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, 2003
--------------
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.
- --------------------------------------------------------------------------------
(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
------------------------------------------------
(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 [ X ] 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 12, 2003 - 882,613 shares of common stock
---------------------------------------------
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
Page 1 of 21
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 12
ITEM III CONTROLS AND PROCEDURES 17
PART II - OTHER INFORMATION 18
SIGNATURES 19
CERTIFICATIONS 20
2
ITEM I FINANCIAL STATEMENTS
KENTUCKY FIRST BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
MARCH 31, JUNE 30,
ASSETS 2003 2002
Cash and due from banks $ 491 $ 600
Interest-bearing deposits in other financial institutions 4,606 3,079
------- -------
Cash and cash equivalents 5,097 3,679
Investment securities available for sale - at market 14,461 11,105
Mortgage-backed securities available for sale - at market 19,145 22,204
Loans receivable - net 34,461 39,355
Office premises and equipment - at depreciated cost 1,317 1,237
Real estate acquired through foreclosure - 45
Federal Home Loan Bank stock - at cost 718 1,477
Accrued interest receivable 484 484
Prepaid expenses and other assets 104 86
Prepaid federal income taxes 9 --
------- -------
Total assets $75,796 $79,672
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $53,806 $54,119
Advances from the Federal Home Loan Bank 8,181 11,794
Accrued interest payable 122 156
Other liabilities 341 179
Accrued federal income taxes - 5
Deferred federal income taxes 284 269
------- -------
Total liabilities 62,734 66,522
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 9,273 9,301
Retained earnings - restricted 9,683 9,386
Less shares acquired by stock benefit plans (462) (462)
Less 506,012 and 463,297 shares of treasury stock at March 31,
2003 and June 30, 2002, respectively - at cost (6,113) (5,444)
Accumulated comprehensive income, unrealized gains on securities
designated as available for sale, net of related tax effects 667 355
------- -------
Total shareholders' equity 13,062 13,150
------- -------
Total liabilities and shareholders' equity $75,796 $79,672
======= =======
3
KENTUCKY FIRST BANCORP, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except share data)
NINE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, MARCH 31,
2003 2002 2003 2002
Interest income
Loans $2,130 $2,681 $ 667 $ 838
Mortgage-backed securities 824 838 253 312
Investment securities 484 319 165 109
Interest-bearing deposits and other 55 94 12 26
------ ------ ------- -------
Total interest income 3,493 3,932 1,097 1,285
Interest expense
Deposits 1,030 1,503 312 435
Borrowings 345 363 98 122
------ ------ ------- -------
Total interest expense 1,375 1,866 410 557
------ ------ ------- -------
Net interest income 2,118 2,066 687 728
Provision for (recoveries of) losses on loans (50) 30 -- 9
------ ------ ------- -------
Net interest income after provision
for (recoveries of) losses on loans 2,168 2,036 687 719
Other income
Service charges on deposit accounts 98 113 28 36
Other operating 45 42 15 15
------ ------ ------- -------
Total other income 143 155 43 51
General, administrative and other expense
Employee compensation and benefits 725 652 241 207
Occupancy and equipment 130 127 42 42
Data processing 114 116 39 41
State franchise tax 47 48 14 15
Other operating 272 269 99 92
------ ------ ------- -------
Total general, administrative and other expense 1,288 1,212 435 397
------ ------ ------- -------
Earnings before income taxes 1,023 979 295 373
Federal income taxes
Current 459 207 91 107
Deferred (146) 81 (3) 5
------ ------ ------- -------
Total federal income taxes 313 288 88 112
------ ------ ------- -------
NET EARNINGS $ 710 $ 691 $ 207 $ 261
====== ====== ======= =======
EARNINGS PER SHARE
Basic $ .83 $ .78 $ .24 $ .30
====== ====== ======= =======
Diluted $ .79 $ .75 $ .23 $ .28
====== ====== ======= =======
4
KENTUCKY FIRST BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
