FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2001
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to _______________
Commission File No. 1-13904
KENTUCKY FIRST BANCORP, INC.
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(Exact name of registrant as specified in its charter)
Delaware 61-1281483
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
306 N. Main Street
Cynthiana, Kentucky 41031
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(Address of principal (Zip Code)
executive office)
Issuer's telephone number, including area code: (859) 234-1440
---------------
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports) and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
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As of May 7, 2001, the latest practicable date, 940,165 shares of the
registrant's common stock, $.01 par value per share, were issued and
outstanding.
Transitional small business disclosure format (check one):
Yes No X
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Page 1 of 17 pages
INDEX
Page
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PART I
ITEM I - FINANCIAL STATEMENTS
Consolidated Statements of Financial Condition 3
Consolidated Statements of Earnings 4
Consolidated Statements of Comprehensive Income 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 8
ITEM II MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION 10
PART II - OTHER INFORMATION 16
SIGNATURES 17
2
ITEM I FINANCIAL STATEMENTS
KENTUCKY FIRST BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
MARCH 31, JUNE 30,
ASSETS 2001 2000
Cash and due from banks $ 558 $ 378
Interest-bearing deposits in other financial institutions 1,219 1,223
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Cash and cash equivalents 1,777 1,601
Investment securities available for sale - at market 9,267 6,783
Investment securities held to maturity - at amortized cost,
approximate market value of $2,223 as of June 30, 2000 - 2,235
Mortgage-backed securities available for sale - at market 13,606 6,548
Mortgage-backed securities held to maturity - at amortized cost,
approximate market value of $7,823 as of June 30, 2000 - 8,075
Loans receivable - net 45,735 44,920
Office premises and equipment - at depreciated cost 1,143 1,203
Federal Home Loan Bank stock - at cost 1,375 1,301
Accrued interest receivable 516 424
Prepaid expenses and other assets 80 520
Prepaid federal income taxes 96 86
Deferred federal income tax assets - 165
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Total assets $73,595 $73,861
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LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $51,821 $53,284
Advances from the Federal Home Loan Bank 8,815 6,827
Accrued interest payable 123 147
Other liabilities 437 620
Deferred federal income taxes 105 -
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Total liabilities 61,301 60,878
Shareholders' equity
Preferred stock - authorized 500,000 shares of $.01 par value;
no shares issued - -
Common stock - authorized 3,000,000 shares of $.01 par value;
1,388,625 shares issued 14 14
Additional paid-in capital 9,247 9,320
Retained earnings - restricted 8,917 8,754
Less shares acquired by stock benefit plans (798) (798)
Less 448,126 and 333,933 shares of treasury stock - at cost (5,251) (4,039)
Accumulated comprehensive gain (loss), unrealized gains (losses) on
securities designated as available for sale, net of related tax effects 165 (268)
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Total shareholders' equity 12,294 12,983
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Total liabilities and shareholders' equity $73,595 $73,861
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3
KENTUCKY FIRST BANCORP, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except share data)
NINE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, MARCH 31,
2001 2000 2001 2000
Interest income
Loans $ 2,749 $ 2,814 $ 935 $ 931
Mortgage-backed securities 726 740 231 241
Investment securities 403 384 135 133
Interest-bearing deposits and other 93 92 28 34
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Total interest income 3,971 4,030 1,329 1,339
Interest expense
Deposits 1,710 1,685 573 559
Borrowings 354 284 134 97
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Total interest expense 2,064 1,969 707 656
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Net interest income 1,907 2,061 622 683
Provision for losses on loans 30 27 9 9
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Net interest income after provision
for losses on loans 1,877 2,034 613 674
Other income
Gain on investment securities transactions 3 - - -
Service charges on deposit accounts 111 124 35 41
Other operating 45 33 15 12
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Total other income 159 157 50 53
General, administrative and other expense
Employee compensation and benefits 758 756 260 255
Occupancy and equipment 129 125 45 41
Federal deposit insurance premiums 8 20 3 3
Data processing 102 107 34 35
Other operating 286 298 93 105
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Total general, administrative and other expense 1,283 1,306 435 439
------ ------ ------- ------
Earnings before income taxes 753 885 228 288
Federal income taxes
