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FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1999
------------------
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 No. 1-13904
KENTUCKY FIRST BANCORP, INC.
- ----------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 61-1281483
- ------------------- ---------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
306 N. Main Street
Cynthiana, Kentucky 41031
- -------------------- ---------------
(Address of principal (Zip Code)
executive office)
Issuer'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
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As of February 7, 2000, the latest practicable date, 1,111,697
shares of the registrant's common stock, $.01 par value per
share, were issued and outstanding.
Transitional small business disclosure format (check one):
Yes No X
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Page 1 of 20 pages
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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 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
PART II - OTHER INFORMATION 18
SIGNATURES 20
2
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ITEM I FINANCIAL STATEMENTS
KENTUCKY FIRST BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1999 1999
ASSETS
<S> <C> <C>
Cash and due from banks $ 937 $ 635
Interest-bearing deposits in other
financial institutions 481 809
------- -------
Total cash and cash equivalents 1,418 1,444
Investment securities available for sale - at market 7,668 7,297
Investment securities held to maturity - at
amortized cost, approximate market value of $1,499
and $1,545 as of December 31, 1999 and June 30,
1999, respectively 1,496 1,531
Mortgage-backed securities available for sale -
at market 5,767 6,579
Mortgage-backed securities held to maturity - at
amortized cost, approximate market value of $8,343
and $9,613 as of December 31, 1999 and June 30,
1999, respectively 8,624 9,780
Loans receivable - net 46,425 47,801
Office premises and equipment - at depreciated cost 1,239 1,271
Federal Home Loan Bank stock - at cost 1,256 1,212
Accrued interest receivable 390 409
Prepaid expenses and other assets 496 479
Prepaid federal income taxes 213 181
Deferred federal income tax assets 126 160
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Total assets $75,118 $78,144
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $54,287 $56,628
Advances from the Federal Home Loan Bank 6,630 7,003
Accrued interest payable 92 91
Other liabilities 697 590
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Total liabilities 61,706 64,312
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 9,300 9,300
Retained earnings - restricted 8,601 8,447
Less shares acquired by stock benefit plans (1,024) (1,024)
Less 256,928 and 214,658 shares of treasury stock -
at cost, as of December 31, 1999 and June 30,
1999, respectively (3,265) (2,791)
Accumulated comprehensive income, unrealized
losses on securities designated as available for
sale, net of related tax effects (214) (114)
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Total shareholders' equity 13,412 13,832
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Total liabilities and shareholders' equity $75,118 $78,144
======= =======
</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,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Interest income
Loans $1,883 $1,988 $ 927 $ 992
Mortgage-backed securities 499 558 241 268
Investment securities 251 273 126 129
Interest-bearing deposits and other 58 54 29 27
------ ------ ------ ------
Total interest income 2,691 2,873 1,323 1,416
Interest expense
Deposits 1,126 1,254 557 619
Borrowings 187 222 98 98
------ ------ ------ ------
Total interest expense 1,313 1,476 655 717
------ ------ ------ ------
Net interest income 1,378 1,397 668 699
Provision for losses on loans 18 15 9 7
------ ------ ------ ------
Net interest income after provision
for losses on loans 1,360 1,382 659 692
Other income
Gain on investment securities transactions - 5 - 5
Service charges on deposit accounts 83 65 43 32
Other operating 21 19 9 9
------ ------ ------ ------
Total other income 104 89 52 46
General, administrative and other expense
Employee compensation and benefits 501 518 256 274
Occupancy and equipment 84 83 43 41
Federal deposit insurance premiums 17 17 9 8
Data processing 72 63 35 30
Other operating 193 204 96 112
------ ------ ------ ------
Total general, administrative and
other expense 867 885 439 465
------ ------ ------ ------
Earnings before income taxes 597 586 272 273
Federal income taxes
Current 84 139 (13) 58
Deferred 86 29 89 22
------ ------ ------ ------
Total federal income taxes 170 168 76 80
------ ------ ------ ------
NET EARNINGS $ 427 $ 418 $ 196 $ 193
====== ====== ====== ======
EARNINGS PER SHARE
Basic $ .39 $ .37 $ .18 $ .17
====== ====== ====== ======
Diluted $ .39 $ .35 $ .18 $ .16
====== ====== ====== ======
