UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended December 31, 2002
-------------------
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ____________ to _______________
Commission File Number: 1-13904
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KENTUCKY FIRST BANCORP, INC.
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(Exact name of small business issuer as specified in its charter)
Delaware 61-1281483
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
308 North Main Street, Cynthiana, Kentucky 41031
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(Address of principal executive offices)
(859) 234-1440
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(Issuer's telephone number)
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(Former name, former address and former fiscal year,
if changed since last report)
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the issuer filed all documents and reports required to be filed by
Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities
under a plan confirmed by a court.
Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
January 30, 2003 - 879,142 shares of common stock
- -------------------------------------------------
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
Page 1 of 19
INDEX
Page
----
PART I
ITEM I - FINANCIAL STATEMENTS
Consolidated Statements of Financial Condition 3
Consolidated Statements of Earnings 4
Consolidated Statements of Comprehensive Income 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 8
ITEM II MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION 10
ITEM III CONTROLS AND PROCEDURES 15
PART II - OTHER INFORMATION 16
SIGNATURES 17
CERTIFICATIONS 18
2
ITEM I FINANCIAL STATEMENTS
KENTUCKY FIRST BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
DECEMBER 31, JUNE 30,
ASSETS 2002 2002
Cash and due from banks $ 470 $ 600
Interest-bearing deposits in other financial institutions 2,807 3,079
-------- --------
Cash and cash equivalents 3,277 3,679
Investment securities available for sale - at market 14,703 11,105
Mortgage-backed securities available for sale - at market 18,294 22,204
Loans receivable - net 37,027 39,355
Office premises and equipment - at depreciated cost 1,333 1,237
Real estate acquired through foreclosure -- 45
Federal Home Loan Bank stock - at cost 711 1,477
Accrued interest receivable 482 484
Prepaid expenses and other assets 69 86
-------- --------
Total assets $ 75,896 $ 79,672
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $52,984 $ 54,119
Advances from the Federal Home Loan Bank 8,985 11,794
Accrued interest payable 143 156
Other liabilities 294 179
Accrued federal income taxes 61 5
Deferred federal income taxes 335 269
-------- --------
Total liabilities 62,802 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 9,280 9,301
Retained earnings - restricted 9,612 9,386
Less shares acquired by stock benefit plans (462) (462)
Less 506,983 and 463,297 shares of treasury stock at December 31,
2002 and June 30, 2002, respectively - at cost (6,112) (5,444)
Accumulated comprehensive income, unrealized gains on securities
designated as available for sale, net of related tax effects 762 355
-------- --------
Total shareholders' equity 13,094 13,150
-------- --------
Total liabilities and shareholders' equity $ 75,896 $ 79,672
======== ========
3
KENTUCKY FIRST BANCORP, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except share data)
SIX MONTHS ENDED THREE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
2002 2001 2002 2001
Interest income
Loans $ 1,463 $ 1,843 $ 717 $ 910
Mortgage-backed securities 571 526 264 299
Investment securities 319 210 161 96
Interest-bearing deposits and other 43 68 22 29
------- ------- ------- -------
Total interest income 2,396 2,647 1,164 1,334
Interest expense
Deposits 718 1,068 343 506
Borrowings 247 241 121 130
------- ------- ------- -------
Total interest expense 965 1,309 464 636
------- ------- ------- -------
Net interest income 1,431 1,338 700 698
Provision for (recoveries of) losses on loans (50) 21 -- 18
------- ------- ------- -------
Net interest income after provision
for (recoveries of) losses on loans 1,481 1,317 700 680
Other income
Service charges on deposit accounts 70 77 35 39
Other operating 30 27 12 13
------- ------- ------- -------
Total other income 100 104 47 52
General, administrative and other expense
Employee compensation and benefits 484 445 231 217
Occupancy and equipment 88 85 43 42
Data processing 75 75 37 39
State franchise tax 33 33 17 18
Other operating 173 177 99 98
------- ------- ------- -------
Total general, administrative and other expense 853 815 427 414
------- ------- ------- -------
Earnings before income taxes 728 606 320 318
Federal income taxes
Current 368 100 210 22
Deferred (144) 76 (113) 71
------- ------- ------- -------
Total federal income taxes 224 176 97 93
------- ------- ------- -------
NET EARNINGS $ 504 $ 430 $ 223 $ 225
======= ======= ======= =======
EARNINGS PER SHARE
Basic $ .59 $ .48 $ .27 $ .25
======= ======= ======= =======
Diluted $ .56 $ .47 $ .25 $ .25
======= ======= ======= =======
4
KENTUCKY FIRST BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
SIX MONTHS ENDED THREE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
2002 2001 2002 2001
Net earnings $ 504 $ 430 $ 223 $ 225
Other comprehensive income (loss), net of tax:
Unrealized holding gains (losses) on securities during the period,
