<PAGE>
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FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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(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, 1997
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
--------------
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 May 9, 1997, the latest practicable date, 1,319,194 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]
Page 1 of 17 pages<PAGE>
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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
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KENTUCKY FIRST BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
<TABLE>
<CAPTION>
March 31, June 30,
1997 1996
--------- ----------
ASSETS
<S> <C> <C>
Cash and due from banks $ 384 $ 883
Interest-bearing deposits in other
financial institutions 739 643
------- -------
Total cash and cash equivalents 1,123 1,526
Investment securities available for sale-
at market 2,088 3,069
Investment securities - at amortized cost,
approximate market value of $11,991 and
$12,069 as of March 31, 1997 and June 30, 1996 12,022 12,464
Mortgage-backed securities available for sale -
at market 3,347 4,135
Mortgage-backed securities - at cost, approximate
market value of $17,556 and $18,345 as of
March 31, 1997 and June 30, 1996 18,158 19,042
Loans receivable - net 48,839 43,020
Office premises and equipment - at depreciated cost 1,335 1,361
Federal Home Loan Bank stock - at cost 1,034 738
Accrued interest receivable 430 517
Prepaid expenses and other assets 429 346
Deferred federal income tax assets 118 79
------- -------
Total assets $88,923 $86,297
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $54,566 $51,778
Advances from the Federal Home Loan Bank 19,072 14,528
Accrued interest payable 157 71
Other liabilities 713 502
Accrued federal income taxes 89 162
------- -------
Total liabilities 74,597 67,041
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 9,185 13,351
Retained earnings - restricted 7,716 7,689
Less shares acquired by employee stock
ownership plan (1,018) (1,018)
Less shares acquired by management
recognition plan (730) (730)
Less 69,431 shares of treasury stock - at cost (818) -
Unrealized losses on securities designated as
available for sale, net of related tax effects (23) (50)
------- -------
Total shareholders' equity 14,326 19,256
------- -------
Total liabilities and shareholders' equity $88,923 $86,297
======= =======
3
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KENTUCKY FIRST BANCORP, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except share data)
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
March 31, March 31,
--------------------- --------------------
1997 1996 1997 1996
---------- --------- -------- --------
<S> <C> <C> <C> <C>
Interest income
Loans $2,849 $2,411 $ 984 $ 834
Mortgage-backed securities 1,088 603 357 254
Investment securities 710 628 224 281
Interest-bearing deposits and
other 60 234 26 42
------ ------ ------- -------
Total interest income 4,707 3,876 1,591 1,411
Interest expense
Deposits 1,669 1,773 573 551
Borrowings 721 157 260 123
------ ------ ------- -------
Total interest expense 2,390 1,930 833 674
------ ------ ------- -------
Net interest income 2,317 1,946 758 737
Provision for losses on loans 11 15 3 -
------ ------ ------- -------
Net interest income after
provision for losses on
loans 2,306 1,931 755 737
Other income
Service charges 81 60 26 20
Other operating 34 47 11 18
------ ------ ------- -------
Total other income 115 107 37 38
General, administrative and other expense
Employee compensation and benefits 727 537 233 173
Occupancy and equipment 102 105 37 34
Federal deposit insurance premiums 411 90 2 29
Data processing 80 74 28 26
Other operating 391 304 120 91
------ ------ ------- -------
Total general, administrative
and other expense 1,711 1,110 420 353
------ ------ ------- -------
Earnings before income taxes 710 928 372 422
Federal income taxes
Current 262 276 117 126
Deferred (53) (2) (3) 1
------ ------ ------- -------
Total federal income taxes 209 274 114 127
------ ------ ------- -------
NET EARNINGS $ 501 $ 654 $ 258 $ 295
====== ====== ======= =======
EARNINGS PER SHARE $ .39 $ .51 $ .20 $ .23
====== ====== ======= =======
</TABLE>
4
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KENTUCKY FIRST BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended March 31,
(In thousands)
<TABLE>
<CAPTION>
1997 1996
--------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings for the period $ 501 $ 654
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 (10) (28)
Amortization of deferred loan origination fees (45) (11)
Depreciation and amortization 38 47
Provision for losses on loans 11 15
Federal Home Loan Bank stock dividends (48) (19)
Increase (decrease) in cash due to changes in:
Accrued interest receivable 87 (20)
Prepaid expenses and other assets (83) 303
Accrued interest payable 86 (4)
Other liabilities 211 176
Federal income taxes
Current (73) 155
Deferred (53) (2)
------ -------
Net cash provided by operating activities 622 1,266
Cash flows provided by (used in) investing activities:
Loans purchased - (1,089)
Proceeds from maturity of investment securities 2,144 9,702
Purchase of investment securities designated as
held to maturity (702) (10,864)
Purchase of mortgage-backed securities designated
