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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 December 31, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to _______
Commission File Number: No. 1-13904
KENTUCKY FIRST BANCORP, INC.
_________________________________________________________________
(Exact name of small business issuer as specified in its charter)
Delaware 61-1281483
- ----------------------- -------------------
(State of other jurisdiction of Identification No.)
306 N. Main Street
Cynthiana, Kentucky 41031
- ----------------------------------------- -----------
(Address of principal executive offices) (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 February 4, 1997, the latest practicable date, 1,382,725
shares of the registrant's common stock, $0.01 par value, were
issued and outstanding.
Page 1 of 16 pages<PAGE>
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INDEX
Page
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PART I - FINANCIAL INFORMATION
Consolidated Statements of Financial Condition 3
Consolidated Statements of Earnings 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATIONS 9
PART II - OTHER INFORMATION 15
SIGNATURES 16
2
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KENTUCKY FIRST BANCORP, INC.
STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
<TABLE>
<CAPTION>
December 31, June 30,
1996 1996
------------ ------------
ASSETS
<S> <C> <C>
Cash and due from banks $ 412 $ 883
Interest-bearing deposits in other
financial institutions 514 643
--------- ---------
Total cash and cash equivalents 926 1,526
Investment securities available for sale -
at market 2,603 3,069
Investment securities - at amortized cost,
approximate market value of $11,187 and
$12,069 as of December 31, 1996 and
June 30, 1996 11,341 12,464
Mortgage-backed securities available for sale -
at market 3,464 4,135
Mortgage-backed securities - at cost,
approximate market value of $18,235 and $18,345
as of December 31, 1996 and June 30, 1996 18,538 19,042
Loans receivable - net 47,645 43,020
Office premises and equipment - at depreciated cost 1,348 1,361
Federal Home Loan Bank stock - at cost 947 738
Accrued interest receivable 553 517
Prepaid expenses and other assets 398 346
Deferred federal income taxes 111 79
------- -------
Total assets $87,874 $86,297
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $54,511 $51,778
Advances from the Federal Home Loan Bank 15,424 14,528
Other borrowed money 2,000 --
Accrued interest payable 163 71
Other liabilities 622 502
Accrued federal income taxes 87 162
------- -------
Total liabilities 72,807 67,041
Commitments - -
Shareholders' equity
Preferred stock - authorized 500,000 shares
of $.01 par value; no shares issued - -
Common stock, authorized 3,000,000 shares
of $.01 par value; 1,388,625 shares issued 14 14
Additional paid-in capital 9,185 13,351
Retained earnings - restricted 7,620 7,689
Less shares acquired by employee stock
ownership plan (1,018) (1,018)
Less shares acquired by management
recognition plan (730) (730)
Unrealized losses on securities designated as
available for sale, net of related tax effects (4) (50)
------- -------
Total shareholders' equity 15,067 19,256
------- -------
Total liabilities and shareholders' equity $87,874 $86,297
======= =======
</TABLE>
3
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KENTUCKY FIRST BANCORP, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except share data)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
December 31, December 31,
--------------------- --------------------
1996 1995 1996 1995
---------- --------- -------- --------
<S> <C> <C> <C> <C>
Interest income
Loans $1,865 $1,577 $ 957 $ 796
Mortgage-backed securities 731 349 363 227
Investment securities 486 346 237 199
Interest-bearing deposits and other 34 192 16 43
------ ------ ------ ------
Total interest income 3,116 2,464 1,573 1,265
Interest expense
Deposits 1,096 1,222 555 569
Borrowings 461 34 250 24
------ ------ ------ ------
Total interest expense 1,557 1,256 805 593
------ ------ ------ ------
Net interest income 1,559 1,208 768 672
Provision for losses on loans 8 15 4 7
------ ------ ------ ------
Net interest income after
provision for losses on
loans 1,551 1,193 764 665
Other income
Service charges 55 40 30 20
Other operating 23 29 11 15
------ ------ ------ ------
Total other income 78 69 41 35
General, administrative and other expense