</TABLE>
4
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KENTUCKY FIRST BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net earnings $ 427 $ 418 $ 196 $ 193
Other comprehensive income, net of tax:
Unrealized holding losses on securities
during the period, net of tax of
$52, $4, $42, $1, for the respective
periods (100) (7) (81) (2)
------ ------ ------ ------
Comprehensive income $ 327 $ 411 $ 115 $ 191
====== ====== ====== ======
Accumulated comprehensive loss $ (214) $ (84) $ (214) $ (84)
====== ====== ====== ======
</TABLE>
5
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KENTUCKY FIRST BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended December 31,
(In thousands)
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Cash flows from operating activities:
Net earnings for the period $ 427 $ 418
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 (4) (7)
Depreciation and amortization 41 43
Amortization of deferred loan origination fees (8) (14)
Provision for losses on loans 18 15
Gain on investment securities transactions - (5)
Federal Home Loan Bank stock dividends (44) (41)
Increase (decrease) in cash due to changes in:
Accrued interest receivable 19 87
Prepaid expenses and other assets (17) 13
Accrued interest payable 1 (20)
Other liabilities 107 123
Federal income taxes
Current (32) (58)
Deferred 86 29
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Net cash provided by operating activities 594 583
Cash flows provided by (used in) investing activities:
Proceeds from maturity of investment securities 59 2,182
Purchase of investment securities designated as
available for sale (486) (3,974)
Purchase of mortgage-backed securities designated as
available for sale - (1,013)
Principal repayments on mortgage-backed securities 1,911 2,796
Purchase of loans (1,181) (310)
Loan principal repayments 6,099 6,621
Loan disbursements (3,552) (4,581)
Purchase of office premises and equipment (9) (5)
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Net cash provided by investing activities 2,841 1,716
Cash flows provided by (used in) financing activities:
Net increase (decrease) in deposits (2,341) 1,505
Proceeds from Federal Home Loan Bank advances 3,332 4,400
Repayment of Federal Home Loan Bank advances (3,705) (7,704)
Purchase of treasury stock (474) (631)
Proceeds from exercise of stock options - 48
Dividends on common stock (273) (284)
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Net cash used in financing activities (3,461) (2,666)
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Net decrease in cash and cash equivalents (26) (367)
Cash and cash equivalents at beginning of period 1,444 1,957
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Cash and cash equivalents at end of period $ 1,418 $ 1,590
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</TABLE>
6
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KENTUCKY FIRST BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the six months ended December 31,
(In thousands)
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Federal income taxes $ 116 $ 198
====== =======
Interest on deposits and borrowings $1,312 $ 1,497
====== =======
Supplemental disclosure of noncash investing activities:
Unrealized losses on securities designated as
available for sale, net of related tax effects $ (100) $ (7)
====== =======
</TABLE>
7
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KENTUCKY FIRST BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the six months ended December 31, 1999 and 1998
1. Basis of Presentation
---------------------
The accompanying unaudited consolidated financial statements
were prepared in accordance with instructions for Form 10-QSB
and, therefore, do not include information or footnotes
necessary for a complete presentation of consolidated financial
position, results of operations and cash flows in conformity
with generally accepted accounting principles. Accordingly,
these financial statements should be read in conjunction with
the consolidated financial statements and notes thereto of
Kentucky First Bancorp, Inc. (the "Corporation") included in the
Annual Report on Form 10-KSB for the year ended June 30, 1999.
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, 1999 are not necessarily
indicative of the results which may be expected for an entire
fiscal year.
2. Principles of Consolidation
---------------------------
The accompanying consolidated financial statements include the
accounts of the Corporation and First Federal Savings Bank (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, which gives
effect to 65,935 unallocated ESOP shares, totaled 1,087,498 and
1,073,111 for the six and three month periods ended December 31,
1999. Weighted-average common shares deemed outstanding, which
gives effect to 80,153 unallocated ESOP shares, totaled
1,133,370 and 1,116,944, for the six and three month periods
ended December 31, 1998.
