Kentucky First Federal Bancorp(KFFB) - 2024 Q2 - Quarterly Report

PART I FINANCIAL INFORMATION Financial Statements This section presents the unaudited condensed consolidated financial statements, including balance sheets, income, equity, and cash flows, highlighting the adoption of ASC 326 Condensed Consolidated Balance Sheets Total assets increased due to loan and cash growth, while liabilities rose from deposits and FHLB advances, and shareholders' equity decreased reflecting a net loss, dividend payments, and ASC 326 adoption Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2023 | June 30, 2023 | Change | | :--- | :--- | :--- | :--- | | Assets | | | | | Cash and cash equivalents | $14,584 | $8,167 | +78.6% | | Loans, net | $325,648 | $313,807 | +3.8% | | Total assets | $366,247 | $349,022 | +4.9% | | Liabilities & Equity | | | | | Deposits | $244,629 | $226,309 | +8.1% | | Federal Home Loan Bank advances | $71,008 | $70,087 | +1.3% | | Total liabilities | $317,064 | $298,311 | +6.3% | | Total shareholders' equity | $49,183 | $50,711 | -3.0% | - Effective July 1, 2023, the company adopted the Current Expected Credit Loss (CECL) methodology for estimating the Allowance for Credit Losses (ACL), replacing the previous incurred loss methodology[10] Condensed Consolidated Statements of Operations The company reported a net loss for both the six-month and three-month periods, primarily driven by a sharp increase in interest expense outpacing interest income growth, leading to a significant decline in net interest income Key Operating Results (in thousands, except per share data) | Metric | Six Months Ended Dec 31, 2023 | Six Months Ended Dec 31, 2022 | Three Months Ended Dec 31, 2023 | Three Months Ended Dec 31, 2022 | | :--- | :--- | :--- | :--- | :--- | | Net interest income | $3,328 | $4,880 | $1,657 | $2,448 | | Provision for loan losses | $15 | $113 | $9 | $0 | | Net Income (Loss) | $(536) | $747 | $(361) | $374 | | EPS (Basic and diluted) | $(0.07) | $0.09 | $(0.05) | $0.04 | | Dividends per share | $0.10 | $0.20 | $0.10 | $0.10 | Condensed Consolidated Statements of Comprehensive Income The company recorded a comprehensive loss for the six months ended December 31, 2023, contrasting with comprehensive income in the prior-year period, primarily due to a net loss partially offset by unrealized gains on available-for-sale securities Comprehensive Income (Loss) Summary (in thousands) | Component | Six Months Ended Dec 31, 2023 | Six Months Ended Dec 31, 2022 | Three Months Ended Dec 31, 2023 | Three Months Ended Dec 31, 2022 | | :--- | :--- | :--- | :--- | :--- | | Net income (loss) | $(536) | $747 | $(361) | $374 | | Other comprehensive gains (losses), net of tax | $93 | $(343) | $231 | $87 | | Comprehensive income (loss) | $(443) | $404 | $(130) | $461 | Consolidated Statements of Changes in Shareholders' Equity Shareholders' equity decreased primarily due to the cumulative impact of ASC 326 adoption, a net loss, and cash dividends, partially offset by other comprehensive income Changes in Shareholders' Equity (Six Months Ended Dec 31, 2023, in thousands) | Description | Amount | | :--- | :--- | | Balance at June 30, 2023 | $50,711 | | Cumulative impact of adoption of ASC 326 | $(414) | | Net loss | $(536) | | Other comprehensive income | $93 | | Cash dividends | $(671) | | Balance at December 31, 2023 | $49,183 | Condensed Consolidated Statements of Cash Flows Cash and cash equivalents increased, driven by net cash from financing activities, primarily deposits and FHLB advances, offsetting cash used in operating and investing activities Summary of Cash Flows (Six Months Ended Dec 31, in thousands) | Cash Flow Category | 2023 | 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | $(1,092) | $803 | | Net cash used in investing activities | $(10,601) | $(26,372) | | Net cash provided by financing activities | $18,111 | $7,400 | | Net increase (decrease) in cash | $6,418 | $(18,169) | | Beginning cash and cash equivalents | $8,167 | $25,823 | | Ending cash and cash equivalents | $14,584 | $7,654 | Notes to Condensed Consolidated Financial Statements This section details accounting policies and financial data, covering the basis of presentation, the impact of ASC 326, loan portfolio breakdowns, credit quality, and fair value disclosures - The company adopted ASC 326 (CECL) on July 1, 2023, resulting in a $497,000 increase in the allowance for credit loss on loans and a $414,000 decrease to retained earnings[43][44] Loan Portfolio Composition (in thousands) | Loan Type | Dec 31, 2023 | June 30, 2023 | | :--- | :--- | :--- | | One- to four-family residential | $250,922 | $240,076 | | Multi-family | $18,727 | $19,067 | | Construction | $13,165 | $12,294 | | Nonresidential real estate | $30,493 | $30,217 | | Other | $14,072 | $12,333 | | Total Loans | $327,780 | $315,441 | - Non-performing loans (nonaccrual and past due 90+ days) totaled $5.2 million at December 31, 2023, compared to $5.4 million at June 30, 2023[88] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, emphasizing the negative impact of rising interest rates on net interest income and profitability, covering balance sheet changes, asset quality, and operating results, noting the dividend suspension Discussion of Financial Condition Changes Total assets grew, driven by loan portfolio increase, while liabilities rose from deposits, and shareholders' equity fell due to CECL adoption, net loss, and dividends, with non-performing loans slightly decreasing - Total assets increased by $17.2 million (4.9%) to $366.2 million, primarily due to growth in net loans[122] - Non-performing loans were approximately $5.2 million, or 1.6% of total loans, at December 31, 2023, a slight improvement from $5.4 million, or 1.7%, at June 30, 2023[125] - Due to a decline in earnings, the board suspended the payment of dividends indefinitely as of January 16, 2024, until earnings and liquidity improve[132] Comparison of Operating Results for the Six-month Periods The company reported a net loss for the six months ended December 31, 2023, primarily due to a significant drop in net interest income caused by rising interest expenses outpacing asset yields, alongside increased non-interest expenses - Net income decreased by $1.3 million (171.8%) to a loss of $536,000 for the six months ended Dec 31, 2023, compared to income of $747,000 in the prior year period[134] - Net interest income fell by $1.6 million (31.8%) as interest expense grew by 281.4%, far outpacing the 27.3% increase in interest income, due to funding sources repricing more quickly than assets[135] Net Interest Margin & Spread (Six Months Ended Dec 31) | Metric | 2023 | 2022 | Change (bps) | | :--- | :--- | :--- | :--- | | Net interest spread | 1.44% | 2.90% | -146 | | Net interest margin | 1.92% | 3.06% | -114 | Comparison of Operating Results for the Three-month Periods The company posted a net loss for the quarter ended December 31, 2023, primarily driven by a significant decrease in net interest income due to surging interest expenses outpacing interest income growth, leading to severe margin compression - Net loss for the quarter was $361,000, a decrease of $735,000 from a net income of $374,000 in the prior-year quarter[146] - Net interest income for the quarter decreased by $791,000 (32.3%) as interest expense increased by 232.4% while interest income only rose 25.4%[147] Net Interest Margin & Spread (Three Months Ended Dec 31) | Metric | 2023 | 2022 | Change (bps) | | :--- | :--- | :--- | :--- | | Net interest spread | 1.39% | 2.86% | -147 | | Net interest margin | 1.89% | 3.03% | -114 | Quantitative and Qualitative Disclosures About Market Risk This section is not applicable as the Company qualifies as a smaller reporting company - The company is a smaller reporting company, and therefore this item is not applicable[157] Controls and Procedures The Company's CEO and CFO concluded that disclosure controls and procedures were effective, with no significant changes to internal controls over financial reporting during the quarter - Management concluded that the Company's disclosure controls and procedures were effective as of December 31, 2023[158] - There were no significant changes in the Company's internal control over financial reporting during the quarter ended December 31, 2023[159] PART II OTHER INFORMATION Risk Factors This section highlights the indefinite suspension of the quarterly cash dividend, which could adversely affect the company's common stock market price - On January 16, 2024, the company announced the suspension of its quarterly dividend indefinitely, which could have an adverse impact on the market price of its common stock[163] Unregistered Sales of Equity Securities and Use of Proceeds The company did not repurchase common stock during the quarter, with its most recent repurchase program substantially completed as of May 18, 2023 - No shares of the company's common stock were repurchased during the three months ended December 31, 2023[166] Exhibits This section lists exhibits filed with the Form 10-Q, including charter, bylaws, CEO/CFO certifications, and XBRL financial data - Exhibits filed include CEO and CFO certifications under Sections 302 and 906 of the Sarbanes-Oxley Act, and XBRL interactive data files[172]