Employee compensation and benefits 494 364 261 194
Occupancy and equipment 65 71 33 38
Federal deposit insurance premiums 409 61 29 30
Data processing 52 49 27 25
Other operating 271 211 132 132
------ ------ ------ ------
Total general, administrative
and other expense 1,291 756 482 413
------ ------ ------ ------
Earnings before income taxes 338 506 323 287
Federal income taxes
Current 151 150 151 71
Deferred (56) (3) (56) 2
------ ------ ------ ------
Total federal income taxes 95 147 95 73
------ ------ ------ ------
NET EARNINGS $ 243 $ 359 $ 228 $ 214
====== ====== ====== ======
EARNINGS PER SHARE $ .19 N/A $ .18 $ .17
====== ====== ====== ======
</TABLE>
4
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KENTUCKY FIRST BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended December 31,
(In thousands)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings for the period $ 243 $ 359
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 (7) (25)
Amortization of deferred loan origination fees (30) (30)
Depreciation and amortization 23 31
Provision for losses on loans 8 15
Federal Home Loan Bank stock dividends (29) (11)
Increase (decrease) in cash due to changes in:
Accrued interest receivable (36) (40)
Prepaid expenses and other assets (52) 333
Accrued interest payable 92 2
Other liabilities 120 (147)
Federal income taxes
Current (75) 89
Deferred (56) (3)
------ --------
Net cash provided by operating activities 201 573
Cash flows provided by (used in) investing activities:
Proceeds from maturity of investment securities 1,623 2,525
Purchase of investment securities designated as
held to maturity - (5,380)
Purchase of mortgage-backed securities designated
as held to maturity - (9,099)
Principal repayments on mortgage-backed securities 1,218 372
Loan principal repayments 7,018 4,603
Loan disbursements (11,621) (4,349)
Purchase of office premises and equipment (10) (2)
Purchase of Federal Home Loan Bank stock (180) -
------ --------
Net cash used in investing activities (1,952) (11,330)
Cash flows provided by financing activities:
Net decrease in deposits 2,733 (2,814)
Net proceeds from the issuance of common stock - 12,219
Proceeds from Federal Home Loan Bank advances 7,200 4,000
Repayment of Federal Home Loan Bank advances (6,304) (2,353)
Proceeds from notes payable 2,000 -
Dividends on common stock (4,478) -
------ --------
Net cash provided by (used in) financing
activities 1,151 11,052
------ --------
Net increase (decrease) in cash and cash equivalents (600) 295
Cash and cash equivalents at beginning of period 1,526 2,013
------ --------
Cash and cash equivalents at end of period $ 926 $ 2.308
====== ========
</TABLE>
5
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KENTUCKY FIRST BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the six months ended December 31,
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Federal income taxes $ 226 $ 78
====== ======
Interest on deposits and borrowings $1,465 $1,249
====== ======
Supplemental disclosure of noncash investing activities:
Unrealized gains on securities designated as
available for sale, net of related tax effects $ 46 $ (25)
====== ======
</TABLE>
6
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KENTUCKY FIRST BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three and six months ended December 31, 1996 and 1995
During fiscal 1995, the Board of Directors of First Federal
Savings Bank (the Savings Bank) adopted a plan of conversion (the
Plan) whereby the Savings Bank would convert to the stock form of
ownership (the Conversion), followed by the issuance of all of
the Savings Bank's outstanding stock to a newly formed holding
company, Kentucky First Bancorp, Inc. (the Corporation), and the
issuance of common shares of the Corporation to subscribing
members of the Savings Bank. The conversion to the stock form of
ownership was completed on August 28, 1995, culminating in the
Corporation's issuance of 1,388,625 common shares. 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 six and
three month periods ended December 31, 1996 and 1995 are not
necessarily indicative of the results which may be expected for
an entire fiscal year.
2. Principles of Consolidation
___________________________
The accompanying consolidated financial statements include the
accounts of the Corporation and the Savings Bank. All
significant intercompany items have been eliminated.
