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 March 31, 2002
--------------------------
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 ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the issuer filed all documents and reports required to be filed by
Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities
under a plan confirmed by a court.
Yes [ ] No [ ]
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:
May 9, 2002 - 925,328 shares of common stock
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Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
Page 1 of 15
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 9
PART II - OTHER INFORMATION 14
SIGNATURES 15
2
ITEM I FINANCIAL STATEMENTS
KENTUCKY FIRST BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
MARCH 31, JUNE 30,
ASSETS 2002 2001
Cash and due from banks $ 584 $ 507
Interest-bearing deposits in other financial institutions 1,512 2,069
------- -------
Cash and cash equivalents 2,096 2,576
Investment securities available for sale - at market 11,019 8,179
Mortgage-backed securities available for sale - at market 21,616 14,635
Loans receivable - net 41,393 45,720
Office premises and equipment - at depreciated cost 1,180 1,137
Real estate acquired through foreclosure 45 --
Federal Home Loan Bank stock - at cost 1,460 1,399
Accrued interest receivable 504 464
Prepaid expenses and other assets 81 81
Prepaid federal income taxes 20 7
------- -------
Total assets $79,414 $74,198
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $54,696 $52,430
Advances from the Federal Home Loan Bank 11,798 8,811
Accrued interest payable 168 158
Other liabilities 421 190
Deferred federal income taxes 46 69
------- -------
Total liabilities 67,129 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 9,121 8,986
Less shares acquired by stock benefit plans (555) (555)
Less 463,297 and 448,460 shares of treasury stock at March 31,
2002 and June 30, 2001, respectively - at cost (5,444) (5,254)
Accumulated comprehensive income (loss), unrealized gains (losses) on
securities designated as available for sale, net of related tax effects (115) 85
------- -------
Total shareholders' equity 12,285 12,540
------- -------
Total liabilities and shareholders' equity $79,414 $74,198
======= =======
3
KENTUCKY FIRST BANCORP, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except share data)
NINE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, MARCH 31,
2002 2001 2002 2001
Interest income
Loans $2,681 $2,749 $ 838 $ 935
Mortgage-backed securities 838 726 312 231
Investment securities 319 403 109 135
Interest-bearing deposits and other 94 93 26 28
------ ------ ------ ------
Total interest income 3,932 3,971 1,285 1,329
Interest expense
Deposits 1,503 1,710 435 573
Borrowings 363 354 122 134
------ ------ ------ ------
Total interest expense 1,866 2,064 557 707
------ ------ ------ ------
Net interest income 2,066 1,907 728 622
Provision for losses on loans 30 30 9 9
------ ------ ------ ------
Net interest income after provision
for losses on loans 2,036 1,877 719 613
Other income
Gain on investment securities transactions -- 3 -- --
Service charges on deposit accounts 113 111 36 35
Other operating 42 45 15 15
------ ------ ------ ------
Total other income 155 159 51 50
General, administrative and other expense
Employee compensation and benefits 652 758 207 260
Occupancy and equipment 127 129 42 45
Data processing 116 102 41 34
State franchise tax 48 48 15 15
Other operating 269 246 92 81
------ ------ ------ ------
Total general, administrative and other expense 1,212 1,283 397 435
------ ------ ------ ------
Earnings before income taxes 979 753 373 228
Federal income taxes
Current 207 163 107 (6)
Deferred 81 47 5 68
------ ------- ------ ------
Total federal income taxes 288 210 112 62
------ ------- ------ ------
NET EARNINGS $ 691 $ 543 $ 261 $ 166
====== ======= ====== ======
EARNINGS PER SHARE
Basic $ .78 $ .58 $ .30 $ .19
====== ======= ====== ======
Diluted $ .75 $ .57 $ .28 $ .18
====== ======= ====== ======
4
KENTUCKY FIRST BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
NINE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, MARCH 31,
2002 2001 2002 2001
Net earnings $ 691 $ 543 $ 261 $166
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 $(103), $314, $(105) and $85 during the
respective periods (200) 609 (204) 165
Reclassification adjustment for realized gains included in earnings,
net of tax of $1 in 2001 -- (2) -- --
----- ----- ----- ----
Comprehensive income $ 491 $ 976 $ 57 $331
===== ===== ===== ====
Accumulated comprehensive income (loss) $(115) $ 165 $(115) $165
===== ===== ===== ====
5
KENTUCKY FIRST BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended March 31,
(In thousands)
2002 2001