Diluted earnings per share is computed taking into consideration
common shares outstanding and dilutive potential common shares
to be issued under the Corporation's stock option plan.
Weighted-average common shares deemed outstanding for purposes
of computing diluted earnings per share totaled 1,104,932 and
1,082,123 for the six and three month periods ended December 31,
1999 and totaled 1,177,251 and 1,155,584 for the six and three
month periods ended December 31, 1998, respectively.
Incremental shares related to the assumed exercise of stock
options included in the calculation of diluted earnings per
share totaled 17,434 and 9,012 for the six and three month
periods ended December 31, 1999 and totaled 43,881 and 38,640
for the six and three month periods ended December 31, 1998.
8
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KENTUCKY FIRST BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the six and three months ended December 31, 1999 and 1998
4. Effects of Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (the
"FASB") issued Statement of Financial Accounting Standards
("SFAS") 133, "Accounting for Derivative Instruments and
Hedging Activities," which requires entities to recognize all
derivatives in their financial statements as either assets or
liabilities measured at fair value. SFAS No. 133 also
specifies new methods of accounting for hedging transactions,
prescribes the items and transactions that may be hedged, and
specifies detailed criteria to be met to qualify for hedge
accounting.
The definition of a derivative financial instrument is
complex, but in general, it is an instrument with one or more
underlyings, such as an interest rate or foreign exchange
rate, that is applied to a notional amount, such as an amount
of currency, to determine the settlement amount(s). It
generally requires no significant initial investment and can
be settled net or by delivery of an asset that is readily
convertible to cash. SFAS No. 133 applies to derivatives
embedded in other contracts, unless the underlying of the
embedded derivative is clearly and closely related to the host
contract.
SFAS No. 133, as amended by SFAS No. 137, is effective for
fiscal years beginning after June 15, 2000. On adoption,
entities are permitted to transfer held-to-maturity debt
securities to the available-for-sale or trading category
without calling into question their intent to hold other debt
securities to maturity in the future. SFAS No. 133 is not
expected to have a material impact on the Corporation's
financial statements.
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
and adequacy of the allowance for losses on loans and the
effect of certain recent accounting pronouncements.
Discussion of Financial Condition Changes from June 30, 1999 to
- ---------------------------------------------------------------
December 31, 1999
- -----------------
At December 31, 1999, the Corporation's consolidated total
assets amounted to $75.1 million, a decrease of $3.0 million, or
3.9%, from the total at June 30, 1999. The decrease in assets
resulted from a decrease of $2.3 million in deposits, a decrease
of $373,000 in advances from the Federal Home Loan Bank, and a
decline in shareholders' equity of $420,000, which were
partially offset by an increase of $108,000 in other
liabilities.
Liquid assets (i.e. cash, interest-bearing deposits and
investment securities) increased by $310,000, or 3.0%, over the
six month period, to a total of $10.6 million at December 31,
1999. Mortgage-backed securities totaled $14.4 million at
December 31, 1999, a decrease of $2.0 million, or 12.0%, from
June 30, 1999 levels. The decrease in mortgage-backed
securities resulted primarily from principal repayments.
Loans receivable decreased by $1.4 million, or 2.9%, during the
six month period, to a total of $46.4 million at December 31,
1999. Loan disbursements and loan purchases amounted to $4.7
million and were offset by principal repayments of $6.1 million.
The allowance for loan losses totaled $422,000 at December 31,
1999, as compared to $414,000 at June 30, 1999. Nonperforming
loans totaled $270,000 at December 31, 1999, as compared to
$268,000 at June 30, 1999. The allowance for loan losses
represented 156.3% of nonperforming loans as of December 31,
1999 and 154.5% at June 30, 1999. Although management believes
that its allowance for loan losses at December 31, 1999 is
adequate based upon the available facts and circumstances, there
can be no assurance that additions to such allowance will not be
necessary in future periods, which could adversely affect the
Corporation's results of operations.
