Kentucky First Federal Bancorp - Quarter Report: 2020 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020

☐ 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
incorporation or organization)		Identification No.)

655 Main Street, Hazard, Kentucky 41702

(Address of principal executive offices)(Zip Code)

(502) 223-1638

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading symbol(s)		Name of each exchange on which registered
Common Stock, $0.01 par value per share		KFFB		The NASDAQ Stock Market LLC

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 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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-Accelerated filer	☐	Smaller Reporting Company	☒
		Emerging Growth Company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: At November 9, 2020, the latest practicable date, the Corporation had 8,244,215 shares of $.01 par value common stock outstanding.

INDEX

			Page
PART I	FINANCIAL INFORMATION		1

	ITEM 1	FINANCIAL STATEMENTS

		Condensed Consolidated Balance Sheets	1

		Condensed Consolidated Statements of Operations	2

		Condensed Consolidated Statements of Comprehensive Income	3

		Consolidated Statements of Changes in Shareholders’ Equity	4

		Condensed Consolidated Statements of Cash Flows	5

		Notes to Condensed 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	32

	ITEM 4	Controls and Procedures	32

PART II	OTHER INFORMATION		33

SIGNATURES			34

PART I

ITEM 1: Financial Statements

Kentucky First Federal Bancorp

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except share data)

	September 30,			June 30,
	2020			2020
ASSETS

Cash and due from financial institutions	$	1,906		$	1,662
Interest-bearing demand deposits		15,210			12,040
Cash and cash equivalents		17,116			13,702

Time deposits in other financial institutions		1,241			2,229
Securities available-for-sale		36			541
Securities held-to-maturity, at amortized cost- approximate fair value of $582 and $611 at September 30, 2020 and June 30, 2020, respectively		564			598
Loans held for sale		1,035			667
Loans, net of allowance of $1,536 and $1,488 at September 30, 2020 and June 30, 2020, respectively		290,509			285,887
Real estate owned, net		679			640
Premises and equipment, net		4,863			4,916
Federal Home Loan Bank stock, at cost		6,498			6,498
Accrued interest receivable		700			830
Bank-owned life insurance		2,614			2,594
Goodwill		947			947
Prepaid federal income taxes		–			135
Prepaid expenses and other assets		882			952

Total assets	$	327,684		$	321,136

LIABILITIES AND SHAREHOLDERS’ EQUITY

Deposits	$	215,102		$	212,273
Federal Home Loan Bank advances		58,392			54,715
Advances by borrowers for taxes and insurance		1,084			800
Accrued interest payable		24			27
Accrued federal income taxes		95			–
Deferred income taxes		593			837
Other liabilities		565			573
Total liabilities		275,855			269,225

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		34,963			34,981
Retained earnings		19,873			19,932
Unearned employee stock ownership plan (ESOP), 24,262 shares and 28,931 shares at September 30, 2020 and June 30, 2020, respectively		(243	)		(289	)
Treasury shares at cost, 351,849 and 342,849 common shares at September 30, 2020 and June 30, 2020, respectively		(2,850	)		(2,801	)
Accumulated other comprehensive income		–			2
Total shareholders’ equity		51,829			51,911

Total liabilities and shareholders’ equity	$	327,684		$	321,136

See accompanying notes to condensed consolidated financial statements.

Kentucky First Federal Bancorp

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(Dollars in thousands, except per share data)

	Three months ended September 30,
	2020		2019
Interest income
Loans, including fees	$	2,976	$	3,172
Mortgage-backed securities		4		6
Other securities		3		6
Interest-bearing deposits and other		46		144
Total interest income		3,029		3,328

Interest expense
Interest-bearing demand deposits		7		5
Savings		59		52
Certificates of Deposit		448		531
Deposits		514		588
Borrowings		125		359
Total interest expense		639		947
Net interest income		2,390		2,381
Provision for loan losses		84		59
Net interest income after provision for loan losses		2,306		2,322

Non-interest income
Earnings on bank-owned life insurance		20		19
Net gain on sales of loans		58		6
Net gain on sales of real estate owned		1		–
Other		49		49
Total non-interest income		128		74
Non-interest expense
Employee compensation and benefits		1,343		1,360
Occupancy and equipment		138		143
FDIC insurance premiums		57		14
Voice and data communications		21		61
Advertising		37		48
Outside service fees		63		51
Data processing		147		105
Auditing and accounting		40		47
Franchise and other taxes		65		65
Foreclosure and real estate owned expenses (net)		17		34
Other		155		174
Total non-interest expense		2,083		2,102

Income before income taxes		351		294

Income tax expense		66		60

NET INCOME	$	285	$	234

EARNINGS PER SHARE
Basic and diluted	$	0.04	$	0.03
DIVIDENDS PER SHARE	$	0.10	$	0.10

See accompanying notes to condensed consolidated financial statements.

Kentucky First Federal Bancorp

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In thousands)

	Three months ended September 30,
	2020			2019

Net income	$	285		$	234

Other comprehensive income, net of tax:
Unrealized holding gains on securities designated as available-for-sale, net of taxes of $(1), and $0 during the respective periods		(2	)		–
Comprehensive income	$	283		$	234

See accompanying notes to condensed consolidated financial statements.

Kentucky First Federal Bancorp

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

For the three months ended

(Dollar amounts in thousands, except per share data)

September 30, 2020

									Unearned
									employee
									stock						Accumulated
			Additional						ownership						other
	Common		paid-in			Retained			plan			Treasury			comprehensive
	stock		capital			earnings			(ESOP)			shares			income			Total

Balance at June 30, 2020	$	86	$	34,981		$	19,932		$	(289	)	$	(2,801	)	$	2		$	51,911

Net income		–		–			285			–			–			–			285
Allocation of ESOP shares		–		(18	)		–			46			–			–			28
Acquisition of shares for Treasury		–		–			–			–			(49	)		–			(49	)
Other comprehensive income																(2	)		(2	)
Cash dividends of $0.10 per common share		–		–			(344	)		–			–			–			(344	)

Balance at September 30, 2020	$	86	$	34,963		$	19,873		$	(243	)	$	(2,850	)	$	–		$	51,829

September 30, 2019

									Unearned
									employee
									stock						Accumulated
			Additional						ownership						other
	Common		paid-in			Retained			plan			Treasury			comprehensive
	stock		capital			earnings			(ESOP)			shares			income		Total

Balance at June 30, 2019	$	86	$	35,056		$	33,867		$	(476	)	$	(2,259	)	$	4	$	66,278

Net income		–		–			234			–			–			–		234
Allocation of ESOP shares		–		(34	)		–			47			–			–		13
Acquisition of shares for treasury		–		–			–			–			(151	)		–		(151	)
Other comprehensive income		–		–			–			–			–			–		–
Cash dividends of $0.10 per common share		–		–			(334	)		–			–			–		(334	)

Balance at September 30, 2019	$	86	$	35,022		$	33,767		$	(429	)	$	(2,410	)	$	4	$	66,040

See accompanying notes to condensed consolidated financial statements.