NINE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, MARCH 31,
2003 2002 2003 2002
Net earnings $ 710 $ 691 $207 $ 261
Other comprehensive income (loss), net of tax:
Unrealized holding gains (losses) on securities during the period, net
of taxes (benefits) of $161, $(103), $(49) and $(105) during the
respective periods 312 (200) (95) (204)
------ ----- ---- -----
Comprehensive income $1,022 $ 491 $112 $ 57
====== ===== ==== =====
Accumulated comprehensive income (loss) $ 667 $(115) $667 $(115)
====== ===== ==== =====
5
KENTUCKY FIRST BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended March 31,
(In thousands)
2003 2002
Cash flows from operating activities:
Net earnings for the period $ 710 $ 691
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 44 (11)
Depreciation and amortization 53 58
Amortization of deferred loan origination fees (15) (26)
Provision for (recoveries of) losses on loans (50) 30
Gain on sale of real estate acquired through foreclosure (5) -
Federal Home Loan Bank stock dividends (41) (61)
Increase (decrease) in cash due to changes in:
Accrued interest receivable - (40)
Prepaid expenses and other assets (18) -
Accrued interest payable (34) 10
Other liabilities 162 231
Federal income taxes
Current (14) (13)
Deferred (146) 81
-------- --------
Net cash provided by operating activities 646 950
Cash flows provided by (used in) investing activities:
Proceeds from maturity of investment securities 3,655 2,041
Purchase of investment securities (6,853) (4,980)
Purchase of mortgage-backed securities (4,153) (11,169)
Principal repayments on mortgage-backed securities 7,483 3,994
Loan principal repayments 11,130 11,617
Loan disbursements (6,171) (7,339)
Purchase of office premises and equipment (133) (101)
Proceeds from redemption of Federal Home Loan Bank stock 800 --
Proceeds from sale of real estate acquired through foreclosure 50 --
-------- --------
Net cash provided by (used in) investing activities 5,808 (5,937)
Cash flows provided by (used in) financing activities:
Net increase (decrease) in deposits (313) 2,266
Proceeds from borrowed funds 2,500 3,000
Repayment of borrowed funds (6,113) (13)
Proceeds from exercise of stock options 135 -
Purchase of treasury stock (832) (190)
Dividends on common stock (413) (556)
-------- --------
Net cash provided by (used in) financing activities (5,036) 4,507
-------- --------
Net increase (decrease) in cash and cash equivalents 1,418 (480)
Cash and cash equivalents at beginning of period 3,679 2,576
-------- --------
Cash and cash equivalents at end of period $ 5,097 $ 2,096
======== ========
6
KENTUCKY FIRST BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the nine months ended March 31,
(In thousands)
2003 2002
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Federal income taxes $ 472 $ 201
====== ======
Interest on deposits and borrowings $1,409 $1,856
====== ======
Supplemental disclosure of noncash investing activities:
Unrealized gains (losses) on securities designated as available
for sale, net of related tax effects $ 312 $ (200)
====== ======
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, 2003 and 2002
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, 2002. 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, 2003 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 gives effect to 36,651 and 45,810 unallocated ESOP shares for
the nine and three month periods ended March 31, 2003 and 2002,
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. The computations are as follows:
FOR THE NINE MONTHS ENDED FOR THE THREE MONTHS ENDED
MARCH 31, MARCH 31,
2003 2002 2003 2002
Weighted-average common shares
outstanding (basic) 852,390 887,023 843,824 880,362
Dilutive effect of assumed exercise
of stock options 48,568 33,783 54,278 34,766
------- ------- ------- -------
Weighted-average common shares
outstanding (diluted) 900,958 920,806 898,102 915,128
======= ======= ======= =======
4. Effects of Recent Accounting Pronouncements
-------------------------------------------
In August 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 carries
over the recognition and measurement provisions in SFAS No. 121.
