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 March 31, 1998
--------------
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 registrant as specified in its charter)
Delaware 61-1281483
- ------------------------------- -------------------
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
306 N. Main Street
Cynthiana, Kentucky 41031
- ----------------------------------------- -----------
(Address of principal executive office) (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
----- -----
As of April 28, 1998, the latest practicable date, 1,241,105
shares of the registrant's common stock, $0.01 par value, were
issued and outstanding.
Transitional small business disclosure format (check one):
Yes No X
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Page 1 of 17 pages
INDEX
Page
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PART I
ITEM 1 - 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
ITEM II MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATIONS 10
PART II - OTHER INFORMATION 16
SIGNATURES 17
2
ITEM 1 FINANCIAL STATEMENTS
KENTUCKY FIRST BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
March 31, June 30,
1998 1997
--------- ----------
ASSETS
Cash and due from banks $ 421 $ 505
Interest-bearing deposits in other
financial institutions 557 762
------- -------
Cash and cash equivalents 978 1,267
Investment securities available for sale -
at market 2,851 2,202
Investment securities - at amortized cost,
approximate market value of $6,378 and
$11,589 as of March 31, 1998 and June 30, 1997 6,336 11,733
Mortgage-backed securities available for sale -
at market 3,134 3,348
Mortgage-backed securities - at cost,
approximate market value of $15,731 and $17,483
as of March 31, 1998 and June 30, 1997 15,774 17,822
Loans receivable - net 49,268 48,920
Office premises and equipment - at depreciated cost 1,369 1,397
Federal Home Loan Bank stock - at cost 1,110 1,052
Accrued interest receivable 405 574
Prepaid expenses and other assets 451 415
Prepaid federal income taxes 42 32
Deferred federal income tax assets 82 94
------- -------
Total assets $81,800 $88,856
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $56,219 $55,443
Advances from the Federal Home Loan Bank 10,764 17,970
Accrued interest payable 121 148
Other liabilities 762 568
------- -------
Total liabilities 67,866 74,129
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 9,213 9,220
Retained earnings - restricted 8,090 7,825
Less shares acquired by stock benefit plans (1,509) (1,509)
Less 149,020 and 69,431 shares of treasury stock
- at cost (1,901) (818)
Unrealized gains (losses) on securities
designated as available for sale,
net of related tax effects 27 (5)
------- -------
Total shareholders' equity 13,934 14,727
------- -------
Total liabilities and shareholders' equity $81,800 $88,856
======= =======
3
KENTUCKY FIRST BANCORP, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except share data)
NINE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, MARCH 31,
--------------------- --------------------
1998 1997 1998 1997
---------- --------- -------- --------
Interest income
Loans $3,083 $2,849 $1,024 $ 984
Mortgage-backed securities 980 1,088 316 357
Investment securities 609 710 186 224
Interest-bearing deposits and other 72 60 24 26
------ ------ ------ -------
Total interest income 4,744 4,707 1,550 1,591
Interest expense
Deposits 1,837 1,669 613 573
Borrowings 697 721 194 260
------ ------ ------ -------
Total interest expense 2,534 2,390 807 833
------ ------ ------ -------
Net interest income 2,210 2,317 743 758
Provision for losses on loans 25 11 7 3
------ ------ ------ -------
Net interest income after
provision for losses on loans 2,185 2,306 736 755
Other income
Gain on investment securities
transactions 16 - - -
Service charges 96 81 31 26
Other operating 31 34 12 11
------ ------ ------ -------
Total other income 143 115 43 37
General, administrative and other
expense
Employee compensation and benefits 745 727 237 233
Occupancy and equipment 110 102 37 37
Federal deposit insurance premiums 26 411 9 2
Data processing 96 80 33 28
Other operating 298 391 97 120
------ ------ ------ -------
Total general, administrative and
other expense 1,275 1,711 413 420
------ ------ ------ -------
Earnings before income taxes 1,053 710 366 372
Federal income taxes
Current 337 262 154 117
Deferred (4) (53) (34) (3)
------ ------ ------ -------
Total federal income taxes 333 209 120 114
------ ------ ------ -------
NET EARNINGS $ 720 $ 501 $ 246 $ 258
====== ====== ====== =======
EARNINGS PER SHARE
Basic $ .60 $ .39 $ .21 $ .20
====== ====== ====== =======
Diluted $ .58 $ .38 $ .20 $ .20