as held to maturity - (17,368)
Purchase of stock relative to director's deferred
compensation - (238)
Principal repayments on mortgage-backed securities 1,704 601
Loan principal repayments 8,667 7,129
Loan disbursements (14,452) (7,716)
Purchase of office premises and equipment (12) (8)
Loss on disposal of office premises and equipment - 2
Purchase of Federal Home Loan Bank stock (248) (308)
------ -------
Net cash used in investing activities (2,899) (20,157)
Cash flows provided by financing activities:
Net increase (decrease) in deposits 2,788 (1,996)
Net proceeds from the issuance of common stock - 13,330
Proceeds from Federal Home Loan Bank advances 11,750 13,106
Repayment of Federal Home Loan Bank advances (7,206) (2,755)
Purchase of ESOP shares - (1,111)
Purchase of treasury stock (818) -
Proceeds from notes payable 2,000 -
Repayment of notes payable (2,000) -
Dividends on common stock (4,640) (160)
------ -------
Net cash provided by financing activities 1,874 20,414
------ -------
Net increase (decrease) in cash and cash equivalents (403) 1,523
Cash and cash equivalents at beginning of period 1,526 2,014
------ -------
Cash and cash equivalents at end of period $1,123 $ 3,537
====== =======
</TABLE>
5
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Kentucky First Bancorp, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the nine months ended March 31,
<TABLE>
<CAPTION>
1997 1996
--------- ----------
<S> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Federal income taxes $ 336 $ 138
======= =======
Interest on deposits and borrowings $ 2,304 $ 1,895
======= =======
Supplemental disclosure of noncash investing
activities:
Unrealized gains (losses) on securities
designated as available for sale, net of
related tax effects $ 27 $ (47)
======= =======
</TABLE>
6
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KENTUCKY FIRST BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three and nine months ended March 31, 1997 and 1996
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. Results of
operations 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 nine and
three month periods ended March 31, 1997 and 1996 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 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 1,280,598 and 1,267,932 for the nine and three
month periods ended March 31, 1997, respectively. Weighted-
average common shares deemed outstanding, which gives effect to
111,090 unallocated ESOP shares, totaled 1,277,535 for each of
the nine and three month periods ended March 31, 1996. There is
no dilutive effect associated with the Corporation's stock option
plan.
7
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KENTUCKY FIRST BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the three and nine months ended March 31, 1997 and 1996
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 March 15, 1995; however, companies are
required to disclose information for awards granted in their
first fiscal year beginning after March 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 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.
8
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KENTUCKY FIRST BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the three and nine months ended March 31, 1997 and 1996
4. Effects of Recent Accounting Pronouncements (continued)
-------------------------------------------
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
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.
In February 1997, the FASB issued SFAS No. 128, "Earnings Per
Share", which requires companies to present basic earnings per
share and, if applicable, diluted earnings per share, instead of
primary and fully diluted earnings per share, respectively.
Basic earnings per share is computed without including potential
common shares, i.e., no dilutive effect. Diluted earnings per
share is computed taking into consideration common shares
outstanding and dilutive potential common shares, including
options, warrants, convertible securities and contingent stock
agreements. SFAS No. 128 is effective for periods ending after
December 15, 1997. Early application is not permitted. Based
upon the provisions of SFAS No. 128, the Corporation's basic and
diluted earnings per share for the nine month period ended March
31, 1997 would have each been $.39, and for the three month
period ended March 31, 1997 would have each been $.20.
9
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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 of
allowance for losses on loans, the impact of the recent flooding
in the Corporation's market area legislative changes with
respect to the federal thrift charter and the effect of certain
accounting pronouncements.
Recent Flooding in Corporation's Market Area
- --------------------------------------------
In late February - early March 1997, numerous localities
within the Commonwealth of Kentucky including Cynthiana, the
community in which the Corporation is headquartered and other
communities within the Corporation's market area, suffered
damage as a result of severe flooding. Neither of the
Corporation's two branch offices suffered any damage as a result
of such flooding, however. While there can be no assurances, as
of the date hereof, the Corporation does not anticipate that
such flooding will have a material adverse impact on its
operations in the future.