Accordingly, an entity must recognize an impairment loss if the carrying
value of a long-lived asset or asset group (a) is not recoverable and (b)
exceeds its fair value. Similar to SFAS No. 121, SFAS No. 144 requires an
entity to test an asset or asset group for impairment whenever events or
changes in circumstances indicate that its carrying amount may not be
recoverable. SFAS No. 144 differs from SFAS No. 121 in that it provides
guidance on estimating future cash flows to test recoverability. An entity
may use either a probability-weighted approach or best-estimate approach in
developing estimates of cash flows to test recoverability. SFAS No. 144 is
effective for financial statements issued for fiscal years beginning after
December 15, 2001 and interim periods within those fiscal years. Management
adopted SFAS No. 144 effective July 1, 2002, without material effect on the
Corporation's financial condition or results of operations.
8
KENTUCKY FIRST BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the nine and three months ended March 31, 2003 and 2002
4. Effects of Recent Accounting Pronouncements (continued)
-------------------------------------------
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146 provides
financial accounting and reporting guidance for costs associated with exit
or disposal activities, including one-time termination benefits, contract
termination costs other than for a capital lease, and costs to consolidate
facilities or relocate employees. SFAS No. 146 is effective for exit or
disposal activities initiated after December 31, 2002. Management adopted
SFAS No. 146 effective January 1, 2003, without material effect on the
Corporation's financial condition or results of operations.
In October 2002, the FASB issued SFAS No. 147, "Accounting for Certain
Financial Institutions: An Amendment of FASB Statements No. 72 and 144 and
FASB Interpretation No. 9," which removes acquisitions of financial
institutions from the scope of SFAS No. 72, "Accounting for Certain
Acquisitions of Banking and Thrift Institutions," except for transactions
between mutual enterprises. Accordingly, the excess of the fair value of
liabilities assumed over the fair value of tangible and intangible assets
acquired in a business combination should be recognized and accounted for
as goodwill in accordance with SFAS No. 141, "Business Combinations," and
SFAS No. 142, "Goodwill and Other Intangible Assets."
SFAS No. 147 also requires that the acquisition of a less-than-whole
financial institution, such as a branch, be accounted for as a business
combination if the transferred assets and activities constitute a business.
Otherwise, the acquisition should be accounted for as the acquisition of
net assets.
SFAS No. 147 also amends the scope of SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," to include long-term customer
relationship assets of financial institutions (including mutual
enterprises) such as depositor- and borrower-relationship intangible assets
and credit cardholder intangible assets.
The provisions of SFAS No. 147 related to unidentifiable intangible assets
and the acquisition of a less-than-whole financial institution are
effective for acquisitions for which the date of acquisition is on or after
October 1, 2002. The provisions related to impairment of long-term customer
relationship assets are effective October 1, 2002. Transition provisions
for previously recognized unidentifiable intangible assets are effective on
October 1, 2002, with earlier application permitted.
Management adopted SFAS No. 147 effective October 1, 2002, without material
effect on the Corporation's financial condition or results of operations.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure." SFAS No. 148 amends SFAS No.
123, "Accounting for Stock-Based Compensation," to provide alternative
methods of transition for a voluntary change to the fair value based method
of accounting for stock-based employee compensation. In addition, SFAS No.
148 amends the disclosure requirements of SFAS No. 123 to require prominent
disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the effect
of the method used on reported results. SFAS No. 148 is effective for
fiscal years beginning after December 15, 2002. The interim disclosure
provisions are effective for financial reports containing financial
statements for interim periods beginning after December 15, 2002.
Management adopted the disclosure provisions of SFAS No. 148 effective
March 31, 2002, without material effect on the Corporation's financial
position, results of operations or cash flows.
