UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended December 31, 2001
------------------------------------
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ____________ to _______________
Commission File Number: 1-13904
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KENTUCKY FIRST BANCORP, INC.
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(Exact name of small business issuer as specified in its charter)
Delaware 61-1281483
- ------------------------------------ ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
308 North Main Street, Cynthiana, Kentucky 41031
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(Address of principal executive offices)
(859) 234-1440
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(Issuer's telephone number)
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(Former name, former address and former fiscal year,
if changed since last report)
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
February 12, 2002 - 925,328 shares of common stock
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Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
Page 1 of 17 pages
INDEX
Page
----
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 15
SIGNATURES 17
2
ITEM I FINANCIAL STATEMENTS
KENTUCKY FIRST BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
DECEMBER 31, JUNE 30,
ASSETS 2001 2001
Cash and due from banks $ 585 $ 507
Interest-bearing deposits in other financial institutions 1,946 2,069
------- -------
Cash and cash equivalents 2,531 2,576
Investment securities available for sale - at market 7,660 8,179
Mortgage-backed securities available for sale - at market 20,651 14,635
Loans receivable - net 44,777 45,720
Office premises and equipment - at depreciated cost 1,129 1,137
Real estate acquired through foreclosure 45 --
Federal Home Loan Bank stock - at cost 1,444 1,399
Accrued interest receivable 440 464
Prepaid expenses and other assets 68 81
Prepaid federal income taxes 85 7
------- -------
Total assets $78,830 $74,198
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $53,964 $52,430
Advances from the Federal Home Loan Bank 11,803 8,811
Accrued interest payable 145 158
Other liabilities 227 190
Deferred federal income taxes 147 69
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Total liabilities 66,286 61,658
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 9,264 9,264
Retained earnings - restricted 9,151 8,986
Less shares acquired by stock benefit plans (555) (555)
Less 461,297 and 448,460 shares of treasury stock at December 31,
2001 and June 30, 2001, respectively - at cost (5,419) (5,254)
Accumulated comprehensive income, unrealized gains on securities
designated as available for sale, net of related tax effects 89 85
------- -------
Total shareholders' equity 12,544 12,540
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Total liabilities and shareholders' equity $78,830 $74,198
======= =======
3
KENTUCKY FIRST BANCORP, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except share data)
SIX MONTHS ENDED THREE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
2001 2000 2001 2000
Interest income
Loans $1,843 $1,814 $ 910 $ 908
Mortgage-backed securities 526 495 299 243
Investment securities 210 268 96 134
Interest-bearing deposits and other 68 65 29 34
------ ------ ------ ------
Total interest income 2,647 2,642 1,334 1,319
Interest expense
Deposits 1,068 1,137 506 571
Borrowings 241 220 130 114
------ ------ ------ ------
Total interest expense 1,309 1,357 636 685
------ ------ ------ ------
Net interest income 1,338 1,285 698 634
Provision for losses on loans 21 21 18 9
------ ------ ------ ------
Net interest income after provision
for losses on loans 1,317 1,264 680 625
Other income
Gain on investment securities transactions -- 3 -- --
Service charges on deposit accounts 77 76 39 32
Other operating 27 30 13 17
------ ------ ------ ------
Total other income 104 109 52 49
General, administrative and other expense
Employee compensation and benefits 445 498 217 247
Occupancy and equipment 85 84 42 43
Data processing 75 68 39 34
State franchise tax 33 33 18 17
Other operating 177 165 98 84
------ ------ ------- -------
Total general, administrative and other expense 815 848 414 425
------ ------ ------ ------
Earnings before income taxes 606 525 318 249
Federal income taxes
Current 100 169 22 79
Deferred 76 (21) 71 (9)
------ ------ ------ ------
Total federal income taxes 176 148 93 70
------ ------ ------- -------
NET EARNINGS $ 430 $ 377 $ 225 $ 179
====== ====== ====== ======
EARNINGS PER SHARE
Basic $.48 $.39 $.25 $.19
==== ==== ==== ====
Diluted $.47 $.39 $.25 $.19
==== ==== ==== ====
4
KENTUCKY FIRST BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
SIX MONTHS ENDED THREE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
2001 2000 2001 2000
Net earnings $430 $ 377 $ 225 $179
Other comprehensive income (loss), net of tax:
