Kentucky First Federal Bancorp

Previous wording

Certain statements contained in this report, as well as other periodic reports filed with the Securities and Exchange Commission, that are not historical facts are considered “forward-looking statements” under the Private Securities Litigation Reform Act of 1995, that are subject to certain risks and uncertainties. These forward-looking statements may be identified by the use of words such as “believe,” “expect,” “anticipate,” “plan,” “estimate,” “intend” and “potential,” or words of similar meaning, or future or conditional verbs such as “should,” “could,” or “may.” Forward-looking statements include statements of our goals, intentions and expectations; statements regarding our ability to fully and timely address the deficiencies that resulted in the Agreement that First Federal Savings Bank of Kentucky has entered into with the Office of the Comptroller of the Currency (“OCC”); First Federal Savings Bank of Kentucky’s ability to satisfy the Individual Minimum Capital Requirements imposed by the OCC; statements regarding our business plans, prospects, growth and operating strategies; statements regarding the quality of our loan and investment portfolios; and estimates of our risks and future costs and benefits. Kentucky First Federal Bancorp’s actual results, performance or achievements may materially differ from those expressed or implied in the forward-looking statements. Risks and uncertainties that could cause or contribute to such material differences include, but are not limited to, general economic conditions; prices for real estate in the Company’s market areas; the interest rate environment and the impact of the interest rate environment on our business, financial condition and results of operations; our ability to successfully execute our strategy to increase earnings, increase core deposits, reduce reliance on higher cost funding sources and shift more of our loan portfolio towards higher-earning loans; our ability to pay future dividends and if so at what level; our ability to receive any required regulatory approval or non-objection for the payment of dividends from First Federal Savings and Loan Association of Hazard and First Federal Savings Bank of Kentucky to the Company or from the Company to shareholders; the ability of First Federal MHC to receive approval of its members to waive the payment of any Company dividends to First Federal MHC; competitive conditions in the financial services industry; changes in the level of inflation; changes in the demand for loans, deposits and other financial services that we provide; the possibility that future credit losses may be higher than currently expected; competitive pressures among financial services companies; the ability to attract, develop and retain qualified employees; our ability to maintain the security of our data processing and information technology systems; the outcome of pending or threatened litigation, or of matters before regulatory agencies; changes in law, governmenta…

Excerpt shortened here; the source contains the full paragraph.

Current wording

Certain statements contained in this report, as well as other periodic reports filed with the Securities and Exchange Commission, that are not historical facts are considered “forward-looking statements” under the Private Securities Litigation Reform Act of 1995, that are subject to certain risks and uncertainties. These forward-looking statements may be identified by the use of words such as “believe,” “expect,” “anticipate,” “plan,” “estimate,” “intend” and “potential,” or words of similar meaning, or future or conditional verbs such as “should,” “could,” or “may.” Forward-looking statements include statements of our goals, intentions and expectations; statements regarding our ability to fully and timely address the deficiencies that resulted in the Agreement that First Federal Savings Bank of Kentucky has entered into with the Office of the Comptroller of the Currency (“OCC”); First Federal Savings Bank of Kentucky’s ability to satisfy the Individual Minimum Capital Requirements imposed by the OCC; statements regarding our business plans, prospects, growth and operating strategies; statements regarding the quality of our loan and investment portfolios; and estimates of our risks and future costs and benefits. Kentucky First Federal Bancorp’s actual results, performance or achievements may materially differ from those expressed or implied in the forward-looking statements. Risks and uncertainties that could cause or contribute to such material differences include, but are not limited to, general economic conditions; prices for real estate in the Company’s market areas; the interest rate environment and the impact of the interest rate environment on our business, financial condition and results of operations; our ability to successfully execute our strategy to increase earnings, increase core deposits, reduce reliance on higher cost funding sources and shift more of our loan portfolio towards higher-earning loans; our ability to pay future dividends and if so at what level; our ability to receive any required regulatory approval or non-objection to pay dividends to shareholder; our ability to pay dividends from First Federal Savings and Loan Association of Hazard and First Federal Savings Bank of Kentucky to the Company in order for the Company to pay dividends to shareholders; the ability of First Federal MHC to receive approval of its members to waive the payment of any Company dividends to First Federal MHC; competitive conditions in the financial services industry; changes in the level of inflation; changes in the demand for loans, deposits and other financial services that we provide; the possibility that future credit losses may be higher than currently expected; competitive pressures among financial services companies; the ability to attract, develop and retain qualified employees; our ability to maintain the security of our data processing and information technology systems; the outcome of pending or threatened litigation, or of matters …

Excerpt shortened here; the source contains the full paragraph.

