KFFB » Topics » Discussion of Financial Condition Changes from June 30, 2006 to December 31, 2006

This excerpt taken from the KFFB 10-Q filed Feb 14, 2007.

Discussion of Financial Condition Changes from June 30, 2006 to December 31, 2006

Assets:  At December 31, 2006, the Company’s assets totaled $265.4 million, an increase of $3.4 million, or 1.3%, from total assets at June 30, 2006.  The primary reason for the growth in assets was an increase of $6.9 million, or 4.5%, in loans receivable, which increased to $162.3 million at December 31, 2006.  The increase in loans receivable was composed primarily of one- to four-family, variable rate loans and was primarily funded by an increase in short-term Federal Home Loan Bank advances.  It is anticipated that such advances will be repaid as the Company’s short-term, lower-yielding investment securities mature over the next three years.  Management has emphasized the origination and retention of adjustable rate mortgage loans and, as the ability to make such loans changes with market conditions, believes it is prudent to continue to originate such loans with the funding that is available.

Cash and cash equivalents:  Cash and cash equivalents decreased by $472,000 or 20.6%.  It is the Company’s preference to minimize the level of cash and cash equivalents and invest liquidity into higher-yielding assets, when possible.  Cash was drawn down to partially fund the overall increase in loans which is discussed more fully under “Loans.”

Loans:  Loans receivable, net, increased to $162.3 million at December 31, 2006, an increase of $6.9 million or 4.5%.  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 that it is profitable and prudent.

Non-Performing Loans: At December 31, 2006, the Company had approximately $1.3 million, or 0.8% of net loans, in loans 90 days or more past due, compared to $1.4 million, or 0.9%, of net loans at June 30, 2006.  At December 31, 2006, the Company’s allowance for loan losses of $720,000 represented 55.6% of nonperforming loans and 0.4% of total loans.

The Company had $1.8 million in loans classified as substandard for regulatory purposes at December 31, 2006. On a percentage basis, classified loans remained constant at 1.1% of net loans at both June 30, 2006 and December 31, 2006.  Substandard assets included 39 single-family home loans with loan-to-value ratios (percentage of loan balance to the original or an updated appraisal) ranging from 11% to 91%; two home equity lines of credit secured by single-family homes; and one single-family home acquired through foreclosure (with a fair value of $8,000).  At December 31, 2006, the Company had $601,000 in loans classified as special mention.  This category includes assets which do not currently expose us to a sufficient degree of risk to warrant classification, but do possess credit deficiencies or potential weaknesses deserving our close attention.

15


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, 2006 to December 31, 2006 (continued)

Non-Performing Loans (continued)

At December 31, 2006, no loans were classified as doubtful or loss for regulatory purposes.  Subsequent to December 31, 2006 the Company foreclosed on two single-family homes with carrying values of approximately $170,000.  Management does not anticipate any material unreserved loss as a result of these foreclosures.

Investment and Mortgage-Backed Securities:  At December 31, 2006, the Company’s investment and mortgage-backed securities had decreased $3.2 million or 4.1% to $74.2 million.  This decrease was due primarily to the maturity of $2.1 million of investment securities and repayment of principal on mortgage-backed securities which was partially offset by a net increase of $212,000 in the market value of investments and mortgage-backed securities held as available for sale.  Approximately $42.9 million of the Company’s investment and agency securities are scheduled to mature within the next three years with another $5.0 million are scheduled to mature within five years.

Liabilities:  At December 31, 2006, the Company’s liabilities totaled $202.0 million, an increase of $4.0 million, or 2.0%, from total liabilities at June 30, 2006.  The increase in liabilities was attributed primarily to a $7.0 million, or 12.7%, increase in Federal Home Loan Bank advances, which increased to $61.8 million at December 31, 2006.  Of these approximately $24.6 million were in overnight advances, which reprice daily.  Such advances were utilized to fund the increase in loans during the period as well as offset a reduction of $2.2 million, or 1.6% in deposits, which totaled $139.0 million at December 31, 2006.  Deposits have decreased as market interest rates have increased.  At times, the Company has chosen not to meet market rates if the deposits cannot be invested profitably in interest-earning assets.  As stated previously, management anticipates reducing the level of Federal Home Loan Bank advances as lower-yielding investment securities mature over the next three years.