Cumulative effect of transfer of securities from held to maturity
to available for sale -- (174) -- --
Unrealized holding gains (losses) on securities during the period, net
of taxes (benefits) of $2, $229, $(137) and $133 during the
respective periods 4 618 (265) 259
Reclassification adjustment for realized gains included in earnings,
net of tax of $1 in 2000 -- (2) -- --
---- ----- ----- ----
Comprehensive income (loss) $434 $ 819 $ (40) $438
==== ===== ===== ====
Accumulated comprehensive income $ 89 $ -- $ 89 $ --
==== ===== ===== ====
5
KENTUCKY FIRST BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended December 31,
(In thousands)
2001 2000
Cash flows from operating activities:
Net earnings for the period $ 430 $ 377
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 (10) (7)
Depreciation and amortization 39 42
Amortization of deferred loan origination fees (12) (6)
Provision for losses on loans 21 21
Gain on investment securities transactions -- (3)
Federal Home Loan Bank stock dividends (45) (49)
Increase (decrease) in cash due to changes in:
Accrued interest receivable 24 (14)
Prepaid expenses and other assets 13 437
Accrued interest payable (13) (41)
Other liabilities 37 (310)
Federal income taxes
Current (78) 4
Deferred 76 (21)
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Net cash provided by operating activities 482 430
Cash flows provided by (used in) investing activities:
Proceeds from maturity of investment securities 1,528 629
Purchase of investment securities (1,000) (500)
Purchase of mortgage-backed securities (8,090) --
Principal repayments on mortgage-backed securities 2,080 837
Purchase of loans -- (2,285)
Loan principal repayments 6,428 5,643
Loan disbursements (5,539) (4,241)
Purchase of office premises and equipment (31) (2)
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Net cash provided by (used in) investing activities (4,624) 81
Cash flows provided by (used in) financing activities:
Net increase (decrease) in deposits 1,534 (2,009)
Proceeds from borrowed funds 3,000 5,300
Repayment of borrowed funds (8) (3,308)
Proceeds from exercise of stock options -- 1
Purchase of treasury stock (164) (1,154)
Dividends on common stock (265) (246)
------- -------
Net cash provided by (used in) financing activities 4,097 (1,416)
------- -------
Net decrease in cash and cash equivalents (45) (905)
Cash and cash equivalents at beginning of period 2,576 1,601
------- -------
Cash and cash equivalents at end of period $ 2,531 $ 696
======= =======
6
KENTUCKY FIRST BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the six months ended December 31,
(In thousands)
2001 2000
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Federal income taxes $ 159 $ 165
========= =======
Interest on deposits and borrowings $ 1,322 $ 1,398
========= =======
Supplemental disclosure of noncash investing activities:
Transfer of investment and mortgage-backed securities from
held to maturity to an available for sale classification $ -- $10,310
========= =======
Unrealized gains on securities designated as available for sale,
net of related tax effects $ 4 $ 444
========= =======
Transfers from loans to real estate acquired through foreclosure $ 45 $ --
========= =======
7
KENTUCKY FIRST BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the six and three months ended December 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
accounting principles generally accepted in the United States of America.
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, 2001. 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 three and six month periods ended December 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 45,810 unallocated ESOP shares, totaled 890,282 and
886,208 for the six and three month periods ended December 31, 2001,
respectively. Weighted-average common shares deemed outstanding, which gives
effect to 56,229 unallocated ESOP shares, totaled 967,439 and 950,818 for the
six and three month periods ended December 31, 2000, respectively.
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 923,578
and 919,642 for the six and three month periods ended December 31, 2001, and
975,497 and 959,801 for the six and three month periods ended December 31, 2000,
respectively. Incremental shares related to the assumed exercise of stock
options included in the calculation of diluted earnings per share totaled 33,296
and 33,434 for the six and three month periods ended December 31, 2001, and
8,058 and 8,983 for the six and three month periods ended December 31, 2000,
respectively.
4. Effects of Recent Accounting Pronouncements
-------------------------------------------
In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 141 "Business Combinations,"
which requires that all business combinations initiated after June 30, 2001 be
accounted for using the purchase method. The pooling-of-interests method of
accounting is prohibited except for combinations initiated before June 30, 2001.