Cash flows from operating activities:
Net earnings for the period $ 691 $ 543
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 (11) (12)
Depreciation and amortization 58 63
Amortization of deferred loan origination fees (26) (10)
Provision for losses on loans 30 30
Gain on investment securities transactions -- (3)
Federal Home Loan Bank stock dividends (61) (74)
Increase (decrease) in cash due to changes in:
Accrued interest receivable (40) (92)
Prepaid expenses and other assets -- 440
Accrued interest payable 10 (24)
Other liabilities 231 (183)
Federal income taxes
Current (13) (77)
Deferred 81 47
--------- -------
Net cash provided by operating activities 950 648
Cash flows provided by (used in) investing activities:
Proceeds from maturity of investment securities 2,041 642
Purchase of investment securities (4,980) (500)
Purchase of mortgage-backed securities (11,169) --
Principal repayments on mortgage-backed securities 3,994 1,297
Purchase of loans -- (2,560)
Loan principal repayments 11,617 7,598
Loan disbursements (7,339) (5,873)
Purchase of office premises and equipment (101) (3)
--------- --------
Net cash provided by (used in) investing activities (5,937) 601
Cash flows provided by (used in) financing activities:
Net increase (decrease) in deposits 2,266 (1,463)
Proceeds from borrowed funds 3,000 7,600
Repayment of borrowed funds (13) (5,612)
Proceeds from exercise of stock options -- 27
Purchase of treasury stock (190) (1,245)
Dividends on common stock (556) (380)
--------- -------
Net cash provided by (used in) financing activities 4,507 (1,073)
--------- -------
Net increase (decrease) in cash and cash equivalents (480) 176
Cash and cash equivalents at beginning of period 2,576 1,601
--------- -------
Cash and cash equivalents at end of period $ 2,096 $ 1,777
========= =======
6
KENTUCKY FIRST BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the nine months ended March 31,
(In thousands)
2002 2001
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Federal income taxes $ 201 $ 240
====== =======
Interest on deposits and borrowings $1,856 $ 2,088
====== =======
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 (losses) on securities designated as available
for sale, net of related tax effects $ (200) $ 607
====== =======
Transfers from loans to real estate acquired through foreclosure $ 45 $ --
====== =======
7
KENTUCKY FIRST BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the nine and three months ended March 31, 2002 and 2001
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
nine month periods ended March 31, 2002 are not necessarily indicative of
the results which may be expected for the 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
887,023 and 880,362 for the nine and three month periods ended March 31,
2002, respectively. 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,
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
920,806 and 915,128 for the nine and three month periods ended March 31,
2002, and 951,321 and 901,998 for the nine and three month periods ended
March 31, 2001, respectively. Incremental shares related to the assumed
exercise of stock options included in the calculation of diluted earnings
per share totaled 33,783 and 34,766 for the nine and three month periods
ended March 31, 2002, and 10,070 and 14,286 for the nine and three month
periods ended March 31, 2001, respectively.
4. Effects of Recent Accounting Pronouncements
-------------------------------------------
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("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.
8
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 recent accounting pronouncements.
Discussion of Financial Condition Changes from June 30, 2001 to March 31, 2002
- ------------------------------------------------------------------------------
At March 31, 2002, the Corporation's consolidated total assets amounted to $79.4
million, an increase of $5.2 million, or 7.0%, over the total at June 30, 2001.
The increase in assets, which was centered in increases in investment securities
and mortgage-backed securities, was funded primarily from an increase of $2.3
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)
increased by $2.4 million, or 21.9%, during the nine month period, to a total of
$13.1 million at March 31, 2002. Investment securities purchases amounted to
$5.0 million, while maturities totaled $2.0 million during the nine months ended
March 31, 2002. Mortgage-backed securities totaled $21.6 million at March 31,
2002, an increase of $7.0 million, or 47.7%, over June 30, 2001 levels. The
increase in mortgage-backed securities resulted primarily from purchases
totaling $11.2 million, which were partially offset by principal repayments of
$4.0 million.