3. Earnings Per Share
__________________
Earnings per share is based upon the weighted-average shares
outstanding during the period plus those stock options that are
dilutive, less shares in the ESOP that are unallocated and not
committed to be released. Weighted-average common shares deemed
outstanding, which gives effect to 101,832 unallocated ESOP
shares, totaled 1,286,793 for each of the six and three month
periods ended December 31, 1996. Weighted-average common shares
deemed outstanding, which gives effect to 111,090 unallocated
ESOP shares, totaled 1,277,535 for the three month period ended
December 31, 1995. There is no dilutive effect associated with
the Corporation's stock option plan.
The provisions of Accounting Principles Board Opinion No. 15
"Earnings Per Share" are not applicable to the six month period
ended December 31, 1995, as the Corporation had not issued any
common stock prior to its initial offering in August 1995.
7
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KENTUCKY FIRST BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the three and six months ended December 31, 1996 and 1995
4. Effects of Recent Accounting Pronouncements
-------------------------------------------
In October 1995, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No.
123, "Accounting for Stock-Based Compensation", establishing
financial accounting and reporting standards for stock-based
employee compensation plans. SFAS No. 123 encourages all
entities to adopt a new method of accounting to measure
compensation cost of all employee stock compensation plans based
on the estimated fair value of the award at the date it is
granted. Companies are, however, allowed to continue to measure
compensation cost for those plans using the intrinsic value based
method of accounting, which generally does not result in
compensation expense recognition for most plans. Companies that
elect to remain with the existing accounting are required to
disclose in a footnote to the financial statements pro forma net
earnings and, if presented, earnings per share, as if SFAS No.
123 had been adopted. The accounting requirements of SFAS No.
123 are effective for transactions entered into during fiscal
years that begin after December 15, 1995; however, companies are
required to disclose information for awards granted in their
first fiscal year beginning after December 15, 1994. Management
has determined that the Corporation will continue to account for
stock-based compensation pursuant to Accounting Principles Board
Opinion No. 25, and therefore the provisions of SFAS No. 123 will
have no effect on its consolidated financial condition or results
of operations.
In June 1996, the FASB issued SFAS No. 125, "Accounting for
Transfers of Financial Assets, Servicing Rights, and
Extinguishment of Liabilities", that provides accounting guidance
on transfers of financial assets, servicing of financial assets,
and extinguishment of liabilities. SFAS No. 125 introduces an
approach to accounting for transfers of financial assets that
provides a means of dealing with more complex transactions in
which the seller disposes of only a partial interest in the
assets, retains rights or obligations, makes use of special
purpose entities in the transaction, or otherwise has continuing
involvement with the transferred assets. The new accounting
method, the financial components approach, provides that the
carrying amount of the financial assets transferred be allocated
to components of the transaction based on their relative fair
values. SFAS No. 125 provides criteria for determining whether
control of assets has been relinquished and whether a sale has
occurred. If the transfer does not qualify as a sale, it is
accounted for as a secured borrowing. Transactions subject to
the provisions of SFAS No. 125 include, among others, transfers
involving repurchase agreements, securitizations of financial
assets, loan participations, factoring arrangements, and
transfers of receivables with recourse.
An entity that undertakes an obligation to service financial
assets recognizes either a servicing asset or liability for the
servicing contract (unless related to a securitization of assets,
and all the securitized assets are retained and classified as
held-to-maturity). A servicing asset or liability that is
purchased or assumed is initially recognized at its fair value.
Servicing assets and liabilities are amortized in proportion to
and over the period of estimated net servicing income or net
servicing loss and are subject to subsequent assessments for
impairment based on fair value.
SFAS No. 125 provides that a liability is removed from the
balance sheet only if the debtor either pays the creditor and is
relieved of its obligation for the liability or is legally
released from being the primary obligor.
SFAS No. 125 is effective for transfers and servicing of
financial assets and extinguishment of liabilities occurring
after December 31, 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.
8<PAGE>
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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, legislative changes with respect
to the federal thrift charter and the effect of certain
accounting pronouncements.