Previous wording

In March 2022 the Federal Open Market Committee (“FOMC”) of the Federal Reserve Bank began raising the target range for the fed funds rate of interest and since that time has raised the short-term interest rate by 500 basis points. At September 30, 2023, we believe our risk associated with rising interest rates was moderate. Our IRR model indicated that at June 30, 2023, our EVE was approximately 16.5%, despite the historic interest rate increases during the previous twelve months. Although general market participants believe that the FOMC will now pause interest rate increases for a period of time, our June 30, 2023 EVE is anticipated to be approximately 14.6% and 11.9% under sudden and sustained increase in prevailing market interest rates of 100 basis points and 200 basis points, respectively. Computations or prospective effects of hypothetical interest rate changes are based on numerous assumptions, including relative levels of market interest rates, loan prepayments, and deposit run-offs. These computations should not be relied upon as indicative of actual results. Further, the computations do not contemplate any actions the Banks may undertake in response to changes in interest rates. Certain shortcomings are inherent in this method of computing EVE. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in differing degrees to changes in market interest rates. The interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates.

Current wording

General market participants believe that the FOMC will now continue interest rate decreases. Our December 31, 2024 EVE is anticipated to increase by approximately 6.4% and 4.8% under sudden and sustained decrease in prevailing market interest rates of 100 basis points and 200 basis points, respectively. The company continues to strive for acceptable EVE in both increasing and decreasing interest rate environments. Computations or prospective effects of hypothetical interest rate changes are based on numerous assumptions, including relative levels of market interest rates, loan prepayments, and deposit run-offs. These computations should not be relied upon as indicative of actual results. Further, the computations do not contemplate any actions the Banks may undertake in response to changes in interest rates. Certain shortcomings are inherent in this method of computing EVE. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in differing degrees to changes in market interest rates. The interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates.

Previous wording

At September 30, 2024 the Company and the Banks were considered well-capitalized with capital ratios in excess of regulatory requirements. However, an extended economic recession could adversely impact the Company’s and the Banks’ capital position and Company in its Current Report on Form 8-K filed on August 15, 2024, in addition to the formal written Agreement, the OCC has also imposed individual minimum capital requirements (“IMCRs”) on First Federal Savings Bank of Kentucky. The IMCRs require First Federal Savings Bank of Kentucky to maintain a common equity tier 1 capital ratio of at least 9.0%, a tier 1 capital ratio of at least 11.0%, a total capital ratio of at least 12.0%, and a leverage ratio of at least 9.0%. As of September 30, 2024, First Federal Savings Bank of Kentucky’s common equity tier 1 capital ratio was 16.11%, its tier 1 capital ratio was 16.11%, its total capital ratio was 16.11%, and its leverage ratio was 10.07%.

Current wording

At December 31, 2024 the Company and the Banks were considered well-capitalized with capital ratios in excess of regulatory requirements. However, an extended economic recession could adversely impact the Company’s and the Banks’ capital position and Company in its Current Report on Form 8-K filed on August 15, 2024, in addition to the formal written Agreement, the OCC has also imposed individual minimum capital requirements (“IMCRs”) on First Federal Savings Bank of Kentucky. The IMCRs require First Federal Savings Bank of Kentucky to maintain a common equity tier 1 capital ratio of at least 9.0%, a tier 1 capital ratio of at least 11.0%, a total capital ratio of at least 12.0%, and a leverage ratio of at least 9.0%. As of December 31, 2024, First Federal Savings Bank of Kentucky’s common equity tier 1 capital ratio was 16.92%, its tier 1 capital ratio was 16.92%, its total capital ratio was 16.92%, and its leverage ratio was 10.13%.