The remaining provisions of SFAS No. 141 relating to business combinations
8
KENTUCKY FIRST BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the six and three months ended December 31, 2001 and 2000
4. Effects of Recent Accounting Pronouncements (continued)
-------------------------------------------
accounted for by the purchase method, including identification of intangible
assets, accounting for negative goodwill, financial statement presentation and
disclosure, are effective for combinations completed after June 30, 2001.
Management adopted SFAS No. 141 effective June 30, 2001, without material effect
on the Corporation's financial position or results of operations.
In June 2001, the FASB issued SFAS No. 142 "Goodwill and Intangible Assets,"
which prescribes accounting for all purchased goodwill and intangible assets.
Pursuant to SFAS No. 142, acquired goodwill is not amortized, but is tested for
impairment at the reporting unit level annually and whenever an impairment
indicator arises. SFAS No. 142 is effective for fiscal years beginning after
December 15, 2001. SFAS No. 142 is not expected to have a material effect on the
Corporation's financial position or results of operations.
The foregoing discussion of the effects of recent accounting pronouncements
contains forward-looking statements that involve risks and uncertainties.
Changes in economic circumstances could cause the effects of the accounting
pronouncements to differ from management's foregoing assessment.
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 losses on loans and the effect of recent accounting pronouncements.
Discussion of Financial Condition Changes from June 30, 2001 to December 31,
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2001
- ----
At December 31, 2001, the Corporation's consolidated total assets amounted to
$78.8 million, an increase of $4.6 million, or 6.2%, over the total at June 30,
2001. The increase in assets was funded primarily from an increase of $1.5
million in deposits and an increase in advances from the Federal Home Loan Bank
of $3.0 million.
Liquid assets (i.e. cash, interest-bearing deposits and investment securities)
decreased by $564,000, or 5.2%, during the six month period, to a total of $10.2
million at December 31, 2001. Mortgage-backed securities totaled $20.7 million
at December 31, 2001, an increase of $6.0 million, or 41.1%, over June 30, 2001
levels. The increase in mortgage-backed securities resulted primarily from
purchases totaling $8.1 million, which were partially offset by principal
repayments of $2.1 million.
Loans receivable amounted to $44.8 million at December 31, 2001, a decrease of
$943,000, or 2.1%, compared to June 30, 2001. Loan disbursements and loan
purchases amounted to $5.5 million and were offset by principal repayments of
$6.4 million. The allowance for loan losses totaled $233,000 at December 31,
2001, compared to $480,000 at June 30, 2001. During the period ended December
31, 2001, a nonperforming loan was transferred to real estate acquired through
foreclosure, which resulted in a decline in the allowance for loan losses
totaling $265,000. Nonperforming loans totaled $171,000 at December 31, 2001,
compared to $286,000 at June 30, 2001. The allowance for loan losses represented
136.3% of nonperforming loans as of December 31, 2001 and 167.8% at June 30,
2001. Although management believes that its allowance for loan losses at
December 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 $54.0 million at December 31, 2001, an increase of $1.5
million, or 2.9%, over June 30, 2001 levels. The increase in deposits was due to
managements' continuing marketing efforts. Borrowed funds totaled $11.8 million
at December 31, 2001, an increase of $3.0 million, or 34.0%, over the total at
June 30, 2001. Proceeds from borrowings and growth in deposits were generally
used to fund new loan originations and purchases of mortgage-backed securities.
The Corporation's shareholders' equity amounted to $12.5 million at both
December 31, 2001 and June 30, 2001. Net earnings during the six months ended
December 31, 2001 of $430,000 and an increase in unrealized gains on available
for sale securities of $4,000, were partially offset by dividends paid on common
stock totaling $265,000 and purchases of treasury stock totaling $164,000.
10
KENTUCKY FIRST BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION (CONTINUED)
Discussion of Financial Condition Changes from June 30, 2001 to December 31,
- ----------------------------------------------------------------------------
2001 (continued)
- ----
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 December 31, 2001, the Savings Bank's tangible and core capital totaled $11.5
million, or 14.6%, of adjusted total assets, which exceeded the minimum tangible
and core capital requirements of $1.2 million and $3.1 million by $10.3 million
and $8.4 million, respectively. The Savings Bank's risk-based capital of $11.7
million, or 28.3% of risk-weighted assets, exceeded the 8% of risk-weighted
assets requirement by $8.4 million.