Kentucky First Federal Bancorp

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

	Three months ended
	September 30,
	2020			2019

Cash flows from operating activities:
Net income	$	285		$	234
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation		72			74
Accretion of purchased loan credit discount		(15	)		(28	)
Amortization of purchased loan premium		2			3
Amortization of deferred loan origination costs (fees)		10			23
Amortization of premiums on investment securities		2			–
Net gain on sale of loans		(58	)		(6	)
Net gain on sale of real estate owned		(1	)		–
ESOP compensation expense		28			13
Earnings on bank-owned life insurance		(20	)		(19	)
Provision for loan losses		84			59
Origination of loans held for sale		(1,613	)		(586	)
Proceeds from loans held for sale		1,303			151
Increase (decrease) in cash, due to changes in:
Accrued interest receivable		130			15
Prepaid expenses and other assets		70			(4	)
Accrued interest payable		(3	)		1
Other liabilities		(8	)		25
Federal income taxes		(13	)		63
Net cash provided by operating activities		255			18

Cash flows from investing activities:
Maturities of time deposits in other financial institutions		988			3,497
Securities maturities, prepayments and calls:
Held to maturity		32			92
Available for sale		502			1
Loans originated for investment, net of principal collected		(4,899	)		984
Proceeds from sale of real estate owned		159			44
Additions to real estate owned		(1	)		(4	)
Additions to premises and equipment, net		(19	)		(53	)
Net cash provided by (used in) investing activities		(3,238	)		4,561

Cash flows from financing activities:
Net increase in deposits		2,829			243
Payments by borrowers for taxes and insurance, net		284			287
Proceeds from Federal Home Loan Bank advances		17,900			4,000
Repayments on Federal Home Loan Bank advances		(14,223	)		(6,330	)
Treasury stock purchased		(49	)		(151	)
Dividends paid on common stock		(344	)		(334	)
Net cash provided by (used in) financing activities		6,397			(2,285	)

Net increase in cash and cash equivalents		3,414			2,294

Beginning cash and cash equivalents		13,702			9,861

Ending cash and cash equivalents	$	17,116		$	12,155

See accompanying notes to condensed consolidated financial statements.

Kentucky First Federal Bancorp

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(Unaudited)

(In thousands)

	Three months ended
	September 30,
	2020		2019

Supplemental disclosure of cash flow information:
Cash paid during the period for:
Federal income taxes	$	75	$	–

Interest on deposits and borrowings	$	642	$	946

Transfers of loans to real estate owned, net	$	196	$	295

Loans made on sale of real estate owned	$	–	$	–

See accompanying notes to condensed consolidated financial statements.

Kentucky First Federal Bancorp

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020

(unaudited)

The Kentucky First Federal Bancorp (“Kentucky First” or the “Company”) was incorporated under federal law in March 2005, and is the mid-tier holding company for First Federal Savings and Loan Association of Hazard, Hazard, Kentucky (“First Federal of Hazard”) and Frankfort First Bancorp, Inc. (“Frankfort First”). Frankfort First is the holding company for First Federal Savings Bank of Kentucky, Frankfort, Kentucky (“First Federal of Kentucky”). First Federal of Hazard and First Federal of Kentucky (hereinafter collectively the “Banks”) are Kentucky First’s primary operations, which consist of operating the Banks as two independent, community-oriented savings institutions.

In December 2012, the Company acquired CKF Bancorp, Inc., a savings and loan holding company which operated three banking locations in Boyle and Garrard Counties in Kentucky. In accounting for the transaction, the assets and liabilities of CKF Bancorp were recorded on the books of First Federal of Kentucky in accordance with accounting standard ASC 805, Business Combinations.

1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements, which represent the condensed 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 condensed consolidated financial statements have been included. The results of operations for the three-month period ended September 30, 2020, are not necessarily indicative of the results which may be expected for an entire fiscal year. The condensed consolidated balance sheet as of June 30, 2020 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 condensed 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 2020 filed with the Securities and Exchange Commission.

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 Kentucky (collectively hereinafter “the Banks”). All intercompany transactions and balances have been eliminated in consolidation.

Reclassifications - Certain amounts presented in prior periods may have been reclassified to conform to the current period presentation. Such reclassifications had no impact on prior years’ net income or shareholders’ equity.

Kentucky First Federal Bancorp

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

September 30, 2020

(unaudited)

1. Basis of Presentation (continued)

New Accounting Standards

FASB ASC 326 - In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The final standard will change estimates for credit losses related to financial assets measured at amortized cost such as loans, held-to-maturity debt securities, and certain other contracts. For estimating credit losses, the FASB is replacing the incurred loss model with an expected loss model, which is referred to as the current expected credit loss (CECL) model. The Company will now use forward-looking information to enhance its credit loss estimates. The amendment requires enhanced disclosures to aid investors and other users of financial statements to better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of our portfolio. The largest impact to the Company will be on its allowance for loan and lease losses, although the ASU also amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The standard is effective for public companies for annual periods and interim periods within those annual periods beginning after December 15, 2019. However, the FASB has delayed the implementation of the ASU for smaller reporting companies until years beginning after December 15, 2022, or in the Company’s case the fiscal year beginning July 1, 2023. ASU 2016-13 will be applied through a cumulative effect adjustment to retained earnings (modified-retrospective approach), except for debt securities for which an other-than-temporary impairment had been recognized before the effective date. A prospective transition approach is required for these debt securities. We have formed a functional committee that is assessing our data and system needs and are evaluating the impact of adopting the new guidance. We expect to recognize a one-time cumulative effect adjustment to the allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective, but cannot yet determine the magnitude of any such one-time adjustment or the overall impact of the new guidance on the consolidated financial statements. However, the Company does expect ASU 2016-13 to add complexity and costs to its current credit loss evaluation process.

FASB ASC 820 – In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820) Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. This guidance reduces the level of detail surrounding the processes used by the Company in determining the fair value of some of its assets. The Company adopted this ASU effective July 1, 2020, with no material impact to the financial statements.

FASB ASC 740– In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes. The amendments in this ASU removes certain exceptions for recognizing deferred taxes for investments, performing intraperiod allocation and calculating income taxes during interim periods. The ASU also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. For public business entities, the amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, or July 1, 2021, with respect to the Company. Early adoption is permitted. We do not anticipate a significant impact to our consolidated financial statements.

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

Kentucky First Federal Bancorp

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

September 30, 2020

(unaudited)

2. 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,
	2020		2019

Net income allocated to common shareholders, basic and diluted	$	285,000	$	234,000

Earnings per share, basic and diluted	$	0.04	$	0.03

Weighted average common shares outstanding, basic and diluted		8,222,813		8,277,502

There were no stock option shares outstanding for the three-month periods ended September 30, 2020 and 2019.

3. 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, 2020 and June 30, 2020, the corresponding amounts of gross unrealized gains recognized in accumulated other comprehensive income and gross unrecognized gains and losses:

	September 30, 2020
(in thousands)	Amortized cost		Gross unrealized/ unrecognized gains		Gross unrealized/ unrecognized losses		Estimated fair value

Available-for-sale Securities
Agency mortgage-backed: residential	$	36	$	–	$	–	$	36

Held-to-maturity Securities
Agency mortgage-backed: residential	$	564	$	21	$	3	$	582

	June 30, 2020
(in thousands)	Amortized cost		Gross unrealized/ unrecognized gains		Gross unrealized/ unrecognized losses		Estimated fair value

Available-for-sale Securities
Agency bonds	$	500	$	3	$	–	$	503
Agency mortgage-backed: residential		38		–		–		38
	$	538	$	3	$	–	$	541

Held-to-maturity Securities
Agency mortgage-backed: residential	$	598	$	16	$	3	$	611

Kentucky First Federal Bancorp

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

September 30, 2020

(unaudited)

3. Investment Securities (continued)

Our pledged securities (including overnight and time deposits in other financial institutions) totaled $1.9 million and $1.9 million at September 30, 2020 and June 30, 2020, respectively.