9
KENTUCKY FIRST BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the nine and three months ended March 31, 2003 and 2002
4. Effects of Recent Accounting Pronouncements (continued)
-------------------------------------------
In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities." FIN 46 requires a variable
interest entity to be consolidated by a company if that company is subject
to a majority of the risk of loss from the variable interest entity's
activities or entitled to receive a majority of the entity's residual
returns, or both. FIN 46 also requires disclosures about variable interest
entities that a company is not required to consolidate, but in which it has
a significant variable interest. The consolidation requirements of FIN 46
apply immediately to variable interest entities created after January 31,
2003. The consolidation requirements apply to existing entities in the
first fiscal year or interim period beginning after June 15, 2003. Certain
of the disclosure requirements apply in all financial statements issued
after January 31, 2003, regardless of when the variable interest entity was
established. The Corporation adopted the disclosure provisions of FIN 46
effective January 31, 2003, without material effect on its financial
statements.
5. Stock Option Plan
-----------------
In fiscal 1996 the Board of Directors adopted the Kentucky First Bancorp,
Inc. Stock Option and Incentive Plan (the "Plan") which provided for the
issuance of 173,579 shares (adjusted for the fiscal 1997 return of capital
distribution) of authorized, but unissued shares of common stock at fair
value at the date of grant. The Corporation immediately granted all options
at an adjusted fair value of $9.74 per share. The Plan provides for
one-fifth of the shares granted to be exercisable on each of the first five
anniversaries of the date of the grant.
The Corporation accounts for the Plan in accordance with SFAS No. 123,
"Accounting for Stock-Based Compensation," which contains a fair
value-based method for valuing stock-based compensation that entities may
use, which measures compensation cost at the grant date based on the fair
value of the award. Compensation is then recognized over the service
period, which is usually the vesting period. Alternatively, SFAS No. 123
permits entities to continue to account for stock options and similar
equity instruments under Accounting Principles Board ("APB") Opinion No.
25, "Accounting for Stock Issued to Employees." Entities that continue to
account for stock options using APB Opinion No. 25 are required to make pro
forma disclosures of net earnings and earnings per share, as if the fair
value-based method of accounting defined in SFAS No. 123 had been applied.
The Corporation applies APB Opinion No. 25 and related Interpretations in
accounting for its stock option plan. Accordingly, no compensation cost has
been recognized with respect to the Plan. Had compensation cost for the
Plan been determined based on the fair value at the grant date in a manner
consistent with the accounting method utilized in SFAS No. 123, then the
Corporation's consolidated net earnings and earnings per share for the nine
and three month periods ended March 31, 2003 and 2002, would have been
recorded as the pro forma amounts indicated below:
10
KENTUCKY FIRST BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the nine and three months ended March 31, 2003 and 2002
5. Stock Option Plan (continued)
-----------------
NINE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, MARCH 31,
2003 2002 2003 2002
Net earnings (In thousands) As reported $710 $691 $207 $261
Stock-based compensation, net of tax (14) -- (10) --
---- ---- ---- ----
Pro-forma $696 $691 $197 $261
==== ==== ==== ====
Earnings per share
Basic As reported $.83 $.78 $.24 $.30
Stock-based compensation, net of tax (.02) -- (.01) --
---- ---- ---- ----
Pro-forma $.81 $.78 $.23 $.30
==== ==== ==== ====
Diluted As reported $.79 $.75 $.23 $.28
Stock-based compensation, net of tax (.02) -- (.01) --
---- ---- ---- ----
Pro-forma $.77 $.75 $.22 $.28
==== ==== ==== ====
The fair value of each option grant is estimated on the date of grant using
the modified Black-Scholes options-pricing model with the following
weighted-average assumptions used for grants in fiscal 2003 and 2002:
dividend yield of 3.5%, expected volatility of 20.0%, a risk-free interest
rate of 2.0% and an expected life of ten years.