net of taxes (benefits) of $210, $2, $3 and $(137) during the
respective periods 407 4 6 (265)
----- ----- ----- -----
Comprehensive income (loss) $ 911 $ 434 $ 229 $ (40)
===== ===== ===== =====
Accumulated comprehensive income $ 762 $ 89 $ 762 $ 89
===== ===== ===== =====
5
KENTUCKY FIRST BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended December 31,
(In thousands)
2002 2001
Cash flows from operating activities:
Net earnings for the period $ 504 $ 430
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 22 (10)
Depreciation and amortization 36 39
Amortization of deferred loan origination fees (11) (12)
Provision for losses on loans -- 21
Gain on sale of real estate acquired through foreclosure (5) --
Federal Home Loan Bank stock dividends (34) (45)
Increase (decrease) in cash due to changes in:
Accrued interest receivable 2 24
Prepaid expenses and other assets 17 13
Accrued interest payable (13) (13)
Other liabilities 115 37
Federal income taxes
Current 56 (78)
Deferred (144) 76
------- -------
Net cash provided by operating activities 545 482
Cash flows provided by (used in) investing activities:
Proceeds from maturity of investment securities 535 1,528
Purchase of investment securities (3,905) (1,000)
Purchase of mortgage-backed securities -- (8,090)
Principal repayments on mortgage-backed securities 4,277 2,080
Loan principal repayments 7,039 6,428
Loan disbursements (4,700) (5,539)
Purchase of office premises and equipment (132) (31)
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 3,964 (4,624)
Cash flows provided by (used in) financing activities:
Net increase (decrease) in deposits (1,135) 1,534
Proceeds from borrowed funds -- 3,000
Repayment of borrowed funds (2,809) (8)
Proceeds from exercise of stock options 101 --
Purchase of treasury stock (790) (164)
Dividends on common stock (278) (265)
------- -------
Net cash provided by (used in) financing activities (4,911) 4,097
------- -------
Net decrease in cash and cash equivalents (402) (45)
Cash and cash equivalents at beginning of period 3,679 2,576
------- -------
Cash and cash equivalents at end of period $ 3,277 $ 2,531
======= =======
6
KENTUCKY FIRST BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the six months ended December 31,
(In thousands)
2002 2001
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Federal income taxes $ 302 $ 159
====== ======
Interest on deposits and borrowings $ 978 $1,322
====== ======
Supplemental disclosure of noncash investing activities:
Unrealized gains on securities designated as available for sale,
net of related tax effects $ 407 $ 4
====== ======
Transfers from loans to real estate acquired through foreclosure $ -- $ 45
====== ======
7
KENTUCKY FIRST BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the six and three months ended December 31, 2002 and 2001
1. Basis of Presentation
---------------------
The accompanying unaudited consolidated financial statements were prepared in
accordance with instructions for Form 10-QSB and, therefore, do not include
information or footnotes necessary for a complete presentation of consolidated
financial position, results of operations and cash flows in conformity with
accounting principles generally accepted in the United States of America.
Accordingly, these financial statements should be read in conjunction with the
consolidated financial statements and notes thereto of Kentucky First Bancorp,
Inc. (the "Corporation") included in the Annual Report on Form 10-KSB for the
year ended June 30, 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 six month periods ended December 31, 2002 are not
necessarily indicative of the results which may be expected for the entire
fiscal year.
2. Principles of Consolidation
---------------------------
The accompanying consolidated financial statements include the accounts of the
Corporation and First Federal Savings Bank (the "Savings Bank"). All significant
intercompany items have been eliminated.
3. Earnings Per Share
------------------
Basic earnings per share is computed based upon the weighted-average shares
outstanding during the period, less shares in the ESOP that are unallocated and
not committed to be released. Weighted-average common shares deemed outstanding
gives effect to 36,651 and 45,810 unallocated ESOP shares for the six and three
month periods ended December 31, 2002 and 2001, respectively.
Diluted earnings per share is computed taking into consideration common shares
outstanding and dilutive potential common shares to be issued under the
Corporation's stock option plan. The computations are as follows:
FOR THE SIX MONTHS ENDED FOR THE THREE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
2002 2001 2002 2001
Weighted-average common shares
outstanding (basic) 856,580 890,282 845,945 886,208
Dilutive effect of assumed exercise
of stock options 46,605 33,296 50,774 33,434
------- ------- ------- -------
Weighted-average common shares
outstanding (diluted) 903,185 923,578 896,719 919,642
======= ======= ======= =======
4. Effects of Recent Accounting Pronouncements
-------------------------------------------
In August 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SAFS") 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 six and three months ended December 31, 2002 and 2001
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. SFAS No. 146 is not expected to have a 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.
