construction. We believe that our first mortgage position on loans secured by residential real estate presents lower risk than our other loans, with the exception of loans secured by deposits.

 

We offer a mix of adjustable-rate and fixed-rate mortgage loans with terms up to 30 years for owner-occupied properties. For these properties a borrower may be able to borrow up to 97% of the value with private mortgage insurance. Alternatively, the borrower may be able to borrow up to 90% of the value through other programs offered by the bank.

 

We offer loans on one- to four-family rental properties at a maximum of 80% loan-to-value (“LTV”) ratio and we generally charge a slightly higher interest rate on such loans.

 

We also originate loans to individuals to finance the construction of residential dwellings for personal use or for use as rental property. We lend to builders for construction of speculative or custom residential properties for resale. Construction loans are generally less than one year in length, do not exceed 80% of the appraised value, and provide for the payment of interest only during the construction phase. Funds are disbursed as progress is made toward completion of the construction.

 

Multi-family Loans

 

We offer mortgage loans secured by residential multi-family (five or more units). Generally, these loans are originated for 25 years or less and do not exceed 80% of the appraised value. Loans secured by multi-family generally have larger balances and involve a greater degree of risk than one- to four-family residential mortgage loans. These loans depend on the borrower’s creditworthiness and the feasibility and cash flow potential of the project. Payments on loans secured by income properties often depend on successful operation and management of the properties. As a result, repayment on such loans may be subject to a greater extent to adverse conditions in the real estate market or economy than owner-occupied residential loans.

 

15

 

 

Kentucky First Federal Bancorp

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2024

(unaudited)

 

Note 4. Loans receivable (continued)

 

Nonresidential Loans

 

We offer mortgage loans secured by nonresidential real estate comprised generally of commercial office buildings, churches and properties used for other purposes. Generally, these loans are originated for 25 years or less and do not exceed 80% of the appraised value. As with multi-family loans, commercial real estate loans generally have larger balances and involve a greater degree of risk than one- to four-family residential mortgage loans and these loans depend on the borrower’s creditworthiness, as well as the feasibility and cash flow potential of the project. Payments on loans secured by nonresidential properties often depend on successful operation and management of the properties. As a result, repayment on such loans may be subject to a greater extent to adverse conditions in the real estate market or economy than owner-occupied residential loans.

 

Consumer lending

 

Our consumer loans include home equity lines of credit, loans secured by savings deposits, automobile loans, and unsecured loans. Home equity loans are generally second mortgage loans subordinate only to first mortgages also held by the bank and do not exceed 80% of the estimated value of the property. We do offer home equity loans up to 90% of the estimated value to qualified borrowers and these loans carry a premium interest rate. Loans secured by savings are originated up to 90% of the depositor’s savings account balance and bear interest at a rate higher than the rate paid on the deposit account. Because the deposit account must be pledged as collateral to secure the loan, the inherent risk of this type of loan is minimal. Loans secured by automobiles are made directly to consumers (there are no relationships with dealers) and are based on the value of the vehicle and the borrower’s creditworthiness. Vehicle loans present a higher level of risk because of the natural decline in the value of the property as well as its mobility. Unsecured loans are based entirely on the borrower’s creditworthiness and present the highest level of risk to the bank. 

 

Impaired loans

 

The Banks choose the most appropriate method for accounting for impaired loans. For secured loans, which make up the vast majority of the loans in the Banks’ portfolio, this method involves determining the fair value of the collateral, reduced by estimated selling costs. Where appropriate, the Banks would account for impaired loans by determining the present value of expected future cash flows discounted at the loan’s effective interest rate.

 

A loan is considered impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. Although most of our loans are secured by collateral, we rely heavily on the capacity of our borrowers to generate sufficient cash flow to service their debt. As a result, our loans do not become collateral-dependent until there is deterioration in the borrower’s cash flow and financial condition, which makes it necessary for us to look to the collateral for our sole source of repayment. Collateral-dependent loans which are more than ninety days delinquent are considered to constitute more than a minimum delay in repayment and are evaluated for impairment under the policy at that time.