Current 163 178 (6) 94
Deferred 47 73 68 (13)
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Total federal income taxes 210 251 62 81
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NET EARNINGS $ 543 $ 634 $ 166 $ 207
====== ====== ======= ======
EARNINGS PER SHARE
Basic $ .58 $ .59 $ .19 $ .20
=== === === ===
Diluted $ .57 $ .58 $ .18 $ .19
=== === === ===
4
KENTUCKY FIRST BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
NINE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, MARCH 31,
2001 2000 2001 2000
Net earnings $ 543 $ 634 $ 166 $ 207
Other comprehensive income, net of tax:
Unrealized holding gains (losses) on securities during
the period, net of taxes (benefits) of $314, $(70),
$86, $(19), for the respective periods 609 (137) 165 (37)
Reclassification adjustment for realized gain included
in earnings, net of tax of $1 for the nine months
ended March 31, 2001 (2) - - -
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Comprehensive income $ 1,150 $ 497 $ 331 $ 170
====== ======= ======= =======
Accumulated comprehensive income (loss) $ 165 $ (251) $ 165 $ (251)
======= ======= ======= =======
5
KENTUCKY FIRST BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended March 31,
(In thousands)
2001 2000
Cash flows from operating activities:
Net earnings for the period $ 543 $ 634
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Amortization of discounts and premiums on loans,
investments and mortgage-backed securities - net (12) (2)
Depreciation and amortization 63 62
Amortization of deferred loan origination fees (10) (13)
Provision for losses on loans 30 27
Gain on investment securities transactions (3) -
Federal Home Loan Bank stock dividends (74) (66)
Increase (decrease) in cash due to changes in:
Accrued interest receivable (92) (50)
Prepaid expenses and other assets 440 (20)
Accrued interest payable (24) 24
Other liabilities (183) 204
Federal income taxes
Current (77) 37
Deferred 47 73
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Net cash provided by operating activities 648 910
Cash flows provided by (used in) investing activities:
Proceeds from maturity of investment securities 642 72
Purchase of investment securities designated as available for sale (500) (486)
Purchase of mortgage-backed securities designated as available for sale - (979)
Principal repayments on mortgage-backed securities 1,297 2,314
Purchase of loans (2,560) (2,161)
Loan principal repayments 7,598 8,437
Loan disbursements (5,873) (4,463)
Purchase of office premises and equipment (3) (9)
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Net cash provided by investing activities 601 2,725
Cash flows provided by (used in) financing activities:
Net decrease in deposits (1,463) (2,043)
Proceeds from Federal Home Loan Bank advances and other borrowings 7,600 3,911
Repayment of Federal Home Loan Bank advances and other borrowings (5,612) (3,708)
Purchase of treasury stock (1,245) (1,073)
Proceeds from exercise of stock options 27 10
Dividends on common stock (380) (407)
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Net cash used in financing activities (1,073) (3,310)
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Net increase in cash and cash equivalents 176 325
Cash and cash equivalents at beginning of period 1,601 1,444
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Cash and cash equivalents at end of period $ 1,777 $ 1,769
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6
KENTUCKY FIRST BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the nine months ended March 31,
(In thousands)
2001 2000
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Federal income taxes $ 240 $ 141
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Interest on deposits and borrowings $ 2,088 $ 1,945
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Supplemental disclosure of noncash investing activities:
Transfer of investment and mortgage-backed securities from
held to maturity to available for sale classification $ 10,310 $ --
======= =======
Unrealized gains (losses) on securities designated as
available for sale, net of related tax effects $ 607 $ (137)
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7
KENTUCKY FIRST BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the nine and three months ended March 31, 2001 and 2000
1. Basis of Presentation
---------------------
The accompanying unaudited consolidated financial statements were prepared
in accordance with instructions for Form 10-QSB and, therefore, do not
include information or footnotes necessary for a complete presentation of
consolidated financial position, results of operations and cash flows in
conformity with generally accepted accounting principles. Accordingly, these
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto of Kentucky First Bancorp, Inc. (the
"Corporation") included in the Annual Report on Form 10-KSB for the year
ended June 30, 2000. However, in the opinion of management, all adjustments
(consisting of only normal recurring accruals) which are necessary for a
fair presentation of the financial statements have been included. The
results of operations for the nine and three month periods ended March 31,
2001 are not necessarily indicative of the results which may be expected for
an entire fiscal year.