A summary of the status of the Corporation's stock option plan as of March
31, 2003 and June 30, 2002 and 2001, and changes during the periods ending
on those dates is presented below:
NINE MONTHS ENDED YEAR ENDED
MARCH 31, JUNE 30,
2003 2002 2001
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
Outstanding at beginning of period 142,183 $ 9.7767 140,447 $ 9.7375 144,282 $9.7375
Granted 1,389 17.0000 1,736 12.9500 -- --
Exercised (13,886) 9.7375 -- -- (3,835) 9.7375
Forfeited -- -- -- -- -- --
Outstanding at end of period 129,686 $ 9.8583 142,183 $ 9.7767 140,447 $9.7375
======= ======== ======= ======== ======= =======
Options exercisable at period-end 128,297 $ 9.8248 140,447 $ 9.7375 140,447 $9.7375
======= ======== ======= ======== ======= =======
Weighted average for value of options
granted during the period $2.33 $1.78 n/a
===== ===== ===
The following information applies to options outstanding at March 31, 2003:
Number outstanding 128,297
Range of exercise prices $9.7375 - $12.9500
Number outstanding 1,389
Range of exercise prices $17.00
Weighted-average exercise price $9.8583
Weighted-average remaining contractual life 3.2 years
11
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, 2002 to March 31, 2003
- ------------------------------------------------------------------------------
At March 31, 2003, the Corporation's consolidated total assets amounted to $75.8
million, a decrease of $3.8 million, or 4.8%, from the total at June 30, 2002.
The decrease in assets, which was centered in decreases in mortgage-backed
securities and loans, was accompanied by a decrease of $313,000 in deposits and
a decrease of $3.6 million in advances from the Federal Home Loan Bank.
Liquid assets (i.e. cash, interest-bearing deposits and investment securities)
increased by $4.8 million, or 32.3%, during the nine month period ended March
31, 2003, to a total of $19.6 million at March 31, 2003. Investment securities
purchases totaling $6.9 million were funded generally through proceeds from
principal repayments on loans and mortgage-backed securities. Mortgage-backed
securities totaled $19.1 million at March 31, 2003, a decrease of $3.1 million,
or 13.8%, from June 30, 2002 levels. The decrease in mortgage-backed securities
resulted primarily from principal repayments of $7.5 million, which were
partially offset by purchases of $4.2 million and an increase in unrealized
gains.
Loans receivable amounted to $34.5 million at March 31, 2003, a decrease of $4.9
million, or 12.4%, compared to June 30, 2002. Principal repayments amounted to
$11.1 million and were partially offset by loan disbursements of $6.2 million.
The allowance for loan losses totaled $345,000 at March 31, 2003, compared to
$241,000 at June 30, 2002. During the period ended March 31, 2003, the
Corporation realized a recovery totaling $150,000 from the settlement of a
nonperforming loan, of which $100,000 was recorded as an addition to the
allowance for loan losses, which accounted for the increase in the allowance.
Nonperforming loans totaled $61,000 at March 31, 2003, compared to $51,000 at
June 30, 2002. The allowance for loan losses represented 565.6% of nonperforming
loans as of March 31, 2003 and 472.5% at June 30, 2002. Although management
believes that its allowance for loan losses at March 31, 2003 was 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 $53.8 million at March 31, 2003, a decrease of $313,000, or
..6%, from June 30, 2002 levels. Although management generally pursues a strategy
of moderate growth in deposits, the Savings Bank historically has not engaged in
sporadic increases and decreases in interest rates offered, nor has it offered
the highest interest rate in its market area.
Advances from the Federal Home Loan Bank totaled $8.2 million at March 31, 2003,
a decrease of $3.6 million, or 30.6%, compared to June 30, 2002. Advances were
repaid during the period with proceeds from principal repayments on loans and
mortgage-backed securities.
12
KENTUCKY FIRST BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION (CONTINUED)
Discussion of Financial Condition Changes from June 30, 2002 to March 31, 2003
- --------------------------------------------------------------------------------
(continued)
The Corporation's shareholders' equity amounted to $13.1 million and $13.2
million at March 31, 2003 and June 30, 2002, respectively. Net earnings during
the nine months ended March 31, 2003 of $710,000 and an increase in unrealized
gains on available for sale securities of $312,000, were partially offset by
dividends paid on common stock totaling $413,000 and purchases of treasury stock
totaling $832,000.
