FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------------
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to _______
Commission File Number: No. 1-13904
KENTUCKY FIRST BANCORP, INC.
_________________________________________________________________
(Exact name of small business issuer as specified in its charter)
Delaware 61-1281483
- ----------------------- -------------------
(State of other jurisdiction of Identification No.)
306 N. Main Street
Cynthiana, Kentucky 41031
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(606) 234-1440
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Check whether the issuer (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past
12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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As of November 8, 1996, the latest practicable date, 1,388,625
shares of the registrant's common stock, $0.01 par value, were
issued and outstanding.
Page 1 of 14 pages
INDEX
Page
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PART I - FINANCIAL INFORMATION
Consolidated Statements of Financial Condition 3
Consolidated Statements of Earnings 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 7
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 9
PART II - OTHER INFORMATION 13
SIGNATURES 14
2
KENTUCKY FIRST BANCORP, INC.
STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
September 30, June 30,
1996 1996
------------ ------------
(Unaudited)
Cash and due from banks $ 488 $ 883
Interest-bearing deposits in other
financial institutions 4 643
Total cash and cash equivalents 492 1,526
Investment securities available for sale -
at market 3,086 3,069
Investment securities - at amortized cost,
approximate market value of $11,047 and
$12,069 as of September 30, 1996 and
June 30, 1996 11,341 12,464
Mortgage-backed securities available for sale -
at market 4,003 4,135
Mortgage-backed securities - at cost,
approximate market value of $18,160 and $18,345
as of September 30, 1996 and June 30, 1996 18,693 19,042
Loans receivable - net 45,272 43,020
Office premises and equipment - at depreciated cost 1,361 1,361
Federal Home Loan Bank stock - at cost 830 738
Accrued interest receivable 469 517
Prepaid expenses and other assets 332 346
Prepaid federal income taxes 65 -
Deferred federal income taxes 65 79
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Total assets $86,009 $86,297
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LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $49,616 $51,778
Advances from the Federal Home Loan Bank 16,326 14,528
Accrued interest payable 133 71
Other liabilities 800 502
Accrued federal income taxes - 162
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Total liabilities 66,875 67,041
Commitments - -
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 13,351 13,351
Retained earnings - restricted 7,542 7,689
Less shares acquired by employee stock
ownership plan (1,018) (1,018)
Less shares acquired by management
recognition plan (730) (730)
Unrealized losses on securities designated as
available for sale, net of related tax effects (25) (50)
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Total shareholders' equity 19,134 19,256
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Total liabilities and shareholders' equity $86,009 $86,297
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3
KENTUCKY FIRST BANCORP, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
For the three months ended September 30,
(In thousands, except share data)
1996 1995
---- ----
Interest income
Loans $ 908 $ 781
Mortgage-backed securities 368 122
Investment securities 249 147
Interest-bearing deposits and other 18 149
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Total interest income 1,543 1,199
Interest expense
Deposits 541 653
Borrowings 211 10
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Total interest expense 752 663
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Net interest income 791 536
Provision for losses on loans 4 8
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Net interest income after provision
for losses on loans 787 528
Other income
Service charges 25 20
Other operating 12 14
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Total other income 37 34
General, administrative and other expense
Employee compensation and benefits 233 170
Occupancy and equipment 32 33
Federal deposit insurance premiums 380 31
Data processing 25 24
Other operating 139 85
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Total general, administrative and
other expense 809 343
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Earnings before income taxes 15 219
Federal income taxes
Current - 79
Deferred - (5)
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Total federal income taxes - 74
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NET EARNINGS $ 15 $ 145
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EARNINGS PER SHARE $ .01 N/A
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4
KENTUCKY FIRST BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended September 30,
(In thousands)
1996 1995
---- ----
Cash flows from operating activities:
Net earnings for the period $ 15 $ 145
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 38 (2)
Amortization of deferred loan origination fees (17) (12)