====== ====== ====== =======
4
KENTUCKY FIRST BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended March 31,
(In thousands)
1998 1997
Cash flows from operating activities:
Net earnings for the period $ 720 $ 501
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 (31) (10)
Amortization of deferred loan origination fees (22) (45)
Depreciation and amortization 41 38
Provision for losses on loans 25 11
Gain on investment securities transactions (16) -
Federal Home Loan Bank stock dividends (58) (48)
Increase (decrease) in cash due to changes in:
Accrued interest receivable 169 87
Prepaid expenses and other assets (36) (83)
Accrued interest payable (27) 86
Other liabilities 194 211
Federal income taxes
Current (10) (73)
Deferred (4) (53)
-------- --------
Net cash provided by operating activities 945 622
Cash flows provided by (used in) investing activities:
Proceeds from maturity of investment securities 6,463 2,144
Proceeds from sale of investment securities 155 -
Purchase of investment securities designated as held
to maturity - (702)
Purchase of investment securities designated as
available for sale (1,810) -
Principal repayments on mortgage-backed securities 2,297 1,704
Loan principal repayments 8,175 8,667
Loan disbursements (8,526) (14,452)
Purchase of office premises and equipment (13) (12)
Purchase of Federal Home Loan Bank stock - (248)
-------- --------
Net cash provided by (used in) investing activities 6,741 (2,899)
Cash flows provided by (used in) financing activities:
Net increase in deposits 776 2,788
Proceeds from Federal Home Loan Bank advances 17,400 11,750
Repayment of Federal Home Loan Bank advances (24,606) (7,206)
Purchase of treasury stock (1,124) (818)
Proceeds from notes payable - 2,000
Repayment of notes payable - (2,000)
Proceeds from exercise of stock options 34 -
Dividends on common stock (455) (4,640)
-------- --------
Net cash provided by (used in) financing activities (7,975) 1,874
-------- --------
Net decrease in cash and cash equivalents (289) (403)
Cash and cash equivalents at beginning of period 1,267 1,526
-------- --------
Cash and cash equivalents at end of period $ 978 $ 1,123
======== ========
5
KENTUCKY FIRST BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the nine months ended March 31,
1998 1997
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Federal income taxes $ 356 $ 336
====== ======
Interest on deposits and borrowings $2,561 $2,304
====== ======
Supplemental disclosure of noncash investing activities:
Unrealized gains on securities designated as available
for sale, net of related tax effects $ 32 $ 27
====== ======
6
KENTUCKY FIRST BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three and nine months ended March 31, 1998 and 1997
1. Basis of Presentation
---------------------
The accompanying unaudited consolidated financial statements
were prepared in accordance with instructions for Form 10-QSB
and, therefore, do not include information or footnotes
necessary for a complete presentation of consolidated
financial position, results of operations and cash flows in
conformity with generally accepted accounting principles.
Accordingly, these financial statements should be read in
conjunction with the consolidated financial statements and
notes thereto of Kentucky First Bancorp, Inc. (the
"Corporation") included in the Annual Report on Form 10-KSB
for the year ended June 30, 1997. However, in the opinion of
management, all adjustments (consisting of only normal
recurring accruals) which are necessary for a fair
presentation of the financial statements have been included.
The results of operations for the nine and three month periods
ended March 31, 1998 are not necessarily indicative of the
results which may be expected for an entire fiscal year.
2. Principles of Consolidation
---------------------------
The accompanying consolidated financial statements include the
accounts of the Corporation and First Federal Savings Bank of
Cynthiana (the "Savings Bank"). All significant intercompany
items have been eliminated.
3. Earnings Per Share
------------------
Earnings per share is computed in accordance with the
provisions of Statement of Financial Accounting Standards
("SFAS") No. 128, "Earnings Per Share". Pursuant to SFAS No.
128, 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 92,574 unallocated ESOP
shares, totaled 1,201,948 and 1,179,002, respectively, for the
nine and three month periods ended March 31, 1998. Weighted-
average common shares deemed outstanding, which gives effect
to 101,832 unallocated ESOP shares, totaled 1,280,598 and
1,267,932 for the nine and three month periods ended March 31,
1997.