Previous wording

***Assets:***At September 30, 2024, the Company’s assets totaled $375.7 million, an increase of $682,000, or 0.2%, from total assets at June 30, 2024, due primarily to the increase in loans held for sale, as well as an increase in cash and due from financial institutions of $963,000 or 50.3%.

Current wording

***Assets:***At December 31, 2024, the Company’s assets totaled $374.2 million, a decrease of $760,000, or 0.2%, from total assets at June 30, 2024, due primarily to the decrease in loans, as well as a decrease in securities available-for-sale of $1.0 million or 10.6%.

Previous wording

Cash and cash equivalents: Cash and cash equivalents overall decreased $1.0 million or 5.6% to $17.3 million at September 30, 2024. Most of the Company’s cash and cash equivalents are held in interest-bearing demand deposits.

Current wording

Cash and cash equivalents: Cash and cash equivalents overall increased $2.7 million or 14.7% to $21.0 million at December 31, 2024. Most of the company’s cash and cash equivalents are held in interest-bearing demand deposits, although the company began utilizing fed funds sold more in the quarter ended December 31, 2024. Fed funds sold totaled $6.9 million at December 31, 2024, an increase of $6.2 million or 885.5%, compared to June 30, 2024.

Previous wording

***Investment securities:***At September 30, 2024, our securities portfolio, which consisted of mortgage-backed securities, decreased $246,000 or 2.5% and totaled $9.6 million, compared to June 30, 2024.

Current wording

***Investment securities:***At December 31, 2024, our securities portfolio, which consisted of mortgage-backed securities, decreased $1.0 million or 10.6% and totaled $8.8 million, compared to June 30, 2024.

Previous wording

Loans*:*Loans, net and loans held-for-sale in the aggregate increased $1.5 million or 0.5% and totaled $333.2 million and $1.5 million, respectively at September 30, 2024. Loans receivable, net, increased by $150,000 or 0.1% to $333.2 million at September 30, 2024. Loans held-for-sale increased to $1.4 million at September 30, 2024. Management continues to look for high-quality loans to add to its portfolio and will continue to emphasize loan originations to the extent that it is profitable, prudent and consistent with our interest rate risk strategies. Because market interest rates have become more favorable, the Company has had more success in selling mortgages into the secondary market, which has led to an increase in loans held-for-sale.

Current wording

Loans*:*Loans, net and loans held-for-sale in the aggregate decreased $2.8 million or 0.8% and totaled $330.2 million and $116,000, respectively at December 31, 2024. Loans receivable, net, decreased by $2.8 million or 0.7% to $330.2 million at December 31, 2024. Loans held-for-sale increased to $116,000 at December 31, 2024. Management continues to look for high-quality loans to add to its portfolio and will continue to emphasize loan originations to the extent that it is profitable, prudent and consistent with our interest rate risk strategies. Because market interest rates have become more favorable, the Company has had more success in selling mortgages into the secondary market, which has led to an increase in loans held-for-sale.

Previous wording

***Non-Performing and Classified Loans:***At September 30, 2024, the Company had non-performing loans (loans 90 or more days past due or on nonaccrual status) of approximately $4.3 million, or 1.3% of total loans compared to $3.9 million or 1.2%, of total loans at June 30, 2024. The Company’s ACL totaled $2.1 million at September 30, 2024 and the ACL totaled $2.1 million at June 30, 2024, respectively. The ACL at September 30, 2024, represented 50.2% of nonperforming loans and 0.6% of total loans, while at June 30, 2023, ALLL represented 54.6% of nonperforming loans and 0.6% of total loans.

Current wording

***Non-Performing and Classified Loans:***At December 31, 2024, the Company had non-performing loans (loans 90 or more days past due or on nonaccrual status) of approximately $3.0 million, or 0.9% of total loans compared to $3.9 million or 1.2%, of total loans at June 30, 2024. The Company’s ACL totaled $2.1 million at December 31, 2024 and the ACL totaled $2.1 million at June 30, 2024, respectively. The ACL at December 31, 2024, represented 70.9% of nonperforming loans and 0.6% of total loans, while at June 30, 2024, ALLL represented 54.6% of nonperforming loans and 0.6% of total loans.