2. Principles of Consolidation
---------------------------
The accompanying consolidated financial statements include the accounts of
the Corporation and First Federal Savings Bank (the "Savings Bank"). All
significant intercompany items have been eliminated.
3. Earnings Per Share
------------------
Basic earnings per share is computed based upon the weighted-average shares
outstanding during the period, less shares in the ESOP that are unallocated
and not committed to be released. Weighted-average common shares deemed
outstanding, which gives effect to 56,229 unallocated ESOP shares, totaled
941,251 and 887,712 for the nine and three month periods ended March 31,
2001. Weighted-average common shares deemed outstanding, which gives effect
to 65,935 unallocated ESOP shares, totaled 1,073,529 and 1,045,286 for the
nine and three month periods ended March 31, 2000.
Diluted earnings per share is computed taking into consideration common
shares outstanding and dilutive potential common shares to be issued under
the Corporation's stock option plan. Weighted-average common shares deemed
outstanding for purposes of computing diluted earnings per share totaled
951,321 and 901,998 for the nine and three month periods ended March 31,
2001 and totaled 1,087,314 and 1,051,314 for the nine and three month
periods ended March 31, 2000, respectively. Incremental shares related to
the assumed exercise of stock options included in the calculation of diluted
earnings per share totaled 10,070 and 14,286 for the nine and three month
periods ended March 31, 2001 and totaled 13,785 and 6,028 for the nine and
three month periods ended March 31, 2000.
8
KENTUCKY FIRST BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the nine and three months ended March 31, 2001 and 2000
4. Effects of Recent Accounting Pronouncements
-------------------------------------------
In June 1998, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") 133, "Accounting for
Derivative Instruments and Hedging Activities," which requires entities to
recognize all derivatives in their financial statements as either assets or
liabilities measured at fair value. SFAS No. 133 also specifies new methods
of accounting for hedging transactions, prescribes the items and
transactions that may be hedged, and specifies detailed criteria to be met
to qualify for hedge accounting.
The definition of a derivative financial instrument is complex, but in
general, it is an instrument with one or more underlyings, such as an
interest rate or foreign exchange rate, that is applied to a notional
amount, such as an amount of currency, to determine the settlement
amount(s). It generally requires no significant initial investment and can
be settled net or by delivery of an asset that is readily convertible to
cash. SFAS No. 133 applies to derivatives embedded in other contracts,
unless the underlying of the embedded derivative is clearly and closely
related to the host contract.
SFAS No. 133, as amended by SFAS No. 137, is effective for fiscal years
beginning after June 15, 2000. On adoption, entities are permitted to
transfer held-to-maturity debt securities to the available-for-sale or
trading category without calling into question their intent to hold other
debt securities to maturity in the future. Management adopted SFAS No. 133
effective July 1, 2000, as required. Upon adoption, management elected to
transfer all held to maturity securities to the available for sale
classification. The adoption of SFAS No. 133 had no other material impact on
the Corporation's financial statements.
In September 2000, the FASB issued SFAS No. 140 "Accounting for Transfers
and Servicing of Financial Assets and Extinquishments of Liabilities", which
revises the standards for accounting for securitizations and other transfers
of financial assets and collateral and requires certain disclosures, but
carries over most of the provisions of SFAS No. 125 without reconsideration.
SFAS No. 140 is effective after March 31, 2001. The Statement is effective
for recognition and reclassification of collateral and for disclosures
relating to securitization transactions and collateral for fiscal years
ending after December 15, 2000. SFAS No. 140 is not expected to have a
material effect on the Corporation's financial position or results of
operations.
9
KENTUCKY FIRST BANCORP, INC.
ITEM II MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
Forward-Looking Statements
- --------------------------
In addition to historical information contained herein, the following discussion
contains forward-looking statements that involve risks and uncertainties.
Economic circumstances, the Corporation's operations and the Corporation's
actual results could differ significantly from those discussed in the
forward-looking statements. Some of the factors that could cause or contribute
to such differences are discussed herein but also include changes in the economy
and interest rates in the nation and the Corporation's market area generally.
Some of the forward-looking statements included herein are the statements
regarding management's determination of the amount and adequacy of the allowance
for loan losses and the effect of certain recent accounting pronouncements.