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. Those securities were agency mortgage backed securities, which carry a very limited amount of risk. Also, we have no intention to sell nor feel that we will be compelled to sell such securities before maturity. Based on our evaluation, no impairment has been recognized through earnings.

4. Loans receivable

The composition of the loan portfolio was as follows:

	September 30,			June 30,
(in thousands)	2020			2020

Residential real estate
One- to four-family	$	221,659		$	222,489
Multi-family		14,503			12,373
Construction		4,769			4,045
Land		912			765
Farm		2,506			2,354
Nonresidential real estate		35,681			33,503
Commercial nonmortgage		2,608			2,214
Consumer and other:
Loans on deposits		1,280			1,245
Home equity		7,396			7,645
Automobile		74			67
Unsecured		657			675
		292,045			287,375
Allowance for loan losses		(1,536	)		(1,488	)
	$	290,509		$	285,887

Kentucky First Federal Bancorp

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

September 30, 2020

(unaudited)

4. Loans receivable (continued)

The following table presents the activity in the allowance for loan losses by portfolio segment for the three months ended September 30, 2020:

(in thousands)	Beginning balance		Provision for loan losses			Loans charged off		Recoveries		Ending balance

Residential real estate:
One- to four-family	$	671	$	(1	)	$	–	$	–	$	670
Multi-family		184		33			–		–		217
Construction		6		1			–		–		7
Land		1		–			–		–		1
Farm		4		1			–		–		5
Nonresidential real estate		405		13			–		–		418
Commercial nonmortgage		3		1			–		–		4
Consumer and other:
Loans on deposits		2		–			–		–		2
Home equity		11		38			45		7		11
Automobile		–		–			–		–		–
Unsecured		1		(2	)		–		2		1
Unallocated		200		–			–		–		200
Totals	$	1,488	$	84		$	45	$	9	$	1,536

The following table presents the activity in the allowance for loan losses by portfolio segment for the three months ended September 30, 2019:

(in thousands)	Beginning balance		Provision for loan losses			Loans charged off		Recoveries		Ending balance

Residential real estate:
One- to four-family	$	685	$	66		$	65	$	–	$	686
Multi-family		200		(7	)		–		–		193
Construction		6		–			–		–		6
Land		1		–			–		–		1
Farm		6		–			–		–		6
Nonresidential real estate		336		3			–		–		339
Commercial nonmortgage		5		–			–		–		5
Consumer and other:
Loans on deposits		3		(1	)		–		–		2
Home equity		14		(2	)		–		–		12
Automobile		–		–			–		–		–
Unsecured		–		–			–		–		–
Unallocated		200		–			–		–		200
Totals	$	1,456	$	59		$	65	$	–	$	1,450

Kentucky First Federal Bancorp

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

September 30, 2020

(unaudited)

4. 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, 2020. The recorded investment in loans excludes accrued interest receivable due to immateriality.

September 30, 2020:

(in thousands)	Loans individually evaluated		Loans acquired with deteriorated credit quality		Unpaid principal balance and recorded investment		Ending allowance attributed to loans		Unallocated allowance		Total allowance
Loans individually evaluated for impairment:
Residential real estate:
One- to four-family	$	3,894	$	736	$	4,630	$	–	$	–	$	–
Multi-family		665		–		665		–		–		–
Construction		63		–		63		–		–		–
Farm		292		–		292		–		–		–
Nonresidential real estate		654		–		654		–		–		–
		5,568		736		6,304		–		–		–

Loans collectively evaluated for impairment:
Residential real estate:
One- to four-family					$	217,029	$	670	$	–	$	670
Multi-family						13,838		217		–		217
Construction						4,706		7		–		7
Land						912		1		–		1
Farm						2,214		5		–		5
Nonresidential real estate						35,027		418		–		418
Commercial nonmortgage						2,608		4		–		4
Consumer:
Loans on deposits						1,280		2		–		2
Home equity						7,396		11		–		11
Automobile						74		–		–		–
Unsecured						657		1		–		1
Unallocated						–		–		200		200
						285,741		1,336		200		1,536
					$	292,045	$	1,336	$	200	$	1,536

Kentucky First Federal Bancorp

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

September 30, 2020

(unaudited)

4. Loans receivable (continued)

The following tables present 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, 2020.

June 30, 2020:

(in thousands)	Loans individually evaluated		Loans acquired with deteriorated credit quality		Unpaid principal balance and recorded investment		Ending allowance attributed to loans		Unallocated allowance		Total allowance
Loans individually evaluated for impairment:
Residential real estate:
One- to four-family	$	3,983	$	751	$	4,734	$	–	$	–	$	–
Multi-family		671		–		671		–		–		–
Construction		63		–		63		–		–		–
Farm		309		–		309		–		–		–
Nonresidential real estate		660		–		660		–		–		–
		5,686		751		6,437		–		–		–

Loans collectively evaluated for impairment:
Residential real estate:
One- to four-family					$	217,755	$	671	$	–	$	671
Multi-family						11,702		184		–		184
Construction						3,982		6		–		6
Land						765		1		–		1
Farm						2,045		4		–		4
Nonresidential real estate						32,843		405		–		405
Commercial nonmortgage						2,214		3		–		3
Consumer:
Loans on deposits						1,245		2		–		2
Home equity						7,645		11		–		11
Automobile						67		–		–		–
Unsecured						675		1		–		1
Unallocated						–		–		200		200
						280,938		1,288		200		1,488
					$	287,375	$	1,288	$	200	$	1,488

Kentucky First Federal Bancorp

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

September 30, 2020

(unaudited)

4. Loans receivable (continued)

The following table presents interest income on loans individually evaluated for impairment by class of loans for the three months ended September 30:

(in thousands)	Average Recorded Investment		Interest Income Recognized		Cash Basis Income Recognized		Average Recorded Investment		Interest Income Recognized		Cash Basis Income Recognized
	2020						2019
With no related allowance recorded:
One- to four-family	$	3,938	$	47	$	47	$	3,694	$	34	$	34
Multi-family		668		6		6		683		11		11
Construction		63		–		–		–		–		–
Farm		301		23		23		310		–		–
Nonresidential real estate		657		3		3		705		7		7
Purchased credit-impaired loans		744		14		14		926		18		18
		6,371		93		93		6,318		70		70
With an allowance recorded:
One- to four-family		–		–		–		–		–		–
	$	6,371	$	93	$	93	$	6,318	$	70	$	70

The following table presents the recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans as of September 30, 2020 and June 30, 2020:

	September 30, 2020				June 30, 2020
(in thousands)	Nonaccrual		Loans Past Due Over 90 Days Still Accruing		Nonaccrual		Loans Past Due Over 90 Days Still Accruing

Residential real estate:
One- to four-family residential real estate	$	4,343	$	786	$	4,458	$	1,135
Multifamily		665		–		671		–
Construction		63		–		63		–
Farm		292		–		309		–
Nonresidential real estate and land		654		–		660		–
Commercial and industrial		–		–		4		–
Consumer		50		9		95		–
	$	6,067	$	795	$	6,260	$	1,135

Kentucky First Federal Bancorp

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

September 30, 2020

(unaudited)

4. Loans receivable (continued)

One- to four-family loans in process of foreclosure totaled $563,000 and $694,000 at September 30, 2020 and June 30, 2020, respectively.

Troubled Debt Restructurings:

A Troubled Debt Restructuring (“TDR”) is the situation where the Bank grants a concession to the borrower that the Banks would not otherwise have considered due to the borrower’s financial difficulties. All TDRs are considered “impaired.”