Discussion of Financial Condition Changes from June 30, 1996 to
December 31, 1996
_______________________________________________________________
At December 31, 1996, the Corporation's consolidated total assets
amounted to $87.9 million, an increase of $1.6 million, or 1.8%,
from the $86.3 million of total assets at June 30, 1996. The
increase in assets consisted primarily of an increase in loans
receivable, partially offset by decreases in liquid assets and
mortgage-backed securities, and was financed by an increase in
the deposit portfolio of $2.7 million, an increase of $896,000 in
advances from the Federal Home Loan Bank and an increase of $2.0
million in other borrowed money, which were partially offset by a
decline in shareholders' equity of $4.2 million.
Liquid assets (i.e. cash, interest-bearing deposits and
investment securities) decreased by $2.2 million over the six
month period, to a total of $14.9 million at December 31, 1996,
as investment securities totaling $1.6 million matured during the
quarter. Regulatory liquidity amounted to 12.8%, at December 31,
1996.
Loans receivable increased by $4.6 million, or 10.8%, during the
six month period, to a total of $47.6 million at December 31,
1996. Loan disbursements amounted to $11.6 million and were
partially offset by principal repayments of $7.0 million. Loan
disbursements increased by $7.3 million, or 167.2%, during the
1996 six month period as compared to the comparable period in
1995. The growth in the loan portfolio consisted primarily of
one- to four-family residential fixed-rate loans. The allowance
for loan losses totaled $374,000 at December 31, 1996, as
compared to $367,000 at June 30, 1996. Nonperforming loans
totaled $45,000 at December 31, 1996, as compared to $122,000 at
June 30, 1996. The decline in nonperforming loans resulted
primarily from a $74,000 loan which was returned to performing
status during the period. The allowance for loan losses
represented 831.1% of nonperforming loans as of December 31, 1996
and 300.8% at June 30, 1996. Although management believes that
its allowance for loan losses at December 31, 1996 is adequate
based upon facts and circumstances available to it, there can be
no assurances that additions to such allowance will not be
necessary in future periods, which could adversely affect the
Corporation's results of operations.
Deposits totaled $54.5 million at December 31, 1996, an increase
of $2.7 million, or 5.3%, over June 30, 1996 levels. During the
current quarter, management elected to pursue growth in the
deposit portfolio through marketing and pricing strategies. As a
result, the deposit portfolio increased by $4.9 million, or 9.9%,
during the quarter, consisting primarily of $2.0 million in
passbook and demand accounts and approximately $2.1 million in
18-month fixed-rate certificates bearing interest at 5.90%.
9
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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
December 31, 1996 (continued)
_______________________________________________________________
Borrowings totaled $17.4 million at December 31, 1996, an
increase of $2.9 million, or 19.9%, over the total at June 30,
1996. The increase was comprised of an $896,000 increase in
advances from the Federal Home Loan Bank, and a $2.0 million
short-term note utilized to partially fund the return of capital
distribution.
The Corporation's total shareholders' equity amounted to $15.1
million at December 31, 1996, a decrease of $4.2 million, or
21.8%, from June 30, 1996 levels. The decrease resulted
primarily from a $3.00 per share, or $4.2 million return of
capital distribution, coupled with regular dividends totaling
$312,000, which were partially offset by net earnings of $243,000
and a $46,000 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 December 31, 1996, the Savings Bank's tangible and core
capital totaled $15.9 million, or 18.1%, of adjusted total
assets, which exceeded the minimum tangible and core capital
requirements of $1.3 million and $2.6 million by $14.6 million
and $13.3 million, respectively. The Savings Bank's risk-based
capital of $16.3 million, or 34.4% of risk-weighted assets,
exceeded the current 8% requirement by $12.5 million.
Comparison of Operating Results for the Six Month Periods Ended
December 31, 1996 and 1995
_______________________________________________________________
General
_______
Net earnings amounted to $243,000 for the six months ended
December 31, 1996, a decrease of $116,000, or 32.3%, from the
$359,000 of net earnings reported for the same period in 1995.
