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Kentucky First Federal Bancorp 10-Q 2011

Documents found in this filing:

  1. 10-Q
  2. Ex-31.1
  3. Ex-31.2
  4. Ex-32.1
  5. Ex-32.2
  6. Ex-32.2
Unassociated Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

FORM 10-Q
(Mark One)
x           QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
  EXCHANGE ACT OF 1934

For the quarterly period ended                           September 30, 2011                    
OR
¨           TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from ____________ to _______________

Commission File Number: 0-51176   

KENTUCKY FIRST FEDERAL BANCORP
(Exact name of registrant as specified in its charter)

United States of America
 
61-1484858
(State or other jurisdiction of
 
(I.R.S. Employer Identification No.)
incorporation or organization)
   

479 Main Street, Hazard, Kentucky  41702
(Address of principal executive offices)(Zip Code)
 
(606) 436-3860
(Registrant’s telephone number, including area code)

 
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months or such shorter period that the issuer was required to file such reports and (2) has been subject to such filing requirements for the past ninety days:  Yes No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x    No ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company,” in Rule 12b-2 of the Exchange Act.  (Check one):

Large accelerated filer ¨
Accelerated filer ¨
Non-accelerated filer ¨
Smaller Reporting Company x
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)
Yes ¨
No x

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:  At November 10, 2011, the latest practicable date, the Corporation had 7,740,703 shares of $.01 par value common stock outstanding.

 
 

 

INDEX

     
Page
       
PART I -
ITEM 1
FINANCIAL INFORMATION
 
       
   
Consolidated Balance Sheets
3
       
   
Consolidated Statements of Income
4
       
   
Consolidated Statements of Comprehensive Income
5
       
   
Consolidated Statements of Cash Flows
6
       
   
Notes to Consolidated Financial Statements
7
       
 
ITEM 2
Management’s Discussion and Analysis of  Financial Condition and Results of Operations
24
       
 
ITEM 3
Quantitative and Qualitative Disclosures About Market Risk
29
       
 
ITEM 4
Controls and Procedures
29
       
PART II -
OTHER INFORMATION
30
       
SIGNATURES
31

 
2

 

PART I
ITEM 1: Financial Information
Kentucky First Federal Bancorp
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except per share data)
   
September 30,
   
June30,
 
   
2011
   
2011
 
ASSETS
           
             
Cash and due from financial institutions
  $ 857     $ 1,002  
Interest-bearing demand deposits
    7,677       4,047  
Cash and cash equivalents
    8,534       5,049  
                 
Interest-bearing deposits in other financial institutions
    100       100  
Securities available for sale
    199       203  
Securities held-to-maturity, at amortized cost- approximate fair value of $6,830 and $7,257 at September 30, 2011 and June 30, 2011, respectively
    6,363       6,810  
Loans held for sale
    188        
Loans, net of allowance of $764 at September 30, 2011 and June 30, 2011
    182,723       182,796  
Real estate owned, net
    2,681       4,304  
Premises and equipment, net
    2,696       2,667  
Federal Home Loan Bank stock, at cost
    5,641       5,641  
Accrued interest receivable
    490       538  
Bank-owned life insurance
    2,629       2,607  
Goodwill
    14,507       14,507  
Other intangible assets
    55       87  
Prepaid FDIC assessments
    324       361  
Prepaid federal income taxes
          22  
Prepaid expenses and other assets
    415       443  
                 
Total assets
  $ 227,545     $ 226,135  
                 
LIABILITIES AND SHAREHOLDERS’ EQUITY
               
                 
Deposits
  $ 140,759     $ 139,940  
Federal Home Loan Bank advances
    24,634       25,261  
Advances by borrowers for taxes and insurance
    645       471  
Accrued interest payable
    94       91  
Accrued federal income taxes
    550        
Deferred federal income taxes
    570       1,021  
Deferred revenue
    667        
Other liabilities
    762       654  
Total liabilities
    168,681       167,438  
                 
Commitments and contingencies
    -       -  
                 
Shareholders’ equity
               
Preferred stock, 500,000 shares authorized, $.01 par value; no shares issued and outstanding
    -       -  
Common stock, 20,000,000 shares authorized, $.01 par value; 8,596,064 shares issued
    86       86  
Additional paid-in capital
    36,880       36,907  
Retained earnings
    31,999       31,860  
Unearned employee stock ownership plan (ESOP)
    (1,934 )     (1,989 )
Treasury shares at cost, 811,375 common shares at September 30, 2011 and June 30, 2011
    (8,170 )     (8,170 )
Accumulated other comprehensive income
    3       3  
Total shareholders’ equity
    58,864       58,697  
                 
Total liabilities and shareholders’ equity
  $ 227,545     $ 226,135  

See accompanying notes.