Discussion of Financial Condition Changes from June 30, 1996 to
March 31, 1997
- ---------------------------------------------------------------
At March 31, 1997, the Corporation's consolidated total assets
amounted to $88.9 million, an increase of $2.6 million, or 3.0%,
over the $86.3 million of total assets at June 30, 1996. The
increase in assets, consisting primarily of an increase in loans
receivable, partially offset by decreases in liquid assets and
mortgage-backed securities, was financed by an increase in the
deposit portfolio of $2.8 million and an increase of $4.5
million in advances from the Federal Home Loan Bank. These
increases were partially offset by a decline in shareholders'
equity of $4.9 million.
Liquid assets (i.e. cash, interest-bearing deposits and
investment securities) decreased by $1.8 million over the nine
month period, to a total of $15.2 million at March 31, 1997, as
investment securities totaling $2.1 million matured during the
period, which were partially offset by purchases of investment
securities of $702,000. Regulatory liquidity amounted to 11.2%,
at March 31, 1997.
Loans receivable increased by $5.8 million, or 13.5%, during the
nine month period, to a total of $48.8 million at March 31,
1997. Loan disbursements amounted to $14.5 million and were
partially offset by principal repayments of $8.7 million. Loan
disbursements increased by $6.7 million, or 87.3%, during the
1997 nine month period as compared to the comparable period in
1996. The growth in the loan portfolio consisted primarily of
one- to four-family residential fixed-rate loans. The allowance
for loan losses totaled $378,000 at March 31, 1997, as compared
to $367,000 at June 30, 1996. Nonperforming loans totaled
10
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KENTUCKY FIRST BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION (CONTINUED)
Discussion of Financial Condition Changes from June 30, 1996 to
- ---------------------------------------------------------------
March 31, 1997 (continued)
- --------------
$128,000 at March 31, 1997 as compared to $122,000 at June 30,
1996. The allowance for loan losses represented 295.3% of
nonperforming loans as of March 31, 1997 and 300.8% at June 30,
1996. Although management believes that its allowance for loan
losses at March 31, 1997 is adequate based upon the available
facts and circumstances, 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 $54.6 million at March 31, 1997, an increase of
$2.8 million, or 5.4%, over June 30, 1996 levels. This increase
resulted primarily from management's election to pursue growth
in the deposit portfolio through marketing and pricing
strategies. Passbook and demand accounts increased
approximately $1.1 million, or 6.2%, and certificates of deposit
increased approximately $1.7 million, or 4.9%, as a result of
these efforts.
Borrowings totaled $19.1 million at March 31, 1997, an increase
of $4.5 million, or 31.3%, over the total at June 30, 1996. The
increase was utilized to partially fund the growth in loan
portfolio.
The Corporation's total shareholders' equity amounted to $14.3
million at March 31, 1997, a decrease of $4.9 million, or 25.6%,
from June 30, 1996 levels. The decrease resulted primarily from
a $3.00 per share, or $4.2 million return of capital
distribution paid in 1996, coupled with regular dividends
totaling $474,000, which were partially offset by net earnings
of $501,000 and a $27,000 decline in unrealized losses 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 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 March 31, 1997, the Savings Bank's tangible and core capital
totaled $12.5 million, or 14.0%, of adjusted total assets, which
exceeded the minimum tangible and core capital requirements of
$1.3 million and $2.7 million by $12.7 million and $11.3
million, respectively. The Savings Bank's risk-based capital of
$12.9 million, or 27.0% of risk-weighted assets, exceeded the
current 8% requirement by $9.1 million.
Comparison of Operating Results for the Nine Month Periods Ended
- ----------------------------------------------------------------
March 31, 1997 and 1996
- ----------------------
General
- -------
Net earnings amounted to $501,000 for the nine months ended
March 31, 1997, a decrease of $153,000, or 23.4%, from the
$654,000 of net earnings reported for the same period in 1996.
11
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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, 1997 and 1996 (continued)
- -----------------------
The decline in earnings resulted primarily from a $351,000
charge recorded in the first quarter of fiscal 1997 reflecting a
special assessment to recapitalize the Savings Association
Insurance Fund (SAIF), coupled with a $250,000 increase in
general, administrative and other expense, which were partially
offset by a $371,000 increase in net interest income, an $8,000
increase in other income and a $65,000 decrease in the provision
for federal income taxes.