 

We utilize updated independent appraisals to determine fair value for collateral-dependent loans, adjusted for estimated selling costs, in determining our specific reserve. In some situations, management does not secure an updated independent appraisal. These situations may involve small loan amounts or loans that, in management’s opinion, have an abnormally low loan-to-value ratio.

 

With respect to the Banks’ investment in troubled debt restructurings, multi-family and nonresidential loans, and the evaluation of impairment thereof, such loans are nonhomogenous and, as such, may be deemed to be collateral-dependent when they become more than 90 days delinquent. We obtain updated independent appraisals in these situations or when we suspect that the previous appraisal may no longer be reflective of the property’s current fair value. This process varies from loan to loan, borrower to borrower, and also varies based on the nature of the collateral.

 

16

 

 

Kentucky First Federal Bancorp

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2024

(unaudited)

 

Note 4. Loans receivable (continued)

 

The following table presents the activity in the ACL by portfolio segment for the nine months ended March 31, 2024, after restatement of beginning balance for adoption of ASC 326:

 

March 31, 2024:

 

(in thousands)  Pre-ASC
326
Adoption		   Impact of
ASC 326
Adoption		   As
Reported
Under
ASC 326		   Provision
for
(recovery of)
credit losses
on loans		   Loans
charged
off		   Recoveries   Credit Losses for Unfunded
Liabilities		   Ending
balance		 
Residential real estate                                
One- to four-family  $857   $740   $1,597   $58   $      (9)  $
        -
   $
       -
   $1,646 
Multi-family   278    (145)   133    (33)   
-
    
-
    
-
    100 
Construction   41    97    138    (33)   
-
    
-
    (1)   104 
Land   1    14    15    7    
-
    
-
    
-
    22 
Farm   4    2    6    (1)   
-
    
-
    
-
    5 
Nonresidential real estate   405    (221)   184    (13)   
-
    
-
    
-
    171 
Commercial and industrial   23    (18)   5    
-
    
-
    
-
    
-
    5 
Consumer and other                                        
Loans on deposits   1    (1)   
-
    
-
    
-
    
-
    
-
    
-
 
Home equity   23    28    51    2    
-
    
-
    (2)   51 
Automobile   
-
    1    1    (1)   
-
    
-
    
-
    
-
 
Unsecured   1    
-
    1    1    
-
    
-
    
-
    2 
   $1,634   $497   $2,131   $(13)  $(9)  $
-
   $(3)  $2,106 

 

For the nine months ended March 31, 2024, the provision for (recovery of) credit losses totaled $(16,000) including $13,000 of recovery on credit losses on loans and $3,000 recovery on credit losses on unfunded commitments. At March 31, 2024, the allowance for credit losses on unfunded commitments totaled $57,000.

 

The following table presents the activity in the ALLL by portfolio segment for the nine months ended March 31, 2023:

 

(in thousands)  Beginning
balance		   Provision
(credit) for
loan losses		   Loans
charged
off		   Recoveries   Ending
balance		 
Residential real estate:                    
One-to four-family  $800   $44   $         (22)  $          13   $835 
Multi-family   231    96    
–
    
–
    327 
Construction   4    29    
–
    
–
    33 
Land   3    (2)   
–
    
–
    1 
Farm   5    
–
    
–
    
–
    5 
Nonresidential real estate   461    (53)   
–
    
–
    408 
Commercial nonmortgage   2    
–
    
–
    
–
    2 
Consumer and other:                         
Loans on deposits   1    
–
    
–
    
–
    1 
Home equity   21    
–
    
–
    
–
    21 
Automobile   
–
    
–
    
–
    
–
    
–
 
Unsecured   1    (1)   
–
    
–
    
–
 
Totals  $1,529   $113   $(22)  $13   $1,633 

 

17

 

 

Kentucky First Federal Bancorp

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2023

(unaudited)

 

Note 4. Loans receivable (continued)

 