 
3

 

Kentucky First Federal Bancorp
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Dollars in thousands, except per share data)
   
Three months ended
 
   
September 30,
 
   
2011
   
2010
 
Interest income
           
Loans
  $ 2,466     $ 2,582  
Mortgage-backed securities
    72       101  
Interest-bearing deposits and other
    56       63  
Total interest income
    2,594       2,746  
Interest expense
               
Deposits
    484       739  
Borrowings
    160       243  
Total interest expense
    644    
_982
 
Net interest income
    1,950       1,764  
Provision for loan losses
          25  
Net interest income after provision for loan losses
    1,950       1,739  
                 
Non-interest income
               
Gains on sales of loans
          28  
Earnings on bank-owned life insurance
    22       23  
Net gains (losses) on sale of real estate owned
    (17 )     2  
Unrealized loss-other real estate
    (10 )      
Other
    31       27  
Total non-interest income
    26       80  
                 
Non-interest expense
               
Salaries and employee benefits
    747       798  
Occupancy and equipment
    87       84  
Legal fees
    61       32  
Outside service fee
    76       33  
Data processing
    54       63  
Audit and accounting
    59       38  
Federal deposit insurance
    40       54  
Franchise and other taxes
    46       49  
Amortization of intangible assets
    33       33  
Foreclosure and real estate owned expense, net
    17       21  
Other operating
    129       121  
Total non-interest expense
    1,349       1,326  
                 
Income before income taxes
    627       493  
                 
Federal income taxes
               
Current
    657       275  
Deferred
    (451 )     (115 )
                 
Total federal income taxes
    206       160  
                 
NET INCOME
  $ 421     $ 333  
                 
EARNINGS PER SHARE
               
Basic and diluted
  $ 0.06     $ 0.04  
DIVIDENDS DECLARED PER SHARE    $ 0.10     $ 0.10  

See accompanying notes.

 
4

 

Kentucky First Federal Bancorp
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 (In thousands)
   
Three months ended
 
   
September 30,
 
   
2011
   
2010
 
             
Net income
  $ 421     $ 333  
                 
Other comprehensive income (loss), net of tax-related effects:                 
Unrealized holding gains (losses) on securities available for sale
           
                 
Comprehensive income
  $ 421     $ 333  

See accompanying notes.

 
5

 

Kentucky First Federal Bancorp
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
   
Three months ended
 
   
September 30,
 
   
2011
   
2010
 
Cash flows from operating activities:
           
Net income
  $ 421     $ 333  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation
    48       44  
Amortization of deferred loan origination (fees) costs
          (10 )
Amortization of premiums on FHLB advances
    (5 )     (38 )
Amortization of core deposit intangibles
    32       33  
Net gain on sale of loans
          (28 )
Net loss (gain) on sale of real estate owned
    9       (2 )
Deferred gain on sale of real estate acquired through foreclosure
    667        
ESOP compensation expense
    55       49  
Amortization of stock benefit plans and stock options expense
    (27 )     26  
Earnings on bank-owned life insurance
    (22 )     (23 )
Provision for loan losses
          25  
Origination of loans held for sale
    (188 )     (980 )
Proceeds from loans held for sale
          789  
Increase (decrease) in cash, due to changes in:
               
Accrued interest receivable
    48       7  
Prepaid expenses and other assets
    65       46  
Accrued interest payable
    3       (1 )
Accounts payable and other liabilities
    108       171  
Federal income taxes
               
Current
    572        
Deferred
    (451 )      
Net cash provided by operating activities
    1,335       441  
                 
Cash flows from investing activities:
               
Purchase of available-for-sale securities
           
Securities maturities, prepayments and calls:
               