Comparison of Operating Results for the Six Month Periods Ended December 31,
- --------------------------------------------------------------------------------
2001 and 2000
- -------------
General
- -------
Net earnings amounted to $430,000 for the six months ended December 31, 2001, an
increase of $53,000, or 14.1%, over the $377,000 of net earnings reported for
the six months ended December 31, 2000. The increase in net earnings was due to
a $53,000 increase in net interest income and a $33,000 decrease in general
administrative and other expense, which were partially offset by a $5,000
decrease in other income and a $28,000 increase in the provision for federal
income taxes.
Net Interest Income
- -------------------
Total interest income amounted to $2.6 million for the six months ended December
31, 2001, an increase of $5,000, or .2%, compared to the same period in 2000,
due to a 38 basis point decrease in the average yield on interest-earning
assets, from 7.49% in 2000 to 7.11% in 2001, offset by a $3.9 million, or 5.6%,
increase in the weighted-average balance of interest-earning assets outstanding
year to year. Interest income on loans increased by $29,000, or 1.6%, due to a
$1.2 million, or 2.6%, increase in the weighted-average balance of loans
outstanding year to year, offset by a decrease in the average yield on loans,
from 8.05% to 7.97%, for the six month periods ended December 31, 2000 and 2001,
respectively.
Interest income on mortgage-backed securities increased by $31,000, or 6.3%, due
primarily to a $2.9 million increase in the average balance outstanding year to
year, which was partially offset by an 81 basis point decrease in yield, to
6.08% for the six months ended December 31, 2001. Interest income on investment
securities and interest-bearing deposits decreased by $55,000, or 16.5%, due
primarily to a decrease in yield year to year.
Total interest expense amounted to $1.3 million for the six months ended
December 31, 2001, a decrease of $48,000, or 3.5%, compared to the 2000 period,
due primarily to a decrease in the average cost of funds, from 4.81% in 2000 to
4.14% in 2001, which was partially offset by a $4.3 million, or 7.3%, increase
in the weighted-average balance of interest-bearing liabilities outstanding year
to year. Interest expense on deposits decreased by $69,000, or 6.1%, due to a 37
basis point decrease in the
11
KENTUCKY FIRST BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION (CONTINUED)
Comparison of Operating Results for the Six Month Periods Ended December 31,
- ----------------------------------------------------------------------------
2001 and 2000 (continued)
- -------------
Net Interest Income (continued)
- -------------------
average cost of deposits, to 4.04% for the six months ended December 31, 2001,
partially offset by a $1.2 million, or 2.4%, increase in the weighted-average
balance of deposits outstanding year to year. Interest expense on borrowings
increased by $21,000, or 9.5%, due to a $3.0 million, or 41.6%, increase in the
weighted-average balance of borrowed funds outstanding year to year, which was
partially offset by a 137 basis point decrease in the average cost of borrowed
funds, to 4.64% for the six months ended December 31, 2001. The decrease in
yield on interest-earning assets and cost of interest-bearing liabilities
resulted primarily from the overall decrease in interest rates in the economy
during 2001.
As a result of the foregoing changes in interest income and interest expense,
net interest income increased by $53,000, or 4.1%, to a total of $1.3 million
for the six months ended December 31, 2001, compared to the six months ended
December 31, 2000. The interest rate spread amounted to 2.97% and 2.88% during
the six month periods ended December 31, 2001 and 2000, respectively, while the
net interest margin amounted to 3.59% and 3.64% during the six month periods
ended December 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 $21,000 provision for losses on loans during each of the six month periods
ended December 31, 2001 and 2000. The provision in the current period was
predicated upon growth in the loan portfolio, integrated with an analysis of the
Savings Bank's nonperforming loans. 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.
Other Income
- ------------
Other income decreased by $5,000, or 4.6%, for the six months ended December 31,
2001, compared to the six months ended December 31, 2000, primarily due to a
$3,000, or 10.0%, decrease in other operating income and due to a $3,000 gain on
investment securities transactions recorded during the 2000 period.