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 1,249,791 and
1,230,924 for the nine and three month periods ended March 31,
1998, respectively, and 1,304,378 and 1,295,417 for the nine and
three month periods ended March 31, 1997, respectively.
4. Effects of Recent Accounting Pronouncements
-------------------------------------------
In June 1996, the Financial Accounting Standards Board (the
"FASB") issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments 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
7
KENTUCKY FIRST BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the three and nine months ended March 31, 1998 and 1997
4. Effects of Recent Accounting Pronouncements (continued)
-------------------------------------------
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, 1997, and is to be applied prospectively.
Earlier or retroactive application is not permitted.
Management adopted SFAS No. 125 effective January 1, 1998, as
required, without material effect on the Corporation's
consolidated financial position or results of operations.
In June 1997, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes standards for
reporting and display of comprehensive income and its
components (revenues, expenses, gains and losses) in a full
set of general-purpose financial statements. SFAS No. 130
requires that all items that are required to be recognized
under accounting standards as components of comprehensive
income be reported in a financial statement that is displayed
with the same prominence as other financial statements. It
does not require a specific format for that financial
statement but requires that an enterprise display an amount
representing total comprehensive income for the period in that
financial statement.
SFAS No. 130 requires that an enterprise (a) classify items of
other comprehensive income by their nature in a financial
statement and (b) display the accumulated balance of other
comprehensive income separately from retained earnings and
additional paid-in capital in the equity section of a
statement of financial condition. SFAS No. 130 is effective
for fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier periods
provided for comparative purposes is required. SFAS No. 130
is not expected to have a material impact on the Corporation's
financial statements.
8
KENTUCKY FIRST BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the three and nine months ended March 31, 1998 and 1997
4. Effects of Recent Accounting Pronouncements (continued)
-------------------------------------------
In June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." SFAS No.
131 significantly changes the way that public business
enterprises report information about operating segments in
annual financial statements and requires that those
enterprises report selected information about reportable
segments in interim financial reports issued to shareholders.
It also establishes standards for related disclosures about
products and services, geographic areas and major customers.
SFAS No. 131 uses a "management approach" to disclose financial
and descriptive information about the way that management
organizes the segments within the enterprise for making
operating decisions and assessing performance. For many
enterprises, the management approach will likely result in
more segments being reported. In addition, SFAS No. 131
requires significantly more information to be disclosed for
each reportable segment than is presently being reported in
annual financial statements and also requires that selected
information be reported in interim financial statements. SFAS
No. 131 is effective for fiscal years beginning after December
15, 1997. SFAS No. 131 is not expected to have a material
impact on the Corporation's financial statements.
9
KENTUCKY FIRST BANCORP, INC.
ITEM II MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
Forward-Looking Statements
- --------------------------
In addition to historical information contained herein, the
following discussion contains forward-looking statements that
involve risks and uncertainties. Economic circumstances, the
Corporation's operations and the Corporation's actual results
could differ significantly from those discussed in the
forward-looking statements. Some of the factors that could
cause or contribute to such differences are discussed herein but
also include changes in the economy and interest rates in the
nation and the Corporation's market area generally.
Some of the forward-looking statements included herein are the
statements regarding management's determination of the amount
and adequacy of the allowance for losses on loans, the effect of
certain recent accounting pronouncements and the Corporation's
projected effects related to the year 2000 compliance issue.
Discussion of Financial Condition Changes from June 30, 1997 to
March 31, 1998
- ---------------------------------------------------------------
At March 31, 1998, the Corporation's consolidated total assets
amounted to $81.8 million, a decrease of $7.1 million, or 7.9%,
from the total at June 30, 1997. The decrease in assets
resulted primarily from a decrease of $7.2 million in advances
from the Federal Home Loan Bank and a decline in shareholders'
equity of $793,000, which were partially offset by an increase
in deposits of $776,000.
Liquid assets (i.e. cash, interest-bearing deposits and
investment securities) decreased by $5.0 million over the nine
month period, to a total of $10.2 million at March 31, 1998.
Investment securities totaling $6.5 million matured during the
period and were partially offset by purchases of $1.8 million.