The following table presents the activity in the allowance for credit losses by portfolio segment for the three months ended March 31, 2024:

 

(in thousands)  Beginning
balance		   Provision
for
(recovery of) credit
losses on
loans		   Loans
charged off		   Recoveries   Credit
Losses for
Unfunded
Liabilities		   Ending
balance		 
Residential real estate:                        
One- to four-family  $1,587   $         59   $
               –
   $
             –
   $
          -
   $1,646 
Multi-family   130    (30)   
–
    
–
    
-
    100 
Construction   124    (22)   
–
    
–
    2    104 
Land   22    
-
    
–
    
–
    
-
    22 
Farm   5    
–
    
–
    
–
    
-
    5 
Nonresidential real estate   198    (27)   
–
    
–
    
-
    171 
Commercial nonmortgage   6    (1)   
–
    
–
    
-
    5 
Consumer and other:                       -      
Loans on deposits   
–
    
–
    
–
    
–
    
-
    
–
 
Home equity   59    (8)   
–
    
–
    
-
    51 
Automobile   
–
    
–
    
–
    
–
    
-
    
–
 
Unsecured   1    1    
–
    
–
    
-
    2 
Totals  $2,132   $(28)  $
–
   $
–
   $2   $2,106 

 

The following table presents the activity in the allowance for loan losses by portfolio segment for the three months ended March 31, 2023:

 

(in thousands)  Beginning
balance		   Provision
(credit) for
loan losses		   Loans
charged off		   Recoveries   Ending
balance		 
Residential real estate:                    
One- to four-family  $778   $79   $(22)  $
          –
   $835 
Multi-family   363    (36)   
–
    
–
    327 
Construction   26    7    
–
    
–
    33 
Land   1    
–
    
–
    
–
    1 
Farm   5    
–
    
–
    
–
    5 
Nonresidential real estate   457    (49)   
–
    
–
    408 
Commercial nonmortgage   2    
–
    
–
    
–
    2 
Consumer and other:                         
Loans on deposits   1    
–
    
–
    
–
    1 
Home equity   21    
–
    
–
    
–
    21 
Automobile   
–
    
–
    
–
    
–
    
–
 
Unsecured   1    (1)   
–
    
–
    
–
 
Totals  $1,655   $
–
   $(22)  $
–
   $1,633 

  

18

 

 

Kentucky First Federal Bancorp

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2024

(unaudited)

 

Note 4. Loans receivable (continued)

 

The following table presents the amortized cost basis of collateral-dependent loans by portfolio class as of March 31, 2024. The recorded investment in loans excludes accrued interest receivable due to immateriality.

 

March 31, 2024:

 

(in thousands)  Amortized Cost
Basis		   Ending
allowance on
collateral-
dependent
loans		 
Loans individually evaluated for impairment:        
Residential real estate:        
One- to four-family  $2,882   $
         –
 
Nonresidential real estate   1,950    
–
 
Commercial and industrial   
–
    
–
 
   $4,832    
–
 

 

Real estate stands as collateral for loans individually evaluated for impairment.

 

The following tables present the balance in the ALLL and the recorded investment in loans by portfolio class and based on impairment method as of March 31, 2024.

 

March 31, 2024:

 

(in thousands)   Loans
individually
evaluated		     Loans acquired
with
deteriorated
credit quality*		     Ending loans
balance		     Ending
allowance
attributed to
loans		  
Loans individually evaluated for impairment:                        
Residential real estate                        
One- to four-family   $ 2,882     $             178     $ 3,060     $      -  
Nonresidential real estate     1,950       -       1,950       -  
      4,832       178       5,010       -  
Loans collectively evaluated for impairment:                                
Residential real estate                                
One- to four-family                   $ 251,729     $ 1,646  
Multi-family                     15,755       100  
Construction                     14,239       104  
Land                     1,069       22  
Farm                     1,313       5  
Nonresidential real estate                     28,379       171  
Commercial and industrial                     867       5  
Consumer and other                                
Loans on deposits                     795       -  
Home equity                     10,326       51  
Automobile                     122       -  
Unsecured                     636       2  
                      325,230       2,106  
                    $ 330,240     $ 2,106  

 

* These loans were evaluated at acquisition date at their estimated fair value and there has been no subsequent deterioration since acquisition.