Discussion of Financial Condition Changes from June 30, 2000 to March 31, 2001
- ------------------------------------------------------------------------------
At March 31, 2001, the Corporation's consolidated total assets amounted to $73.6
million, a decrease of $266,000, or 0.4%, from the total at June 30, 2000. The
decrease in assets resulted from a decrease of $1.5 million in deposits, a
decrease of $102,000 in accrued interest payable, other liabilities, and
deferred federal income tax and a decrease in shareholders' equity of $689,000,
which were partially offset by an increase of $2.0 million in borrowed funds.
Liquid assets (i.e. cash, interest-bearing deposits and investment securities)
increased by $425,000, or 4.0%, during the nine month period, to a total of
$11.0 million at March 31, 2001. Mortgage-backed securities totaled $13.6
million at March 31, 2001, a decrease of $1.0 million, or 7.0%, from June 30,
2000 levels. The decrease in mortgage-backed securities resulted from principal
repayments.
Loans receivable increased by $815,000, or 1.8%, during the nine month period,
to a total of $45.7 million at March 31, 2001. Loan disbursements and loan
purchases amounted to $8.4 million and were offset by principal repayments of
$7.6 million. The allowance for loan losses totaled $472,000 at March 31, 2001
compared to $443,000 at June 30, 2000. Nonperforming loans totaled $221,000 at
March 31, 2001 compared to $345,000 at June 30, 2000. The allowance for loan
losses represented 213.6% and 128.4% of nonperforming loans as of March 31, 2001
and June 30, 2000, respectively. Although management believes that its allowance
for loan losses at March 31, 2001 is adequate based upon the available facts and
circumstances, there can be no assurance that additions to such allowance will
not be necessary in future periods, which could adversely affect the
Corporation's results of operations.
Deposits totaled $51.8 million at March 31, 2001, a decrease of $1.5 million, or
2.7%, from June 30, 2000 levels. The decrease in deposits was due to a $1.7
million decrease in checking and savings accounts, which was offset by a
$332,000 increase in certificates of deposit. Borrowed funds totaled $8.8
million at March 31, 2001, an increase of $2.0 million, or 29.1%, from the total
at June 30, 2000.
10
KENTUCKY FIRST BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION (CONTINUED)
Discussion of Financial Condition Changes from June 30, 2000 to March 31, 2001
- ------------------------------------------------------------------------------
(continued)
The Corporation's shareholders' equity amounted to $12.3 million at March 31,
2001, a decrease of $689,000, or 5.3%, from June 30, 2000 levels. The decrease
resulted primarily from purchases of treasury stock totaling $1.2 million and
dividends paid on common stock totaling $380,000, which were partially offset by
unrealized gains on securities designated as available for sale of $433,000 and
net earnings of $543,000.
The Savings Bank is required to meet each of three minimum capital standards
promulgated by the Office of Thrift Supervision ("OTS"), hereinafter described
as the tangible capital requirement, the core capital requirement and the
risk-based capital requirement. The tangible capital requirement mandates
maintenance of shareholders' equity less all intangible assets equal to 1.5% of
adjusted total assets. The core capital requirement provides for the maintenance
of tangible capital plus certain forms of supervisory goodwill generally equal
to 4% of adjusted total assets, except for those associations with the highest
examination rating and acceptable levels of risk. The risk-based capital
requirement mandates maintenance of core capital plus general loan loss
allowances equal to 8% of risk-weighted assets as defined by OTS regulations.
At March 31, 2001, the Savings Bank's tangible and core capital totaled $10.6
million, or 14.4%, of adjusted total assets, which exceeded the minimum tangible
and core capital requirements of $1.1 million and $3.0 million by $9.5 million
and $7.6 million, respectively. The Savings Bank's risk-based capital of $10.8
million, or 25.7% of risk-weighted assets, exceeded the current 8% of
risk-weighted assets requirement by $7.5 million.
Comparison of Operating Results for the Nine Month Periods Ended March 31, 2001
- -------------------------------------------------------------------------------
and 2000
- --------
General
- -------
Net earnings amounted to $543,000 for the nine months ended March 31, 2001, a
decrease of $91,000, or 14.4%, from the $634,000 of net earnings reported for
the nine months ended March 31, 2000. The decrease in net earnings in the
current period was due to a $154,000 decrease in net interest income and a
$3,000 increase in the provision for losses on loans, which were partially
offset by a $2,000 increase in other income, a $23,000 decrease in general,
administrative and other expense and a $41,000 decrease in the provision for
federal income taxes.