The provisions of the CARES Act included an election to not apply the guidance on accounting for troubled debt restructurings to loan modifications, such as extensions or deferrals, related to COVID-19 made between March 1, 2020 and the earlier of (i) December 31, 2020 or (ii) 60 days after the end of the COVID-19 national emergency. The relief can only be applied to modifications for borrowers that were not more than 30 days past due as of December 31, 2019. The Company elected to adopt these provisions of the CARES Act. As of September 30, 2020, the Banks had granted deferrals to 96 loans totaling $18.1 million. At September 30, 2020, 81 loans totaling $16.2 million had completed their approved deferral periods and $16.0 million or 98.6% had returned to normal repayment status. At September 30, 2020, 15 loans totaling $1.9 million remained on their original deferral periods.

At September 30, 2020 and June 30, 2020, the Company had $1.8 million and $1.9 million of loans classified as TDRs, respectively. Of the TDRs at September 30, 2020, approximately 23.7% were related to the borrower’s completion of Chapter 7 bankruptcy proceedings with no reaffirmation of the debt to the Banks.

During the three months ended September 30, 2020, the Company had no loans restructured as TDRs.

During the three months ended September 30, 2019, the Company had one loan restructured as a TDR. A borrower refinanced a piece of one- to four-family, non-owner occupied, residential property to bring to current amounts owed on other loans with the Bank. Because the borrower’s financial condition had deteriorated, it was unlikely that the borrower could have secured financing elsewhere. The restructured loan is collateralized and cross-collateralized by real estate.

The following table summarizes TDR loan modifications that occurred during the three months ended September 30, 2019, and their performance, by modification type:

(in thousands)

Troubled Debt
Restructurings
Performing to
Modified
Terms

Troubled Debt
Restructurings
Not
Performing to
Modified
Terms

Total
Troubled Debt
Restructurings

Three months ended September 30, 2019

Residential real estate:

Terms extended and additional funds advanced

120

–

120

No TDRs defaulted during the three-month periods ended September 30, 2020 or 2019.

Kentucky First Federal Bancorp

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

September 30, 2020

(unaudited)

4. Loans receivable (continued)

The following table presents the aging of the principal balance outstanding in past due loans as of September 30, 2020, by class of loans:

(in thousands)	30-89 Days Past Due		90 Days or Greater Past Due		Total Past Due		Loans Not Past Due		Total

Residential real estate:
One-to four-family	$	3,227	$	2,319	$	5,546	$	216,113	$	221,659
Multi-family		–		–		–		14,503		14,503
Construction		36		63		99		4,670		4,769
Land		–		–		–		912		912
Farm		105		–		105		2,401		2,506
Nonresidential real estate		99		251		350		35,331		35,681
Commercial non-mortgage		–		–		–		2,608		2,608
Consumer and other:
Loans on deposits		–		–		–		1,280		1,280
Home equity		306		54		360		7,036		7,396
Automobile		1		–		1		73		74
Unsecured		4		–		4		653		657
Total	$	3,778	$	2,687	$	6,465	$	285,580	$	292,045

The following tables present the aging of the principal balance outstanding in past due loans as of June 30, 2020, by class of loans:

(in thousands)	30-89 Days Past Due		90 Days or Greater Past Due		Total Past Due		Loans Not Past Due		Total

Residential real estate:
One-to four-family	$	2,546	$	2,670	$	5,216	$	217,273	$	222,489
Multi-family		–		–		–		12,373		12,373
Construction		192		63		255		3,790		4,045
Land		–		–		–		765		765
Farm		107		309		416		1,938		2,354
Nonresidential real estate		57		253		310		33,193		33,503
Commercial nonmortgage		–		–		–		2,214		2,214
Consumer:
Loans on deposits		–		–		–		1,245		1,245
Home equity		255		90		345		7,300		7,645
Automobile		–		–		–		67		67
Unsecured		–		–		–		675		675
Total	$	3,157	$	3,385	$	6,542	$	280,833	$	287,375

Kentucky First Federal Bancorp

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

September 30, 2020

(unaudited)

4. Loans receivable (continued)

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.

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, 2020, 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

Residential real estate:
One- to four-family	$	214,552	$	703	$	6,404	$	–
Multi-family		13,838		–		665		–
Construction		4,706		–		63		–
Land		912		–		–		–
Farm		2,214		–		292		–
Nonresidential real estate		33,713		943		1,025		–
Commercial nonmortgage		2,608		–		–		–
Consumer:
Loans on deposits		1,280		–		–		–
Home equity		7,294		37		65		–
Automobile		74		–		–		–
Unsecured		652		–		5		–
	$	281,843	$	1,683	$	8,519	$	–

Kentucky First Federal Bancorp

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

September 30, 2020

(unaudited)

4. Loans receivable (continued)

At June 30, 2020, the risk category of loans by class of loans was as follows:

(in thousands)	Pass		Special Mention		Substandard		Doubtful

Residential real estate:
One- to four-family	$	215,010	$	742	$	6,737	$	–
Multi-family		11,702		–		671		–
Construction		3,982		–		63		–
Land		765		–		–		–
Farm		2,045		–		309		–
Nonresidential real estate		31,529		939		1,035		–
Commercial nonmortgage		2,188		–		26		–
Consumer:
Loans on deposits		1,245		–		–		–
Home equity		7,505		39		101		–
Automobile		67		–		–		–
Unsecured		670		–		5		–
	$	276,708	$	1,720	$	8,947	$	–

Purchased Credit Impaired Loans:

The Company purchased loans during fiscal year 2013 for which there was, at acquisition, evidence of deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected. The carrying amount of those loans, net of a purchase credit discount of $351,000 and $351,000 at September 30, 2020 and June 30, 2020, respectively, is as follows:

(in thousands)	September 30, 2020		June 30, 2020

One- to four-family residential real estate	$	736	$	751

Kentucky First Federal Bancorp

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

September 30, 2020

(unaudited)

4. Loans receivable (continued)

Accretable yield, or income expected to be collected, is as follows:

(in thousands)	Three months ended September 30, 2020			Twelve months ended June 30, 2020

Balance at beginning of period	$	447		$	544
Accretion of income		(15	)		(97	)
Disposals, net of recoveries		–			–
Balance at end of period	$	432		$	447

For those purchased loans disclosed above, the Company made no increase in allowance for loan losses for the year ended June 30, 2020, nor for the three-month period ended September 30, 2020. Neither were any allowance for loan losses reversed during those periods.

5. 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 (exit price) 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 six levels of inputs that may be used to measure fair value:

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in active markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the 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 and agency bonds.

Kentucky First Federal Bancorp

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

September 30, 2020

(unaudited)

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

Impaired Loans

At the time a loan is considered impaired, it is evaluated for loss based on the fair value of collateral securing the loan if the loan is collateral dependent. If a loss is identified, a specific allocation will be established as part of the allowance for loan losses such that the loan’s net carrying value is at its estimated fair value. Impaired loans carried at fair value generally receive specific allocations of the allowance for loan losses. For collateral-dependent loans, fair value is commonly based on recent 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 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. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification. Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

Other Real Estate

Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. Fair value is commonly based on recent 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 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 Using
(in thousands)	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)

September 30, 2020
Agency mortgage-backed: residential	$	36	$	–	$	36	$	–
June 30, 2020
Agency bonds	$	503	$	–	$	503	$	–
Agency mortgage-backed: residential		38		–		38		–
	$	541	$	–	$	541	$	–

Kentucky First Federal Bancorp

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

September 30, 2020

(unaudited)

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

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

Fair Value Measurements Using

(in thousands)

Fair Value

Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

June 30, 2020

Other real estate owned, net

One- to four-family

465

–

465

There were no impaired loans, which were measured using the fair value of the collateral for collateral-dependent loans, at September 30, 2020, or at June 30, 2020. There was a charge off of $8,000 for the three-month period ended September 30, 2019.