Held to maturity
    447       614  
Available for sale
    4       2  
Loans originated for investment, net of principal collected
    2,273       (470 )
Proceeds from sale of real estate owned
    (586 )     342  
Additions to premises and equipment, net
    (77 )     (14 )
Net cash provided by investing activities
    2,061       474  
                 
Cash flows from financing activities:
               
Net change in deposits
    819       (321 )
Payments by borrowers for taxes and insurance, net
    174       260  
Proceeds from Federal Home Loan Bank advances
          5,000  
Repayments on Federal Home Loan Bank advances
    (622 )     (5,678 )
Dividends paid on common stock
    (282 )     (278 )
Treasury stock repurchases
          (171 )
Net cash provided by (used in) financing activities
    89       (1,188 )
                 
Net increase (decrease) in cash and cash equivalents
    3,485       (273 )
                 
Beginning cash and cash equivalents
    5,049       8,362  
                 
Ending cash and cash equivalents
  $ 8,534     $ 8,089  

See accompanying notes.

 
6

 

Kentucky First Federal Bancorp
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Unaudited)
(In thousands)
   
Three months ended
 
   
September 30,
 
   
2011
   
2010
 
             
Supplemental disclosure of cash flow information:
           
Cash paid during the period for:
           
Federal income taxes
  $     $ 100  
                 
Interest on deposits and borrowings
  $ 646     $ 1,021  
                 
Transfers from loans to real estate acquired through foreclosure, net
  $     $ 412  
                 
Loans made on sale of real estate acquired through foreclosure
  $ 2,260     $ 61  
                 
Capitalization of mortgage servicing rights
  $     $ 6  

See accompanying notes.

 
7

 

Kentucky First Federal Bancorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 September 30, 2011
(unaudited)

On March 2, 2005, First Federal Savings and Loan Association of Hazard (“First Federal of Hazard” or the “Association”) completed a Plan of Reorganization (the “Plan” or the “Reorganization”) pursuant to which the Association reorganized into the mutual holding company form of ownership with the incorporation of a stock holding company, Kentucky First Federal Bancorp (the “Company”) as parent of the Association.  Coincident with the Reorganization, the Association converted to the stock form of ownership, followed by the issuance of all the Association’s outstanding stock to Kentucky First Federal Bancorp.  Completion of the  Plan of Reorganization culminated with Kentucky First Federal Bancorp issuing 4,727,938 common shares, or 55% of its common shares, to First Federal Mutual Holding Company (“First Federal MHC”), a federally chartered mutual holding company, with 2,127,572 common shares, or 24.8% of its shares offered for sale at $10.00 per share to the public and a newly formed Employee Stock Ownership Plan (“ESOP”).  The Company received net cash proceeds of $16.1 million from the public sale of its common shares.  The Company’s remaining 1,740,554 common shares were issued as part of the $31.4 million cash and stock consideration paid for 100% of the common shares of Frankfort First Bancorp (“Frankfort First”) and its wholly-owned subsidiary, First Federal Savings Bank of Frankfort (“First Federal of Frankfort”).  The acquisition was accounted for using the purchase method of accounting and resulted in the recordation of goodwill and other intangible assets totaling $15.4 million.

1.  Basis of Presentation

The accompanying unaudited consolidated financial statements, which represent the consolidated balance sheets and results of operations of the Company, were prepared in accordance with the instructions for Form 10-Q and, therefore, do not include information or footnotes necessary for a complete presentation of financial position, results of operations and cash flows in conformity with U.S. generally accepted accounting principles.  However, in the opinion of management, all adjustments (consisting of only normal recurring adjustments) which are necessary for a fair presentation of the consolidated financial statements have been included.  The results of operations for the three-month period ended September 30, 2011, are not necessarily indicative of the results which may be expected for an entire fiscal year.  The consolidated balance sheet as of June 30, 2011 has been derived from the audited consolidated balance sheet as of that date.  Certain information and note disclosures normally included in the Company’s annual financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted.  These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Form 10-K annual report for 2011 filed with the Securities and Exchange Commission.

Allowance for Loan Losses:  The allowance for loan losses is a valuation allowance for probable incurred credit losses.  Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed.  Subsequent recoveries, if any, are credited to the allowance. Management estimates the allowance balance required using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors.  Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged off.