 

19

 

 

Kentucky First Federal Bancorp

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2024

(unaudited)

 

Note 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, 2023.

 

June 30, 2023:

 

(in thousands)  Loans
individually
evaluated		   Loans acquired
with
deteriorated
credit quality*		   Ending loans
balance		   Ending
allowance
attributed to
loans		 
Loans individually evaluated for impairment:                
Residential real estate                
One- to four-family  $       2,833   $        196   $3,029   $
-
 
Nonresidential real estate   1,717    
-
    1,717    
-
 
Home Equity   267    
-
    267    
-
 
    4,817    196    5,013    
-
 
Loans collectively evaluated for impairment:                    
Residential real estate                    
One- to four-family            $237,047   $857 
Multi-family             19,067    278 
Construction             12,294    41 
Land             470    1 
Farm             1,346    4 
Nonresidential real estate             28,500    405 
Commercial and industrial             1,184    23 
Consumer and other                    
Loans on deposits             855    1 
Home equity             8,950    23 
Automobile             104    
-
 
Unsecured             611    1 
              310,428    1,634 
             $315,441   $1,634 

 

* These loans were evaluated at acquisition date at their estimated fair value and there has been no subsequent deterioration since acquisition.

 

20

 

 

Kentucky First Federal Bancorp

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2024

(unaudited)

 

Note 4. Loans receivable (continued)

 

The following table presents interest income on loans individually evaluated for impairment by class of loans for the nine months ended March 31:

 

(in thousands)  Average
Recorded
Investment		   Interest
Income
Recognized		   Cash Basis
Income
Recognized		   Average
Recorded
Investment		   Interest
Income
Recognized		   Cash Basis
Income
Recognized		 
   2024   2023 
With no related allowance recorded:                        
One- to four-family  $3,058   $55   $55   $3,227   $147   $147 
Multi-family   
--
    –    –    561    15    15 
Farm   
--
    
–
    
–
    270    
–
    
–
 
Nonresidential real estate   1,882    51    51    1,055    41    41 
Consumer   89    –    –    46    6    6 
Purchased credit-impaired loans   191    7    7    383    17    17 
    5,220    113    113    5,542    226    226 
With an allowance recorded:                              
One- to four-family   
–
    
–
    
–
    
–
    
–
    
–
 
   $5,220   $113   $113   $5,542   $226   $226 

 

The following table presents interest income on loans individually evaluated for impairment by class of loans for the three months ended March 31:

 

(in thousands)  Average
Recorded
Investment		   Interest
Income Recognized		   Cash Basis
Income
Recognized		   Average
Recorded
Investment		   Interest
Income
Recognized		   Cash Basis
Income
Recognized		 
   2024   2023 
With no related allowance recorded:                        
Residential real estate:                        
One- to four-family  $3,073   $11   $11   $3,240   $66   $66 
Multi-family   
–
    –    –    555    5    5 
Farm   
–
    
–
    
–
    265    
–
    
–
 
Nonresidential real estate   1,965    2    2    1,047    12    12 
Consumer   
–
    
–
    
–
    
–
    –    – 
Purchased credit-impaired loans   182    6    6    371    6    6 
    5,220    19    19    5,478    89    89 
With an allowance recorded:                              
One- to four-family   
–
    
–
    
–
    
–
    
–
    
–
 
   $5,220   $19   $19   $5,478   $89   $89 

  

21

 

 

Kentucky First Federal Bancorp

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2024

(unaudited)

 

Note 4. Loans receivable (continued)

 

The following table presents the recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans as of March 31, 2024 and June 30, 2023:

 

   March 31, 2024   June 30, 2023 
(in thousands)  Nonaccrual   Loans
Past Due Over
90 Days Still
Accruing		   Nonaccrual   Loans
Past Due Over
90 Days Still
Accruing		 
Residential real estate:                
One- to four-family residential real estate  $3,149   $373   $3,029   $365 
Nonresidential real estate and land   1,670    
–
    1,717    28 
Consumer   
–
    35    267    0 
   $4,819   $408   $5,013   $393 

  

One- to four-family loans in process of foreclosure totaled $1.2 million and $766,000 at March 31, 2024 and June 30, 2023, respectively.