Loans receivable amounted to $41.4 million at March 31, 2002, a decrease of $4.3
million, or 9.5%, compared to June 30, 2001. Principal repayments amounted to
$11.6 million and were partially offset by loan disbursements of $7.3 million.
The allowance for loan losses totaled $242,000 at March 31, 2002, compared to
$480,000 at June 30, 2001. During the period ended March 31, 2002, a
nonperforming loan was transferred to real estate acquired through foreclosure,
which resulted in a decline in the allowance for loan losses. Based on an
estimate of the fair value of the property at the time of transfer, the Savings
Bank wrote down the value by $265,000. Nonperforming loans totaled $73,000 at
March 31, 2002, compared to $286,000 at June 30, 2001. The allowance for loan
losses represented 331.5% of nonperforming loans as of March 31, 2002 and 167.8%
at June 30, 2001. Although management believes that its allowance for loan
losses at March 31, 2002 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 $54.7 million at March 31, 2002, an increase of $2.3 million,
or 4.3%, over June 30, 2001 levels. The increase in deposits was due to
managements' continuing marketing efforts. Advances from the Federal Home Loan
Bank totaled $11.8 million at March 31, 2002, an increase of $3.0 million, or
33.9%, over the total at June 30, 2001. Proceeds from advances and growth in
deposits were generally used to fund new loan originations and purchases of
investment and mortgage-backed securities.
The Corporation's shareholders' equity amounted to $12.3 million and $12.5
million at March 31, 2002 and June 30, 2001, respectively. Net earnings during
the nine months ended March 31, 2002 of $691,000, were more than offset by
unrealized losses on available for sale securities of $200,000, dividends paid
on common stock totaling $556,000 and purchases of treasury stock totaling
$190,000.
9
KENTUCKY FIRST BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION (CONTINUED)
Discussion of Financial Condition Changes from June 30, 2001 to March 31, 2002
- ------------------------------------------------------------------------------
(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 March 31, 2002, the Savings Bank's tangible and core capital totaled $11.7
million, or 14.8%, of adjusted total assets, which exceeded the minimum tangible
and core capital requirements of $1.2 million and $3.2 million by $10.5 million
and $8.5 million, respectively. The Savings Bank's risk-based capital of $12.0
million, or 30.3% of risk-weighted assets, exceeded the 8% of risk-weighted
assets requirement by $8.8 million.
Comparison of Operating Results for the Nine Month Periods Ended March 31, 2002
- --------------------------------------------------------------------------------
and 2001
- --------
General
- -------
Net earnings amounted to $691,000 for the nine months ended March 31, 2002, an
increase of $148,000, or 27.3%, over the $543,000 of net earnings reported for
the nine months ended March 31, 2001. The increase in net earnings was due to a
$159,000 increase in net interest income and a $71,000 decrease in general
administrative and other expense, which were partially offset by a $4,000
decrease in other income and a $78,000 increase in the provision for federal
income taxes.
Net Interest Income
- -------------------
Total interest income amounted to $3.9 million for the nine months ended March
31, 2002, a decrease of $39,000, or 1.0%, compared to the same period in 2001,
due to a 53 basis point decrease in the average yield on interest-earning
assets, from 7.49% in 2001 to 6.96% in 2002, offset by a $4.6 million, or 6.5%,
increase in the weighted-average balance of interest-earning assets outstanding
year-to-year. Interest income on loans decreased by $68,000, or 2.5%, due
primarily to a decrease in the average yield on loans, from 8.08% to 7.90%, for
the nine month periods ended March 31, 2002 and 2001, respectively.
Interest income on mortgage-backed securities increased by $112,000, or 15.4%,
due primarily to a $4.4 million increase in the average balance outstanding
year-to-year, which was partially offset by an 82 basis point decrease in yield,
to 6.00% for the nine months ended March 31, 2002. Interest income on investment
securities and interest-bearing deposits decreased by $83,000, or 16.7%, due
primarily to a decrease in yield year-to-year.