Deposits totaled $54.3 million at December 31, 1999, a decrease
of $2.3 million, or 4.1%, from June 30, 1999 levels. During the
current period, management has not attempted to match premium
deposit rates offered by certain competitors and has instead
continued its conservative pricing strategy with respect to
deposit accounts during the current interest rate environment.
Advances from the Federal Home Loan Bank totaled $6.6 million at
December 31, 1999, a decrease of $373,000, or 5.3%, from the
total at June 30, 1999.
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, 1999 to
- ---------------------------------------------------------------
December 31, 1999 (continued)
- -----------------
The Corporation's shareholders' equity amounted to $13.4 million
at December 31, 1999, a decrease of $420,000, or 3.0%, from June
30, 1999 levels. The decrease resulted from purchases of
treasury stock totaling $474,000, dividends paid on common stock
totaling $273,000 and additional unrealized losses on securities
designated as available for sale of $100,000, which were
partially offset by net earnings of $427,000 during the six
months ended December 31, 1999.
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, 1999, the Savings Bank's tangible and core
capital totaled $12.4 million, or 16.5%, of adjusted total
assets, which exceeded the minimum tangible and core capital
requirements of $1.1 million and $3.0 million by $11.3 million
and $9.4 million, respectively. The Savings Bank's risk-based
capital of $12.7 million, or 28.8% of risk-weighted assets,
exceeded the current 8% of risk-weighted assets requirement by
$9.2 million.
Comparison of Operating Results for the Six Month Periods Ended
- ---------------------------------------------------------------
December 31, 1999 and 1998
- --------------------------
General
- -------
Net earnings amounted to $427,000 for the six months ended
December 31, 1999, an increase of $9,000, or 2.2%, from the
$418,000 of net earnings reported for the six months ended
December 31, 1998. The increase in net earnings in the current
period was due to a $15,000 increase in other income and an
$18,000 decrease in general administrative and other expense,
which were partially offset by a $19,000 decrease in net
interest income, a $3,000 increase in the provision for losses
on loans, and a $2,000 increase in the provision for federal
income taxes.
Net Interest Income
- -------------------
Net interest income was $1.4 million for the six months ended
December 31, 1999, which represents a decrease of $19,000, or
1.4%, compared to the six month period ended December 31, 1998.
Total interest income decreased by $182,000, or 6.3%, due to a
$2.7 million, or 3.6%, decrease in the weighted-average balance
of interest-earning assets outstanding year to year and due to a
decrease in the average yield on interest-earning assets, from
7.48% to 7.27%. Interest income on loans decreased by $105,000,
or 5.3%, due to a $1.1 million, or 2.2%, decrease in the
weighted-average balance of loans outstanding year to year and
due to a decrease in the average yield on loans, from 8.18% to
7.92%.
Interest income on mortgage-backed securities decreased by
$59,000, or 10.6%, due to a $1.4 million, or 8.5%, decrease in
the weighted-average balance outstanding year to year and due to
a decrease in the average yield on mortgage-backed securities,
from 6.58% to 6.43%.
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, 1999 and 1998 (continued)
- --------------------------
Net Interest Income (continued)
- -------------------
Interest income on investment securities and interest-bearing
deposits decreased by $18,000, or 5.5%, due to a $207,000, or
1.8%, decrease in the weighted-average balance outstanding year
to year and due to a decrease in the average yield from 5.82% to
5.61%.
Total interest expense decreased by $163,000, or 11.0%, due to a
$2.3 million, or 3.6%, decrease in the weighted average balance
of interest-bearing liabilities outstanding year to year and due
to a decrease in the average cost of funds, from 4.56% to 4.21%.
Interest expense on deposits decreased by $128,000, or 10.2%,
due to a $1.2 million, or 2.1%, decrease in the weighted-average
balance of deposits outstanding year to year and due to a
decrease in the average cost of deposits, from 4.43% to 4.06%.
Interest expense on borrowings decreased by $35,000, or 15.8%,
due to a $1.1 million, or 13.8%, decrease in the
weighted-average balance of advances outstanding from the
Federal Home Loan Bank and due to a decrease in the average cost
of advances, from 5.46% to 5.35%.