There was no other real estate owned written down during the three-months ended September 30, 2020 or 2019. Other real estate owned measured at fair value less costs to sell, had a carrying amount of $577,000 at September 30, 2020.

The following table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at September 30, 2020 and June 30, 2020:

					Range
	Fair Value		Valuation	Unobservable	(Weighted
June 30, 2020	(in thousands)		Technique(s)	Input(s)	Average)
Foreclosed and repossessed assets:
One- to four-family	$	465	Sales comparison approach	Adjustments for differences between comparable sales	-2.7% to 41.2% (20.4%)

Kentucky First Federal Bancorp

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

September 30, 2020

(unaudited)

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

The following is a disclosure of the fair value of financial instruments, both assets and liabilities, whether or not recognized in the consolidated balance sheet, for which it is practicable to estimate that value. For financial instruments where quoted market prices are not available, fair values are based on estimates using present value and other valuation methods.

The methods used are greatly affected by the assumptions applied, including the discount rate and estimates of future cash flows. Therefore, the fair values presented may not represent amounts that could be realized in an exchange for certain financial instruments.

Based on the foregoing methods and assumptions, the carrying value and fair value of the Company’s financial instruments at September 30, 2020 and June 30, 2020 are as follows:

			Fair Value Measurements at
	Carrying		September 30, 2020 Using
(in thousands)	Value		Level 1		Level 2		Level 3		Total
Financial assets
Cash and cash equivalents	$	17,116	$	17,116					$	17,116
Time deposits in other financial institutions		1,241		1,254						1,254
Available-for-sale securities		36			$	36				36
Held-to-maturity securities		564				582				582
Loans held for sale		1,035					$	1,064		1,064
Loans receivable - net		290,509						300,232		300,232
Federal Home Loan Bank stock		6,498								n/a
Accrued interest receivable		700				700				700

Financial liabilities
Deposits	$	215,102	$	84,030	$	131,898				215,928
Federal Home Loan Bank advances		58,392				59,140				59,140
Advances by borrowers for taxes and insurance		1,084				1,084				1,084
Accrued interest payable		24				24				24

			Fair Value Measurements at
	Carrying		June 30, 2020 Using
(in thousands)	Value		Level 1		Level 2		Level 3		Total
Financial assets
Cash and cash equivalents	$	13,702	$	13,702					$	13,702
Term deposits in other financial institutions		2,229		2,252						2,252
Available-for-sale securities		541			$	541				541
Held-to-maturity securities		598				611				611
Loans held for sale		667				685				685
Loans receivable – net		285,887					$	295,431		295,431
Federal Home Loan Bank stock		6,498								n/a
Accrued interest receivable		830				830				830

Financial liabilities
Deposits	$	212,273	$	78,118	$	135,000			$	213,118
Federal Home Loan Bank advances		54,715				55,416				55,416
Advances by borrowers for taxes and insurance		800				800				800
Accrued interest payable		27				27				27

Kentucky First Federal Bancorp

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

September 30, 2020

(unaudited)

6. Other Comprehensive Income (Loss)

The Company’s other comprehensive income is comprised solely of unrealized gains and losses on available-for-sale securities. The following is a summary of the accumulated other comprehensive income balances, net of tax:

	Three months ended September 30, 2020

Beginning balance	$	2
Current year change		(2	)
Ending balance	$	–

Other comprehensive income (loss) components and related tax effects for the periods indicated were as follows:

		Three months ended September 30,
(in thousands)		2020		2019

Unrealized holding gains (losses) on available-for-sale securities	$	–	$	–
Tax effect		–		–
Net-of-tax amount	$	–	$	–

Kentucky First Federal Bancorp

ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

Forward-Looking Statements

Certain statements contained in this report that are not historical facts are forward-looking statements that are subject to certain risks and uncertainties. When used herein, the terms “anticipates,” “plans,” “expects,” “believes,” and similar expressions as they relate to Kentucky First Federal Bancorp or its management are intended to identify such forward looking statements. Kentucky First Federal Bancorp’s actual results, performance or achievements may materially differ from those expressed or implied in the forward-looking statements. Risks and uncertainties that could cause or contribute to such material differences include, but are not limited to, general economic conditions, prices for real estate in the Company’s market areas, interest rate environment, competitive conditions in the financial services industry, changes in law, governmental policies and regulations, rapidly changing technology affecting financial services, the potential effects of the COVID-19 pandemic on the local and national economic environment, on our customers and on our operations (as well as any changes to federal, state and local government laws, regulations and orders in connection with the pandemic), and the other matters mentioned in Item 1A of the Company’s Annual Report on Form 10-K for the year ended June 30, 2020. Except as required by applicable law or regulation, the Company does not undertake the responsibility, and specifically disclaims any obligation, to release publicly the result of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of the statements or to reflect the occurrence of anticipated or unanticipated events.

Kentucky First Federal Bancorp

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (continued)

Average Balance Sheets

The following table represents the average balance sheets for the three-month periods ended September 30, 2020 and 2019, along with the related calculations of tax-equivalent net interest income, net interest margin and net interest spread for the related periods.

	Three Months Ended September 30,
	2020								2019
	Average Balance			Interest And Dividends		Yield/ Cost			Average Balance			Interest And Dividends		Yield/ Cost
	(Dollars in thousands)
Interest-earning assets:
Loans ¹	$	289,262		$	2,976		4.12	%	$	281,646		$	3,172		4.50	%
Mortgage-backed securities		621			4		2.58			789			6		3.04
Other securities		393			3		3.05			1,002			6		2.40
Other interest-earning assets		21,824			46		0.84			21,366			144		2.70
Total interest-earning assets		312,100			3,029		3.88			304,803			3,328		4.37

Less: Allowance for loan losses		(1,490	)							(1,436	)
Non-interest-earning assets		12,526								26,129
Total assets	$	323,136							$	329,496

Interest-bearing liabilities:
Demand deposits	$	17,171		$	7		0.16	%	$	14,384		$	5		0.14	%
Savings		57,485			59		0.41			51,157			52		0.41
Certificates of deposit		133,743			448		1.34			126,937			531		1.67
Total deposits		208,399			514		0.99			192,478			588		1.22
Borrowings		51,793			125		0.97			62,796			359		2.29
Total interest-bearing liabilities		260,192			639		0.98			255,274			947		1.48

Noninterest-bearing demand deposits		8,453								5,793
Noninterest-bearing liabilities		2,437								2,128
Total liabilities		271,082								263,195

Shareholders’ equity		52,054								66,301
Total liabilities and shareholders’ equity	$	323,136							$	329,496
Net interest spread				$	2,390		2.90	%				$	2,381		2.89	%
Net interest margin							3.06	%							3.13	%
Average interest-earning assets to average interest-bearing liabilities							119.95	%							119.40	%

¹	Includes loan fees, immaterial in amount, in both interest income and the calculation of yield on loans. Also includes loans on nonaccrual status.