Net Interest Income
- -------------------
Net interest income increased by $371,000, or 19.1%, for the
nine months ended March 31, 1997, compared to the 1996 period.
Interest income on loans increased by $438,000, or 18.2%, due
primarily to a $5.7 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 $485,000, or 80.4%, due primarily to a $9.4 million increase
in the average balance outstanding. Interest income on
investment securities and interest-bearing deposits decreased by
$92,000, or 10.7%, due primarily to a decline in the average
yields available on short-term deposits.
Interest expense on deposits decreased by $104,000, or 5.9%, due
primarily to a 38 basis point decline in the cost of deposits
year-to-year, to 4.23% in 1997. Interest expense on borrowings
increased by $564,000 during the current period, due primarily
to a $12.2 million increase in weighted-average advances from
the Federal Home Loan Bank year-to-year.
As a result of the foregoing changes in interest income and
interest expense, net interest income increased by $371,000, or
19.1%, to a total of $2.3 million for the nine months ended
March 31, 1997. The interest rate spread amounted to
approximately 2.84% and 2.89% during the respective 1997 and
1996 periods, while the net interest margin amounted to 2.74%
and 2.82% in 1997 and 1996, respectively.
Provision for Losses on Loans
- -----------------------------
A provision for losses on loans is charged to earnings to bring
the total allowance for loan losses to a level considered
appropriate by management based on historical experience, the
volume and type of lending conducted by the Savings Bank, the
status of past due principal and interest payments, general
economic conditions, particularly as such conditions relate to
the Savings Bank's market area, and other factors related to the
collectibility of the Savings Bank's loan portfolio. As a
result of such analysis, management recorded an $11,000
provision for losses on loans during the nine month period ended
March 31, 1997. a decline of $4,000 from the comparable 1996
period. 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 $8,000, or 7.5%, for the nine months
ended March 31, 1997, compared to the same period in 1996, due
primarily an increase in service charges and fees on loans and
deposits.
12
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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, 1997 and 1996 (continued)
- -----------------------
General, Administrative and Other Expense
- -----------------------------------------
General, administrative and other expense increased by $601,000,
or 54.1%, during the nine month period ended March 31, 1997,
compared to the same period in 1996. This increase resulted
primarily from the $351,000 charge recorded in the first quarter
of fiscal 1997 attendant to the aforementioned SAIF
recapitalization. The deposit accounts of the Savings Bank and
of other savings associations are insured by the FDIC through
the SAIF. The reserves of the SAIF were 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 through 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 were required for healthy commercial banks
except for a $2,000 minimum fee.
Congress enacted legislation, the Deposit Insurance Funds Act of
1996, to recapitalize the SAIF and eliminate the significant
premium disparity. The recapitalization plan provided 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, which was charged to operations on
September 30, 1996 and paid in November 1996.
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.
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 associations on that date. The legislation
directs the Department of Treasury to make recommendations to
Congress by December 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.
13
<PAGE>
KENTUCKY FIRST BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Comparison of Operating Results for the Nine Month Periods Ended
- ----------------------------------------------------------------
March 31, 1997 and 1996 (continued)
- ----------------------
General, Administrative and Other Expense (continued)
- -----------------------------------------
Additionally, the increase in general, administrative and other
expense resulted from a $190,000, or 35.4%, increase in employee
compensation and benefits and an $87,000, or 28.6%, increase in
other operating expense. The increase in employee compensation
and benefits 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 an increase in costs related to increased
reporting requirements of a public stock company.
Federal Income Taxes
- --------------------
The provision for federal income taxes declined by $65,000, or
23.7%, for the nine month period ended March 31, 1997, as
compared to the same period in 1996. This decline resulted
primarily from the decrease in net earnings before taxes of
$218,000, or 23.5%. The effective tax rates were 29.4% and
29.5% for the nine month periods ended March 31, 1997 and 1996,
respectively.
Comparison of Operating Results for the Three Month Periods
- -----------------------------------------------------------
Ended March 31, 1997 and 1996
- -----------------------------
General
- -------
Net earnings amounted to $258,000 for the three months ended
March 31, 1997, a decrease of $37,000, or 12.5%, from the
$295,000 of net earnings reported for the same period in 1996.
The decrease in earnings resulted primarily from a $67,000
increase in general, administrative and other expense, which was
partially offset by $21,000 increase in net interest income and
a $13,000 decrease in the provision for federal income taxes.
Net Interest Income
- -------------------
Net interest income increased by $21,000, or 2.8%, for the three
months ended March 31, 1997, compared to the 1996 period.
