Kentucky First Federal Bancorp(KFFB) - 2021 Q3 - Quarterly Report

Introduction This section provides an overview of Kentucky First Federal Bancorp's Quarterly Report on Form 10-Q, identifying it as a Smaller Reporting Company with key stock information - Kentucky First Federal Bancorp filed a Quarterly Report on Form 10-Q for the period ended March 31, 2021[1] - The registrant is classified as a Smaller Reporting Company[3] Key Company Information | Metric | Value | | :--- | :--- | | Common Stock Trading Symbol | KFFB | | Exchange | The NASDAQ Stock Market LLC | | Shares Outstanding (May 7, 2021) | 8,226,715 | PART I FINANCIAL INFORMATION This section presents the unaudited condensed consolidated financial statements and management's discussion and analysis for the reporting period ITEM 1 Financial Statements This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, comprehensive income, changes in shareholders' equity, and cash flows, along with their accompanying notes Condensed Consolidated Balance Sheets This section provides a snapshot of the Company's financial position, detailing assets, liabilities, and shareholders' equity at specific reporting dates Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric (in thousands) | March 31, 2021 | June 30, 2020 | | :--- | :--- | :--- | | Total Assets | $332,632 | $321,136 | | Total Liabilities | $280,742 | $269,225 | | Total Shareholders' Equity | $51,890 | $51,911 | | Loans, net | $299,190 | $285,887 | | Deposits | $225,543 | $212,273 | | Federal Home Loan Bank advances | $53,193 | $54,715 | - Total assets increased by $11.5 million, or 3.6%, from June 30, 2020, primarily due to an increase in net loans[9][96] - Loans, net of allowance, increased by $13.3 million, or 4.7%, to $299.2 million at March 31, 2021[9][100] Condensed Consolidated Statements of Operations This section details the Company's financial performance over specific periods, presenting revenues, expenses, and net income Condensed Consolidated Statements of Operations Highlights (in thousands, except per share) | Metric (in thousands, except per share) | 9 Months Ended Mar 31, 2021 | 9 Months Ended Mar 31, 2020 | 3 Months Ended Mar 31, 2021 | 3 Months Ended Mar 31, 2020 | | :--- | :--- | :--- | :--- | :--- | | Total Interest Income | $8,971 | $9,796 | $2,940 | $3,205 | | Total Interest Expense | $1,660 | $2,751 | $492 | $882 | | Net Interest Income | $7,311 | $7,045 | $2,448 | $2,323 | | Provision for Loan Losses | $192 | $64 | $-- | $-- | | Total Non-Interest Income | $433 | $233 | $182 | $81 | | Total Non-Interest Expense | $6,131 | $6,316 | $2,019 | $2,106 | | Income Before Income Taxes | $1,421 | $898 | $611 | $298 | | Federal Income Tax Expense | $293 | $176 | $138 | $58 | | NET INCOME | $1,128 | $722 | $473 | $240 | | Basic and Diluted EPS | $0.14 | $0.09 | $0.06 | $0.03 | | Dividends Per Share | $0.30 | $0.30 | $0.10 | $0.10 | - Net income for the nine months ended March 31, 2021, increased by $406,000 (56.2%) to $1.1 million, driven by higher net interest income, non-interest income, and lower non-interest expense[109] - For the three months ended March 31, 2021, net income increased by $233,000 (97.1%) to $473,000[121] Condensed Consolidated Statements of Comprehensive Income This section presents the Company's comprehensive income, including net income and other comprehensive income components Condensed Consolidated Statements of Comprehensive Income Highlights (in thousands) | Metric (in thousands) | 9 Months Ended Mar 31, 2021 | 9 Months Ended Mar 31, 2020 | 3 Months Ended Mar 31, 2021 | 3 Months Ended Mar 31, 2020 | | :--- | :--- | :--- | :--- | :--- | | Net income | $1,128 | $722 | $473 | $240 | | Unrealized holding Gains (losses) on securities available-for-sale, net of taxes | $(2) | $-- | $-- | $1 | | Comprehensive income | $1,126 | $722 | $473 | $241 | Consolidated Statements of Changes in Shareholders' Equity This section outlines the changes in the Company's shareholders' equity over specific periods, reflecting net income, dividends, and other equity transactions Shareholders' Equity Changes (Nine Months, in thousands) Nine Months Ended March 31, 2021 (in thousands): | Item | Amount | | :--- | :--- | | Balance at June 30, 2020 | $51,911 | | Net income | $1,128 | | Allocation of ESOP shares | $60 | | Acquisition of shares for Treasury | $(167) | | Other comprehensive loss | $(2) | | Cash dividends of $0.30 per common share | $(1,040) | | Balance at March 31, 2021 | $51,890 | Shareholders' Equity