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, 2020 to September 30, 2020

Risks and Uncertainties Related to COVID-19- In March 2020 the World Health Organization determined that the spread of a new coronavirus, COVID-19, had risen to such a level as to constitute a worldwide pandemic. The spread of this virus has created a global public health crisis. Uncertainty related to the effects of the virus have disrupted financial markets, activity in all aspects of life including governmental, business and consumer routines and the markets in which the Company operates. In response to the crisis governmental authorities have closed non-essential businesses and required various responses from individuals including stay-at-home restrictions and social distancing. These governmental restrictions, along with a fear of contracting the virus, have resulted in severe reduction of commercial and consumer activity, which is resulting in loss of revenues by businesses, a dramatic spike in unemployment, material decreases in oil and gas prices and in business valuations, disrupted global supply chains and market volatility.

Management expects the general impact of COVID-19, as well as certain provisions of the Coronavirus Aid, Relief and Economic Security (“CARES”) Act, enacted on March 27, 2020, and other more recent legislative and regulatory relief efforts, to have a material impact on the Company’s operations. Because the impact is contingent upon the duration and severity of the economic downturn, management cannot determine or estimate the magnitude of the impact at this time. However, we are disclosing potentially material items of which we are currently aware.

Business Continuity, Processes and Controls

As a financial institution, the Banks are considered essential businesses and have remained open for business. We have implemented our pandemic preparedness plan and have maintained regular business hours except for closing for business on Fridays at 4:30 p.m. We continue to offer customer service through drive-thru facilities, automated teller machines, remote deposit capture and online and mobile banking applications. We are offering by-appointment options for transactions requiring in-person contact while maintaining social distancing mandates and surface cleaning protocols. Our staff is practicing recommended personal hygiene protocols and social distancing while working on premises. A small number of employees are working remotely. We do not face current material resource constraints through the implementation of our pandemic preparedness plan and do not anticipate incurring any material cost related to its implementation. We have not identified any material operational or internal control challenges or risks, nor do we anticipate any significant challenges to our ability to maintain our systems and controls, related to operational changes resulting from implementation of the pandemic preparedness plan.

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, 2020 to September 30, 2020 (continued)

Financial Position and Results of Operations

Bank regulators have issued guidance and are encouraging banks to work with customers affected by COVID-19. Accordingly, we have been actively working with borrowers affected by COVID-19 by offering a payment deferral program providing for either a three-month interest-only period or a full payment deferral for three months. While interest and fees will continue to accrue to income, under normal GAAP accounting if eventual credit losses on these deferred payments emerge, interest and/or fee income accrued may need to be reversed. As a result, interest income in future periods could be negatively impacted. At this time management anticipates that the deferral program will have an immaterial impact to the Company’s financial condition and results of operation, while recognizing that a sustained negative economic impact from COVID-19 could change this assessment, as borrowers’ ability to repay is impacted in future periods.

At September 30, 2020 the Company and the Banks were considered well-capitalized with capital ratios in excess of regulatory requirements. However, an extended economic recession resulting from the COVID-19 pandemic could adversely impact the Company’s and the Banks’ capital position and regulatory capital ratios due to a potential increase in credit losses.

Lending Operations and Credit Risk

As noted herein the Company is working with its borrowers who are negatively impacted by COVID-19 by offering a payment deferral program. As of September 30, 2020, we had 96 customers to avail themselves of our payment deferral program with a total principal balance of $18.1 million in loans modified. Of those 81 customers with principal balances totaling $16.2 million had returned to amortizing status, while 15 customers (with principal totaling $1.9 million) had not completed the allowed deferral period and three customers (with principal totaling $226,000) had not returned to amortizing status.

The CARES Act includes a Paycheck Protection Program (“PPP”), which is administered by the Small Business Administration (“SBA”) and is designed to aid small- and medium-sized businesses through federally-guaranteed loans disbursed through banks. These loans are intended to provide eight weeks of payroll and other costs to assist those businesses to either remain open or to re-open quickly and allow their workers to pay their bills. First Federal of Kentucky qualified as an SBA lender to assist the small business community in securing this important funding. As of September 30, 2020, First Federal of Kentucky had approved and closed with the SBA 44 PPP loans representing $1.4 million in funding. It is our understanding that loans funded through the PPP are fully guaranteed by the United States government. Should those circumstances change, the bank could be required to increase its allowance for loan and lease losses related to these loans resulting in an increase in the provision for loan and lease losses.

The Banks are prepared to continue to offer short-term assistance in accordance with regulatory guidelines. Management continues to identify and monitor weaknesses in the loan portfolio resulting from fallout from the pandemic. On a portfolio level, management continues to monitor aggregate exposures to highly sensitive segments such as residential rental properties for changes in asset quality and payment performance. Management also monitors unfunded commitments such as lines of credit and overdraft protection to determine liquidity and funding issues that may arise with our customers. If economic conditions worsen, the Company could need to increase its required allowance for loan losses through additional provisions for loan losses. It is possible that the Company’s asset quality metrics could be materially and adversely impacted in future periods, if the effects of COVID-19 are prolonged.

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, 2020 to September 30, 2020 (continued)

Assets: At September 30, 2020, the Company’s assets totaled $327.7 million, an increase of $6.5 million, or 2.0%, from total assets at June 30, 2020. This increase was attributed primarily to an increase in loans, net, and an increase in cash and cash equivalents.

Cash and cash equivalents: Cash and cash equivalents increased $3.4 million or 24.9% to $17.1 million at September 30, 2020. Most of the Company’s cash and cash equivalents are held in interest-bearing demand deposits.

Time deposits in other financial institutions: Time deposits in other financial institutions decreased by $988,000 or 44.3% to $1.2 million at September 30, 2020. As short-term time deposits matured the funds were used to repay FHLB advances, reinvested at the highest earning level possible or simply carried as interest-bearing demand deposits.

Investment securities: At September 30, 2020, our securities portfolio consisted of mortgage-backed securities. Investment securities decreased $539,000 or 47.3% to $600,000 at September 30, 2020.

Loans: Loans receivable, net, increased by $4.6 million or 1.6% to $290.5 million at September 30, 2020. Management continues to look for high-quality loans to add to its portfolio and will continue to emphasize loan originations to the extent that it is profitable, prudent and consistent with our interest rate risk strategies.

Non-Performing and Classified Loans: At September 30, 2020, the Company had non-performing loans (loans 90 or more days past due or on nonaccrual status) of approximately $6.9 million, or 2.4% of total loans (including acquired loans), compared to $7.4 million or 2.6%, of total loans at June 30, 2020. The Company’s allowance for loan losses totaled $1.5 million and $1.5 million at September 30, 2020 and June 30, 2020, respectively. The allowance for loan losses at September 30, 2020, represented 22.4% of nonperforming loans and 0.5% of total loans (including acquired loans), while at June 30, 2020, the allowance represented 20.1% of nonperforming loans and 0.5% of total loans.

The Company had $9.2 million in assets classified as substandard for regulatory purposes at September 30, 2020, including loans ($8.5 million), including loans acquired in the CKF Bancorp transaction and also including real estate owned (“REO”) ($679,000.) Classified loans as a percentage of total loans (including loans acquired) was 2.9% and 3.1% at September 30, 2020 and June 30, 2020, respectively. Of substandard loans, 99.9% were secured by real estate on which the Banks have priority lien position.