Mortgage-backed securities totaled $18.9 million at March 31,
1998, a decrease of $2.3 million, or 10.7% from June 30, 1997
levels. The decrease resulted primarily from principal
repayments of $2.3 million during the period. Excess liquid
assets and proceeds from maturities of investment and mortgage-
backed securities were partially used to fund repayments of
Federal Home Loan Bank advances. Regulatory liquidity amounted
to 8.0%, at March 31, 1998.
Loans receivable increased by $348,000, or .7%, during the nine
month period, to a total of $49.3 million at March 31, 1998.
Loan disbursements amounted to $8.5 million and were partially
offset by principal repayments of $8.2 million. The growth in
the loan portfolio consisted primarily of one- to four-family
residential fixed-rate loans. The allowance for loan losses
totaled $379,000 at March 31, 1998, as compared to $372,000 at
June 30, 1997. Nonperforming loans totaled $144,000 at March
31, 1998, as compared to $59,000 at June 30, 1997. The
allowance for loan losses represented 263% of nonperforming
loans as of March 31, 1998 and 631% at June 30, 1997. Although
management believes that its allowance for loan losses at March
31, 1998 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 $56.2 million at March 31, 1998, an increase of
$776,000, or 1.4%, over June 30, 1997 levels. During the
current period, management has not attempted to match premium
deposit rates offered by certain competitors and has instead
continued its conservative pricing strategy with respect to
deposit accounts during the current interest rate environment.
10
KENTUCKY FIRST BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION (CONTINUED)
Discussion of Financial Condition Changes from June 30, 1997 to
March 31, 1998 (continued)
- ---------------------------------------------------------------
Advances from the Federal Home Loan Bank totaled $10.8 million
at March 31, 1998, a decrease of $7.2 million, or 40.1%, from
the total at June 30, 1997, as proceeds from maturities of
investment and mortgage-backed securities were utilized to repay
such advances.
The Corporation's shareholders' equity amounted to $13.9 million
at March 31, 1998, a decrease of $793,000, or 5.4%, from June
30, 1997 levels. The decrease resulted primarily from dividends
paid on common stock totaling $455,000 and purchases of treasury
stock totaling $1.1 million, which were partially offset by 1998
period net earnings of $720,000 and a $32,000 increase in
unrealized gains on securities designated as available for sale.
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 4% 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 March 31, 1998, the Savings Bank's tangible and core capital
totaled $11.8 million, or 14.4%, of adjusted total assets, which
exceeded the minimum tangible and core capital requirements of
$1.2 million and $3.3 million by $10.6 million and $8.5 million,
respectively. The Savings Bank's risk-based capital of $12.2
million, or 26.1% of risk-weighted assets, exceeded the current
8% requirement by $8.4 million.
Comparison of Operating Results for the Nine Month Periods Ended
March 31, 1998 and 1997
- ----------------------------------------------------------------
General
- -------
Net earnings amounted to $720,000 for the nine months ended
March 31, 1998, an increase of $219,000, or 43.7%, over the
$501,000 of net earnings reported for the same period in 1997.
Net earnings during the fiscal 1997 period reflected a $351,000
one-time special assessment recorded in the first quarter of
fiscal 1997 to recapitalize the Savings Association Insurance
Fund ("SAIF"). The increase in net earnings in the current
period was also due to an $85,000 decrease in general,
administrative and other expense and a $28,000 increase in other
income, which were partially offset by a $107,000 decrease in
net interest income and a $124,000 increase in the provision for
federal income taxes.
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, 1998 and 1997 (continued)
- ----------------------------------------------------------------
Net Interest Income
- -------------------
Net interest income decreased by $107,000, or 4.6%, for the nine
months ended March 31, 1998, compared to the 1997 period.
Interest income on loans increased by $234,000, or 8.2%, due
primarily to a $3.1 million, or 6.7%, increase in the weighted-
average balance of loans outstanding year to year, coupled with
an increase in yield. Interest income on mortgage-backed
securities decreased by $108,000, or 9.9%, due primarily to a
$2.4 million, or 10.6%, decrease in the weighted-average balance
outstanding. Interest income on investment securities and
interest-bearing deposits decreased by $89,000, or 11.6%, due
primarily to a decline in the average yields available on short-
term deposits.