 

Troubled Debt Restructurings:

 

Prior to the adoption of ASC 326 a Troubled Debt Restructuring (“TDR”) was the situation where the Bank granted a concession to the borrower that the Banks would not otherwise have considered due to the borrower’s financial difficulties. All TDRs are considered “impaired.”

 

At June 30, 2023, the Company had $1.4 million of loans classified as TDRs.

 

During the nine months ended March 31, 2024 there were no loans modified to borrowers experiencing financial difficulty.

 

The following table presents the aging of the principal balance outstanding in past due loans as of March 31, 2024, 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  $4,264   $1,684   $5,948   $248,841   $254,789 
Multi-family   
–
    
–
    
–
    15,755    15,755 
Construction   231    
–
    231    14,008    14,239 
Land   
–
    
–
    
–
    1,069    1,069 
Farm   
–
    
–
    
–
    1,313    1,313 
Nonresidential real estate   809    
–
    809    29,520    30,329 
Commercial non-mortgage   
–
    
–
    
–
    867    867 
Consumer and other:                         
Loans on deposits   
–
    
–
    
–
    795    795 
Home equity   153    35    188    10,138    10,326 
Automobile   
–
    
–
    
–
    122    122 
Unsecured   
--
    
–
    
–
    636    636 
Total  $5,457   $1,719   $7,176   $323,064   $330,240 

 

22

 

 

Kentucky First Federal Bancorp

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2024

(unaudited)

 

Note 4. Loans receivable (continued)

 

The following tables present the aging of the principal balance outstanding in past due loans as of June 30, 2023, by class of loans:

 

June 30, 2023:

 

(in thousands)  30-89 Days
Past Due		   Greater than
90 Days
Past Due		   Total Past
Due		   Loans Not
Past Due		   Total 
Residential real estate                    
One- to four-family  $3,415   $1,514   $4,929   $235,147   $240,076 
Multi-family   
-
    
-
    
-
    19,067    19,067 
Construction   
-
    
-
    
-
    12,294    12,294 
Land   
-
    
-
    
-
    470    470 
Farm   
-
    
-
    
-
    1,346    1,346 
Nonresidential real estate   662    
-
    662    29,555    30,217 
Commercial and industrial   
-
    28    28    1,156    1,184 
Consumer and other                         
Loans on deposits   
-
    
-
    
-
    855    855 
Home equity   168    267    435    8,782    9,217 
Automobile   
-
    
-
    
-
    104    104 
Unsecured   17    
-
    17    594    611 
   $4,262   $1,809   $6,071   $309,370   $315,441 

 

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.

 

23

 

 

Kentucky First Federal Bancorp

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
March 31, 2024
(unaudited)

 

Note 4. Loans receivable (continued)

 

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, 2024, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

 

                           Revolving     
(in thousands)  Term Loans Amortized Cost by Origination Fiscal Year   Loans
Amortized		     
As of March 31, 2024  2024   2023   2022   2021   2020   Prior   Cost Basis   Total 
Residential real estate:                                
One- to four-family                                
Risk Rating:                                
Pass  $24,346   $50,368   $48,136   $43,911   $27,424   $55,244   $-   $249,429 
Special mention   
-
    
-
    
-
    
-
    -    138    -    138 
Substandard   
-
    
-
    --    82    17    5,123    -    5,222 
Doubtful   
-
    
-
    
-
    
-
    -    -    -    - 
Total  $24,346   $50,368   $48,136   $43,933   $27,411   $60,505   $-   $254,789 
                                         