The table below shows the aggregate amounts of our assets classified for regulatory purposes at the dates indicated:

(dollars in thousands)	September 30, 2020		June 30, 2020

Substandard assets	$	9,197	$	9,587
Doubtful assets		–		–
Loss assets		–		–
Total classified assets	$	9,197	$	9,587

At September 30, 2020, the Company’s real estate acquired through foreclosure represented 7.4% of substandard assets compared to 6.7% at June 30, 2020. During the periods presented the Company made no loans to facilitate the purchase of its other real estate owned by qualified buyers. Loans to facilitate the sale of other real estate owned, which were included in substandard loans, totaled $46,000 and $23,000 at September 30, 2020 and June 30, 2020, respectively.

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, 2020 to September 30, 2020 (continued)

The following table presents the aggregate carrying value of REO at the dates indicated:

	September 30, 2020				June 30, 2020
	Number		Net		Number		Net
	of		Carrying		of		Carrying
	Properties		Value		Properties		Value

One- to four-family		5	$	679		5	$	640
Building lot		1		–		1		–
Total REO		6	$	679		6	$	640

At September 30, 2020 and June 30, 2020, the Company had $1.7 million and $1.7 million of loans classified as special mention, respectively (including loans acquired in the CKF Bancorp transaction on December 31, 2012.) 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.

Liabilities: Total liabilities increased $6.6 million, or 2.5% to $275.9 million at September 30, 2020, primarily as a result of increases in advances and deposits. Advances increased $3.7 million or 6.7% to $58.4 million at September 30, 2020, while deposits increased $2.8 million or 1.3% to $215.1 million at September 30, 2020.

Shareholders’ Equity: At September 30, 2020, the Company’s shareholders’ equity totaled $51.8 million, a decrease of $82,000 or 0.2% from the June 30, 2020 total. The change in shareholders’ equity was primarily associated with common shares purchased by the Company to hold as treasury shares, and net profits for the period less dividends paid on common stock.

The Company paid dividends of $344,000 or 120.7% of net income for the three-month period just ended. On July 7, 2020, the members of First Federal MHC again approved a dividend waiver on annual dividends of up to $0.40 per share of Kentucky First Federal Bancorp common stock. The Board of Directors of First Federal MHC applied for approval of another waiver. The Federal Reserve Bank of Cleveland has notified the Company that it did not object to the waiver of dividends paid by the Company to First Federal MHC, and, as a result, First Federal MHC will be permitted to waive the receipt of dividends for quarterly dividends up to $0.10 per common share through the third calendar quarter of 2021. Management believes that the Company has sufficient capital to continue the current dividend policy without affecting the well-capitalized status of either subsidiary bank. Management cannot speculate on future dividend levels, because various factors, including capital levels, income levels, liquidity levels, regulatory requirements and overall financial condition of the Company are considered before dividends are declared. However, management continues to believe that a strong dividend is consistent with the Company’s long-term capital management strategy. See “Risk Factors” in Part II, Item 1A, of the Company’s Annual Report on Form 10-K for the year ended June 30, 2020 for additional discussion regarding dividends.

Kentucky First Federal Bancorp

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (continued)

Comparison of Operating Results for the Three-month Periods Ended September 30, 2020 and 2019

General

Net income totaled $285,000 or $0.04 diluted earnings per share for the three months ended September 30, 2020, an increase of $51,000 or 21.8% from net income of $234,000 for the same period in 2019.

Net Interest Income

Net interest income before provision for loan losses increased $9,000 or 0.4% to $2.4 million for the three-month period just ended. Interest income decreased by $299,000, or 9.0%, to $3.0 million, while interest expense decreased $308,000 or 32.5% to $639,000 for the three months ended September 30, 2020.

Interest income on loans decreased $196,000 or 6.2% to $3.0 million, due primarily to a decrease in the average rate earned on the loan portfolio. The average rate earned on the loan portfolio decreased 39 basis points to 4.12%, while the average balance increased $7.6 million or 2.7% to $289.3 million for the three-month period ended September 30, 2020. Interest income on mortgage-backed securities decreased $2,000 or 33.3% to $4,000 for the three-month period just ended due to lower asset levels and lower yields earned. Interest income from other securities decreased $3,000 to $3,000 for the recently-ended period due primarily to a lower average volume of other securities period to period. Interest income from interest-bearing deposits and other decreased $98,000 or 68.1% to $46,000 for the three months just ended due to a decrease in the average rate earned, which decreased 186 basis points to 84 basis points for the recently-ended period compared to the period a year ago.

Interest expense on deposits decreased $74,000 or 12.6% to $514,000 for the three months ended September 30, 2020, while interest expense on borrowings decreased $234,000 or 65.2% to $125,000 for the same period. The decrease in interest expense on deposits was attributed primarily to a decrease in the average rate paid on interest-bearing deposits, which decreased 23 basis points to 99 basis points for the recently ended period. The average balance of interest-bearing deposits increased $15.9 million or 8.3% to $208.4 million for the most recent period. The decrease in interest expense on borrowings was attributed to both to a lower average rate paid on the borrowings and a lower average balance of borrowings decreased period to period. The average balance of borrowings outstanding decreased $11.0 million or 17.5% to $51.8 million for the recently ended three-month period, while the average rate paid on borrowings decreased 132 basis points to 97 basis points for the most recent period.

Net interest spread increased from 2.89% for the prior year quarterly period to 2.90% for the three-month period ended September 30, 2020.

Provision for Losses on Loans

The Company recorded an $84,000 provision for losses on loans during the three months ended September 30, 2020, compared to a provision of $59,000 for the three months ended September 30, 2019.

Kentucky First Federal Bancorp

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (continued)

Comparison of Operating Results for the Three-month Periods Ended September 30, 2020 and 2019 (continued)

Non-interest Income

Non-interest income increased $54,000 or 73.0% to $128,000 for the three months ended September 30, 2020, compared to the prior year period, primarily because of an increase in net gains on sales of loans. Net gain on sales of loans increased $52,000 to $58,000 for the recently-ended three-month period over the prior year amount. The Company has seen significant loan refinance activity since the emergency interest rate cut implemented by the Federal Open Market Committee in March of this year. The Company’s long-term, fixed rate loans, which some borrowers are preferring at this time, are usually sold to the FHLB of Cincinnati after they are originated, which produced the gains.

Non-interest Expense

Non-interest expense decreased $19,000 or 0.9% and totaled $2.1 million for the three months ended September 30, 2020, primarily due to cost-saving measures implemented by management.

Voice and data communications expense decreased $40,000 or 65.6% to $21,000 for the quarterly period just ended, as upgraded technology was implemented. Other non-interest expense decreased $19,000 or 10.9% to $155,000 for the three months ended September 30, 2020, primarily due to lower general loan expenses. Employee compensation and benefits decreased $17,000 or 1.3% to $1.3 million primarily due to lower employee compensation. The Banks were operating with two fewer full-time equivalent employees in the recently-ended quarterly period compared to the prior year quarter, which resulted in lower compensation cost, lower fringe benefit cost and lower payroll taxes period to period. Somewhat offsetting the decreases in other employee compensation and benefits expense was an increase in contributions to the Company’s Defined Benefit (“DB”) pension plan. DB pension contributions increased $73,000 or 41.2% to $252,000 for the three-month period recently ended compared to the prior year period. Higher DB pension contributions were a result of higher administrative fees and Pension Benefit Guarantee Corporation premiums, as the Company’s DB plan was frozen effective April 1, 2019. Foreclosure and OREO expenses, net decreased $17,000 or 50.0% to $17,000 for the quarter just ended, due to lower levels of such activity. Advertising expenses decreased $11,000 or 22.9% to $37,000 for the recently ended three-month period.