Total interest expense amounted to $1.9 million for the nine months ended March
31, 2002, a decrease of $198,000, or 9.6%, compared to the 2001 period, due
primarily to a decrease in the average cost of funds, from 4.64% in 2001 to
3.88% in 2002, which was partially offset by a $4.8 million, or 8.1%, increase
in the weighted-average balance of interest-bearing liabilities outstanding
year-to-year. Interest expense on deposits decreased
10
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, 2002
- --------------------------------------------------------------------------------
and 2001 (continued)
- --------------------
Net Interest Income (continued)
- -------------------------------
by $207,000, or 12.1%, due to a 67 basis point decrease in the average cost of
deposits, to 3.76% for the nine months ended March 31, 2002, partially offset by
a $1.9 million, or 3.6%, increase in the weighted-average balance of deposits
outstanding year-to-year. Interest expense on borrowings increased by $9,000, or
2.5%, due to a $2.9 million, or 37.1%, increase in the weighted-average balance
of borrowed funds outstanding year-to-year, which was partially offset by a 150
basis point decrease in the average cost of borrowed funds, to 4.47% for the
nine months ended March 31, 2002. The decreases in the level of yields on
interest-earning assets and costs of interest-bearing liabilities resulted
primarily from the overall decrease in interest rates in the economy during
calendar 2001.
As a result of the foregoing changes in interest income and interest expense,
net interest income increased by $159,000, or 8.3%, to a total of $2.1 million
for the nine months ended March 31, 2002, compared to the nine months ended
March 31, 2001. The interest rate spread amounted to 3.08% and 2.85% during the
nine month periods ended March 31, 2002 and 2001, respectively, while the net
interest margin amounted to 3.66% and 3.59% during the nine month periods ended
March 31, 2002 and 2001, 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 provision for losses on loans during each of the nine month periods
ended March 31, 2002 and 2001. The provision in the current period was
predicated upon an analysis of the Savings Bank's nonperforming loans integrated
with the potential effects of the weakening economic environment. 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 $4,000, or 2.5%, for the nine months ended March 31,
2002, compared to the nine months ended March 31, 2001, due primarily to a
$3,000, or 6.7%, decrease in other operating income and a $3,000 gain on
investment securities transactions recorded during the 2001 period.
General, Administrative and Other Expense
- -----------------------------------------
General, administrative and other expense totaled $1.2 million for the nine
months ended March 31, 2002, a decrease of $71,000, or 5.5%, compared to the
nine months ended March 31, 2001. The decrease resulted primarily from a
$106,000, or 14.0%, 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 $14,000, or 13.7%, increase in data
processing and a $23,000, or 9.3%, increase in other operating expense, both due
primarily to the Corporation's overall growth year-to-year.
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, 2002
- --------------------------------------------------------------------------------
and 2001 (continued)
- --------------------
Federal Income Taxes
- --------------------
The provision for federal income taxes totaled $288,000 for the nine months
ended March 31, 2002, an increase of $78,000, or 37.1%, compared to the nine
months ended March 31, 2001. The increase resulted primarily from the increase
in net earnings before taxes of $226,000, or 30.0%. The effective tax rates were
29.4% and 27.9% for the nine month periods ended March 31, 2002 and 2001,
respectively.
Comparison of Operating Results for the Three Month Periods Ended March 31, 2002
- --------------------------------------------------------------------------------
and 2001
- --------
General
- -------
Net earnings amounted to $261,000 for the three months ended March 31, 2002, an
increase of $95,000, or 57.2%, over the $166,000 of net earnings reported for
the three months ended March 31, 2001. The increase in net earnings was due to a
$106,000 increase in net interest income, a $1,000 increase in other income and
a $38,000 decrease in general administrative and other expense, which were
partially offset by a $50,000 increase in the provision for federal income
taxes.
Net Interest Income
- -------------------
Total interest income amounted to $1.3 million for the three months ended March
31, 2002, a decrease of $44,000, or 3.3%, compared to the same quarter in 2001,
due to a decrease in the average yield on interest-earning assets, from 7.49% in
2001 to 6.68% in 2002, offset by a $6.2 million, or 8.7%, increase in the
weighted-average balance of interest-earning assets outstanding. Interest income
on loans decreased by $97,000, or 10.4%, due to a $3.1 million, or 6.7%,
decrease in the weighted-average balance of loans outstanding year-to-year, as
well as a 31 basis point decrease in the average yield on loans, to 7.78% for
the three months ended March 31, 2002.