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, 2003, the Savings Bank's tangible and core capital totaled $11.7
million, or 15.7%, of adjusted total assets, which exceeded the minimum tangible
and core capital requirements of $1.1 million and $3.0 million by $10.6 million
and $8.7 million, respectively. The Savings Bank's risk-based capital of $12.1
million, or 34.2% of risk-weighted assets, exceeded the 8% of risk-weighted
assets requirement by $9.3 million.
Comparison of Operating Results for the Nine Month Periods Ended March 31, 2003
- --------------------------------------------------------------------------------
and 2002
- --------
General
- -------
Net earnings amounted to $710,000 for the nine months ended March 31, 2003, an
increase of $19,000, or 2.7%, over the $691,000 of net earnings reported for the
nine months ended March 31, 2002. The increase in net earnings was due to a
$52,000 increase in net interest income and an $80,000 decrease in the provision
for losses on loans, which were partially offset by a $76,000 increase in
general, administrative and other expense and a $25,000 increase in the
provision for federal income taxes.
Net Interest Income
- -------------------
Total interest income amounted to $3.5 million for the nine months ended March
31, 2003, a decrease of $439,000, or 11.2%, compared to the same period in 2002,
due to a decrease in the average yield on interest-earning assets, from 6.96% in
2002 to 6.24% in 2003, partially offset by a $620,000, or .8%, decrease in the
weighted-average balance of interest-earning assets outstanding. Interest income
on loans decreased by $551,000, or 20.6%, due to a $7.2 million, or 16.0%,
decrease in the weighted-average balance of loans outstanding year to year, as
well as a 43 basis point decrease in the average yield on loans, to 7.48% for
the nine months ended March 31, 2003.
Interest income on mortgage-backed securities decreased by $14,000, or 1.7%, due
primarily to a decrease in the average yield on mortgage-backed securities to
5.49% in the 2003 period, which was partially offset by a $1.4 million, or 7.4%,
increase in the average balance outstanding. Interest income on investment
securities and interest-bearing deposits increased by $126,000, or 30.5%, due
primarily to a $5.2 million increase in the average balance outstanding year to
year.
13
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, 2003
- --------------------------------------------------------------------------------
and 2002 (continued)
- --------
Net Interest Income (continued)
- -------------------------------
Total interest expense amounted to $1.4 million for the nine months ended March
31, 2003, a decrease of $491,000, or 26.3%, from the 2002 period, due to a
decrease in the average cost of funds, from 3.88% in 2002 to 2.87% in 2003,
which was partially offset by a $300,000, or .5%, increase in the
weighted-average balance of interest-bearing liabilities outstanding year to
year. Interest expense on deposits decreased by $473,000, or 31.5%, due to a 118
basis point decrease in the average cost of deposits, to 2.58% for the 2003 nine
month period, and an $83,000, or .2%, decrease in the weighted-average balance
of deposits outstanding year to year. Interest expense on borrowings decreased
by $18,000, or 5.0%, due to a $212,000, or 2.0%, decrease in the
weighted-average balance of borrowed funds outstanding, and a decrease in the
average cost of borrowed funds, from 4.47% in the 2002 period to 4.32% in the
2003 period. 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.
As a result of the foregoing changes in interest income and interest expense,
net interest income increased by $52,000, or 2.5%, to a total of $2.1 million
for the nine months ended March 31, 2003, compared to the nine months ended
March 31, 2002. The interest rate spread amounted to 3.36% and 3.08% during the
nine month periods ended March 31, 2003 and 2002, respectively, while the net
interest margin amounted to 3.78% and 3.66% during the nine month periods ended
March 31, 2003 and 2002, respectively.
Provision for Losses on Loans
- -----------------------------
The Corporation records a 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. During the nine month period ended March 31,
2003, the Corporation realized a $150,000 recovery on a nonperforming loan.
Based upon the foregoing analysis, management elected to record $100,000 as an
addition to the allowance for loan losses and $50,000 credit to operations.
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 $143,000 for the nine months ended March 31, 2003, a
decrease of $12,000, or 7.8%, compared to the nine months ended March 31, 2002,
due primarily to a $15,000, or 13.3%, decrease in service charges on deposit
accounts.