Previous wording

The Company had $6.6 million in assets classified as substandard for regulatory purposes at September 30, 2024, including real estate owned (“REO”) of $10,000. Classified loans as a percentage of total loans (including loans acquired) was 2.0% and 2.1% at September 30, 2024 and June 30, 2024, respectively. Of substandard loans, 100.0% were secured by real estate on which the Banks have priority lien position.

Current wording

The Company had $5.2 million in assets classified as substandard for regulatory purposes at December 31, 2024, including real estate owned (“REO”) of $10,000. Classified loans as a percentage of total loans (including loans acquired) was 1.6% and 2.1% at December 31, 2024 and June 30, 2024, respectively. Of substandard loans, 100.0% were secured by real estate on which the Banks have priority lien position.

Previous wording

At September 30, 2024, the Company’s real estate acquired through foreclosure represented 0.2% of substandard assets compared to 0.1% at June 30, 2024. During the period presented the Company made no loans to facilitate the purchase of its other real estate owned by qualified buyers. Loans to facilitate the sale of other real estate owned, which were included in substandard loans, totaled $0 and $0 at September 30, 2024 and June 30, 2024, respectively.

Current wording

At December 31, 2024, the Company’s real estate acquired through foreclosure represented 0.2% of substandard assets compared to 0.1% at June 30, 2024. During the period presented the Company made no loans to facilitate the purchase of its other real estate owned by qualified buyers. Loans to facilitate the sale of other real estate owned, which were included in substandard loans, totaled $0 at December 31, 2024 and June 30, 2024, respectively.

Previous wording

At September 30, 2024 and June 30, 2024, the Company had $785,000 and $797,000 of loans classified as special mention, respectively. This category includes assets which do not currently expose us to a sufficient degree of risk to warrant classification, but does possess credit deficiencies or potential weaknesses deserving our close attention.

Current wording

At December 31, 2024 and June 30, 2024, the Company had $696,000 and $797,000 of loans classified as special mention, respectively. This category includes assets which do not currently expose us to a sufficient degree of risk to warrant classification, but does possess credit deficiencies or potential weaknesses deserving our close attention.

Previous wording

Liabilities: Total liabilities increased $456,000, or 0.1% to $327.4 million at September 30, 2024, as Federal Home Loan Bank advances increased $1.1 million or 1.5% to $70.1 million and advances to borrowers for taxes and insurance increased $333,000 or 36.6%.

Current wording

Liabilities: Total liabilities decreased $818,000, or 0.3% to $326.2 million at December 31, 2024, as Federal Home Loan Bank advances decreased $7.2 million or 10.4% to $61.8 million and advances to borrowers for taxes and insurance decreased $703,000 or 77.3%.

Previous wording

Shareholders’ Equity: At September 30, 2024, the Company’s shareholders’ equity totaled $48.2 million, a, increase of $226,000 or 0.5% from the June 30, 2024. The increase in shareholders’ equity was primarily associated with accumulated other comprehensive loss decreasing $226,000 or 71.7% from a loss of $336,000 at June 30, 2024 to a loss of $95,000 at September 30, 2024.

Current wording

Shareholders’ Equity: At December 31, 2024, the Company’s shareholders’ equity totaled $48.1 million, an increase of $58,000 or 0.1% from June 30, 2024. The increase in shareholders’ equity was primarily associated with accumulated other comprehensive loss decreasing $60,000 or 17.9% from a loss of $336,000 at June 30, 2024 to a loss of $276,000 at December 31, 2024.