Net Interest Income
- -------------------
Net interest income was $1.9 million for the nine months ended March 31, 2001,
which represents a decrease of $154,000, or 7.5%, compared to the nine month
period ended March 31, 2000. Total interest income decreased by $59,000, or
1.5%, due to a $3.4 million, or 4.6%, decrease in the weighted-average balance
of interest-earning assets outstanding year to year, which was partially offset
by an increase in the average yield on interest-earning assets from 7.25% to
7.49%. Interest income on loans decreased by $65,000, or 2.3%, due to a $2.1
million, or 4.3%, decrease in the weighted-average balance of loans outstanding
year to year, which was partially offset by an increase in the average yield on
loans from 7.90% to 8.07%.
11
KENTUCKY FIRST BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION (CONTINUED)
Comparison of Operating Results for the Nine Month Periods Ended March 31, 2001
- -------------------------------------------------------------------------------
and 2000 (continued)
- --------
Net Interest Income (continued)
- -------------------
Interest income on mortgage-backed securities decreased by $14,000, or 1.9%, due
to a $1.2 million, or 7.7%, decrease in the weighted-average balance outstanding
year to year, which was partially offset by an increase in the average yield on
mortgage-backed securities from 6.40% to 6.80%. Interest income on investment
securities and interest-bearing deposits increased by $20,000, or 4.2%, due to
an increase in the average yield from 5.65% to 5.97%, which was partially offset
by a $155,000, or 1.4%, decrease in the weighted-average balance outstanding
year to year.
Total interest expense increased by $95,000, or 4.8%, due to an increase in the
average cost of funds from 4.22% to 4.64%, which was partially offset by a $2.9
million, or 4.7%, decrease in the weighted average-balance of interest-bearing
liabilities outstanding year to year. Interest expense on deposits increased by
$25,000, or 1.5%, due to an increase in the average cost of deposits from 4.06%
to 4.44%, which was partially offset by a $4.0 million, or 7.2%, decrease in the
weighted-average balance of deposits outstanding year to year. Interest expense
on borrowings increased by $70,000, or 24.6%, due to a $1.1 million, or 15.5%,
increase in the weighted-average balance of advances outstanding from the
Federal Home Loan Bank and due to an increase in the average cost of advances
from 5.50% to 5.94%.
As a result of the foregoing changes in interest income and interest expense,
net interest income decreased by $154,000, or 7.5%, to a total of $1.9 million
for the nine months ended March 31, 2001, as compared to the nine months ended
March 31, 2000. The interest rate spread amounted to approximately 2.85% and
3.03% during the nine month periods ended March 31, 2001 and 2000, respectively,
while the net interest margin amounted to approximately 3.59% and 3.71% during
the nine month periods ended March 31, 2001 and 2000, respectively.
Provision for Losses on Loans
- -----------------------------
A provision for losses on loans is charged to earnings to bring the total
allowance for loan losses to a level considered appropriate by management based
on historical experience, the volume and type of lending conducted by the
Savings Bank, the status of past due principal and interest payments, general
economic conditions, particularly as such conditions relate to the Savings
Bank's market area, and other factors related to the collectibility of the
Savings Bank's loan portfolio. As a result of such analysis, management recorded
a $30,000 and a $27,000 provision for losses on loans during the nine month
periods ended March 31, 2001 and 2000, respectively. There can be no assurance
that the loan loss allowance of the Savings Bank will be adequate to cover
losses on nonperforming assets in the future.
12
KENTUCKY FIRST BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION (CONTINUED)
Comparison of Operating Results for the Nine Month Periods Ended March 31, 2001
- -------------------------------------------------------------------------------
and 2000 (continued)
- --------
Other Income
- ------------
Other income increased by $2,000, or 1.3%, for the nine months ended March 31,
2001, compared to the nine months ended March 31, 2000, due to a gain of $3,000
on investment securities transactions in the current period compared to the lack
of any gain or loss on such transactions in the previous period and due to a
$12,000, or 36.4%, increase in other operating income, which were partially
offset by a $13,000, or 10.5%, decrease in service charges on deposit accounts.