The allowance consists of specific and general components.  The specific component relates to loans that are individually classified as impaired.

A loan is impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement.  Loans for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings and classified as impaired.

 
8

 

Kentucky First Federal Bancorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 September 30, 2011
(unaudited)

1.  Basis of presentation (continued)

Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired.  Management determines the significance of payment delays and payment shortfalls on case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

Real estate loans are individually evaluated for impairment.  If a loan is impaired, a portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral.  Large groups of smaller balance homogeneous loans, such as consumer and residential real estate loans, are collectively evaluated for impairment, and accordingly, they are not separately identified for impairment disclosures.  Troubled debt restructurings are separately identified for impairment disclosures and are measured at the present value of estimated future cash flows using the loan’s effective rate at inception.  If a troubled debt restructuring is considered to be a collateral dependent loan, the loan is reported, net, at the fair value of the collateral.  For troubled debt restructurings that subsequently default, the Company determines the amount of reserve in accordance with the accounting policy for the allowance for loan losses.

The general component covers non-impaired loans and is based on historical loss experience adjusted for current factors.  The historical loss experience is determined by portfolio segment and is based on the loss history experience of the Company over the most recent three years and a rolling average of the current year’s loss history.  This actual loss experience is supplemented with other economic factors based on the risks present for each portfolio segment.  These economic factors include consideration of the following:  levels of and trends in delinquencies and impaired loans; levels of and trends in charge-offs and recoveries; trends in volume and terms of loans; effects of any changes in risk selection and underwriting standards; other changes in lending policies, procedures, and practices; experience, ability, and depth of lending management and other relevant staff; national and local economic trends and conditions; industry conditions; and effects of changes in credit concentrations.  The following portfolio segments have been identified:  residential real estate, nonresidential real estate, loans on deposits and consumer and other loans.

2.  Principles of Consolidation

The consolidated financial statements include the accounts of the Company, Frankfort First, and its wholly-owned banking subsidiaries, First Federal of Hazard and First Federal of Frankfort (collectively hereinafter “the Banks”).  All intercompany transactions and balances have been eliminated in consolidation.

 
9

 
Kentucky First Federal Bancorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 September 30, 2011
(unaudited)

3.  Earnings Per Share

Diluted earnings per share is computed taking into consideration common shares outstanding and dilutive potential common shares to be issued or released under the Company’s share-based compensation plans.  The factors used in the basic and diluted earnings per share computations follow:

   
Three months ended September 30,
 
   
2011
   
2010
 
             
Net income
  $ 421     $ 333  
Less earnings allocated to unvested shares
          4  
                 
Net income allocated to common shareholders, basic and diluted
  $ 421     $ 329  

   
Three months ended September 30,
 
 
 
2011
   
2010
 
Basic
           
Weighted-average common shares including unvested
           
  Common shares outstanding
    7,541,876       7,500,847  
Less: Weighted-average unvested common shares
          24,900  
Weighted-average common shares outstanding
    7,541,876       7,475,947  
                 
Diluted
               
Add: Dilutive effect of assumed exercise of stock options
    -       -  
                 
Weighted-average common shares outstanding (diluted)
    7,541,876       7,475,947  

There were 325,800 and 334,644 stock option shares outstanding for the three-month periods ended September 30, 2011 and 2010, respectively, which were antidilutive for the respective periods.

 
10

 

Kentucky First Federal Bancorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
September 30, 2011
(unaudited)

4.  Investment Securities

The following table summarizes the amortized cost and fair value of securities available-for-sale and securities held-to-maturity at September 30, 2011 and June 30, 2011, the corresponding amounts of gross unrealized gains recognized in accumulated other comprehensive income and gross and gross unrecognized gains:
 
   
September 30, 2011
 
         
Gross
   
Gross
   
Estimated
 
   
Amortized
   
unrealized
   
unrealized
   
fair
 
   
cost
   
gains
   
losses
   
value
 
   
(In thousands)
 