The decline in earnings resulted primarily from a $351,000 charge
recorded in the first quarter of fiscal 1997 reflecting a special
assessment to recapitalize the Savings Association Insurance Fund
(SAIF), coupled with a $184,000 increase in general,
administrative and other expense, which were partially offset by
a $351,000 increase in net interest income, a $9,000 increase in
other income and a $52,000 decrease in the provision for federal
income taxes.
Net Interest Income
___________________
Net interest income increased by $351,000, or 29.1%, for the six
months ended December 31, 1996, compared to the 1995 period.
Interest income on loans increased by $288,000, or 18.3%, due
primarily to a $5.3 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 $382,000, or 109.5%, due primarily to a $12.5 million increase
in the average balance outstanding. Interest income on
investment securities and interest-bearing deposits decreased by
$18,000, or 3.3%, due primarily to a decline in the average
yields available on short-term deposits. The increases in
interest-earning assets and corresponding increase in interest
income primarily reflect management's deployment of proceeds from
the Corporation's common stock offering.
10
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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, 1996 and 1995 (continued)
_______________________________________________________________
Net Interest Income (continued)
___________________
Interest expense on deposits decreased by $126,000, or 10.3%, due
primarily to a 54 basis point decline in the cost of deposits
year-to-year, to 4.22% in 1996. Interest expense on borrowings
increased by $427,000 during the current period, due primarily to
a $14.0 million increase in advances from the Federal Home Loan
Bank.
As a result of the foregoing changes in interest income and
interest expense, net interest income increased by $351,000, or
29.1%, to a total of $1.6 million for the six months ended
December 31, 1996. The interest rate spread amounted to
approximately 2.86% and 2.91% during the respective 1996 and 1995
periods, while the net interest margin remained constant at
approximately 3.73% in 1996 and 1995.
Provision for Losses on Loans
_____________________________
A provision for losses on loans is charged to earnings to bring
the total allowance for loan losses to a level considered
appropriate by management based on historical experience, the
volume and type of lending conducted by the Savings Bank, the
status of past due principal and interest payments, general
economic conditions, particularly as such conditions relate to
the Savings Bank's market area, and other factors related to the
collectibility of the Savings Bank's loan portfolio. As a result
of such analysis, management recorded an $8,000 provision for
losses on loans during the six month period ended December 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 increased by $9,000, or 13.0%, for the six months
ended December 31, 1996, compared to the same period in 1995, due
primarily an increase in service charges and fees on loans and
deposits.
General, Administrative and Other Expense
_________________________________________
General, administrative and other expense increased by $535,000,
or 70.8%, during the six month period ended December 31, 1996,
compared to the same period in 1995. 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
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 Six Month Periods Ended
December 31, 1996 and 1995 (continued)
_______________________________________________________________
General, Administrative and Other Expense (continued)
_________________________________________
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. A continuation of this premium disparity
could have had a negative competitive impact on the Savings Bank
and other institutions with SAIF deposits.
Congress enacted legislation, the Deposit Insurance Funds Act of
1996, to recapitalize the SAIF and eliminate the significant
premium disparity. The recapitalization plan 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.
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 March 31, 1997 for the establishment of a single
charter for banks and thrifts. The Savings Bank cannot predict
what the effect of this legislation will be on the Savings Bank.
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 Six Month Periods Ended
December 31, 1996 and 1995 (continued)
_______________________________________________________________
General, Administrative and Other Expense (continued)
_________________________________________
Additionally, the increase in general, administrative and other
expense resulted from a $130,000, or 35.7%, increase in employee
compensation and benefits and a $60,000, or 28.4%, 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. The special
one-time assessment to recapitalize the SAIF is expected to cause
federal deposit insurance premiums to be significantly reduced in
future quarters, beginning January 1, 1997.
Federal Income Taxes
____________________
The provision for federal income taxes declined by $52,000, or
35.4%, for the six month period ended December 31, 1996, as
compared to the same period in 1995. This decline resulted
primarily from the decrease in net earnings before taxes of
$168,000, or 33.2%. The effective tax rates were 28.1% and 29.1%
for the six month periods ended December 31, 1996 and 1995,
respectively.