Changes (Three Months, in thousands) Three Months Ended March 31, 2021 (in thousands): | Item | Amount | | :--- | :--- | | Balance at December 31, 2020 | $51,832 | | Net income | $473 | | Allocation of ESOP shares | $-- | | Acquisition of shares for Treasury | $(66) | | Cash dividends of $0.10 per common share | $(349) | | Balance at March 31, 2021 | $51,890 | - Shareholders' equity decreased by $21,000 (0.0%) from June 30, 2020, to March 31, 2021, primarily due to treasury share repurchases and dividends paid, partially offset by net profits[106] Condensed Consolidated Statements of Cash Flows This section presents the Company's cash inflows and outflows from operating, investing, and financing activities over specific periods Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity (in thousands) | 9 Months Ended Mar 31, 2021 | 9 Months Ended Mar 31, 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $1,259 | $951 | | Net cash provided by (used in) investing activities | $(10,495) | $6,914 | | Net cash provided by (used in) financing activities | $10,301 | $(701) | | Net increase in cash and cash equivalents | $1,065 | $7,164 | | Ending cash and cash equivalents | $14,767 | $17,025 | - Cash and cash equivalents increased by $1.1 million (7.8%) to $14.8 million at March 31, 2021[97] - Investing activities resulted in a net cash outflow of $10.5 million for the nine months ended March 31, 2021, a significant change from a $6.9 million inflow in the prior year, primarily due to net loan originations[23] Notes to Condensed Consolidated Financial Statements This section provides essential supplementary information and explanations for the figures presented in the condensed consolidated financial statements - The Company operates as a mid-tier holding company for First Federal Savings and Loan Association of Hazard and First Federal Savings Bank of Kentucky, both community-oriented savings institutions[28] - The FASB has delayed the implementation of ASU No. 2016-13 (CECL model) for smaller reporting companies until fiscal years beginning after December 15, 2022 (July 1, 2023, for the Company), which is expected to add complexity and costs to credit loss evaluation[33] Loan Portfolio Composition (in thousands) Loan Portfolio Composition (in thousands): | Loan Type | March 31, 2021 | June 30, 2020 | | :--- | :--- | :--- | | Residential real estate (One- to four-family) | $222,878 | $222,489 | | Multi-family | $19,773 | $12,373 | | Construction | $5,959 | $4,045 | | Nonresidential real estate | $37,884 | $33,503 | | Total Loans | $300,812 | $287,375 | | Allowance for loan losses | $(1,622) | $(1,488) | | Loans, net | $299,190 | $285,887 | - Non-performing loans decreased to $6.2 million (2.1% of total loans) at March 31, 2021, from $7.4 million (2.6%) at June 30, 2020[101] - The allowance for loan losses increased to $1.6 million at March 31, 2021, representing 26.1% of nonperforming loans, up from 20.1% at June 30, 2020[101] Fair Value Measurements (in thousands) Fair Value Measurements at March 31, 2021 (in thousands): | Financial Instrument | Carrying Value | Level 1 | Level 2 | Level 3 | Total Fair Value | | :--- | :--- | :--- | :--- | :--- | :--- | | Cash and cash equivalents | $14,767 | $14,767 | | | $14,767 | | Available-for-sale securities | $33 | | $33 | | $33 | | Held-to-maturity securities | $491 | | $508 | | $508 | | Loans held for sale | $1,261 | | | $1,310 | $1,310 | | Loans receivable - net | $299,190 | | | $309,608 | $309,608 | | Deposits | $225,543 | $101,627 | $124,445 | | $226,072 | | Federal Home Loan Bank advances | $53,193 | | $53,692 | | $53,692 | ITEM 2 Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial condition and results of operations, including forward-looking statements, average balance sheet analysis, and a detailed discussion of changes in financial position and operating results for the nine-month and three-month periods ended March 31, 2021, with a focus on the impact of the COVID-19 pandemic Forward-Looking Statements This section highlights that the report contains statements about future events, which are inherently subject to various risks and uncertainties - The report contains forward-looking statements subject to risks and uncertainties, including general economic conditions, real estate prices, interest rates, competitive conditions, regulatory changes, and the potential effects of the COVID-19 pandemic[81] Average Balance Sheets This section presents average balance sheet data, including interest-earning