Available-for-sale Securities
                       
Agency mortgage-backed: residential
  $ 195     $ 4     $ -     $ 199  
                                 
           
Gross
   
Gross
   
Estimated
 
   
Amortized
   
unrecognized
   
unrecognized
   
fair
 
   
cost
   
gains
   
losses
   
value
 
Held-to-maturity Securities
                               
Agency mortgage-backed: residential
  $ 6,363     $ 467     $ -     $ 6,830  
 
    June 30, 2011
         
Gross
   
Gross
   
Estimated
 
   
Amortized
   
unrealized
   
unrealized
   
fair
 
   
cost
   
gains
   
losses
   
value
 
                         
Available-for-sale Securities
                       
Agency mortgage-backed: residential
  $ 199     $ 4     $ -     $ 203  
                                 
   
 
   
Gross
   
Gross
   
Estimated
 
   
Amortized
   
unrecognized
   
unrecognized
   
fair
 
     
cost
   
gains
   
losses
   
value
 
                                 
Held-to-maturity Securities
                               
Agency mortgage-backed: residential
  $ 6,810     $ 447     $ -     $ 7,257  

Our securities holdings consist of agency mortgage-backed securities, which do not have a single maturity date. None of our securities were pledged at September 30, 2011 or June 30, 2011.

There were no sales of investment securities during the fiscal year ended June 30, 2011 or the three-month period ended September 30, 2011.

We evaluated securities in unrealized loss positions for evidence of other-than-temporary impairment, considering duration, severity, financial condition of the issuer, our intention to sell or requirement to sell.  Management does not believe other-than-temporary impairment is evident.

 
11

 

Kentucky First Federal Bancorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
September 30, 2011
(unaudited)

5.
Loans receivable

The composition of the loan portfolio was as follows:
   
September 30,
   
June 30,
 
(in thousands)
 
2011
   
2011
 
             
Residential real estate
           
One- to four-family
  $ 156,985     $ 158,821  
Multi-family
    6,777       4,504  
Construction
    358       1,062  
Nonresidential real estate and land
    11,981       12,211  
Loans on deposits
    2,444       2,405  
Consumer and other
    4,921       4,824  
      183,466       183,827  
Less:
               
Undisbursed portion of loans in process
    68       353  
Deferred loan origination fees (cost)
    (89 )     (86 )
Allowance for loan losses
    764       764  
    $ 182,723     $ 182,796  
 
The following table presents the activity in the allowance for loan losses by portfolio segment for the three months ended September 30, 2011:

(in thousands)
 
Beginning
balance
   
Provision 
for loan 
losses
   
Loans 
 charged off
   
Recoveries
   
Ending
balance
 
                               
Residential real estate:
                             
One- to four-family
  $ 490     $     $     $     $ 490  
Multi-family
    11       8                   19  
Construction
    5       (4 )                 1  
Nonresidential real estate and land
    36       (3 )                 33  
Loans on deposits
    8       (1 )                 7  
Consumer and other
    14                         14  
Unallocated
    200                         200  
Totals
  $ 764     $     $     $     $ 764  
 
The activity in the allowance for loan losses for the three months ended September 30, 2010 is summarized as follows:

 (in thousands)
     
       
Balance at July 1, 2010
  $ 1,535  
Provision for losses on loans
    25  
Charge-offs
    (41 )
Balance at September 30, 2010
  $ 1,519  
 
 
12

 

KENTUCKY FIRST FEDERAL BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 2011
(unaudited)

5. 
Loans receivable (continued)

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio class and based on impairment method as of September 30, 2011.  There were no loans acquired with deteriorated credit quality at September 30, 2011.

(in thousands)
 
Recorded
investment in
loans
   
Ending
allowance
attributed to
loans
   
Unallocated
allowance
   
Total
allowance
 
Loans individually evaluated for impairment:
                       
Residential real estate:
                       
One- to four-family
  $ 2,729     $ 60     $     $ 60  
Multi-family
                       
Construction
                       
Nonresidential real estate and land
                       
Loans on deposits
                       
Consumer and other
                       
    $ 2,729     $ 60     $     $ 60  
                                 
Loans collectively evaluated for impairment:
                               
Residential real estate:
                               
One- to four-family
  $ 154,256     $ 430     $     $ 430  
Multi-family
    6,777       19             19  
Construction
    358       1             1  
Nonresidential real estate and land
    11,981       33             33  
Loans on deposits
    2,444       7             7  
Consumer and other
    4,921       14             14  
Unallocated
                200       200  
    $ 180,737     $ 504     $ 200     $ 704  

 
13

 

KENTUCKY FIRST FEDERAL BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 2011
(unaudited)

5. 
Loans receivable (continued)

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio class and based on impairment method as of June 30, 2011.  There were no loans acquired with deteriorated credit quality at June 30, 2011.

