Kentucky First Federal Bancorp(KFFB) - 2021 Q4 - Annual Report

Financial Position - As of June 30, 2021, Kentucky First had total assets of $338.1 million, deposits of $226.8 million, and stockholders' equity of $52.3 million[15]. - First Federal of Hazard had total assets of $90.8 million, net loans of $83.7 million, and total deposits of $48.5 million as of June 30, 2021[17]. - First Federal of Kentucky reported total assets of $249.8 million, net loans of $214.1 million, and total deposits of $183.8 million as of June 30, 2021[18]. Loan Portfolio Composition - Residential mortgage loans accounted for $249.3 million, or 83.2%, of the total loan portfolio as of June 30, 2021[26]. - Adjustable-rate residential mortgage loans made up $241.9 million, or 97.0%, of the residential mortgage loan portfolio as of June 30, 2021[27]. - Construction loans totaled $5.4 million, or 1.8%, of the total loan portfolio as of June 30, 2021[31]. - Multi-family loans amounted to $19.8 million, or 6.6%, of the total loan portfolio as of June 30, 2021[34]. - Nonresidential real estate loans totaled $35.5 million, or 11.9%, of the total loan portfolio as of June 30, 2021[35]. - As of June 30, 2021, commercial non-mortgage loans totaled $2.3 million, representing 0.7% of the total loan portfolio[37]. - Consumer loans amounted to $8.9 million, or 3.0% of the total loan portfolio, with home equity loans making up $7.2 million[38]. - Loans secured by savings accounts totaled 0.4% of the total loan portfolio as of June 30, 2021[39]. - Automobile and unsecured loans represented 0.2% of the total loan portfolio[40]. - Approximately 96.3% of the loan portfolio as of June 30, 2021, was comprised of loans collateralized by real estate[125]. - $224.1 million, or 74.8%, of the loan portfolio was secured by one-to-four family real estate located in Kentucky[126]. Economic and Market Conditions - The unemployment rate in Perry County was 6.5% in July 2021, compared to 4.7% in Kentucky and 5.7% in the United States[21]. - The median household income in Perry County averaged $33,640, significantly lower than the state average of $50,589 and the national average of $62,843[21]. - The ongoing COVID-19 pandemic has significantly increased economic uncertainty and reduced economic activity, impacting demand for products and services[117]. - The distressed economy in First Federal of Hazard's market area continues to lag behind Kentucky and the U.S., limiting asset base growth[127]. - Intense competition in loan making and deposit attraction may reduce net interest income due to price competition[128]. Regulatory Environment - The Dodd-Frank Act significantly changed the financial regulatory regime, imposing enhanced regulation and oversight on U.S. banks[67]. - The Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018 provided limited regulatory relief to smaller banking institutions[69]. - Federal regulations require a 4.0% Tier 1 leverage ratio and a 4.5% common equity Tier 1 ratio for insured depository institutions[72]. - The community bank leverage ratio (CBLR) was set at 9% for qualifying institutions, with a temporary reduction to 8% due to the CARES Act[75]. - The Dodd-Frank Act has significantly restructured financial institution regulations, which may increase regulatory burden and compliance costs, impacting profitability and operational flexibility[134]. - New capital requirements under Basel III mandate a common equity Tier 1 capital ratio of 4.5% and a capital conservation buffer of 2.5%, affecting the ability to pay dividends and repurchase shares[135]. Competition and Market Share - First Federal of Hazard had a deposit market share of 7.5% in Perry County as of June 30, 2021[63]. - First Federal of Kentucky had a deposit market share of 8.5%, 7.6%, and 17.5% in Franklin, Boyle, and Garrard counties, respectively[64]. - The largest competitors for deposits include Boyle Bancorp, Inc. at 23.2%, Wesbanco Bank, Inc. at 18.1%, and Community Trust Bancorp, Inc. at 6.9% market share[64]. - As of June 30, 2021, Wesbanco Bank, Inc. had assets of $17.0 billion, Boyle Bancorp, Inc. had $791.2 million, and Community Trust Bancorp, Inc. had $5.5 billion in assets[64]. Capital and Liquidity Management - The capital levels of First Federal of Hazard and First Federal of Kentucky exceed the minimum required capital amounts for capital adequacy as of June 30, 2021[75]. - Effective liquidity management is crucial, as a failure to maintain adequate liquidity could materially and adversely impact business operations and financial condition[130]. - The ability to pay dividends is contingent on the capital distributions from the Banks and the waiver of dividends by First Federal MHC, which historically has been granted[145]. Taxation and Financial Performance - The federal statutory tax rate was 21% for the fiscal years ended June 30, 2021, and 2020[105]. - The Tax Cuts and Jobs Act reduced the federal corporate income tax rate from 35% to 21%[106]. - Approximately $5.2 million of accumulated bad debt reserves would not be recaptured into taxable income unless a "non-dividend distribution" is made[107]. - The company does not intend to pay dividends in the future that would result in a recapture of any portion of its bad debt reserves[108]. Internal Controls and Governance - Management assessed the effectiveness of internal controls over financial reporting as of June 30, 2021, concluding they were effective[171]. - The company has not experienced any changes in internal control over financial reporting that materially affected its effectiveness during the quarter ended June 30, 2021[174]. - The report includes certifications from the Chief Executive Officer and Chief Financial Officer, ensuring compliance with regulatory requirements[195]. - The report is signed by the Chief Executive Officer and other directors, indicating accountability and governance[204]. Shareholder and Dividend Policies - First Federal MHC has successfully waived dividends annually since 2012, with the latest approval covering quarterly dividends of $0.10 per common share through May 2022[101]. - The company anticipates continuing to waive future dividends unless necessary for operations, subject to regulatory and member approval[148]. - There is uncertainty regarding future member approvals for dividend waivers and potential conditions imposed by the Federal Reserve Board on these requests[149]. Technology and Operational Risks - The company is subject to risks associated with technology, including potential cyber attacks that could compromise customer information and disrupt operations[137][138]. - The company must keep pace with technological advancements to remain competitive, as failure to do so could adversely impact business and financial condition[141].