Interest income on mortgage-backed securities increased by $81,000, or 35.1%,
due primarily to a $7.5 million, or 54.4%, increase in the average balance
outstanding, which was partially offset by a decrease in the average yield on
mortgage-backed securities, from 6.72% in the 2001 quarter to 5.87% in the 2002
quarter. Interest income on investment securities and interest-bearing deposits
decreased by $28,000, or 17.2%, due primarily to a decrease in yield
year-to-year.
Total interest expense amounted to $557,000 for the three months ended March 31,
2002, a decrease of $150,000, or 21.2%, from the 2001 quarter, due to a decrease
in the average cost of funds, from 4.71% in 2001 to 3.38% in 2002, which was
partially offset by a $6.0 million, or 9.9%, increase in the weighted-average
balance of interest-bearing liabilities outstanding year-to-year. Interest
expense on deposits decreased by $138,000, or 24.1%, due to a 132 basis point
decrease in the average cost of deposits, partially offset by a $3.6 million, or
7.1%, increase in the weighted-average balance of deposits outstanding
year-to-year. Interest expense on borrowings decreased by $12,000, or 9.0%, due
to a decrease in the average cost of borrowed funds, from 5.66% in the 2001
quarter to 4.17% in the 2002 quarter, which was partially offset by a $2.3
million, or 24.8%, increase in the weighted-average balance of borrowed funds
outstanding year-to-year. The decreases in the level of yields on
interest-earning assets and costs of interest-bearing liabilities resulted
primarily from the overall decrease in interest rates in the economy during
calendar 2001.
12
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, 2002
- --------------------------------------------------------------------------------
and 2001 (continued)
- --------------------
Net Interest Income (continued)
- -------------------------------
As a result of the foregoing changes in interest income and interest expense,
net interest income increased by $106,000, or 17.0%, to a total of $728,000 for
the three months ended March 31, 2002, compared to a total of $622,000 for the
three months ended March 31, 2001. The interest rate spread amounted to 3.30%
and 2.79% during the three month periods ended March 31, 2002 and 2001,
respectively, while the net interest margin amounted to 3.78% and 3.50% during
the three month periods ended March 31, 2002 and 2001, 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 $9,000 during each of the three month periods ended March 31,
2002 and 2001. The provision in the current period was predicated upon an
analysis of the Savings Bank's nonperforming loans integrated with the potential
effects of the weakening economic environment. 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 $51,000 for the three months ended March 31, 2002, an
increase of $1,000, or 2.0%, compared to the three months ended March 31, 2001,
due primarily to a $1,000, or 2.9%, increase in service charges on deposit
accounts.
General, Administrative and Other Expense
- -----------------------------------------
General, administrative and other expense totaled $397,000 for the three months
ended March 31, 2002, a decrease of $38,000, or 8.7%, compared to the three
months ended March 31, 2001. The decrease in general, administrative and other
expense resulted primarily from a $53,000, or 20.4%, decrease in employee
compensation and benefits, which was partially offset by an $11,000, or 13.6%,
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. The increase in other operating expense was due primarily to the
Corporation's overall growth year-to-year.
Federal Income Taxes
- --------------------
The provision for federal income taxes increased by $50,000, or 80.6%, for the
three months ended March 31, 2002, compared to the three months ended March 31,
2001. The increase resulted primarily from the increase in net earnings before
taxes of $145,000, or 63.6%. The effective tax rates were 30.0% and 27.2% for
the three month periods ended March 31, 2002 and 2001, respectively.
13
KENTUCKY FIRST BANCORP, INC.
PART II
ITEM 1. Legal Proceedings
-----------------
None.
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
--------------------------------
Reports on Form 8-K: None.
Exhibits: None.
14
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 9, 2002 By: /s/ Betty J. Long
------------------------ ----------------------------------
Betty J. Long
President and Chief
Executive Officer
Date: May 9, 2002 By: /s/ Robbie Cox
------------------------ ----------------------------------
Robbie Cox
Principal Accounting Officer
15