Interest expense on deposits increased by $168,000, or 10.1%,
due primarily to a $2.7 million, or 5.1%, increase in the
weighted-average balance of deposits outstanding, coupled with
an increase in the cost of deposits year to year. Interest
expense on borrowings decreased by $24,000 during the current
period, due primarily to a $720,000 decrease in the weighted-
average balance of advances outstanding from the Federal Home
Loan Bank.
As a result of the foregoing changes in interest income and
interest expense, net interest income decreased by $107,000, or
4.6%, to a total of $2.2 million for the nine months ended March
31, 1998, as compared to the comparable period in 1997. The
interest rate spread amounted to approximately 2.82% and 2.85%
during the respective fiscal 1998 and 1997 nine month periods,
while the net interest margin amounted to approximately 3.53% in
fiscal 1998 and 3.66% in fiscal 1997.
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 $25,000 provision
for losses on loans during the nine month period ended March 31,
1998, compared to an $11,000 provision for the comparable period
in 1997. 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 increased by $28,000, or 24.3%, for the nine months
ended March 31, 1998, compared to the same period in 1997, due
primarily to a $16,000 gain on investment securities
transactions, coupled with a $15,000, or 18.5%, increase in
service charges and fees on loans and deposits.
12
KENTUCKY FIRST BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION (CONTINUED)
Comparison of Operating Results for the Nine Month Periods Ended
March 31, 1998 and 1997 (continued)
- ----------------------------------------------------------------
General, Administrative and Other Expense
- -----------------------------------------
General, administrative and other expense decreased by $436,000,
or 25.5%, during the nine month period ended March 31, 1998,
compared to the same period in 1997. This decrease resulted
primarily from the $351,000 charge recorded in the first quarter
of fiscal 1997 attendant to the aforementioned SAIF
recapitalization.
Additionally, the decrease in general, administrative and other
expense resulted from a $34,000, or 56.7%, decrease in federal
deposit insurance premiums and a $93,000, or 23.8%, decrease in
other expense, which were partially offset by an $18,000, or
2.5%, increase in employee compensation and benefits, an $8,000,
or 7.8%, increase in occupancy and equipment and a $16,000, or
20.0%, increase in data processing.
The decrease in federal deposit insurance premiums resulted from
the decline in premium rates following the recapitalization of
the SAIF. The decline in other operating expense reflects the
absence of professional costs related to the Corporation's
return of capital distribution paid in November 1996.
Federal Income Taxes
- --------------------
The provision for federal income taxes increased by $124,000, or
59.3%, for the nine month period ended March 31, 1998, as
compared to the same period in 1997. This increase resulted
primarily from the increase in net earnings before taxes of
$343,000, or 48.3%. The effective tax rates were 31.6% and
29.4% for the nine month periods ended March 31, 1998 and 1997,
respectively.
Comparison of Operating Results for the Three Month Periods
Ended March 31, 1998 and 1997
- -----------------------------------------------------------
General
- -------
Net earnings amounted to $246,000 for the three months ended
March 31, 1998, a decrease of $12,000, or 4.7%, from the
$258,000 of net earnings reported for the same period in 1997.
The decrease in earnings resulted primarily from a $15,000
decline in net interest income and a $6,000 increase in the
provision for federal income taxes, which were partially offset
by a $6,000 increase in other income and a $7,000 decrease in
general, administrative and other expense.
13
KENTUCKY FIRST BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION (CONTINUED)
Comparison of Operating Results for the Three Month Periods
Ended March 31, 1998 and 1997 (continued)
- -----------------------------------------------------------
Net Interest Income
- -------------------
Net interest income totaled $743,000 for the three months ended
March 31, 1998, a decrease of $15,000, or 2.0%, compared to the
1997 period. Interest income on loans increased by $40,000, or
4.1%, due primarily to a $1.2 million increase in the weighted-
average balance of loans outstanding year to year, coupled with
an increase in yield. Interest income on mortgage-backed
securities decreased by $41,000, or 11.5%, due primarily to a
$2.5 million decrease in the weighted-average balance
outstanding. Interest income on investment securities and
interest-bearing deposits decreased by $40,000, or 16.0%, due
primarily to a decrease in the weighted-average balances
outstanding.