As a result of the foregoing changes in interest income and
interest expense, net interest income decreased by $19,000, or
1.4%, to a total of $1.4 million for the six months ended
December 31, 1999, as compared to the six months ended December
31, 1998. The interest rate spread amounted to approximately
3.06% and 2.92% during the six month periods ended December 31,
1999 and 1998, respectively, while the net interest margin
amounted to approximately 3.72% and 3.64% during the six month
periods ended December 31, 1999 and 1998, 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 $18,000 and a
$15,000 provision for losses on loans during the six month
periods ended December 31, 1999 and 1998, respectively. 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 $15,000, or 16.9%, for the six months
ended December 31, 1999, compared to the six months ended
December 31, 1998, due to an $18,000, or 27.7%, increase in
service charges on deposit accounts and a $2,000, or 10.5%,
increase in other operating income, offset by the lack of any
gain or loss on investment securities transactions in the
current period compared to a gain of $5,000 in the previous year
period. The increase in service charges on deposit accounts was
due to an increase, during the early part of the six month
period ended December 31, 1999, in the monthly service charge
fee schedule on checking accounts.
12
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KENTUCKY FIRST BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Comparison of Operating Results for the Six Month Periods Ended
- ---------------------------------------------------------------
December 31, 1999 and 1998 (continued)
- --------------------------
General, Administrative and Other Expense
- -----------------------------------------
General, administrative and other expense decreased by $18,000,
or 2.0%, during the six months ended December 31, 1999,
compared to the six months ended December 31, 1998. The
decrease in general, administrative and other expense resulted
primarily from a $17,000, or 3.3%, decrease in employee
compensation and benefits and due to an $11,000, or 5.4%,
decrease in other operating expense offset by a $9,000, or
14.3%, increase in data processing expense.
The decrease in employee compensation and benefits was
primarily due to a decrease in expenses of the employee stock
benefit plan related to the reduced market value of the
Company's stock and due to the director retirement plan becoming
fully funded prior to the six month period ended December 31,
1999. The decrease in other operating expense is primarily due
to the reduction of external audit services and the elimination
of asset/liability consulting services. The increase in data
processing was primarily due to increased charges for on-line
services and ATM processing related to preparing computer
systems for the change to year 2000.
Federal Income Taxes
- --------------------
The provision for federal income taxes increased by $2,000, or
1.2%, for the six months ended December 31, 1999, as compared to
the six months ended December 31, 1998. The increase resulted
primarily from an increase in net earnings before taxes of
$11,000, or 1.9%. The effective tax rates were 28.5% and 28.7%
for the six month periods ended December 31, 1999 and 1998,
respectively.
Comparison of Operating Results for the Three Month Periods
- -----------------------------------------------------------
Ended December 31, 1999 and 1998
- --------------------------------
General
- -------
Net earnings amounted to $196,000 for the three months ended
December 31, 1999, an increase of $3,000, or 1.6%, from the
$193,000 of net earnings reported for the three months ended
December 31, 1998. The increase in net earnings in the current
period was due to a $6,000 increase in other income, a $26,000
decrease in general administrative and other expense and a
$4,000 decrease in the provision for federal income taxes, which
were partially offset by a $31,000 decrease in net interest
income and a $2,000 increase in the provision for losses on
loans.
Net Interest Income
- -------------------
Net interest income was $668,000 for the three months ended
December 31, 1999, which represents a decrease of $31,000, or
4.4%, compared to the three month period ended December 31,
1998. Total interest income decreased by $93,000, or 6.6%, due
to a $2.9 million, or 3.8%, decrease in the weighted-average
balance of interest-earning assets outstanding year to year and
due to a decrease in the average yield on interest-earning
assets, from 7.46% to 7.26%.
13
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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, 1999 and 1998 (continued)
- --------------------------------
Net Interest Income (continued)
- -------------------
Interest income on loans decreased by $65,000, or 6.6%, due to a
$1.4 million, or 2.9%, decrease in the weighted-average balance
of loans outstanding year to year and due to a decrease in the
average yield on loans, from 8.21% to 7.92%. Interest income on
mortgage-backed securities decreased by $27,000, or 10.1%, due
to a $1.6 million, or 9.5%, decrease in the weighted-average
balance outstanding year to year and due to a decrease in the
average yield on mortgage-backed securities, from 6.49% to
6.44%. Interest income on investment securities and interest-
bearing deposits decreased by $1,000, or .6%, due to a decrease
in the yield from 5.67% to 5.57% offset by a $66,000, or .6%,
increase in the weighted-average balance outstanding year to
year.