SFAS No. 147 is not expected to have a 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. SFAS No. 148 is not expected to have a material effect on the
Corporation's financial position, results of operations or cash flows.
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 loan losses and the effect of recent accounting pronouncements.
Discussion of Financial Condition Changes from June 30, 2002 to December 31,
- --------------------------------------------------------------------------------
2002
- ----
At December 31, 2002, the Corporation's consolidated total assets amounted to
$75.9 million, a decrease of $3.8 million, or 4.7%, 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 $1.1 million in deposits
and a decrease of $2.8 million in advances from the Federal Home Loan Bank.
Liquid assets (i.e. cash, interest-bearing deposits and investment securities)
increased by $3.2 million, or 21.6%, during the six month period ended December
31, 2002, to a total of $18.0 million at December 31, 2002. Investment
securities purchases totaling $3.9 million were funded generally through
proceeds from principal repayments on loans and mortgage-backed securities.
Mortgage-backed securities totaled $18.3 million at December 31, 2002, a
decrease of $3.9 million, or 17.6%, from June 30, 2002 levels. The decrease in
mortgage-backed securities resulted primarily from principal repayments of $4.3
million, which were partially offset by an increase in unrealized gains.
Loans receivable amounted to $37.0 million at December 31, 2002, a decrease of
$2.3 million, or 5.9%, compared to June 30, 2002. Principal repayments amounted
to $7.0 million and were partially offset by loan disbursements of $4.7 million.
The allowance for loan losses totaled $345,000 at December 31, 2002, compared to
$241,000 at June 30, 2002. During the period ended December 31, 2002, 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 $95,000 at December 31, 2002, compared to $51,000 at
June 30, 2002. The allowance for loan losses represented 363.2% of nonperforming
loans as of December 31, 2002 and 472.5% at June 30, 2002. Although management
believes that its allowance for loan losses at December 31, 2002 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 $53.0 million at December 31, 2002, a decrease of $1.1 million,
or 2.1%, 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 $9.0 million at December 31,
2002, a decrease of $2.8 million, or 23.8%, compared to June 30, 2002. Advances
were repaid during the period with proceeds from principal repayments on loans
and mortgage-backed securities.
10
KENTUCKY FIRST BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION (CONTINUED)
Discussion of Financial Condition Changes from June 30, 2002 to December 31,
- --------------------------------------------------------------------------------
2002 (continued)
- ----------------
The Corporation's shareholders' equity amounted to $13.1 million and $13.2
million at December 31, 2002 and June 30, 2002, respectively. Net earnings
during the six months ended December 31, 2002 of $504,000 and an increase in
unrealized gains on available for sale securities of $407,000, were partially
offset by dividends paid on common stock totaling $278,000 and purchases of
treasury stock totaling $790,000.
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 December 31, 2002, the Savings Bank's tangible and core capital totaled $11.5
million, or 15.4%, of adjusted total assets, which exceeded the minimum tangible
and core capital requirements of $1.1 million and $3.0 million by $10.4 million
and $8.5 million, respectively. The Savings Bank's risk-based capital of $11.9
million, or 33.6% of risk-weighted assets, exceeded the 8% of risk-weighted
assets requirement by $9.0 million.
Comparison of Operating Results for the Six Month Periods Ended December 31,
- --------------------------------------------------------------------------------
2002 and 2001
- -------------
General
- -------
Net earnings amounted to $504,000 for the six months ended December 31, 2002, an
increase of $74,000, or 17.2%, over the $430,000 of net earnings reported for
the six months ended December 31, 2001. The increase in net earnings was due to
a $93,000 increase in net interest income and a $71,000 decrease in the
provision for losses on loans, which were partially offset by a $38,000 increase
in general, administrative and other expense and a $48,000 increase in the
provision for federal income taxes.
Net Interest Income
- -------------------
Total interest income amounted to $2.4 million for the six months ended December
31, 2002, a decrease of $251,000, or 9.5%, compared to the same period in 2001,
due to a decrease in the average yield on interest-earning assets, from 7.11% in
2001 to 6.35% in 2002, partially offset by a $989,000, or 1.3%, increase in the
weighted-average balance of interest-earning assets outstanding. Interest income
on loans decreased by $380,000, or 20.6%, due to a $7.5 million, or 16.1%,
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 7.54% for
the six months ended December 31, 2002.
