Financial Position - As of June 30, 2019, Kentucky First had total assets of $330.8 million, deposits of $195.8 million, and stockholders' equity of $66.3 million[16]. - As of June 30, 2019, First Federal of Hazard and First Federal of Kentucky exceeded the required capital amounts to be considered "well capitalized" under Basel III capital rules[81]. - The capital regulations require federal savings banks to meet a minimum Tier 1 leverage ratio of 4.0% and a total capital ratio of 8%[78]. - The new minimum capital requirements under Basel III include a common equity Tier 1 capital ratio of 4.5% and a Tier 1 leverage ratio of 4%[137]. - As of June 30, 2019, the capital levels of First Federal of Hazard and First Federal of Kentucky exceed the required capital amounts to be considered "well capitalized"[137]. Loan Portfolio - At June 30, 2019, the loan portfolio included $235.8 million in residential mortgage loans, representing 83.5% of the total loan portfolio[28]. - Adjustable-rate residential mortgage loans totaled $159.5 million, accounting for 67.7% of the residential mortgage loan portfolio[29]. - Construction loans amounted to $3.8 million, or 1.3% of the total loan portfolio, as of June 30, 2019[34]. - Multi-family loans totaled $15.9 million, representing 5.7% of the total loan portfolio[36]. - Nonresidential loans reached $30.4 million, or 10.8% of the total loan portfolio, as of June 30, 2019[37]. - As of June 30, 2019, commercial non-mortgage loans totaled $2.1 million, representing 0.7% of the total loan portfolio[39]. - Consumer loans amounted to $10.2 million, or 3.6% of the total loan portfolio, with home equity loans making up $8.2 million[40]. - Loans secured by savings deposits totaled 0.4% of the total loan portfolio as of June 30, 2019[41]. - Automobile and unsecured loans accounted for 0.3% of the total loan portfolio[42]. - At June 30, 2019, $9.4 million in loans were being serviced for the Federal Home Loan Bank of Cincinnati[43]. - Approximately 95.7% of the company's loan portfolio is collateralized by real estate, making it vulnerable to fluctuations in the real estate market[130]. Market Conditions - The unemployment rate in Perry County was 5.1% in June 2019, compared to 4.0% in Kentucky and 3.7% in the United States[22]. - The per capita personal income in Perry County averaged $34,532 in 2016, lower than the state average of $38,926 and the national average of $49,246[22]. - The primary employer in Franklin County is government, employing about 36.3% of the workforce, with an unemployment rate of 4.4% in June 2019[24]. - The distressed economy in the company's market area, particularly due to the decline in the coal industry, has resulted in insufficient loan demand[132]. - Changes in tax laws may adversely affect the market for residential properties, potentially reducing demand for mortgage loans[129]. Competition - Competition for deposits and loan origination is significant, with larger institutions posing a challenge due to their greater resources[65]. - As of June 30, 2019, First Federal of Hazard had a deposit market share of 8.3% in Perry County, while its largest competitors had market shares of 37.2%, 29.9%, and 22.6% respectively[66]. - First Federal of Kentucky had a deposit market share of 8.1%, 8.5%, and 20.1% in Franklin, Boyle, and Garrard counties, with Wesbanco Bank, Inc. leading at 26.0%[67]. - As of June 30, 2019, First Federal of Kentucky's principal competitors included Wesbanco Bank, Inc. with assets of $12.5 billion, Boyle Bancorp, Inc. with $552.0 million, and Community Trust Bancorp, Inc. with $102.0 billion[67]. - The company faces intense competition in its market areas, which could pressure profit margins and slow growth[131]. Regulatory Environment - First Federal of Hazard and First Federal of Kentucky are subject to extensive regulation by the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation[69]. - The Dodd-Frank Act has increased regulatory burdens and compliance requirements for community banks, including First Federal of Hazard and First Federal of Kentucky[70]. - The Economic Growth, Regulatory Relief and Consumer Protection Act allows for a "Community Bank Leverage Ratio" between 8% and 10% for institutions with less than $10 billion in assets[72]. - The Dodd-Frank Act extends the "source of strength" doctrine to savings and loan holding companies, requiring them to provide support to their subsidiary depository institutions[105]. - The Federal Reserve Board has established consolidated capital requirements for many savings and loan holding companies, including First Federal MHC[104]. Taxation - The federal corporate income tax rate was reduced from 35% to 21% as part of the Tax Cuts and Jobs Act, effective January 1, 2018, impacting the company's tax liabilities[117]. - For fiscal year 2018, the company applied a blended federal statutory tax rate of 27.6% due to the transition from the previous tax rate[116]. - The company recognized an income tax benefit of approximately $63,000 for the fiscal year ended June 30, 2019, due to changes in Kentucky tax law[74]. Internal Controls and Governance - Management assessed the effectiveness of the company's internal control over financial reporting as of June 30, 2019, and concluded that it is effective[176]. - The company has established adequate internal control over financial reporting to ensure reliability and safeguard assets[175]. - There were no changes in internal control over financial reporting that materially affected the company during the quarter ended June 30, 2019[179]. - The company has adopted a Code of Ethics and Business Conduct applicable to all directors, officers, and employees[187]. - The company is classified as a smaller reporting company, which affects certain reporting requirements[166]. Employee and Compensation - The company had 61 full-time employees and three part-time employees as of June 30, 2019, with no collective bargaining representation[68]. - The company has multiple employment agreements with key executives, including Don D. Jennings and R. Clay Hulette, which have been amended and restated[10.1][10.3]. - The company has established a 2005 Equity Incentive Plan to align executive compensation with performance[10.9]. - The company has a Change in Control Severance Compensation Plan in place for its executives[10.6][10.7]. Shareholder Actions - First Federal MHC has successfully obtained member approval to waive dividends from Kentucky First, including a quarterly dividend of $0.10 per common share through May 2020[107]. - First Federal MHC has received approval to waive quarterly dividends totaling $0.40 per share annually, expected to continue through the third quarter of 2020[146]. - The company repurchased a total of 29,800 shares of its common stock during the period from April to June 2019, at an average price of $7.74 per share[164]. - As of June 30, 2019, there are 96,200 shares remaining that may yet be purchased under the announced repurchase program[164]. - The company may face limitations on paying dividends and engaging in share repurchases if capital levels fall below regulatory requirements[138]. Risks and Challenges - The company is subject to risks related to cybersecurity, which could impact operations and customer trust[148]. - Changes to LIBOR may adversely impact the interest rates paid on some loans and financial instruments, creating uncertainty for the company[154]. - Rising interest rates have increased the federal funds rate target to a range of 2.25% - 2.50%, which may negatively impact net interest income[125]. - The implementation of the new accounting standard CECL may require the company to increase its allowance for loan losses, potentially impacting financial condition and results of operations[153]. - The Dodd-Frank Act has significantly restructured the regulation of financial institutions, which may lead to increased compliance costs and operational impacts[134]. Reporting and Compliance - Kentucky First Federal Bancorp's annual report for the fiscal year ended June 30, 2019, includes consolidated financial statements and notes[13]. - The report includes certifications from the Chief Executive Officer and Chief Financial Officer, ensuring compliance with SEC requirements[31.1][31.2]. - The annual report is filed under the Securities Exchange Act of 1934, ensuring transparency and regulatory compliance[203]. - The company has a structured approach to its financial reporting, incorporating XBRL for better data management[101]. - The report includes a list of subsidiaries, indicating the company's operational structure[21]. - The company has incorporated various documents by reference, ensuring comprehensive disclosure of relevant information[198].
Kentucky First Federal Bancorp(KFFB) - 2019 Q4 - Annual Report