Previous wording

On January 16, 2024, the Company announced the suspension of quarterly dividends indefinitely. Holders of our common stock are only entitled to receive such dividends as our Board of Directors may declare out of funds available for such payments under applicable law and regulatory guidance. We cannot predict when or whether the Company will be able to pay future common stock dividends and if so, the amount of any such common stock dividends. Our ability to pay future dividends and if so at what level will also be dependent on numerous factors, including: our ability to receive any required regulatory approval or non-objection for the payment of dividends from First Federal Savings and Loan Association of Hazard and First Federal Savings Bank of Kentucky to the Company or from the Company to shareholders; our ability to fully and timely address the deficiencies that resulted in the Agreement that First Federal Savings Bank of Kentucky has entered into with the OCC; First Federal Savings Bank of Kentucky’s ability to satisfy the IMCR’s imposed by the OCC; the ability of First Federal MHC to receive approval of its members to waive the payment of any Company dividends to First Federal MHC; and our ability to successfully execute our strategy to increase earnings and core deposits, reduce reliance on higher cost funding sources and shift more of our loan portfolio towards higher-earning loans. See “Risk Factors” in Part II, Item 1A, of the Company’s Annual Report on Form 10-K for the year ended June 30, 2024 for additional discussion regarding dividends.

Current wording

On January 16, 2024, the Company announced the suspension of quarterly dividends indefinitely. Holders of our common stock are only entitled to receive such dividends as our Board of Directors may declare out of funds available for such payments under applicable law and regulatory guidance. We cannot predict when or whether the Company will be able to pay future common stock dividends and if so, the amount of any such common stock dividends. Our ability to pay future dividends and if so at what level will also be dependent on numerous factors, including: our ability to receive any required regulatory approval or non-objection to pay dividends or for the payment of dividends from First Federal Savings and Loan Association of Hazard and First Federal Savings Bank of Kentucky to the Company or from the Company to shareholders; our ability to fully and timely address the deficiencies that resulted in the Agreement that First Federal Savings Bank of Kentucky has entered into with the OCC; First Federal Savings Bank of Kentucky’s ability to satisfy the IMCR’s imposed by the OCC; the ability of First Federal MHC to receive approval of its members to waive the payment of any Company dividends to First Federal MHC; and our ability to successfully execute our strategy to increase earnings and core deposits, reduce reliance on higher cost funding sources and shift more of our loan portfolio towards higher-earning loans. See “Risk Factors” in Part II, Item 1A, of the Company’s Annual Report on Form 10-K for the year ended June 30, 2024 for additional discussion regarding dividends.

Previous wording

Net loss totaled $15,000 or ($0.00) diluted earnings per share for the three months ended September 30, 2024, an increase of $160,000 or 91.4% from net loss of $175,000 or ($0.02) diluted earnings per share for the same period in 2023. The decrease in net loss for the quarter ended September 30, 2024, was primarily attributable to increased net interest income, and higher non-interest income, which were partially offset by lower income tax benefit.

Current wording

Net loss totaled $2,000 or ($0.00) diluted earnings per share for the six months ended December 31, 2024, an increase of $534,000 or 99.6% from net loss of $536,000 or ($0.07) diluted earnings per share for the same period in 2023. The increase in net earnings for the six-months ended December 31, 2024, was primarily attributable to increased net interest income, and higher non-interest income, which were partially offset by lower income tax benefit.

Previous wording

Net interest income increased $200,000 or 12.0% to $1.9 million due primarily to interest income increasing more than interest expense increased period to period. Interest income increased $886,000 or 23.7%, while interest expense increased $686,000 or 33.2% to $2.8 million for the recently-ended quarter. Over the last two years, the repricing of many of our assets has been slowed by contractual limits on rate changes, whereas the cost of most liabilities did not have this constraint. As market rates have steadied and even fallen slightly, the increase in cost of liabilities has slowed while we have begun to see our increase in interest income be greater than our increase in interest expense.

Current wording

Net interest income increased $579,000 or 17.4% to $3.9 million due primarily to interest income increasing more than interest expense increased period to period. Interest income increased $1.7 million or 22.7%, while interest expense increased $1.2 million or 26.8% to $5.5 million for the six-months recently ended. Over the last two years, the repricing of many of our assets has been slowed by contractual limits on rate changes, whereas the cost of most liabilities did not have this constraint. As market rates have steadied and even fallen slightly, the increase in cost of liabilities has slowed while we have begun to see our increase in interest income be greater than our increase in interest expense.