Interest income on mortgage-backed securities increased by $45,000, or 8.6%, due
primarily to a $3.0 million, or 17.5%, increase in the average balance
outstanding, which was partially offset by a decrease in the average yield on
mortgage-backed securities, from 6.08% in the 2001 period to 5.61% in the 2002
period. Interest income on investment securities and interest-bearing deposits
increased by $84,000, or 30.2%, due primarily to a $5.4 million increase in the
average balance outstanding year-to-year.
11
KENTUCKY FIRST BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION (CONTINUED)
Comparison of Operating Results for the Six Month Periods Ended December 31,
- --------------------------------------------------------------------------------
2002 and 2001 (continued)
- -------------------------
Net Interest Income (continued)
- -------------------------------
Total interest expense amounted to $965,000 for the six months ended December
31, 2002, a decrease of $344,000, or 26.3%, from the 2001 period, due to a
decrease in the average cost of funds, from 4.14% in 2001 to 2.99% in 2002,
which was partially offset by a $1.4 million, or 2.2%, increase in the
weighted-average balance of interest-bearing liabilities outstanding
year-to-year. Interest expense on deposits decreased by $350,000, or 32.8%, due
to a 134 basis point decrease in the average cost of deposits to 2.70% for the
2002 six month period, partially offset by a $245,000, or .5%, increase in the
weighted-average balance of deposits outstanding year-to-year. Interest expense
on borrowings increased by $6,000, or 2.5%, due to a $1.1 million, or 10.8%,
increase in the weighted-average balance of borrowed funds outstanding, which
was partially offset by a decrease in the average cost of borrowed funds, from
4.65% in the 2001 period to 4.30% in the 2002 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
during calendar 2001. This low interest rate environment continued through
December 31, 2002.
As a result of the foregoing changes in interest income and interest expense,
net interest income increased by $93,000, or 7.0%, to a total of $1.4 million
for the six months ended December 31, 2002, compared to the six months ended
December 31, 2001. The interest rate spread amounted to 3.36% and 2.97% during
the six month periods ended December 31, 2002 and 2001, respectively, while the
net interest margin amounted to 3.79% and 3.59% during the six month periods
ended December 31, 2002 and 2001, 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 six month period ended December 31,
2002, 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 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 $100,000 for the six months ended December 31, 2002, a
decrease of $4,000, or 3.8%, compared to the six months ended December 31, 2001,
due primarily to a $7,000, or 9.1%, decrease in service charges on deposit
accounts.
General, Administrative and Other Expense
- -----------------------------------------
General, administrative and other expense totaled $853,000 for the six months
ended December 31, 2002, an increase of $38,000, or 4.7%, compared to the six
months ended December 31, 2001. The increase in general, administrative and
other expense resulted primarily from a $39,000, or 8.8%, 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.
12
KENTUCKY FIRST BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION (CONTINUED)
Comparison of Operating Results for the Six Month Periods Ended December 31,
- --------------------------------------------------------------------------------
2002 and 2001 (continued)
- -------------------------
Federal Income Taxes
- --------------------
The provision for federal income taxes totaled $224,000 for the six months ended
December 31, 2002, an increase of $48,000, or 27.3%, compared to the six months
ended December 31, 2001. The increase resulted primarily from the increase in
net earnings before taxes of $122,000, or 20.1%, and a decrease in the level of
nontaxable interest income year to year. The effective tax rates were 30.8% and
29.0% for the six month periods ended December 31, 2002 and 2001, respectively.
Comparison of Operating Results for the Three Month Periods Ended December 31,
- --------------------------------------------------------------------------------
2002 and 2001
- -------------
General
- -------
Net earnings amounted to $223,000 for the three months ended December 31, 2002,
a decrease of $2,000, or .9%, from the $225,000 of net earnings reported for the
three months ended December 31, 2001. The decrease in net earnings was due to a
$5,000 decrease in other income, a $13,000 increase in general, administrative
and other expense and a $4,000 increase in the provision for federal income
taxes, which were partially offset by a $2,000 increase in net interest income
and an $18,000 decrease in the provision for losses on loans.
Net Interest Income
- -------------------
Total interest income amounted to $1.2 million for the three months ended
December 31, 2002, a decrease of $170,000, or 12.7%, compared to the same
quarter in 2001, due to a decrease in the average yield on interest-earning
assets, from 6.98% in 2001 to 6.22% in 2002, and a $1.6 million, or 2.2%,
decrease in the weighted-average balance of interest-earning assets outstanding.