Comparison of Operating Results for the Three Month Periods Ended
December 31, 1996 and 1995
_________________________________________________________________
General
_______
Net earnings amounted to $228,000 for the three months ended
December 31, 1996, an increase of $14,000, or 6.5%, over the
$214,000 of net earnings reported for the same period in 1995.
The increase in earnings resulted primarily from a $96,000
increase in net interest income and a $6,000 increase in other
income, which were partially offset by a $69,000 increase in
general, administrative and other expense and a $22,000 increase
in the provision for federal income taxes.
Net Interest Income
___________________
Net interest income increased by $96,000, or 14.3%, for the three
months ended December 31, 1996, compared to the 1995 period.
Interest income on loans increased by $161,000, or 20.2%, due
primarily to a $6.5 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 $136,000, or 59.9%, due primarily to a $10.2 million increase
in the average balance outstanding. Interest income on
investment securities and interest-bearing deposits increased by
$11,000, or 4.5%, due primarily to an increase in the average
balances outstanding.
13
<PAGE>
<PAGE>
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, 1996 and 1995 (continued)
_______________________________________________________________
Net Interest Income (continued)
___________________
Interest expense on deposits decreased by $14,000, or 2.5%, due
primarily to an approximate 24 basis point decline in the average
cost of deposits to 4.26% in fiscal 1996, which was partially
offset by a $1.6 million increase in the weighted-average balance
of deposits outstanding year-to-year. Interest expense on
borrowings increased by $226,000 during the current period, due
primarily to a $14.8 million increase in advances from the
Federal Home Loan Bank.
As a result of the foregoing changes in interest income and
interest expense, net interest income increased by $96,000, or
14.3%, to a total of $768,000 for the three months ended
December 31, 1996. The interest rate spread decreased to
approximately 2.81% from 3.01% during the respective 1996 and
1995 quarters, while the net interest margin amounted to
approximately 3.65% in 1996, as compared to 3.99% in 1995.
Provision for Losses on Loans
_____________________________
A provision for losses on loans is charged to earnings to bring
the total allowance for loan losses to a level considered
appropriate by management based on historical experience, the
volume and type of lending conducted by the Savings Bank, the
status of past due principal and interest payments, general
economic conditions, particularly as such conditions relate to
the Savings Bank's market area, and other factors related to the
collectibility of the Savings Bank's loan portfolio. As a result
of such analysis, management recorded a $4,000 provision for
losses on loans during the three month period ended December 31,
1996, as compared to a $7,000 provision recorded during the three
months ended December 31, 1995. 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 17.1%, for the three months
ended December 31, 1996, compared to the same period in 1995, due
primarily an increase in service charges and fees on loans and
deposits.
General, Administrative and Other Expense
_________________________________________
General, administrative and other expense increased by $69,000,
or 16.7%, for the three months ended December 31, 1996, as
compared to the same period in 1995.
The increase resulted primarily from a $67,000, or 34.5%,
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.
Federal Income Taxes
____________________
The provision for federal income taxes increased by $22,000, or
30.1%, for the three month period ended December 31, 1996, as
compared to the same period in 1995. This increase resulted
primarily from the increase in net earnings before taxes. The
effective tax rates were 29.4% and 25.4% for the three month
periods ended December 31, 1996 and 1995, respectively.
14
<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
---------------------------------------------------
On November 6, 1996, the Annual Meeting of the
Corporation's Shareholders was held. Two directors
nominated were elected to terms expiring in 1999 by the
following votes:
William D. Morris
For: 1,203,006 Withheld: 710
G. Bernard Midden, Jr.
For: 1,199,806 Withheld: 3,910
Item 5. Other Information
_________________
None
Item 6. Exhibits and Reports on Form 8-K
________________________________
Exhibits:
Exhibit 27 Financial Data Schedule.
15<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: February 10, 1997 By: /s/Betty J. Long
-------------------------
Betty J. Long
President and Chief
Executive Officer
Date: February 10, 1997 By: /s/Robbie Cox
-------------------------
Robbie Cox
Chief Financial Officer
15
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