General, Administrative and Other Expense
- -----------------------------------------
General, administrative and other expense totaled $1.3 million for the nine
months ended March 31, 2003, an increase of $76,000, or 6.3%, compared to the
nine months ended March 31, 2002. The increase in general, administrative and
other expense resulted primarily from a $73,000, or 11.2%, increase in employee
compensation and benefits. The increase in employee compensation and benefits
was due primarily to an increase in benefit plan costs and normal merit
increases year to year.
14
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, 2003
- --------------------------------------------------------------------------------
and 2002 (continued)
- --------
Federal Income Taxes
- --------------------
The provision for federal income taxes totaled $313,000 for the nine months
ended March 31, 2003, an increase of $25,000, or 8.7%, compared to the nine
months ended March 31, 2002. The increase resulted primarily from the increase
in net earnings before taxes of $44,000, or 4.5%, and a decrease in the level of
nontaxable interest income year to year. The effective tax rates were 30.6% and
29.4% for the nine month periods ended March 31, 2003 and 2002, respectively.
Comparison of Operating Results for the Three Month Periods Ended March 31, 2003
- --------------------------------------------------------------------------------
and 2002
- --------
General
- -------
Net earnings amounted to $207,000 for the three months ended March 31, 2003, a
decrease of $54,000, or 20.7%, from the $261,000 of net earnings reported for
the three months ended March 31, 2002. The decrease in net earnings was due to a
$41,000 decrease in net interest income, an $8,000 decrease in other income and
a $38,000 increase in general, administrative and other expense, which were
partially offset by a $24,000 decrease in the provision for federal income taxes
and a $9,000 decrease in the provision for losses on loans.
Net Interest Income
- -------------------
Total interest income amounted to $1.1 million for the three months ended March
31, 2003, a decrease of $188,000, or 14.6%, compared to the same quarter in
2002, due to a decrease in the average yield on interest-earning assets, from
6.68% in 2002 to 6.01% in 2003, and a $3.9 million, or 5.1%, decrease in the
weighted-average balance of interest-earning assets outstanding. Interest income
on loans decreased by $171,000, or 20.4%, due to a $6.8 million, or 15.8%,
decrease in the weighted-average balance of loans outstanding year to year, as
well as a 43 basis point decrease in the average yield on loans, to 7.35% for
the three months ended March 31, 2003.
Interest income on mortgage-backed securities decreased by $59,000, or 18.9%,
due primarily to a $2.0 million, or 9.5%, decrease in the average balance
outstanding and a decrease in the average yield on mortgage-backed securities,
from 5.87% in the 2002 quarter to 5.26% in the 2003 quarter. Interest income on
investment securities and interest-bearing deposits increased by $42,000, or
31.1%, due primarily to a $5.2 million increase in the average balance
outstanding year to year.
Total interest expense amounted to $410,000 for the three months ended March 31,
2003, a decrease of $147,000, or 26.4%, from the 2002 quarter, due to a decrease
in the average cost of funds, from 3.38% in 2002 to 2.63% in 2003 and a $3.7
million, or 5.6%, decrease in the weighted-average balance of interest-bearing
liabilities outstanding year to year. Interest expense on deposits decreased by
$123,000, or 28.3%, due to an 87 basis point decrease in the average cost of
deposits, to 2.34% for the 2003 quarter, and a $753,000, or 1.4%, decrease in
the weighted-average balance of deposits outstanding year to year. Interest
expense on borrowings decreased by $24,000, or 19.7%, due to a $2.9 million, or
25.0%, decrease in the weighted-average balance of borrowed funds outstanding,
partially offset by an increase in the average cost of borrowed funds, to 4.42%
in the 2003 quarter from 4.17% in the 2002 quarter. The decreases in the level
of yields on interest-earning assets and costs of deposits resulted primarily
from the overall decrease in interest rates in the economy.