Total interest expense decreased by $62,000, or 8.6%, due to a
$2.2 million, or 3.4%, decrease in the weighted average balance
of interest-bearing liabilities outstanding year to year and due
to a decrease in the average cost of funds, from 4.48% to 4.25%.
Interest expense on deposits decreased by $62,000, or 10.0%, due
to a $2.0 million, or 3.5%, decrease in the weighted-average
balance of deposits outstanding year to year and due to a
decrease in the average cost of deposits, from 4.38% to 4.08%.
Interest expense on borrowings was level compared to the
previous year period due to a $185,000, or 2.5%, decrease in the
weighted-average balance of advances outstanding from the
Federal Home Loan Bank, offset by an increase in the average
cost of advances, from 5.27% to 5.51%.
As a result of the foregoing changes in interest income and
interest expense, net interest income decreased by $31,000, or
4.4%, to a total of $668,000 for the three months ended December
31, 1999, as compared to the three months ended December 31,
1998. The interest rate spread amounted to approximately 3.01%
and 2.98% during the three month periods ended December 31, 1999
and 1998, respectively, while the net interest margin amounted
to approximately 3.69% and 3.67% during the three month periods
ended December 31, 1999 and 1998, 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 a $9,000 and a
$7,000 provision for losses on loans during the three month
periods ended December 31, 1999 and 1998, respectively. 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.
14
<PAGE>
<PAGE>
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 December 31, 1999 and 1998 (continued)
- --------------------------------
Other Income
- ------------
Other income increased by $6,000, or 13.0%, for the three months
ended December 31, 1999, compared to the three months ended
December 31, 1998, due to an $11,000, or 34.4%, increase in
service charges on deposit accounts, offset by the lack of any
gain or loss on investment securities transactions during the
current period compared to a gain of $5,000 in the previous year
period. The increase in service charges on deposit accounts was
due to an increase, prior to the beginning of the three month
period ended December 31, 1999, in the monthly service charge
fee schedule on checking accounts.
General, Administrative and Other Expense
- -----------------------------------------
General, administrative and other expense decreased by $26,000,
or 5.6%, during the three months ended December 31, 1999,
compared to the three months ended December 31, 1998. The
decrease in general, administrative and other expense resulted
primarily from an $18,000, or 6.6%, decrease in employee
compensation and benefits and due to a $16,000, or 14.3%,
decrease in other operating expense offset by a $5,000, or
16.7%, increase in data processing expense.
The decrease in employee compensation and benefits was
primarily due to a decrease in expenses of the employee stock
benefit plan related to the reduced market value of the
Company's stock and due to the director retirement plan becoming
fully funded prior to the three month period ended December 31,
1999. The decrease in other operating expense is primarily due
to the reduction of external audit services and the elimination
of asset/liability consulting services. The increase in data
processing was primarily due to increased charges for on-line
services and ATM processing related to preparing computer
systems for the change to year 2000.
Federal Income Taxes
- --------------------
The provision for federal income taxes decreased by $4,000, or
5.0%, for the three months ended December 31, 1999, as compared
to the three months ended December 31, 1998. The decrease
resulted primarily from a decrease in the effective tax rates
coupled with a decrease in net earnings before taxes of $1,000,
or .4%. The effective tax rates were 27.9% and 29.3% for the
three month periods ended December 31, 1999 and 1998,
respectively.
15
<PAGE>
<PAGE>
KENTUCKY FIRST BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Year 2000 Compliance Matters
- ----------------------------
As with all providers of financial services, the Savings Bank's
operations are heavily dependent on information technology
systems. The Savings Bank addressed the potential problems
associated with the possibility that the computers that control
or operate the Bank's information technology system and
infrastructure may not be programmed to read four-digit date
codes and, upon arrival of the year 2000, may have recognized
the two-digit code "00" as the year 1900, causing systems to
fail to function or to generate erroneous data.