General, Administrative and Other Expense
- -----------------------------------------
General, administrative and other expense decreased by $23,000, or 1.8%, during
the nine months ended March 31, 2001 compared to the nine months ended March 31,
2000. The decrease in general, administrative and other expense resulted from a
$12,000, or 60.0%, decrease in federal deposit insurance premiums, a $5,000, or
4.7%, decrease in data processing expense and a $12,000, or 4.0%, decrease in
other operating expense, which were offset by a $2,000, or 0.3%, increase in
employee compensation and benefits and a $4,000, or 3.2%, increase in occupancy
and equipment expense.
The decrease in federal deposit insurance premiums was primarily due to a
decrease in the rate assessed by the Federal Deposit Insurance Corporation,
effective January 1, 2000. The decrease in data processing was primarily due to
decreased charges for on-line services and ATM processing related to preparing
computer systems for the change to year 2000 during the previous period. The
decrease in other operating expense was largely related to reduced legal
expense, franchise tax, and office supplies.
Federal Income Taxes
- --------------------
The provision for federal income taxes decreased by $41,000, or 16.3%, for the
nine months ended March 31, 2001 compared to the nine months ended March 31,
2000. The decrease resulted primarily from a decrease in net earnings before
taxes of $132,000, or 14.9%. The effective tax rates were 27.9% and 28.4% for
the nine month periods ended March 31, 2001 and 2000, respectively.
Comparison of Operating Results for the Three Month Periods Ended March 31, 2001
- --------------------------------------------------------------------------------
and 2000
- --------
General
- -------
Net earnings amounted to $166,000 for the three months ended March 31, 2001, a
decrease of $41,000, or 19.8%, from the $207,000 of net earnings reported for
the three months ended March 31, 2000. The decrease in net earnings in the
current period was due to a $61,000 decrease in net interest income and a $3,000
decrease in other income, which were partially offset by a $4,000 decrease in
general, administrative and other expense and a $19,000 decrease in the
provision for federal income taxes.
13
KENTUCKY FIRST BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION (CONTINUED)
Comparison of Operating Results for the Three Month Periods Ended March 31, 2001
- --------------------------------------------------------------------------------
and 2000 (continued)
- --------
Net Interest Income
- -------------------
Net interest income was $622,000 for the three months ended March 31, 2001,
which represents a decrease of $61,000, or 8.9%, compared to the three month
period ended March 31, 2000. Total interest income decreased by $10,000, or
0.7%, due to a $2.1 million, or 2.9%, decrease in the weighted-average balance
of interest-earning assets outstanding year to year, which was partially offset
by an increase in the average yield on interest-earning assets from 7.32% to
7.49%.
Interest income on loans increased by $4,000, or 0.4%, due to an increase in the
average yield on loans from 7.98% to 8.10%, which was partially offset by a
$542,000, or 1.2%, decrease in the weighted-average balance of loans outstanding
year to year. Interest income on mortgage-backed securities decreased by
$10,000, or 4.1%, due to a $929,000, or 6.3%, decrease in the weighted-average
balance outstanding year to year, which was partially offset by an increase in
the average yield on mortgage-backed securities from 6.57% to 6.72%. Interest
income on investment securities and interest-bearing deposits decreased by
$4,000, or 2.4%, due to a $676,000, or 5.7%, decrease in the weighted-average
balance outstanding year to year, which was partially offset by an increase in
the average yield from 5.66% to 5.91%.
Total interest expense increased by $51,000, or 7.8%, due to an increase in the
average cost of funds from 4.29% to 4.71%, which was partially offset by a $1.1
million, or 1.8%, decrease in the weighted average balance of interest-bearing
liabilities outstanding year to year. Interest expense on deposits increased by
$14,000, or 2.5%, due to an increase in the average cost of deposits from 4.11%
to 4.53%, which was partially offset by a $3.8 million, or 6.9%, decrease in the
weighted-average balance of deposits outstanding year to year. Interest expense
on borrowings increased by $37,000, or 38.1%, due to a $2.7 million, or 39.1%,
increase in the weighted-average balance of advances outstanding from the
Federal Home Loan Bank, which was partially offset by a decrease in the average
cost of advances from 5.68% to 5.66%.