Depreciation and amortization 15 16
Provision for losses on loans 4 8
Federal Home Loan Bank stock dividends (13) (5)
Increase (decrease) in cash due to changes in:
Accrued interest receivable 48 (13)
Prepaid expenses and other assets 14 224
Accrued interest payable 62 (11)
Other liabilities 298 (181)
Federal income taxes
Current (227) 78
Deferred - (5)
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Net cash provided by operating activities 237 242
Cash flows provided by (used in) investing activities:
Proceeds from maturity of investment securities 1,123 525
Purchase of investment securities designated as
held to maturity - (2,000)
Purchase of mortgage-backed securities designated
as held to maturity - (3,213)
Principal repayments on mortgage-backed securities 465 174
Loan principal repayments 2,770 1,975
Loan disbursements (5,009) (1,969)
Purchase of office premises and equipment (15) -
Purchase of Federal Home Loan Bank stock (79) -
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Net cash used in investing activities (745) (4,508)
Cash flows provided by financing activities:
Net decrease in deposits (2,162) (2,383)
Net proceeds from the issuance of common stock - 12,219
Proceeds from Federal Home Loan Bank advances 1,800 -
Repayment of Federal Home Loan Bank advances (2) (1,751)
Dividends on common stock (162) -
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Net cash provided by (used in) financing
activities (526) 8,085
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Net increase (decrease) in cash and cash equivalents (1,034) 3,919
Cash and cash equivalents at beginning of period 1,526 2,014
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Cash and cash equivalents at end of period $ 492 $5,833
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5
KENTUCKY FIRST BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the three months ended September 30,
1996 1995
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Supplemental disclosure of cash flow information:
Cash paid during the period for:
Federal income taxes $226 $ -
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Interest on deposits and borrowings $678 $674
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Supplemental disclosure of noncash investing activities:
Unrealized gains on securities designated as
available for sale, net of related tax effects $ 25 $ -
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6
KENTUCKY FIRST BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended September 30, 1996 and 1995
During fiscal 1995, the Board of Directors of First Federal
Savings Bank (the Savings Bank) adopted a plan of conversion (the
Plan) whereby the Savings Bank would convert to the stock form of
ownership (the Conversion), followed by the issuance of all of
the Savings Bank's outstanding stock to a newly formed holding
company, Kentucky First Bancorp, Inc. (the Corporation), and the
issuance of common shares of the Corporation to subscribing
members of the Savings Bank. The conversion to the stock form of
ownership was completed on August 28, 1995, culminating in the
Corporation's issuance of 1,388,625 common shares. Financial
statements for periods prior to August 28, 1995, are those of the
Savings Bank prior to the conversion to stock form. Future
references are made to either the Corporation or the Savings Bank
as applicable.
1. Basis of Presentation
---------------------
The accompanying unaudited consolidated financial statements were
prepared in accordance with instructions for Form 10-QSB and,
therefore, do not include information or footnotes necessary for
a complete presentation of consolidated financial position,
results of operations and cash flows in conformity with generally
accepted accounting principles. Accordingly, these financial
statements should be read in conjunction with the consolidated
financial statements and notes thereto of the Corporation
included in the Annual Report on Form 10-KSB for the year ended
June 30, 1996. 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
month periods ended September 30, 1996 and 1995 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 the Savings Bank. All
significant intercompany items have been eliminated.
3. Earnings Per Share
------------------
Earnings per share for the three months ended September 30, 1996
is based upon the weighted-average shares outstanding during the
period plus those stock options that are dilutive, less shares in
the ESOP that are unallocated and not committed to be released.
Weighted-average common shares deemed outstanding, which gives
effect to 101,832 unallocated ESOP shares, totaled 1,286,793 for
the three months ended September 30, 1996. There is no dilutive
effect associated with the Corporation's stock option plan.
The provisions of Accounting Principles Board Opinion No. 15
"Earnings Per Share" are not applicable to the three months ended
September 30, 1995, as the Corporation had not issued any common
stock prior to its initial offering in August 1995.
7
KENTUCKY FIRST BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the three months ended September 30, 1996 and 1995
4. Effects of Recent Accounting Pronouncements
-------------------------------------------
In October 1995, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No.