(in thousands)
 
Recorded
investment in
loans
   
Ending
allowance
attributed to
loans
   
Unallocated
allowance
   
Total 
allowance
 
Loans individually evaluated for impairment:
                       
Residential real estate:
                       
One- to four-family
  $ 2,224     $ 55     $     $ 55  
Multi-family
                       
Construction
                       
Nonresidential real estate and land
                       
Loans on deposits
                       
Consumer and other
                       
    $ 2,224     $ 55     $     $ 55  
                                 
Loans collectively evaluated for impairment:
                               
Residential real estate:
                               
One- to four-family
  $ 156,597     $ 439     $     $ 439  
Multi-family
    4,504       13             13  
Construction
    1,062       3             3  
Nonresidential real estate and land
    12,211       34             34  
Loans on deposits
    2,405       7             7  
Consumer and other
    4,824       13             13  
Unallocated
                200       200  
    $ 181,603     $ 509     $ 200     $ 709  

The following table presents loans individually evaluated for impairment by class of loans as of and for the three months ended September 30, 2011:

(in thousands)
 
Outstanding
Principal
Balance
   
Allowance
for Loan
Losses
Allocated
   
Average
Recorded
Investment
   
Interest
Income
Recognized
   
Cash
Received
 
                               
With no related allowance recorded:
                             
One- to four-family
  $ 1,439     $     $ 1,123     $ 10     $ 10  
                                         
With an allowance recorded:
                                       
One- to four-family
  $ 1,290     $ 60     $ 1,266     $ 2     $ 2  
 
 
14

 

KENTUCKY FIRST FEDERAL BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 2011
(unaudited)

5.  Loans receivable (continued)
 
The following table presents loans individually evaluated for impairment by class of loans as of and for the twelve months ended June 30, 2011:

(in thousands)
   
Outstanding
Principal
Balance
     
Allowance
for Loan
Losses
Allocated
   
Average
Recorded
Investment
   
Interest
Income
Recognized
   
Cash
Received
 
                                   
With no related allowance recorded:
                                       
One- to four-family
  $ 1,136     $ -     $ 1,296     $ 44     $ 47  
 
                            -          
With an allowance recorded:                                        
One- to four-family
  $ 1,088     $ 55     $ 1,213     $ 33     $ 33  
 
Troubled Debt Restructurings:

A Troubled Debt Restructuring (“TDR”) is the situation where the Bank grants a concession to the borrower that the Bank would not otherwise have considered due to the borrower’s financial difficulties.  All TDRs are considered “impaired.”  The substantial majority of the Bank’s residential real estate TDRs involve conceding to refinance a loan to then-current market interest rates despite poor credit history or a high loan-to-value ratio.

During the period ended September 30, 2011, the terms of a certain loan was modified to accept a payment for interest, taxes and insurance for a period of time.

The following table presents the recorded investment in nonaccrual loans, loans past due over 90 days still on accrual and TDRs by class of loans as of September 30, 2011:

(in thousands)
 
Nonaccrual
   
Loans 
Past Due 
Over 90 
Days Still 
Accruing
   
TDRs on 
Accrual 
Status
 
                   
Consumer and other
  $     $ -     $ -  
One- to four-family residential real estate
    1,710       -       921  
                         
Total
  $ 1,710     $ -     $ 921  

The following table presents the recorded investment in nonaccrual loans, loans past due over 90 days still on accrual and TDRs by class of loans as of June 30, 2011:

(in thousands)
 
Nonaccrual
   
Loans 
Past Due 
Over 90
 Days Still
 Accruing
   
TDRs on
Accrual
Status
 
                   
Consumer and other
  $     $ -     $ -  
One- to four-family residential real estate
    876       -       729  
                         
Total
  $ 876     $ -     $ 729  

 
15

 

KENTUCKY FIRST FEDERAL BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 2011
(unaudited)