As a result of the foregoing changes in interest income and interest expense,
net interest income decreased by $61,000, or 8.9%, to a total of $622,000 for
the three months ended March 31, 2001 as compared to the three months ended
March 31, 2000. The interest rate spread amounted to approximately 2.79% and
3.04% during the three month periods ended March 31, 2001 and 2000,
respectively, while the net interest margin amounted to approximately 3.50% and
3.73% during the three month periods ended March 31, 2001 and 2000,
respectively.
Provision for Losses on Loans
- -----------------------------
A provision for losses on loans is charged to earnings to bring the total
allowance for loan losses to a level considered appropriate by management based
on historical experience, the volume and type of lending conducted by the
Savings Bank, the status of past due principal and interest payments, general
economic conditions, particularly as such conditions relate to the Savings
Bank's market area, and other factors related to the collectibility of the
Savings Bank's loan portfolio. As a result of such analysis, management recorded
a $9,000 provision for losses on loans during each of the three month periods
ended March 31, 2001 and 2000. There can be no assurance that the loan loss
allowance of the Savings Bank will be adequate to cover losses on nonperforming
assets in the future.
14
KENTUCKY FIRST BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION (CONTINUED)
Comparison of Operating Results for the Three Month Periods Ended March 31, 2001
- --------------------------------------------------------------------------------
and 2000 (continued)
- --------
Other Income
- ------------
Other income decreased by $3,000, or 5.7%, for the three months ended March 31,
2001, compared to the three months ended March 31, 2000, due to a $6,000, or
14.6%, decrease in service charges on deposit accounts, which was offset by a
$3,000, or 25.0%, increase in other operating income.
General, Administrative and Other Expense
- -----------------------------------------
General, administrative and other expense decreased by $4,000, or 0.9%, during
the three months ended March 31, 2001 compared to the three months ended March
31, 2000. The decrease in general, administrative and other expense resulted
primarily from a $12,000, or 11.4%, decrease in other operating expense, which
was partially offset by a $5,000, or 2.0%, increase in employee compensation and
benefits and a $4,000, or 9.8%, increase in occupancy and equipment expense.
The decrease in other operating expense was largely related to reduced legal
expense, franchise tax and office supplies expense. The increase in employee
compensation and benefits was due to normal yearly employee wage increases,
which was offset by an increase in direct costs of loan department personnel
being deferred related to higher loan origination volume during the current
period.
Federal Income Taxes
- --------------------
The provision for federal income taxes decreased by $19,000, or 23.5%, for the
three months ended March 31, 2001 as compared to the three months ended March
31, 2000. The decrease resulted primarily from a decrease in net earnings before
taxes of $60,000, or 20.8%. The effective tax rates were 27.2% and 28.1% for the
three month periods ended March 31, 2001 and 2000, respectively.
15
KENTUCKY FIRST BANCORP, INC.
PART II
ITEM 1. Legal Proceedings
-----------------
The Bank is party to a lawsuit captioned Family Bank, FSB and First Federal
----------------------------------
Savings Bank v. Oscar S. Blankenship a/k/a O. Sam Blankenship and Jenny
- --------------------------------------------------------------------------------
Blankenship filed in the Johnson Circuit Court, Division No. II, Commonwealth of
- ----------
Kentucky. The lawsuit is a collection action seeking recovery of three loans of
which the Bank has an interest in two. The suit also asks for the court to sell
the property securing the loans with the proceeds to be used to repay all
amounts owed. The defendants filed an answer on February 3, 2000 making various
counterclaims alleging breach of contract, breach of fiduciary duty and
unspecified violations of the federal banking laws. The defendants are seeking
money damages (including punitive damages) of an unspecified amount. Certain of
the counterclaims relate only to the one loan in which the Bank does not have
any interest.
ITEM 2. Changes in Securities and Use of Proceeds
-----------------------------------------
Not applicable
ITEM 3. Defaults Upon Senior Securities
-------------------------------
Not applicable
ITEM 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Not applicable
ITEM 5. Other Information
-----------------
None
ITEM 6. Exhibits and Reports on Form 8-K
--------------------------------
Exhibits: None.
Reports on Form 8-K: None.
16
KENTUCKY FIRST BANCORP, INC.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
Date: May 11, 2001 By: /s/ Betty J. Long
------------ -----------------------------------
Betty J. Long
President and Chief
Executive Officer
Date: May 11, 2001 By: /s/ Russell M. Brooks
------------ -----------------------------------
Russell M. Brooks
Executive Vice President and
Chief Financial Officer
17