123, "Accounting for Stock-Based Compensation", establishing
financial accounting and reporting standards for stock-based
employee compensation plans. SFAS No. 123 encourages all
entities to adopt a new method of accounting to measure
compensation cost of all employee stock compensation plans based
on the estimated fair value of the award at the date it is
granted. Companies are, however, allowed to continue to measure
compensation cost for those plans using the intrinsic value based
method of accounting, which generally does not result in
compensation expense recognition for most plans. Companies that
elect to remain with the existing accounting are required to
disclose in a footnote to the financial statements pro forma net
earnings and, if presented, earnings per share, as if SFAS No.
123 had been adopted. The accounting requirements of SFAS No.
123 are effective for transactions entered into during fiscal
years that begin after December 15, 1995; however, companies are
required to disclose information for awards granted in their
first fiscal year beginning after December 15, 1994. Management
has determined that the Corporation will continue to account for
stock-based compensation pursuant to Accounting Principles Board
Opinion No. 25, and therefore the disclosure provisions of SFAS
No. 123 will have no effect on its consolidated financial
condition or results of operations.
In June 1996, the FASB issued SFAS No. 125, "Accounting for
Transfers of Financial Assets, Servicing Rights, and
Extinguishment of Liabilities", that provides accounting guidance
on transfers of financial assets, servicing of financial assets,
and extinguishment of liabilities. SFAS No. 125 introduces an
approach to accounting for transfers of financial assets that
provides a means of dealing with more complex transactions in
which the seller disposes of only a partial interest in the
assets, retains rights or obligations, makes use of special
purpose entities in the transaction, or otherwise has continuing
involvement with the transferred assets. The new accounting
method, the financial components approach, provides that the
carrying amount of the financial assets transferred be allocated
to components of the transaction based on their relative fair
values. SFAS No. 125 provides criteria for determining whether
control of assets has been relinquished and whether a sale has
occurred. If the transfer does not qualify as a sale, it is
accounted for as a secured borrowing. Transactions subject to
the provisions of SFAS No. 125 include, among others, transfers
involving repurchase agreements, securitizations of financial
assets, loan participations, factoring arrangements, and
transfers of receivables with recourse.
An entity that undertakes an obligation to service financial
assets recognizes either a servicing asset or liability for the
servicing contract (unless related to a securitization of assets,
and all the securitized assets are retained and classified as
held-to-maturity). A servicing asset or liability that is
purchased or assumed is initially recognized at its fair value.
Servicing assets and liabilities are amortized in proportion to
and over the period of estimated net servicing income or net
servicing loss and are subject to subsequent assessments for
impairment based on fair value.
SFAS No. 125 provides that a liability is removed from the
balance sheet only if the debtor either pays the creditor and is
relieved of its obligation for the liability or is legally
released from being the primary obligor.
SFAS No. 125 is effective for transfers and servicing of
financial assets and extinguishment of liabilities occurring
after December 31, 1996, and is to be applied prospectively.
Earlier or retroactive application is not permitted. Management
does not believe that adoption of SFAS No. 125 will have a
material adverse effect on the Corporation's consolidated
financial position or results of operations.
8
KENTUCKY FIRST BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Discussion of Financial Condition Changes from June 30, 1996 to
September 30, 1996
- ----------------------------------------------------------------
At September 30, 1996, the Corporation's assets totaled $86.0
million, a decrease of $288,000, or .3%, from the $86.3 million
of total assets at June 30, 1996. The decline in assets resulted
from a decline in the deposit portfolio of $2.2 million which was
partially offset by an increase in advances from the Federal Home
Loan Bank of $1.8 million.
Liquid assets (i.e. cash, interest-bearing deposits and
investment securities) decreased by $2.1 million over the three
month period, to a total of $15.0 million at September 30, 1996,
as investment securities totaling $1.1 million matured during the
quarter. Regulatory liquidity amounted to 10.3%, at September
30, 1996.
Loans receivable increased by $2.3 million, or 5.2%, during the
three month period, to a total of $45.3 million at September 30,
1996. Loan disbursements amounted to $5.0 million and were
partially offset by principal repayments of $2.8 million. The
allowance for loan losses totaled $370,000 at September 30, 1996,
as compared to $367,000 at June 30, 1996. Nonperforming loans
totaled $76,000 at September 30, 1996, as compared to $122,000 at
June 30, 1996. The allowance for loan losses represented 486.8%
of nonperforming loans as of September 30, 1996 and 300.8% at
June 30, 1996. Although management believes that its allowance
for loan losses at September 30, 1996 is adequate based upon
facts and circumstances available to it, there can be no
assurances that additions to such allowance will not be necessary
in future periods, which could adversely affect the Corporation's
results of operations.