Somewhat offsetting the decreases in various non-interest expense items were increases in FDIC insurance premiums, data processing expenses, and outside service fees. FDIC insurance premiums increased $43,000 to $57,000 for the three months ended September 30, 2020. In the prior year quarterly period the Banks were able to utilize their Small Bank Assessment Credits (“SBAC”). The SBAC were depleted in the quarterly period ended June 30, 2020. Data processing increased $42,000 or 40.0% to $147,000 for the period just ended as core processing costs increased and the Company expanded its technology infrastructure. Outside service fees increased $12,000 or 23.5% to $63,000 for the quarter ended September 30, 2020, primarily due to professional services related to the Company’s goodwill impairment valuation during the period.

Federal Income Tax Expense

Federal income tax expense increased $6,000 or 10.0% to $66,000 for the three months ended September 30, 2020, compared to the prior year period. The effective tax rates for the three-month periods ended September 30, 2020 and 2019, were 18.8% and 20.4%, respectively.

Kentucky First Federal Bancorp

ITEM 3: Quantitative and Qualitative Disclosures About Market Risk

This item is not applicable as the Company is a smaller reporting company.

ITEM 4: Controls and Procedures

The Company’s Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined under Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report, and have concluded that the Company’s disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the Securities and Exchange Commission (the “SEC”) (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

Based upon their evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have also concluded that there were no significant changes during the quarter ended September 30, 2020 in the Company’s internal control over financial reporting or in other factors that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Kentucky First Federal Bancorp

PART II

ITEM 1. Legal Proceedings

None.

ITEM 1A. Risk Factors

The information below updates, and should be read in conjunction with, the risk factors disclosed in Part I, “Item 1A- Risk Factors” in the Form 10-K for the year ended June 30, 2020 that we filed with the Securities and Exchange Commission on September 30, 2019. These risk factors could materially affect our business, financial condition or future results. The risks described are not the only risks that we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results. Except as presented below, there have been no material changes in the risk factors as discussed in our Form 10-K.

The recent global coronavirus (COVID-19) pandemic has led to periods of significant volatility in financial, commodities and other markets and could harm our business and results of operations.

In December 2019, a novel strain of coronavirus (COVID-19) was first reported in Wuhan, Hubei Province, China. Since then, COVID-19 infections have spread to additional countries including the United States. In March 2020, the World Health Organization declared COVID-19 to be a pandemic. Given the ongoing and dynamic nature of the circumstances, it is difficult to predict the impact of the coronavirus pandemic on our business, and there is no guarantee that our efforts to address or mitigate the adverse impacts of the coronavirus will be effective. The impact to date has included periods of significant volatility in financial, commodities and other markets. This volatility, if it continues, could have an adverse impact on our customers and on our business, financial condition and results of operations as well as our growth strategy.

Our business is dependent upon the willingness and ability of our customers to conduct banking and other financial transactions. The spread of COVID-19 has caused and could continue to cause severe disruptions in the U.S. economy at large, and has resulted and may continue to result in disruptions to our customers’ businesses, and a decrease in consumer confidence and business generally. In addition, recent actions by US federal, state and local governments to address the pandemic, including travel bans, stay-at-home orders and school, business and entertainment venue closures, may have a significant adverse effect on our customers and the markets in which we conduct our business. The extent of impacts resulting from the coronavirus pandemic and other events beyond our control will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the coronavirus pandemic and actions taken to contain the coronavirus or its impact, among others.

Disruptions to our customers could result in increased risk of delinquencies, defaults, and foreclosures and losses on our loans. The escalation of the pandemic may also negatively impact regional economic conditions for a period of time, resulting in declines in local loan demand, liquidity of loan guarantors, loan collateral (particularly in real estate), loan originations and deposit availability. If the global response to contain COVID-19 escalates or is unsuccessful, we could experience a material adverse effect on our business, financial condition, results of operations and cash flows.

The spread of the COVID-19 outbreak and the governmental responses may disrupt banking and other financial activity in the areas in which we operate and could potentially create widespread business continuity issues for us.

The outbreak of COVID-19 and the US federal, state and local governmental responses may result in a disruption in the services we provide. We rely on our third-party vendors to conduct business and to process, record, and monitor transactions. If any of these vendors are unable to continue to provide us with these services or experience interruptions in their ability to provide us with these services, it could negatively impact our ability to serve our customers. Furthermore, the coronavirus pandemic could negatively impact the ability of our employees and customers to engage in banking and other financial transactions in the geographic areas in which we operate and could create widespread business continuity issues for us. We also could be adversely affected if key personnel or a significant number of employees were to become unavailable due to infection, quarantine or other effects and restrictions of a COVID-19 outbreak in our market areas. Although we have business continuity plans and other safeguards in place, there is no assurance that such plans and safeguards will be effective. If we are unable to promptly recover from such business disruptions, our business, financial condition and results of operations would be adversely affected. We also may incur additional costs to remedy damages caused by such disruptions, which could adversely affect our financial condition and results of operations.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

(c) The following table sets forth information regarding Company’s repurchases of its common stock during the quarter ended September 30, 2020.

Period

Total # of
shares
purchased

Average
price paid
per share
(including
commissions)

Total # of
shares
purchased
as part of
publicly
announced
plans or
programs

Maximum #
of shares
that may
yet be
purchased
under the
plans or
programs

July 1-31, 2020

–

18,900

August 1-31, 2020

–

18,900

September 1-30, 2020

8,000

6.12

8,000

10,900

(1) On December 19, 2018, the Company announced that it had substantially completed its program initiated on January 16, 2014 to repurchase of up to 150,000 shares of its common stock and that it was initiating a new stock repurchase plan in which the Board of Directors authorized the purchase of up to 150,000 shares of its common stock.

ITEM 3. Defaults Upon Senior Securities

Not applicable.

ITEM 4. Mine Safety Disclosures.

Not applicable.

ITEM 5. Other Information

None.

ITEM 6. Exhibits

3.1¹	Charter of Kentucky First Federal Bancorp
3.2²	Bylaws of Kentucky First Federal Bancorp, as amended and restated
3.3³	Amendment No. 1 to the Bylaws of Kentucky First Federal Bancorp
3.4⁴	Amendment No. 2 to the Bylaws of Kentucky First Federal Bancorp
4.1¹	Specimen Stock Certificate of Kentucky First Federal Bancorp
31.1	CEO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	CFO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	CEO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.0	The following materials from Kentucky First Federal Bancorp’s Quarterly Report On Form 10-Q for the quarter ended September 30, 2020 formatted in Extensible Business Reporting Language (XBRL): (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of Income; (iii) the Consolidated Statements of Comprehensive Income; (iv) the Consolidated Statements of Cash Flows: and (v) the related Notes.

(1)	Incorporated herein by reference to the Company’s Registration Statement on Form S-1 (File No. 333-119041).
(2)	Incorporated herein by reference to the Company’s Annual Report on Form 10-K for the Year Ended June 30, 2012 (File No. 0-51176).
(3)	Incorporated herein by reference to the Company’s Current Report on Form 8-K filed August 25, 2017 (File No. 0-51176).
(4)	Incorporated herein by reference to the Company’s Current Report on Form 8-K filed September 28, 2020 (File No. 0-51176).

Kentucky First Federal Bancorp

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		KENTUCKY FIRST FEDERAL BANCORP

Date:	November 16, 2020	By:	/s/ Don D. Jennings
			Don D. Jennings
			Chief Executive Officer

Date:	November 16, 2020	By:	/s/ R. Clay Hulette
			R. Clay Hulette Vice President and Chief Financial Officer