Shareholders’ Equity:  At December 31, 2006, the Company’s shareholders’ equity totaled $63.4 million, a decrease of $529,000 or 0.8% from the June 30, 2006 total.  The primary reason for the decrease in shareholders’ equity is the acquisition of $910,000 of treasury shares at an average cost of $10.33 per share.

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

Discussion of Financial Condition Changes from June 30, 2006 to September 30, 2006

Assets:  At September 30, 2006, the Company’s assets totaled $266.5 million, an increase of $4.6 million, or 1.7%, from total assets at June 30, 2006.  The primary reason for the increase in assets was an increase of $5.3 million, or 3.4%, in loans receivable, which increased to $160.7 million at September 30, 2006.  The increase in assets was primarily funded by an increase in short term Federal Home Loan Bank advances.  It is anticipated that such advances will be repaid as the Company’s short-term, lower-yielding investment securities mature over the next three years.  Management has emphasized the origination and retention of adjustable rate mortgage loans and, as the ability to make such loans changes with market conditions, believes it is prudent to continue to originate such loans with the funding that is available.

Cash and cash equivalents:  Cash and cash equivalents decreased by $518,000 or 22.6%.  It is the Company’s preference to minimize the level of cash and cash equivalents and invest liquidity into higher-yielding assets, when possible.  Cash was drawn down to partially fund the overall increase in loans which is discussed more fully under “Loans.”

Loans:  Loans receivable, net, increased to $160.7 million at September 30, 2006, an increase of $5.3 million or 3.4%.  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 that it is profitable and prudent.

Non-Performing Assets: At September 30, 2006, the Company had approximately $1.4 million (0.9% of net loans) in loans 90 days or more past due, the same as at June 30, 2006.  At September 30, 2006, the Company’s allowance for loan losses of $720,000 represented 53.0% of nonperforming loans and 0.5% of total loans.

The Company had $1.7 million in loans classified as substandard for regulatory purposes at September 30, 2006. On a percentage basis, classified loans remained constant at 1.1% of net loans at both June 30, 2006 and September 30, 2006.  Substandard assets included 32 single-family home loans with loan-to-value ratios (percentage of loan balance to the original or an updated appraisal) ranging from 20% to 90%; two home equity lines of credit secured by single-family homes; and two single-family homes acquired through foreclosure (with a combined fair value of $51,000).  At September 30, 2006, the Company had $685,000 in loans classified as special mention.  This category includes assets which do not currently expose us to a sufficient degree of risk to warrant classification, but do possess credit deficiencies or potential weaknesses deserving our close attention.

At September 30, 2006, no loans were classified as doubtful or loss for regulatory purposes.

14


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, 2006 to September 30, 2006 (continued)

Investment and Mortgage-Backed Securities:  At September 30, 2006, the Company’s investment and mortgage-backed securities had decreased $513,000 or 0.7% to $76.9 million.  This decrease was due primarily to repayment of principal on mortgage-backed securities and was partially offset by an increase of $265,000 in the market value of those investments and mortgage-backed securities held as available for sale.  Approximately $44.9 million of the Company’s investment and agency securities are scheduled to mature within the next three years with another $5.0 million scheduled to mature within five years.

Liabilities:  At September 30, 2006, the Company’s liabilities totaled $202.9 million, an increase of $4.9 million, or 2.5%, from total liabilities at June 30, 2006.  The increase in liabilities was attributed primarily to an $8.0 million, or 14.5%, increase in Federal Home Loan Bank advances, which increased to $62.8 million at September 30, 2006.  Advances were utilized to fund the increase in loans during the period as well as offset a reduction of $4.3 million, or 3.1% in deposits, which totaled to $136.9 million at September 30, 2006.  Deposits have decreased as market interest rates have increased.  At times, the Company has chosen not to meet market rates if the deposits cannot be invested profitably in interest-earning assets.  As stated previously, management anticipates reducing the level of Federal Home Loan Bank advances as lower-yielding investment securities mature over the next three years.

Shareholders’ Equity:  At September 30, 2006, the Company’s shareholders’ equity totaled $63.6 million, a decrease of $323,000 or 0.5% from the June 30, 2006 total.  The primary reason for the decrease in shareholders’ equity is the acquisition of $425,000 of treasury shares at an average cost of $10.31, which were added to the Company’s treasury.

EXCERPTS ON THIS PAGE:

10-Q
Feb 14, 2007
10-Q
Nov 14, 2006
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