Deposits totaled $49.6 million at September 30, 1996, a decrease
of $2.2 million, or 4.2%, from June 30, 1996 levels. Management
continued its conservative pricing strategy with respect to
deposit accounts during the current interest rate environment.
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 equal to 3% of adjusted
total assets, while 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 September 30, 1996, the Savings Bank's tangible and core
capital totaled $15.6 million, or 18.2%, of adjusted total
assets, which exceeded the minimum tangible and core capital
requirements of $1.3 million and $2.6 million by $14.4 million
and $13.1 million, respectively. The Savings Bank's risk-based
capital of $16.0 million, or 34.7% of risk-weighted assets,
exceeded the current 8% requirement by $12.3 million.
9
KENTUCKY FIRST BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Comparison of Operating Results for the Three Month Periods Ended
September 30, 1996 and 1995
- -----------------------------------------------------------------
General
- -------
Net earnings amounted to $15,000 for the three months ended
September 30, 1996, a decrease of $130,000, or 89.7%, from the
$145,000 of net earnings reported for the same period in 1995.
The decline in earnings resulted primarily from a $351,000 charge
recorded in the current quarter reflecting a special assessment
to recapitalize the Savings Association Insurance Fund (SAIF),
coupled with a $115,000 increase in general, administrative and
other expense, which were partially offset by a $255,000 increase
in net interest income, a $3,000 increase in other income and a
$74,000 decrease in the provision for federal income taxes.
Net Interest Income
- -------------------
Net interest income increased by $255,000, or 47.6%, for the
three months ended September 30, 1996, compared to the 1995
period. Interest income on loans increased by $127,000, or
16.3%, due primarily to a $4.1 million increase in the average
balance of loans outstanding year-to-year coupled with an
increase in yield. Interest income on mortgage-backed securities
increased by $246,000, or 201.6%, due primarily to a $14.9
million increase in the average balance outstanding. Interest
income on investment securities and interest-bearing deposits
decreased by $29,000, or 9.8%, due primarily to a decline in the
average portfolio balance outstanding. The increases in
interest-earning assets and corresponding increase in interest
income reflect management's deployment of proceeds from the
Corporation's common stock offering.
Interest expense on deposits decreased by $112,000, or 17.2%, due
primarily to a $1.2 million decrease in average deposits
outstanding coupled with a decline in the cost of deposits year-
to-year. Interest expense on borrowings increased by $201,000
during the current quarter, due primarily to a $14.2 million
increase in advances from the Federal Home Loan Bank.
As a result of the foregoing changes in interest income and
interest expense, net interest income increased by $255,000, or
47.6%, to a total of $791,000 for the three months ended
September 30, 1996. The interest rate spread increased to
approximately 2.94% from 2.47% during the respective 1996 and
1995 quarters, while the net interest margin increased to
approximately 3.86% in 1996, as compared to 3.34% in 1995.
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 $4,000 provision for
losses on loans during the three month period ended September 30,
1996. There can be no assurance that the loan loss allowance of
the Savings Bank will be adequate to absorb losses on known
nonperforming assets or that the allowance will be adequate to
cover losses on nonperforming assets in the future.
10
KENTUCKY FIRST BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Other Income
- ------------
Other income increased by $3,000, or 8.8%, for the three months
ended September 30, 1996, compared to the same period in 1995,
due primarily an increase in service charges and fees on loans
and deposits.