5.  Loans receivable (continued)

The Company granted one TDR loan modification totaling $192,000 during the quarter ended September 30, 2011.  The pre-modification outstanding recorded investment equaled the post-modification outstanding recorded investment.  The TDRs described above did not increase the allowance for loan losses and did not result in charge offs during the three months ended September 30, 2011.  There were no TDRs that defaulted during the quarter ended September 30, 2011 or over the previous twelve months.  There are no outstanding commitments to lend on loans classified as TDRs.  A summary of the types of TDR loan modifications that occurred during the first three months of fiscal 2012 were as follows:

(in thousands)
 
Number
of
Loans
   
TDRs
Performing
to Modified
Terms
   
TDRs Not
Performing
to Modified
Terms
   
Total
TDRs
 
Residential real estate:
                       
One- to four-family
  1     $ 192     $     $ 192  
Multi-family
                       
Construction
                       
Total residential TDRs
  1       192             192  
Nonresidential real estate and land
                       
Loans on deposits
                       
Consumer and other
                       
    1     $ 192     $     $ 192  

The following table presents the aging of the principal balance outstanding in past due loans as of September 30, 2011, by class of loans:

(in thousands)
 
30-89 Days
Past Due
   
Greater than
90 Days Past
Due
   
Total
Past Due
   
Loans Not
Past Due
   
Total
 
                               
Residential real estate:
                             
One-to four-family
  $ 2,499     $ 1,729     $ 4,228     $ 152,757     $ 156,985  
Multi-family
                      6,777       6,777  
Construction
                      358       358  
Nonresidential real estate and land
                      11,981       11,981  
Loans on deposits
                      2,444       2,444  
Consumer and other
                      4,921       4,921  
Total
  $ 2,499     $ 1,729     $ 4,228     $ 179,238     $ 183,466  
 
 
16

 

KENTUCKY FIRST FEDERAL BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 2011
(unaudited)

5.  Loans receivable (continued)

The following table presents the aging of the principal balance outstanding in past due loans as of June 30, 2011, by class of loans:

(in thousands)
 
30-89 Days
 Past Due
   
Greater than
 90 Days Past 
Due
   
Total
 Past Due
   
Loans Not
 Past Due
   
Total
 
                               
Residential real estate:
                             
One-to four-family
  $ 3,181     $ 876     $ 4,057     $ 154,764     $ 158,821  
Multi-family
                      4,504       4,504  
Construction
                      1,062       1,062  
Nonresidential real estate and land
                      12,211       12,211  
Loans on deposits
                      2,405       2,405  
Consumer and other
                      4,824       4,824  
Total
  $ 3,181     $ 876     $ 4,057     $ 179,770     $ 183,827  

Credit Quality Indicators:

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors.  The Company analyzes loans individually by classifying the loans as to credit risk.  This analysis is performed on an annual basis.  The Company uses the following definitions for risk ratings:

Special Mention.>  Loans classified as special mention have a potential weakness that deserves management’s close attention.  If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

Substandard.  >Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any.  Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt.  They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful.  >Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.

 
17

 

KENTUCKY FIRST FEDERAL BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 2011
(unaudited)

5.  Loans receivable (continued)

Loans not meeting the criteria above that are analyzed individually as part of the above-described process are considered to be pass rated loans.  Loans listed that are not rated are included in groups of homogeneous loans and are evaluated for credit quality based on performing status.  See the aging of past due loan table above.  As of September 30, 2011, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

(in thousands)
 
Pass
   
Special
Mention
   
Substandard
   
Doubtful
   
Not rated
 
                               
Residential real estate:
                             
One- to four-family
  $     $ 67     $ 2,296     $     $ 154,622  
Multi-family
    4,592             2,185              
Construction
    358                          
Nonresidential real estate and land
    11,713       268                    
Loans on deposits
                            2,444  
Consumer and other
                            4,921  

At June 30, 2011, the risk category of loans by class of loans was as follows:

(in thousands)
 
Pass
   
Special
Mention
   
Substandard
   
Doubtful
   
Not rated
 
                               
Residential real estate:
                             
One- to four-family
  $     $ 67     $ 2,180     $     $ 156,574  
Multi-family
    4,504                          
Construction
    1,062                          
Nonresidential real estate and land
    11,943       268                    
Loans on deposits
                            2,405  
Consumer and other
                            4,824  

6.  Commitments

As of September 30, 2011, loan commitments and unused lines of credit totaled $10.0 million, which included $39,000 in undisbursed construction loans, $1.1 million in one- to four-family mortgage loans, a $65,000 commitment on other real estate and $8.7 million in lines of credit secured by equity in real property.