Current period gross charge offs  $-   $-   $-   $-   $-   $9   $-   $9 
                                         
Multi-family        
 
         
 
                     
Risk Rating:                                        
Pass  $200   $-   $6,132   $5,948   $1,248   $2,227   $-   $15,755 
Special mention   -    -    -    -    -    -    -    - 
Substandard   -    -    -    -    -    -    -    - 
Doubtful   -    -    -    -    -    -    -    - 
Total  $200   $-   $6,132   $5,948   $1,248   $2,227   $-   $15,755 
                                         
Current period gross charge offs  $-   $-   $-   $-   $-   $-   $-   $- 
                                         
Construction                                        
Risk Rating:                                        
Pass  $5,660   $8,483   $23   $-   $-   $73   $-   $14,239 
Special mention   -    -    -    -    -    -    -    - 
Substandard   -    -    -    -    -    -    -    - 
Doubtful   -    -    -    -    -    -    -    - 
Total  $5,660   $8,483   $23   $-   $-   $73   $-   $14,239 
                                         
Current period gross charge offs  $-   $-   $-   $-   $-   $-   $-   $- 
                                         
Land                                        
Risk Rating:                                        
Pass  $508   $283   $215   $-   $-   $63   $-   $1,069 
Special mention   -    -    -    -    -    -    -    - 
Substandard   -    -    -    -    -    -    -    - 
Doubtful   -    -    -    -    -    -    -    - 
Total  $508   $283   $215   $-   $-   $63   $-   $1,069 
                                         
Current period gross charge offs  $-   $-   $-   $-   $-   $-   $-   $- 
                                         
Farm                                        
Risk Rating:                                        
Pass  $212   $-   $248   $-   $26   $827   $-   $1,313 
Special mention   -    -    -    -    -    -    -    - 
Substandard   -    -    -    -    -    -    -    - 
Doubtful   -    -    -    -    -    -    -    - 
Total  $212   $-   $248   $-   $26   $827   $-   $1,313 
                                         
Current period gross charge offs  $-   $-   $-   $-   $-   $-   $-   $- 
                                         
Nonresidential real estate                                        
Risk Rating:                                        
Pass  $2,564   $2,346   $3,165   $3,437   $5,795   $10,400   $-   $27,707 
Special mention   -    -    -    -    -    672    -    672 
Substandard   
-
    1,017    
-
    
-
    -    933    -    1,950 
Doubtful   -    -    -    -    -    -    -    - 
Total  $2,564   $3,363   $3,165   $3,437   $5,795   $12,005   $-   $30,329 
                                         
Current period gross charge offs  $-   $-   $-   $-   $-   $-   $-   $- 
                                         
Commercial and industrial                                        
Risk Rating:                                        
Pass  $328   $-   $398   $4   $-   $137   $-   $867 
Special mention   -    -    -    -    -    -    -    - 
Substandard   -    -    -    -    -    -    -    - 
Doubtful   -    -    -    -    -    -    -    - 
Total  $328   $-   $398   $4   $-   $137   $-   $867 
                                         
Current period gross charge offs  $-   $-   $-   $-   $-   $-   $-   $- 
                                         
Share Loans                                        
Risk Rating:                                        
Pass  $94   $95   $-   $17   $177   $412   $-   $795 
Special mention   -    -    -    -    -    -    -    - 
Substandard   -    -    -    -    -    -    -    - 
Doubtful   -    -    -    -    -    -    -    - 
Total  $94   $95   $-   $17   $177   $412   $-   $795 
                                         
Current period gross charge offs  $-   $-   $-   $-   $-   $-   $-   $- 
                                         
Home Equity                                        
Risk Rating:                                        
Pass  $-   $-   $-   $-   $-   $-   $9,904   $9,904 
Special mention   -    -    -    -    -    -    -    - 
Substandard   -    -    -    -    -    -    422    422 
Doubtful   -    -    -    -    -    -    -    - 
Total  $-   $-   $-   $-   $-   $-   $10,326   $10,326 
                                         