Of the systems that the Savings Bank had identified as mission-
critical, the most significant is the on-line core account
processing system that is performed by a third party service
provider, Intrieve, Inc. The Savings Bank experienced no
problems with the on-line system, or with other systems, related
to the year 2000 change. Management had developed an estimate
of expenses and lost income of $20,000 that were reasonably
likely to be incurred in connection with the efforts to achieve
compliance. The amount of expenses and lost income, as of
December 31, 1999, was approximately $18,000, with no additional
significant amount expected.
In addition to possible expense related to its own systems, the
Savings Bank could incur losses if loan payments are delayed due
to Year 2000 problems affecting any major borrowers in the
Savings Bank's primary market area. Because the Savings Bank's
loan portfolio is highly diversified with regard to individual
borrowers and types of businesses and the Savings Bank's primary
market area is not significantly dependent upon one employer or
industry, the Savings Bank does not expect any significant or
prolonged difficulties that will affect net earnings or cash
flow.
Financial Modernization
- -----------------------
On November 12, 1999, President Clinton signed into law
legislation which could have a far-reaching impact on the
financial services industry. The Gramm-Leach-Bliley ("G-L-B")
Act authorizes affiliations between banking, securities and
insurance firms and authorizes bank holding companies and
national banks to engage in a variety of new financial
activities. Among the new activities that will be permitted to
bank holding companies and national bank subsidiaries are
securities and insurance brokerage, securities underwriting and
certain forms of insurance underwriting. Bank holding companies
will have broader insurance underwriting powers than national
banks and may engage in merchant banking activities after the
adoption of implementing regulations. Merchant banking
activities may also become available to national bank
subsidiaries after five years. The Federal Reserve Board, in
consultation with the Department of Treasury, may approve
additional financial activities. The G-L-B Act, however,
prohibits future affiliations between existing unitary savings
and loan holding companies, like the Corporation, and firms
which are engaged in commercial activities and prohibits the
formation of new unitary holding companies.
16
<PAGE>
<PAGE>
KENTUCKY FIRST BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Financial Modernization (continued)
- -----------------------
The G-L-B Act imposes new requirements on financial institutions
with respect to customer privacy. The G-L-B Act generally
prohibits disclosure of customer information to non-affiliated
third parties unless the customer has been given the opportunity
to object and has not objected to such disclosure. Financial
institutions are further required to disclose their privacy
policies to customers annually. Financial institutions, however,
will be required to comply with state law if it is more
protective of customer privacy than the G-L-B Act. The G-L-B Act
directs the federal banking agencies, the National Credit Union
Administration, the Secretary of the Treasury, the Securities
and Exchange Commission and the Federal Trade Commission, after
consultation with the National Association of Insurance
Commissioners, to promulgate implementing regulations within six
months of enactment. The privacy provisions will become
effective six months thereafter.
The G-L-B Act contains significant revisions to the Federal Home
Loan Bank System. The G-L-B Act imposes new capital
requirements on the Federal Home Loan Banks and authorizes them
to issue two classes of stock with differing dividend rates and
redemption requirements. The G-L-B Act deletes the current
requirement that the Federal Home Loan Banks annually contribute
$300 million to pay interest on certain government obligations
in favor of a 20% of net earnings formula. The G-L-B Act
expands the permissible uses of Federal Home Loan Bank advances
by community financial institutions (under $500 million in
assets) to include funding loans to small businesses, small
farms and small agri-businesses. The G-L-B Act makes membership
in the Federal Home Loan Bank voluntary for federal savings
associations.
The G-L-B Act contains a variety of other provisions including a
prohibition against ATM surcharges unless the customer has first
been provided notice of the imposition and amount of the fee.
The G-L-B Act reduces the frequency of Community Reinvestment
Act examinations for smaller institutions and imposes certain
reporting requirements on depository institutions that make
payments to non-governmental entities in connection with the
Community Reinvestment Act. The G-L-B Act eliminates the SAIF
special reserve and authorizes a federal savings association
that converts to a national or state bank charter to continue to
use the term "federal" in its name and to retain any interstate
branches.