15
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, 2003
- --------------------------------------------------------------------------------
and 2002 (continued)
- --------------------
Net Interest Income (continued)
- -------------------------------
As a result of the foregoing changes in interest income and interest expense,
net interest income decreased by $41,000, or 5.6%, to a total of $687,000 for
the three months ended March 31, 2003, compared to the three months ended March
31, 2002. The interest rate spread amounted to 3.38% and 3.30% during the three
month periods ended March 31, 2003 and 2002, respectively, while the net
interest margin amounted to 3.76% and 3.78% during the three month periods ended
March 31, 2003 and 2002, respectively.
Provision for Losses on Loans
- -----------------------------
The Corporation records a 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. Based upon the foregoing analysis, management
determined that the allowance for loan losses was adequate, therefore no
provision was recorded during the current quarter. 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 $43,000 for the three months ended March 31, 2003, a
decrease of $8,000, or 15.7%, compared to the three months ended March 31, 2002,
due to an $8,000, or 22.2%, decrease in service charges on deposit accounts.
General, Administrative and Other Expense
- -----------------------------------------
General, administrative and other expense totaled $435,000 for the three months
ended March 31, 2003, an increase of $38,000, or 9.6%, compared to the three
months ended March 31, 2002. The increase in general, administrative and other
expense resulted primarily from a $34,000, or 16.4%, increase in employee
compensation and benefits. The increase in employee compensation and benefits
was due primarily to an increase in benefit plan costs and normal merit
increases year to year.
Federal Income Taxes
- --------------------
The provision for federal income taxes totaled $88,000 for the three months
ended March 31, 2003, a decrease of $24,000, or 21.4%, compared to the three
months ended March 31, 2002. The decrease resulted primarily from the decrease
in net earnings before taxes of $78,000, or 20.9%. The effective tax rates were
29.8% and 30.0% for the three month periods ended March 31, 2003 and 2002,
respectively.
16
KENTUCKY FIRST BANCORP, INC.
ITEM III CONTROLS AND PROCEDURES
The Company's Chief Executive Officer and Chief Financial Officer have evaluated
the Company's disclosure controls and procedures (as such term is defined in
Rule 13a-14 (c) under the Exchange Act) as of a date within 90 days of the date
of filing of this Form 10-QSB. Based upon such evaluation, the Company's Chief
Executive Officer and Chief Financial Officer have concluded that such controls
and procedures are effective to ensure that the information required to be
disclosed by the Company in the reports it files under the Exchange Act is
gathered, analyzed and disclosed with adequate timeliness.
There have been no significant changes in the Company's internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of the evaluation described above.
17
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
---------------------------------------------------
None
ITEM 5. Other Information
-----------------
None
ITEM 6. Exhibits and Reports on Form 8-K
--------------------------------
Reports on Form 8-K: None.
Exhibits:
Exhibit 99 Certification of Chief Executive Officer and
Chief Financial Officer pursuant to section 906
of the Sarbanes-Oxley Act of 2002
18
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 12, 2003 By:/s/ Betty J. Long
----------------------------------
Betty J. Long
President and Chief
Executive Officer
Date: May 12, 2003 By:/s/ Robbie Cox
----------------------------------
Robbie Cox
Principal Accounting Officer
19
CERTIFICATION
I, Betty J. Long, President and Chief Executive Officer of Kentucky First
Bancorp, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Kentucky First
Bancorp, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
(a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
(c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
the registrant's board or directors (or persons fulfilling the equivalent
functions):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: May 12, 2003
------------
/s/Betty J. Long
-------------------------------------
Betty J. Long
President and Chief Executive Officer
20
CERTIFICATION
I, Robbie Cox, Vice President and Chief Financial Officer of Kentucky First
Bancorp, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Kentucky First
Bancorp, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
(a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
(c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
the registrant's board or directors (or persons fulfilling the equivalent
functions):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: May 12, 2003
/s/Robbie Cox
------------------------------------------
Robbie Cox
Vice President and Chief Financial Officer
21