Interest expense on deposits increased by $40,000, or 7.0%, due
primarily to a $993,000 increase in the weighted-average balance
of deposits outstanding year to year. Interest expense on
borrowings decreased by $66,000, or 25.4%, during the current
period, due primarily to an approximate $3.9 million decrease in
the weighted-average balance of advances from the Federal Home
Loan Bank.
As a result of the foregoing changes in interest income and
interest expense, net interest income decreased by $15,000, or
2.0%, for the three months ended March 31, 1998, as compared to
the comparable quarter in 1997. The interest rate spread
amounted to approximately 3.00% and 2.85% during the respective
1998 and 1997 quarters, while the net interest margin amounted
to approximately 3.68% in 1998, as compared to 3.54% in 1997.
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 $7,500 provision
for losses on loans during the three month period ended March
31, 1998, as compared to a $3,000 provision recorded during the
three months ended March 31, 1997. 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 increased by $6,000, or 16.2%, for the three months
ended March 31, 1998, compared to the same period in 1997, due
primarily to a $5,000 increase in service charges and fees on
loan and deposit accounts.
14
KENTUCKY FIRST BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION (CONTINUED)
Comparison of Operating Results for the Three Month Periods
Ended March 31, 1998 and 1997 (continued)
- -----------------------------------------------------------
General, Administrative and Other Expense
- -----------------------------------------
General, administrative and other expense decreased by $7,000,
or 1.7%, for the three months ended March 31, 1998, as compared
to the same period in 1997. The decrease resulted primarily
from a $23,000, or 19.2%, decrease in other operating expenses,
which was partially offset by a $4,000, or 1.7%, increase in
employee compensation and benefits, a $7,000 increase in federal
deposit insurance premiums and a $5,000, or 17.9%, increase in
data processing.
Federal Income Taxes
- --------------------
The provision for federal income taxes increased by $6,000, or
5.3%, for the three month period ended March 31, 1998, as
compared to the same period in 1997. The effective tax rates
were 32.8% and 30.6% for the three month periods ended March 31,
1998 and 1997, respectively.
Other Matters
- -------------
As with all providers of financial services, the Savings Bank's
operations are heavily dependent on information technology
systems. The Savings Bank is addressing the potential problems
associated with the possibility that the computers that control
or operate the Savings Bank's information technology system and
infrastructure may not be programmed to read four-digit date
codes and, upon arrival of the year 2000, may recognize the
two-digit code "00" as the year 1900, causing systems to fail to
function or to generate erroneous data. The Savings Bank is
working with the companies that supply or service its
information technology systems to identify and remedy any year
2000 related problems.
As of the date of this Form 10-QSB, the Savings Bank has not
identified any specific expenses that are reasonably likely to
be incurred by the Savings Bank in connection with this issue
and does not expect to incur significant expense to implement
the necessary corrective measures. No assurance can be given,
however, that significant expense will not be incurred in future
periods. In the event that the Savings Bank is ultimately
required to purchase replacement computer systems, programs and
equipment, or incur substantial expense to make the Savings
Bank's current systems, programs and equipment year 2000
compliant, the Savings Bank's net earnings and financial
condition could be adversely affected.
In addition to possible expense related to its own systems, the
Savings Bank could incur losses if loan payments are delayed due
to year 2000 problems affecting any major borrowers in the
Savings Bank's primary market area. Because the Savings Bank's
loan portfolio is highly diversified with regard to individual
borrowers and types of businesses and the Savings Bank's primary
market area is not significantly dependent upon one employer or
industry, the Savings Bank does not expect any significant or
prolonged difficulties that will affect net earnings or cash
flow.
15
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
--------------------------------
Exhibit 27.1 Financial Data Schedule for the nine
months ended March 31, 1998.
Exhibit 27.2 Restated Financial Data Schedule for
the nine months ended March 31, 1997.
Reports on
Form 8-K: None
16
KENTUCKY FIRST BANCORP, INC.
SIGNATURES
----------
In accordance with the requirements of the Exchange Act, the
registrant has caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Date: May 14, 1998 By: /s/Betty J. Long
-------------------------
Betty J. Long
President and Chief
Executive Officer
Date: May 14, 1998 By: /s/Robbie Cox
-------------------------
Robbie Cox
Chief Financial Officer
17