The Corporation is unable to predict the impact of the G-L-B Act
on its operations at this time. Although the G-L-B Act reduces
the range of companies with which the Corporation may affiliate,
it may facilitate affiliations with companies in the financial
services industry.
17
<PAGE>
<PAGE>
KENTUCKY FIRST BANCORP, INC.
PART II
ITEM 1. Legal Proceedings
-----------------
The Bank is party to a lawsuit captioned Charles Michael
Thompson and Beverly A. Thompson v. First Federal Savings Bank;
Trustcorp Mortgage Company; Blair Corporation Mortgage Bankers
filed in the Fayette Circuit Court, 4th Division, Commonwealth
of Kentucky. The suit alleges that in August 1997 the Thompsons
arranged for a first mortgage loan through Blair Corporation
Mortgage Bankers ("Blair"), such mortgage being subsequently
assigned to the Bank although all servicing of the loan was
still being handled by Blair. The suit further alleges that in
February 1999 the Thompsons refinanced the mortgage loan through
Blair and that such loan was assigned to Trustcorp although the
Thompsons' loan with the Bank was never paid off nor was the
related mortgage released. The suit is seeking a declaratory
judgment as to which mortgage represents the valid first
mortgage. The suit further seeks an order compelling the
institution not found to have the valid first lien to release
its mortgage. The Thompsons also seek money damages of an
unspecified amount. The Bank has referred this matter to its
counsel and to its insurance carrier. Although there
can be no assurance, the Bank does not anticipate that this
litigation will have a material impact on its operations.
The Bank is party to a lawsuit captioned Family Bank, FSB
----------------
and First Federal Savings Bank v. Oscar S. Blankenship a/k/a O.
- --------------------------------------------------------------
Sam Blankenship and Jenny Blankenship filed in the Johnson
- -------------------------------------
Circuit Court, Division No. II, Commonwealth of Kentucky. The
lawsuit is a collection action seeking recovery of three loans
of which the Bank has an interest in two. The suit also asks
for the court to sell the property securing the loans with the
proceeds to be used to repay all amounts owed. The defendants
filed an answer on February 3, 2000 making various counterclaims
alleging breach of contract, breach of fiduciary duty and
unspecified violations of the federal banking laws. The
defendants are seeking money damages (including punitive
damages) of an unspecified amount. Certain of the counterclaims
relate only to the one loan in which the Bank does not have any
interest. While the Bank does not believe there is any merit
in the counterclaims, it is having the answer evaluated by
counsel.
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 October 27, 1999, the Annual Meeting of the
Corporation's Shareholders was held. Two directors
nominated were elected to terms expiring in 2002 by
the following votes:
William D. Morris
For: 946,079 Withheld: 48,613
Russell M. Brooks
For: 945,079 Withheld: 49,613
18
<PAGE>
ITEM 5. Other Information
-----------------
None
ITEM 6. Exhibits and Reports on Form 8-K
--------------------------------
Reports on Form 8-K: None.
Exhibit 27: Financial Data Schedule for
the six months ended
December 31, 1999.
19
<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 7, 2000 By: /s/ Betty J. Long
----------------- ----------------------
Betty J. Long
President and Chief
Executive Officer
Date: February 7, 2000 By: /s/ Russell M. Brooks
----------------- ----------------------
Russell M. Brooks
Executive Vice President
and Financial Officer
20
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> DEC-31-1999
<CASH> 937
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<INVESTMENTS-HELD-FOR-SALE> 13,435
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<TOTAL-ASSETS> 75,118
<DEPOSITS> 54,287
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<LIABILITIES-OTHER> 789
<LONG-TERM> 6,630
0
0
<COMMON> 14
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<INCOME-PRETAX> 597
<INCOME-PRE-EXTRAORDINARY> 427
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<NET-INCOME> 427
<EPS-BASIC> .39
<EPS-DILUTED> .39
<YIELD-ACTUAL> 3.72
<LOANS-NON> 202
<LOANS-PAST> 68
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<ALLOWANCE-OPEN> 414
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