Current period gross charge offs  $-   $-   $-   $-   $-   $-   $-   $- 
                                         
Auto                                        
Risk Rating:                                        
Pass  $69   $10   $37   $3   $2   $1   $-   $122 
Special mention   -    -    -    -    -    -    -    - 
Substandard   -    -    -    -    -    -    -    - 
Doubtful   -    -    -    -    -    -    -    - 
Total  $69   $10   $37   $3   $2   $1   $-   $122 
                                         
Current period gross charge offs  $-   $-   $-   $-   $-   $-   $-   $- 
                                         
Unsecured                                        
Risk Rating:                                        
Pass  $282   $120   $32   $174   $23   $5   $-   $636 
Special mention   -    -    -    -    -    -    -    - 
Substandard   -    -    -    -    -    -    -    - 
Doubtful   -    -    -    -    -    -    -    - 
Total  $282   $120   $32   $174   $23   $5   $-   $636 
                                         
Current period gross charge offs  $-   $-   $-   $-   $-   $-   $-   $- 

  

24

 

 

Kentucky First Federal Bancorp

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
March 31, 2024
(unaudited)

 

Note 4. Loans receivable (continued)

 

At March 31, 2024, the risk category of loans by class of loans was as follows:

 

(in thousands)  Pass   Special
Mention		   Substandard   Doubtful 
Residential real estate:                
One- to four-family  $249,429   $138   $5,222   $
         -
 
Multi-family   15,755    
-
    
-
    
-
 
Construction   14,239    
-
    
-
    
-
 
Land   1,069    
-
    
-
    
-
 
Farm   1,313    
-
    
-
    
-
 
Nonresidential real estate   27,707    672    1,950    
-
 
Commercial nonmortgage   867    
-
    
-
    
-
 
Consumer:                    
Loans on deposits   795    
-
    
-
    
-
 
Home equity   9,904    
-
    422    
-
 
Automobile   122    
-
    
-
    
-
 
Unsecured   636    
-
    
-
    
-
 
   $321,836   $810   $7,594   $
-
 

 

At June 30, 2023, the risk category of loans by class of loans was as follows:

 

(in thousands)  Pass   Special
Mention		   Substandard   Doubtful 
Residential real estate                
One- to four-family  $234,765   $170   $5,141   $
          -
 
Multi-family   19,067    
-
    
-
    
-
 
Construction   12,294    
-
    
-
    
-
 
Land   470    
-
    
-
    
-
 
Farm   1,346    
-
    
-
    
-
 
Nonresidential real estate   27,816    684    1,013    
-
 
Commercial and industrial   1,184    
-
    
-
    
-
 
Consumer and other                    
Loans on deposits   855    
-
    
-
    
-
 
Home equity   8,879    
-
    338    
-
 
Automobile   104    
-
    
-
    
-
 
Unsecured   611    
-
    
-
    
-
 
   $307,391   $854   $6,492   $
-
 

 

Purchased Credit Impaired Loans:

 

The Company purchased loans during fiscal year 2013 for which there was, at acquisition, evidence of deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected. The carrying amount of those loans, net of a purchase credit discount of $88,000 and $88,000 at March 31, 2024 and June 30, 2023, respectively, is as follows:

 

(in thousands)  March 31,
2024		   June 30,
2023		 
One- to four-family residential real estate  $178   $196 
           

 

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

 

(in thousands)  Nine months
ended
March 31,
2024		   Twelve months
ended
June 30,
2023		 
Balance at beginning of period  $         294   $     339 
Accretion of income   (30)   (45)
Balance at end of period  $264   $294 

 

For those purchased loans disclosed above, the Company made no increase in allowance for loan losses for the year ended June 30, 2023, nor for the nine-month period ended March 31, 2024. Neither were any allowance for loan losses reversed during those periods.

25

 

 

Kentucky First Federal Bancorp

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2024

(unaudited)

 

Note 5. Disclosures About Fair Value of Assets and Liabilities

 

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

 

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

 

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

 

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

 

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