Interest income on loans decreased by $193,000, or 21.2%, due to a $7.5 million,
or 16.4%, decrease in the weighted-average balance of loans outstanding
year-to-year, as well as a 45 basis point decrease in the average yield on
loans, to 7.49% for the three months ended December 31, 2002.
Interest income on mortgage-backed securities decreased by $35,000, or 11.7%,
due primarily to a $661,000, or 3.3%, decrease in the average balance
outstanding and a decrease in the average yield on mortgage-backed securities,
from 5.97% in the 2001 quarter to 5.45% in the 2002 quarter. Interest income on
investment securities and interest-bearing deposits increased by $58,000, or
46.4%, due primarily to a $6.5 million increase in the average balance
outstanding year-to-year.
Total interest expense amounted to $464,000 for the three months ended December
31, 2002, a decrease of $172,000, or 27.0%, from the 2001 quarter, due to a
decrease in the average cost of funds, from 3.90% in 2001 to 2.90% in 2002 and a
$1.2 million, or 1.9%, decrease in the weighted-average balance of
interest-bearing liabilities outstanding year-to-year. Interest expense on
deposits decreased by $163,000, or 32.2%, due to a 120 basis point decrease in
the average cost of deposits to 2.59% for the 2002 quarter, and a $438,000, or
..8%, decrease in the weighted-average balance of deposits outstanding
year-to-year. Interest expense on borrowings decreased by $9,000, or 6.9%, due
to a $772,000, or 6.5%, decrease in the weighted-average balance of borrowed
funds outstanding and a decrease in the average cost of borrowed funds, from
4.41% in the 2001 quarter to 4.39% in the 2002 quarter. The decreases in the
level of yields on interest-earning assets and costs of interest-bearing
liabilities resulted primarily from the overall decrease in interest rates in
the economy during calendar 2001. This low interest rate environment continued
through December 31, 2002.
13
KENTUCKY FIRST BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION (CONTINUED)
Comparison of Operating Results for the Three Month Periods Ended December 31,
- --------------------------------------------------------------------------------
2002 and 2001 (continued)
- -------------------------
Net Interest Income (continued)
- -------------------------------
As a result of the foregoing changes in interest income and interest expense,
net interest income increased by $2,000, or .3%, to a total of $700,000 for the
three months ended December 31, 2002, compared to the three months ended
December 31, 2001. The interest rate spread amounted to 3.32% and 3.08% during
the three month periods ended December 31, 2002 and 2001, respectively, while
the net interest margin amounted to 3.74% and 3.65% during the three month
periods ended December 31, 2002 and 2001, 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 $47,000 for the three months ended December 31, 2002, a
decrease of $5,000, or 9.6%, compared to the three months ended December 31,
2001, due primarily to a $4,000, or 10.3%, decrease in service charges on
deposit accounts.
General, Administrative and Other Expense
- -----------------------------------------
General, administrative and other expense totaled $427,000 for the three months
ended December 31, 2002, an increase of $13,000, or 3.1%, compared to the three
months ended December 31, 2001. The increase in general, administrative and
other expense resulted primarily from a $14,000, or 6.5%, 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 $97,000 for the three months
ended December 31, 2002, an increase of $4,000, or 4.3%, compared to the three
months ended December 31, 2001. The increase resulted primarily from the
increase in net earnings before taxes of $2,000, or .6%, and a decrease in the
level of nontaxable interest income year to year. The effective tax rates were
30.3% and 29.2% for the three month periods ended December 31, 2002 and 2001,
respectively.
14
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.
15
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
--------------------------------------------------
On November 20, 2002, the Annual Meeting of the Corporation's
Shareholders was held. Two directors nominated were elected to terms
expiring in 2005 by the following votes:
William D. Morris
For: 699,731 Withheld: 28,700
Charles S. Brunker
For: 699,331 Withheld: 29,100
ITEM 5. Other Information
-----------------
None
ITEM 6. Exhibits and Reports on Form 8-K
---------------------------------
Reports on Form 8-K: None.
Exhibits:
99.1 Certification of Chief Executive Officer
99.2 Certification of Chief Financial Officer
16
KENTUCKY FIRST BANCORP, INC.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
Date: February 3, 2003 By: /s/ Betty J. Long
------------------------ ---------------------------------------
Betty J. Long
President and Chief
Executive Officer
Date: February 3, 2003 By: /s/ Robbie Cox
------------------------ ---------------------------------------
Robbie Cox
Principal Accounting Officer
17
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: February 3, 2003
------------------------
/s/Betty J. Long
----------------------------------------
Betty J. Long
President and Chief Executive Officer
18
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: February 3, 2003
------------------------
/s/Robbie Cox
----------------------------------------
Robbie Cox
Vice President and Chief Financial Officer
19