General, Administrative and Other Expense
- -----------------------------------------
General, administrative and other expense totaled $815,000 for the six months
ended December 31, 2001, a decrease of $33,000, or 3.9%, compared to the six
months ended December 31, 2000. The decrease resulted primarily from a $53,000,
or 10.6%, decrease in employee compensation and benefits, due primarily to the
expiration of a stock benefit plan effective April 2001. This decrease was
partially offset by a $7,000, or 10.3%, increase in data processing and a
$12,000, or 7.3%, increase in other operating expense, both due primarily to the
Corporation's overall growth year to year.
12
KENTUCKY FIRST BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION (CONTINUED)
Comparison of Operating Results for the Six Month Periods Ended December 31,
- --------------------------------------------------------------------------------
2001 and 2000 (continued)
- -------------------------
Federal Income Taxes
- --------------------
The provision for federal income taxes totaled $176,000 for the six months ended
December 31, 2001, an increase of $28,000, or 18.9%, compared to the six months
ended December 31, 2000. The increase resulted primarily from the increase in
net earnings before taxes of $81,000, or 15.4%. The effective tax rates were
29.0% and 28.2% for the six month periods ended December 31, 2001 and 2000,
respectively.
Comparison of Operating Results for the Three Month Periods Ended December 31,
- --------------------------------------------------------------------------------
2001 and 2000
- -------------
General
- -------
Net earnings amounted to $225,000 for the three months ended December 31, 2001,
an increase of $46,000, or 25.7%, over the $179,000 of net earnings reported for
the three months ended December 31, 2000. The increase in net earnings was due
to a $64,000 increase in net interest income, a $3,000 increase in other income
and an $11,000 decrease in general administrative and other expense, which were
partially offset by a $9,000 increase in the provision for losses on loans and a
$23,000 increase in the provision for federal income taxes.
Net Interest Income
- -------------------
Total interest income amounted to $1.3 million for the three months ended
December 31, 2001, an increase of $15,000, or 1.1%, compared to the same quarter
in 2000, due to a $6.0 million, or 8.5%, increase in the weighted-average
balance of interest-earning assets outstanding, offset by a decrease in the
average yield on interest-earning assets, from 7.49% in 2000 to 6.98% in 2001.
Interest income on loans increased by $2,000, or .2%, due to a $616,000, or
1.4%, increase in the weighted-average balance of loans outstanding year to
year, offset by a 9 basis point decrease in the average yield on loans, to 7.95%
for the three months ended December 31, 2001.
Interest income on mortgage-backed securities increased by $56,000, or 23.0%,
due primarily to a $5.9 million, or 41.5%, increase in the average balance
outstanding, partially offset by a decrease in the average yield on
mortgage-backed securities, from 6.89% in the 2000 quarter to 5.97% in the 2001
quarter. Interest income on investment securities and interest-bearing deposits
decreased by $43,000, or 25.6%, due primarily to a decrease in yield year to
year.
Total interest expense amounted to $636,000 for the three months ended December
31, 2001, a decrease of $49,000, or 7.2%, from the 2000 quarter, due to a
decrease in the average cost of funds, from 4.65% in 2000 to 3.90% in 2001,
partially offset by a $6.3 million, or 10.6%, increase in the weighted-average
balance of interest-bearing liabilities outstanding year to year. Interest
expense on deposits decreased by $65,000, or 11.4%, due to a 66 basis point
decrease in the average cost of deposits, partially offset by a $2.1 million, or
4.0%, increase in the weighted-average balance of deposits outstanding year to
year. Interest expense on borrowings increased by $16,000, or 14.0%, due to a
$4.2 million, or 55.5%, increase in the weighted-average balance of borrowed
funds outstanding year to year, which was partially offset by a decrease in the
average cost of borrowed funds, from 6.02% to 4.40%. The decrease in yields on
interest-earning assets and costs of interest-bearing liabilities resulted
primarily from the overall decrease in interest rates in the economy during
2001.
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 December 31,
- --------------------------------------------------------------------------------
2001 and 2000 (continued)
- -------------------------
Net Interest Income (continued)
- -------------------------------
As a result of the foregoing changes in interest income and interest expense,
net interest income increased by $64,000, or 10.1%, to a total of $698,000 for
the three months ended December 31, 2001, compared to a total of $634,000 for
the three months ended December 31, 2000. The interest rate spread amounted to
3.08% and 2.84% during the three month periods ended December 31, 2001 and 2000,
respectively, while the net interest margin amounted to 3.66% and 3.60% during
the three month periods ended December 31, 2001 and 2000, respectively.