General, Administrative and Other Expense
- -----------------------------------------
General, administrative and other expense increased by $466,000,
or 135.9%, during the three months ended September 30, 1996,
compared to the same period in 1995. This increase resulted
primarily from the $351,000 charge recorded in 1996 attendant to
the aforementioned SAIF recapitalization. The deposit accounts
of the Savings Bank and of other savings associations are insured
by the FDIC in the SAIF. The reserves of the SAIF are below the
level required by law, because a significant portion of the
assessments paid into the fund are used to pay the cost of prior
thrift failures. The deposit accounts of commercial banks are
insured by the FDIC in the Bank Insurance Fund ("BIF"), except to
the extent such banks have acquired SAIF deposits. The reserves
of the BIF met the level required by law in May 1995. As a
result of the respective reserve levels of the funds, deposit
insurance assessments paid by healthy savings associations
exceeded those paid by healthy commercial banks by approximately
$.19 per $100 in deposits in 1995. In 1996, no BIF assessments
are required for healthy commercial banks except for a $2,000
minimum fee. A continuation of this premium disparity could have
a negative competitive impact on the Savings Bank and other
institutions with SAIF deposits.
Congress enacted legislation, the Deposit Insurance Funds Act of
1996, to recapitalize the SAIF and eliminate the significant
premium disparity. The recapitalization plan provides for a
special assessment of $.657 per $100 of SAIF deposits held at
March 31, 1995, in order to increase SAIF reserves to the level
required by law. SAIF assessments would initially be set at the
same level as BIF assessments. Assessments on well-capitalized
institutions with the highest supervisory ratings would be
reduced to zero and institutions in the lowest risk assessment
classification will be assessed at the rate of 0.27% of insured
deposits, and could never be reduced below the level for BIF
assessments. Until December 31, 1999, however, SAIF insured
institutions will be required to pay assessments to the FDIC at
the rate of 6.4 basis points to help fund interest payments on
certain bonds issued by the Financing Corporation ("FICO"), an
agency of the federal government established to finance takeovers
of insolvent thrifts. During this period, BIF members will be
assessed for FICO obligations at the rate of 1.3 basis points.
After December 31, 1999, both BIF and SAIF members will be
assessed at the same rate for FICO payments.
The Savings Bank had $53.6 million in deposits at March 31, 1995.
The special assessment level was finalized at $.657 per $100 in
deposits, resulting in an assessment totaling $351,000, or
$232,000 after-tax.
A component of the recapitalization plan provides for the merger
of the SAIF and BIF on December 31, 1999, but only if there are
no insured savings association on that date. The legislation
directs the Department of Treasury to make recommendations to
Congress by March 31, 1997 for the establishment of a single
charter for banks and thrifts. The Savings Bank cannot predict
what the effect of this legislation will be on the Savings Bank.
11
KENTUCKY FIRST BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
General, Administrative and Other Expense (continued)
- -----------------------------------------
income, approximately $268,000 of its percentage of earnings bad
debt deduction, which represents post-1987 additions, and would
be unable to utilize the percentage of earnings method to compute
its bad debt deduction in the future. The Savings Bank has
provided deferred taxes for this amount and is permitted to
amortize the recapture of its percentage of earnings bad debt
deduction over six years.
Additionally, the increase in general, administrative and other
expense resulted from a $63,000, or 37.1%, increase in employee
compensation and benefits and a $54,000, or 63.5%, increase in
other operating expense. The increase in employee compensation
generally reflects normal merit increases and increased costs
attendant to the Corporation's stock benefit plans implemented in
conjunction with the mutual-to-stock conversion. The increase in
other operating expense resulted primarily from increases in
professional fees, printing and other costs related to increased
reporting requirements of a public stock company. The special
one-time assessment to recapitalize the SAIF is expected to cause
federal deposit insurance premiums to be significantly reduced in
future quarters, beginning January 1, 1997.
Federal Income Taxes
- --------------------
The provision for federal income taxes declined by $74,000, or
100.0%, for the three months ended September 30, 1996, as
compared to the same period in 1995. This decline resulted
primarily from the decrease in net earnings before taxes of
$192,000, or 87.7%. The effective tax rate was 33.8% for the
three months ended September 30, 1995.
12
KENTUCKY FIRST BANCORP, INC.
PART II
Item 1. Legal Proceedings
-----------------
Not applicable
Item 2. Changes in Securities
---------------------
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
--------------------------------
Exhibits:
Exhibit 27 Financial Data Schedule.
13
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: November 11, 1996 By: /s/Betty J. Long
-------------------------
Betty J. Long
President and Chief
Executive Officer
Date: November 11, 1996 By: /s/Robbie Cox
-------------------------
Robbie Cox
Chief Financial Officer
14