KFFB » Topics » Discussion of Financial Condition Changes from June 30, 2005 to December 31, 2005

This excerpt taken from the KFFB 10-Q filed Feb 14, 2006.

Discussion of Financial Condition Changes from June 30, 2005 to December 31, 2005

Assets:  At December 31, 2005, the Company’s assets totaled $263.7 million, a decrease of $10.2 million, or 3.7%, from total assets at June 30, 2005.  The primary reason for the decrease in assets was a reduction of $5.2 million, or 62.0%, in cash and cash equivalents, which declined to $3.2 million at December 31, 2005.  Investment securities classified as held to maturity, which decreased $4.0 million or 7.8% to $46.9 million at December 31, 2005, also contributed to the reduction in total assets.  To the extent possible, the Company has sought to redeploy liquidity into mortgage loans. 

Cash and cash equivalents:  Cash and cash equivalents decreased by $5.2 million or 62.0%.  It is the Company’s preference to minimize the level of cash and cash equivalents and invest liquidity into higher-yielding assets, when possible.  The decrease is a part of the overall decrease in assets, discussed more fully under “Investment Securities” and “Liabilities.”

Loans:  Loans receivable, net, increased to $153.7 million at December 31, 2005, an increase of $2.0 million or 1.3%.  Management believes that the successful redeployment of the Company’s funds from lower-yielding cash, cash equivalents and investment securities to higher-yielding mortgage loans is important for the long-term success of the Company.  The Company will continue to emphasize loan originations to the extent it is profitable and prudent.

Investment and Mortgage-Backed Securities:  At December 31, 2005, the Company’s investment securities had decreased $6.6 million or 7.7% to $80.2 million.  This decrease was in part due to redeployment of investments and mortgage-backed security proceeds into loans, but was primarily attributable to the tandem decrease in deposits.  Given recent increases in market interest rates, the Company at times has not met market rates if the resulting deposits cannot be invested profitably in interest-earning assets.  As a result, the level of investment and mortgage-backed securities has decreased.

Non-Performing Assets: At December 31, 2005, the Company had approximately $1.3 million (0.9% of net loans) in loans 90 days or more past due, as compared to $1.7 million at June 30, 2005.  At December 31, 2005, the Company’s allowance for loan losses of $733,000 represented 56.2% of nonperforming loans and 0.5% of total loans.

The Company had $984,000 in loans classified as substandard for regulatory purposes at December 31, 2005. On a percentage basis, classified loans dropped from 1.3% at June 30, 2005 to 1.0%  of total loans at December 31, 2005.  Substandard assets included 33 single-family home loans with loan-to-value ratios (percentage of loan balance to the original or an updated appraisal) ranging from 5% to 86%; plus one home equity line of credit secured by a single-family home which, combined with the first mortgage (which was not delinquent) had a total loan-to-value ratio of 86%.  There was no real estate acquired through foreclosure at December 31, 2005.

At December 31, 2005, no loans were classified as doubtful or loss for regulatory purposes.

11


Kentucky First Federal Bancorp

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)

Discussion of Financial Condition Changes from June 30, 2005 to December 31, 2005 (continued)

Liabilities:  At December 31, 2005, the Company’s liabilities totaled $198.4 million, a decrease of $9.6 million, or 4.6%, from total liabilities at June 30, 2005.  The decrease in liabilities was attributed primarily to an $8.1 million or 5.2% decrease in deposits, which declined to $146.9 million at December 31, 2005.  As discussed, deposits have decreased as a result of recent increases in market interest rates.  The Company at times has not met market rates if the resulting deposits cannot be invested profitably in interest-earning assets. 

Shareholders’ Equity:  At December 31, 2005, the Company’s shareholders’ equity totaled $65.4 million, a decrease of $584,000 or 0.9% from the June 30, 2005 level.  The primary reason for the decrease in shareholders’ equity is the acquisition of $831,000 worth of shares to fulfill the obligations of the Company’s Equity Incentive Plan, which was approved at the Company’s Annual Meeting held November 15, 2005.

This excerpt taken from the KFFB 10-Q filed Nov 14, 2005.

Discussion of Financial Condition Changes from June 30, 2005 to September 30, 2005

Assets:  At September 30, 2005, the Company’s assets totaled $271.7 million, a decrease of $2.2 million, or 0.8%, from total assets at June 30, 2005.  The primary reason for the decrease in assets is the decrease of $1.0 million, or 4.7%, of mortgage-backed securities classified as held to maturity, which decreased to $20.3 million at September 30, 2005. Also contributing to the decrease in total assets was a decrease in cash and cash equivalents which decreased $571,000 or 6.8% to $7.8 million at September 30, 2005.

Non-Performing Assets:  At September 30, 2005, the Company had approximately $1.9 million (1.2% of net loans) in loans 90 days or more past due, as compared to $1.7 million at June 30, 2005.  At September 30, 2005, the Company’s allowance for loan losses of $593,000 represented 30.8% of nonperforming loans and 0.4% of total loans. 

The Company had $2.0 million in loans classified as substandard for regulatory purposes at September 30, 2005.  On a percentage basis, classified loans remained consistent at 1.3% of total loans at September 30, 2005 and June 30, 2005.   Substandard assets included 41 single-family home loans with loan-to-value ratios (percentage of loan balance to the original or an updated appraisal) ranging from 5% to 95%; one home equity line of credit secured by a single-family home which, combined with the first mortgage (which was not delinquent) had a total loan-to-value ratio of 86%; and two single-family homes, which comprise Real Estate Owned (which had a fair value of $60,000).

At September 30, 2005, no loans were classified as Doubtful or Loss.

Liabilities:  At September 30, 2005, the Company’s liabilities totaled $205.8 million, a decrease of $2.2 million, or 1.1%, from total liabilities at June 30, 2005.  The decrease in liabilities was attributed primarily to a $2.2 million or 1.4% decrease in deposits, which declined to $152.9 million at September 30, 2005, and a $356,000, or 0.7%, decrease in Advances from the Federal Home Loan Bank, which declined to $50.6 million at September 30, 2005.

Shareholders’ Equity: At June 30, 2005 and September 30, 2005, the Company’s shareholders’ equity totaled $65.9 million.

11


Kentucky First Federal Bancorp

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)

EXCERPTS ON THIS PAGE:

10-Q
Feb 14, 2006
10-Q
Nov 14, 2005
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