 
18

 

Kentucky First Federal Bancorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
September 30, 2011
(unaudited)

7.  Disclosures About Fair Value of Assets and Liabilities
 
ASC topic 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  ASC topic 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.  The standard describes three levels of inputs that may be used to measure fair value:
 
Level 1 - Quoted prices in active markets for identical assets or liabilities.
 
 
 
Following is a description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy.
 
Securities
 
Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy.  If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics.  Level 2 securities include agency mortgage-backed securities.
 
Impaired Loans
 
The fair value of impaired loans with specific allocations of the allowance for loan losses is generally based on recent independent real estate appraisals.  These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach.  Adjustments are routinely made in the appraisal process by the appraisers to adjust for difference between the comparable sales and income data available.  Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.  Independent appraisals for collateral-dependendent loans are updated periodically (usually every 9-12 months).
 
Other Real Estate
 
Nonrecurring adjustments to real estate properties classified as other real estate owned ("OREO") are measured at fair value, less costs to sell.  Fair values are based on recent real estate appraisals.  These appraisals may use a single valuation approach or a combination of approaches including comparable sales and income approach.  Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available.  Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.
 
Financial assets measured at fair value on a recurring basis are summarized below:
 
         
Fair Value Measurements at September 30, 2011
 
         
(in thousands)
 
   
 
   
Quotes Prices
             
   
 
   
in Active
     Significant        
   
 
   
Markets for
   
Other
   
Significant
 
   
 
   
Identical
   
Observable
   
Unobservable
 
   
 
   
Assets
   
Inputs
   
Inputs
 
Description
 
Total
   
(Level 1)
   
(Level 2)
   
(Level 3)
 
                                 
Agency mortgage-backed: residential
  $ 199     $ -     $ 199     $ -  

 
19

 

Kentucky First Federal Bancorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
September 30, 2011
(unaudited)

7.  Disclosures About Fair Value of Assets and Liabilities (continued)

         
Fair Value Measurements at June 30, 2011
 
         
(in thousands)
 
         
Quotes Prices
             
         
in Active
   
Significant
       
         
Markets for
   
Other
   
Significant
 
         
Identical
   
Observable
   
Unobservable
 
         
Assets
   
Inputs
   
Inputs
 
Description
 
Total
   
(Level 1)
   
(Level 2)
   
(Level 3)
 
                                 
Agency mortgage-backed: residential
  $ 203     $ -     $ 203     $ -  

Assets measured at fair value on a non-recurring basis are summarized below:

         
Fair Value Measurements at September 30, 2011
 
         
(in thousands)
 
         
Quotes Prices
             
         
in Active
   
Significant
       
         
Markets for
   
Other
   
Significant
 
         
Identical
   
Observable
   
Unobservable
 
         
Assets
   
Inputs
   
Inputs
 
Description
 
Total
   
(Level 1)
   
(Level 2)
   
(Level 3)
 
                                 
Impaired Loans: One- to four-family
  $ 1,230     $ -     $ -     $ 1,230  
Other real estate owned, net One- to four-family
    9       -       -       9  

Impaired loans with allocated allowance for loan losses had a carrying amount of $1.290 million and a specific valuation allowance of $60,000 at September 30, 2011.  A specific allowance provision of $5,000 was made for the three month period ended September 30, 2011.  Other real estate owned measured at fair value less costs to sell, had a carrying amount of $9,000, after a write-down of $9,000 for the three months ended September 30, 2011.

         
Fair Value Measurements at June 30, 2011
 
         
(in thousands)
 
         
Quotes Prices
             
         
in Active
   
Significant
       
         
Markets for
   
Other
   
Significant
 
         
Identical
   
Observable
   
Unobservable
 
         
Assets
   
Inputs
   
Inputs
 
   
Total
   
(Level 1)
   
(Level 2)