Previous wording

Although the average balance of interest-bearing liabilities increased $22.3 million or 7.8% to $309.5 million for the quarter just ended, the average rate paid increased 68 basis points to 3.55%. The cost of liabilities increased rapidly due to higher costs of both wholesale and retail funding. We have seen interest rate changes slow and even decrease, allowing the repricing of our liabilities to do the same.

Current wording

Although the average balance of interest-bearing liabilities increased $20.1 million or 6.9% to $310.4 million for the six months just ended, the average rate paid increased 56 basis points to 3.54%. The cost of liabilities increased rapidly due to higher costs of both wholesale and retail funding. The recent decrease in interest rates have allowed our liabilities to decline as well.

Previous wording

Management determined that a $15,000 provision for credit loss was prudent in light of the slight increase in the loan portfolio during the recently-ended quarter.

Current wording

Management determined that a $15,000 provision for credit loss was prudent during the recently-ended six-month period.

Previous wording

Non-interest income increased $63,000 or 85.1% to $137,000 for the three months ended September 30, 2024, compared to the prior year period, primarily because of an increase in net gains on sales of loans as the demand for fixed rate loans has increased in the quarter recently ended.

Current wording

Non-interest income increased $187,000 or 154.5% to $308,000 for the six-months ended December 31, 2024 compared to the prior year period, primarily because of an increase in net gains from sale of loans of $135,000 or 2250.0%. Recently, the market has become more conducive to the sale of fixed rate mortgages to the secondary market.

Previous wording

The average rate earned on interest-earning assets increased 69 basis points to 5.05% and was the primary reason for the increase in interest income, although average interest-earning assets also increased $23.4 million or 6.8% to $365.8 million for the recently-ended quarterly period. The increase in interest income was due primarily to an increase of $806,000 or 23.3% in interest income from loans, which totaled $4.3 million for the period.

Current wording

The average rate earned on interest-earning assets increased 80 basis points to 5.28% and was the primary reason for the increase in interest income, although average interest-earning assets also increased $11.5 million or 3.3% to $362.3 million for the recently-ended quarterly period. The increase in interest income was due primarily to an increase of $809,000 or 22.3% in interest income from loans, which totaled $4.4 million for the period.

Previous wording

The increase in interest income from loans period-to-period was due to increases in both the average balance of loans and the average rate earned on those loans. The average balance of loans increased $17.4 million or 5.5% to $336.0 million for the three months ended September 30, 2024, while the average rate increased 73 basis points to 5.08%.

Current wording

The increase in interest income from loans period-to-period was due to increases in both the average balance of loans and the average rate earned on those loans. The average balance of loans increased $9.5 million or 2.9% to $333.8 million for the three months ended December 31, 2024, while the average rate increased 84 basis points to 5.32%.

Previous wording

Net interest spread increased from 1.49% for the prior year quarterly period to 1.50% for the three-month period ended September 30, 2024.

Current wording

Net interest spread increased from 1.39% for the prior year quarterly period to 1.75% for the three-month period ended December 31, 2024.

Previous wording

Non-interest expense increased $31,000 or 1.6% and totaled $2.0 million for the three months ended September 30, 2024, primarily due to increased data processing charges and increased FDIC insurance premiums.

Current wording

Non-interest expense increased $54,000 or 2.5% and totaled $2.2 million for the three months ended December 31, 2024, primarily due to increased other non-interest expense increasing $123,000 due to increased legal expense.

Previous wording

Income tax benefit decreased $63,000 or 91.3% from a benefit of $69,000 for the three months ended September 30, 2023, to a benefit of $6,000 for the recently-ended period. The effective tax rates for the three-month periods ended September 30, 2024 and 2023 were 28.6% and 28.3%, respectively.

Current wording

Income taxes benefit decreased $87,000 or 92.6% from a benefit of $94,000 for the three months ended December 31, 2023, to a benefit of $7,000 for the recently-ended period. The effective tax rates for the three-month periods ended December 31, 2024 and 2023, were -116.7% and 20.7%, respectively. Included in net income is earnings of $22,000 on bank-owned life insurance which is non-taxable.