Provision for Losses on Loans
- -----------------------------
Based upon an analysis of 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, management recorded a provision for losses
on loans totaling $18,000 and $9,000 during the three month periods ended
December 31, 2001 and 2000, respectively. The provision in the current period
was predicated upon growth in the loan portfolio, integrated with an analysis of
the Savings Bank's nonperforming loans. 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.
Other Income
- ------------
Other income totaled $52,000 for the three months ended December 31, 2001, an
increase of $3,000, or 6.1%, compared to the three months ended December 31,
2000, primarily due to a $7,000, or 21.9%, increase in service charges on
deposit accounts, partially offset by a $4,000 decrease in other operating
income.
General, Administrative and Other Expense
- -----------------------------------------
General, administrative and other expense totaled $414,000 for the three months
ended December 31, 2001, a decrease of $11,000, or 2.6%, compared to the three
months ended December 31, 2000. The decrease in general, administrative and
other expense resulted primarily from a $30,000, or 12.1%, decrease in employee
compensation and benefits, which was partially offset by a $14,000, or 16.7%,
increase in other operating expense. The decrease in employee compensation and
benefits was due primarily to the expiration of a stock benefit plan effective
April 2001.
Federal Income Taxes
- --------------------
The provision for federal income taxes increased by $23,000, or 32.9%, for the
three months ended December 31, 2001, compared to the three months ended
December 31, 2000. The increase resulted primarily from the increase in net
earnings before taxes of $69,000, or 27.7%. The effective tax rates were 29.2%
and 28.1% for the three month periods ended December 31, 2001 and 2000,
respectively.
14
KENTUCKY FIRST BANCORP, INC.
PART II
ITEM 1. Legal Proceedings
-----------------
The Savings Bank was 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. Effective November 16, 2001, the parties entered into a Settlement
Agreement and Release pursuant to which the Blankenships agreed to execute and
deliver to the Family Bank and the Savings Bank a deed in lieu of foreclosure on
the property securing the loans that were subject of the collection action. The
Blankenships also agreed to provide an assignment of certain proceeds in another
pending action when and if such proceeds are received. The Blankenships also
released with prejudice all counterclaims against Family Bank and the Savings
Bank in connection with this action.
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
---------------------------------------------------
On November 7, 2001, the Annual Meeting of the Corporation's
Shareholders was held. Three directors nominated were elected to
terms expiring in 2004 by the following votes:
Betty J. Long
For: 762,885 Withheld: 107,139
Milton G. Rees
For: 762,985 Withheld: 107,039
Wilbur H. Wilson
For: 762,985 Withheld: 107,039
A stockholder of the Corporation had submitted a stockholder
proposal for inclusion in the proxy statement of the Corporation
pursuant to Rule 14a-8 under the Securities Exchange Act of 1934,
as amended. Such proposal recommended the sale of the
Corporation. The proponent of this proposal failed to attend or
send a duly appointed representative to the Annual Meeting to
present the proposal on his behalf. As such, the proposal was not
considered as a matter to be acted upon at the Annual Meeting.
The Corporation did announce that a tabulation of the proxies
received up to the Annual Meeting showed that the proposal would
have been defeated by the following results:
PROPOSAL II -- STOCKHOLDER PROPOSAL RECOMMENDING THE SALE OF THE
-----------------------------------------------------------------
COMPANY
-------
NUMBER PERCENTAGE PERCENTAGE
OF VOTES OF VOTES CAST OF SHARES OUTSTANDING
-------- ------------- ---------------------
FOR 179,184 20.6% 19.1%
AGAINST 538,288 61.9% 57.3%
ABSTAIN 19,138 2.2% 2.1%
15
ITEM 5. Other Information
-----------------
None
ITEM 6. Exhibits and Reports on Form 8-K
--------------------------------
Reports on Form 8-K: None.
Exhibits: 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: February 13, 2002 By:/s/ Betty J. Long
------------------- -------------------------------------
Betty J. Long
President and Chief
Executive Officer
Date: February 13, 2002 By:/s/ Robbie Cox
------------------- -------------------------------------
Robbie Cox
Principal Accounting Officer
17