assets and interest-bearing liabilities, along with their respective yields and costs Average Balance Sheet Data (Nine Months, in thousands) Average Balance Sheet Data (9 Months Ended March 31, in thousands): | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Average Interest-earning assets | $317,129 | $305,545 | | Total interest income | $8,971 | $9,796 | | Yield on interest-earning assets | 3.77% | 4.27% | | Average Interest-bearing liabilities | $264,048 | $255,868 | | Total interest expense | $1,660 | $2,751 | | Cost of interest-bearing liabilities | 0.84% | 1.43% | | Net interest spread | 2.93% | 2.84% | | Net interest margin | 3.07% | 3.07% | Average Balance Sheet Data (Three Months, in thousands) Average Balance Sheet Data (3 Months Ended March 31, in thousands): | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Average Interest-earning assets | $321,648 | $305,636 | | Total interest income | $2,940 | $3,205 | | Yield on interest-earning assets | 3.66% | 4.20% | | Average Interest-bearing liabilities | $267,072 | $255,731 | | Total interest expense | $492 | $882 | | Cost of interest-bearing liabilities | 0.74% | 1.38% | | Net interest spread | 2.92% | 2.82% | | Net interest margin | 3.04% | 3.04% | Discussion of Financial Condition Changes from June 30, 2020 to March 31, 2021 This section analyzes the significant changes in the Company's financial position, including asset quality, loan deferrals, and balance sheet movements, between June 30, 2020, and March 31, 2021 - The Company continues to monitor the impact of COVID-19, noting that while physical operations were affected, business remained mostly unchanged with consistent consumer transactions and loan originations[88] - Asset quality improved, with classified assets totaling $8.5 million at March 31, 2021, down from $10.5 million at March 31, 2020, partly due to a strengthening residential real estate market[88] - The Company granted payment deferrals to 101 borrowers totaling $18.4 million in loans due to COVID-19, with 100 loans ($17.5 million) having resumed regular payments by March 31, 2021[92] - First Federal of Kentucky approved and closed 73 Paycheck Protection Program (PPP) loans totaling $2.6 million, with 28 loans ($1.2 million) repaid by March 31, 2021[93] - Total assets increased by $11.5 million (3.6%) to $332.6 million, primarily driven by a $13.3 million (4.7%) increase in net loans to $299.2 million[96][100] - Total liabilities increased by $11.5 million (4.3%) to $280.7 million, mainly due to a $13.3 million (6.3%) increase in deposits to $225.5 million[105] - The Company paid dividends of $1.0 million, representing 92.2% of net income for the nine-month period, and received regulatory approval for First Federal MHC to waive dividends up to $0.10 per common share through Q3 2021[107] Comparison of Operating Results for the Nine-month Periods Ended March 31, 2021 and 2020 This section compares the Company's operating performance, including net interest income, loan loss provisions, and non-interest expenses, for the nine-month periods ended March 31, 2021, and 2020 - Net interest income increased by $266,000 (3.8%) to $7.3 million, as a $1.1 million (39.7%) decrease in interest expense outpaced an $825,000 (8.4%) decrease in interest income[110] - The average rate earned on interest-earning assets decreased by 50 basis points to 3.77%, while the average balance increased by $11.6 million (3.8%) to $317.1 million[111] - Interest expense decreased due to a 59 basis point reduction in the average rate paid on funding sources to 0.84%[112] - Provision for loan losses increased by $128,000 to $192,000, primarily due to higher loan levels and increased multi-family and commercial real estate loans[114] - Non-interest income increased by $200,000 (85.8%) to $433,000, mainly driven by a $205,000 increase in net gains on sales of loans[115] - Non-interest expense decreased by $185,000 (2.9%) to $6.1 million, attributed to cost-saving measures, lower employee compensation, and reduced franchise taxes[116][117] - Income tax expense increased by $117,000 (66.5%) to $293,000, with the effective tax rate rising from 19.6% to 20.6%[119] Comparison of Operating Results for the Three-month Periods Ended March 31, 2021 and 2020 This section compares the Company's operating performance, including net interest income, non-interest income, and expenses, for the three-month periods ended March 31, 2021, and 2020 - Net interest income increased by $125,000 (5.4%) to $2.4 million, as interest expense decreased faster than interest income[122] - Interest income on loans decreased by $205,000 (6.6%) to $2.9 million, primarily due to a 53 basis point decrease in the average loan portfolio rate to 3.88%[123] - Interest expense on deposits decreased by $241,000 (38.4%) to $387,000, and on borrowings by $149,000 (58.7%) to $105,000[124] - There was no provision for loan losses for the three-month periods ended March 31, 2021, or 2020[126] - Non-interest income increased by $101,000 (124.7%) to $182,000, mainly due to a $90,000 increase in net gains on sales of loans[128] - Non-interest expense decreased by $87,000 (4.1%) to $2.0 million, driven by cost-saving measures, including a 100% decrease in franchise and other taxes due to a change in tax structure[129][130] - Income tax expense increased by $80,000 (137.9%) to $138,000, with the effective tax rate rising from 19.5% to 22.6%[132] ITEM 3 Quantitative and Qualitative Disclosures About Market Risk This section states that quantitative and qualitative disclosures about market risk are not applicable to the Company as it is a smaller reporting company - This item is not applicable as the Company is a smaller reporting company[135] ITEM 4 Controls and Procedures This section details the evaluation of the Company's disclosure controls and procedures and internal control over financial reporting, concluding on their effectiveness and reporting no significant changes - The Company's Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective as of March 31, 2021[136] - There were no significant changes in the Company's internal control over financial reporting during the quarter ended March 31, 2021[137] PART II OTHER INFORMATION This section provides supplementary information not covered in the financial statements, including legal proceedings, risk factors, and equity security sales ITEM 1. Legal Proceedings This section confirms that there are no legal proceedings to report for the Company - There are no legal proceedings to report for the Company ITEM 1A. Risk Factors This section states that there have been no material changes to the risk factors previously disclosed in the Company's Annual Report on Form 10-K - There have been no material changes in the risk factors disclosed in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2020, as updated by the prior Quarterly Report on Form 10-Q[140] ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds This section provides information on the Company's common stock repurchase activities during the quarter ended March 31, 2021, including the completion of a prior program and the initiation of a new one Common Stock Repurchase Activity | Period | Total of shares purchased | Average price paid per share | Total of shares purchased as part of publicly announced plans or programs | Maximum of shares yet be purchased under the plans or programs | | :--- | :--- | :--- | :--- | :--- | | January 1-31, 2021 | – | $ – | – | 150,000 | | February 1-28, 2021 | 10,000 | $ 6.65 | 10,000 | 140,000 | | March 1-31, 2021 | -- | $ -- | -- | 140,000 | - On February 3, 2021, the Company substantially completed its prior program to repurchase up to 150,000 shares and initiated a new stock repurchase plan authorizing the purchase of up to an additional 150,000 shares[142] ITEM 3. Defaults Upon Senior Securities This section indicates that there are no defaults upon senior securities to report - There are no defaults upon senior securities to report ITEM 4. Mine Safety Disclosures. This section states that mine safety disclosures are not applicable to the Company - Mine safety disclosures are not applicable to the Company ITEM 5. Other Information This section confirms that there is no other information to report - There is no other information to report ITEM 6. Exhibits This section lists all documents filed as exhibits to the Form 10-Q, including corporate governance documents, certifications, and XBRL financial data - The report includes various exhibits such as the Company's Charter and Bylaws, CEO and CFO certifications (Sarbanes-Oxley Act Sections 302 and 906), and XBRL formatted financial statements and notes[147] SIGNATURES This section contains the official signatures of the Company's Chief Executive Officer and Chief Financial Officer, certifying the report's accuracy - The report is duly signed by Don D. Jennings, Chief Executive Officer, and R. Clay Hulette, Vice President and Chief Financial Officer, on May 17, 2021[151]