Interest income on loans increased by $150,000, or 18.0%, due
primarily to a $6.8 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 $103,000, or 40.6%, due primarily to a $9.4 million increase
in the average balance outstanding. Interest income on
investment securities and interest-bearing deposits decreased by
$73,000, or 22.6%, due primarily to a decrease in the average
balances outstanding.
Interest expense on deposits increased by $22,000, or 4.0%, due
primarily to a $3.8 million increase in the weighted-average
balance of deposits outstanding year-to-year which was partially
offset by an approximate 28 basis point decline in the average
cost of deposits to 4.2% in fiscal 1997. Interest expense on
borrowings increased by $137,000 during the current period, due
primarily to a $10.2 million increase in weighted- average
advances from the Federal Home Loan Bank outstanding year-to-
year.
14
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 March 31, 1997 and 1996 (continued)
- -----------------------------
Net Interest Income (continued)
- ------------------
As a result of the foregoing changes in interest income and
interest expense, net interest income increased by $21,000, or
2.8%, to a total of $758,000 for the three months ended
March 31, 1997. The interest rate spread decreased to
approximately 2.84% from 2.86% during the respective 1997 and
1996 quarters, while the net interest margin amounted to
approximately 3.53% in 1997, as compared to 3.89% in 1996.
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 $3,000 provision
for losses on loans during the three month period ended March
31, 1997. There was no provision recorded during the three
months ended March 31, 1996. There can be no assurance that the
loan loss allowance of the Savings Bank will be adequate to
cover losses on nonperforming assets in the future.
Other Income
- ----------
Other income decreased by $1,000, or 2.6%, for the three months
ended March 31, 1997, compared to the same period in 1996.
General, Administrative and Other Expense
- -----------------------------------------
General, administrative and other expense increased by $67,000,
or 19.0%, for the three months ended March 31, 1997, as compared
to the same period in 1996. The increase resulted primarily
from a $60,000, or 34.7%, increase in employee compensation and
benefits. The increase in employee compensation and benefits
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, in addition
to a $29,000, or 31.9%, increase in other operating expense,
which were partially offset by a $27,000, or 93.1%, decrease in
federal deposit insurance premiums.
Federal Income Taxes
- --------------------
The provision for federal income taxes decreased by $13,000, or
10.2%, for the three month period ended March 31, 1997, as
compared to the same period in 1996. This decrease resulted
primarily from the decrease in net earnings before taxes. The
effective tax rates were 30.6% and 30.1% for the three month
periods ended March 31, 1997 and 1996, respectively.
15
<PAGE>
<PAGE>
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.
16<PAGE>
<PAGE>
KENTUCKY FIRST BANCORP, INC.
SIGNATURES
----------
In accordance with the requirements of the Exchange Act, the
registrant has caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Date: May 12, 1997 By: /s/Betty J. Long
-------------------------
Betty J. Long
President and Chief
Executive Officer
Date: May 12, 1997 By: /s/Robbie Cox
-------------------------
Robbie Cox
Chief Financial Officer
17
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 384
<INT-BEARING-DEPOSITS> 739
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 5,435
<INVESTMENTS-CARRYING> 30,180
<INVESTMENTS-MARKET> 29,547
<LOANS> 48,839
<ALLOWANCE> 378
<TOTAL-ASSETS> 88,923
<DEPOSITS> 54,566
<SHORT-TERM> 0
<LIABILITIES-OTHER> 959
<LONG-TERM> 19,072
<COMMON> 14
0
0
<OTHER-SE> 14,312
<TOTAL-LIABILITIES-AND-EQUITY> 88,923
<INTEREST-LOAN> 2,849
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<INTEREST-OTHER> 60
<INTEREST-TOTAL> 4,707
<INTEREST-DEPOSIT> 1,669
<INTEREST-EXPENSE> 2,390
<INTEREST-INCOME-NET> 2,317
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<EXPENSE-OTHER> 1,711
<INCOME-PRETAX> 710
<INCOME-PRE-EXTRAORDINARY> 501
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 501
<EPS-PRIMARY> .39
<EPS-DILUTED> .39
<YIELD-ACTUAL> 2.74
<LOANS-NON> 0
<LOANS-PAST> 128
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 881
<ALLOWANCE-OPEN> 367
<CHARGE-OFFS> 1
<RECOVERIES> 1
<ALLOWANCE-CLOSE> 378
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 378
</TABLE>
