Kentucky First Federal Bancorp 10-Q

ITEM 1: Financial Statements Kentucky First Federal Bancorp CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands, except share data) December 31, June 30, 2021 2021 ASSETS Cash and due from financial institutions $ 3,035 $ 1,834 Fed funds sold 19,006 5,001 Interest-bearing demand deposits 23,251 14,813 Cash and cash equivalents 45,292 21,648 Time deposits in other financial institutions – 247 Securities available-for-sale 30 33 Securities held-to-maturity, at amortized cost- approximate fair value of $ 421 and $ 476 at December 31, 2021 and June 30, 2021, respectively 411 462 Loans held for sale 585 1,307 Loans, net of allowance of $ 1,603 and $ 1,622 at December 31, 2021 and June 30, 2021, respectively 276,684 297,902 Real estate owned, net 51 82 Premises and equipment, net 4,646 4,697 Federal Home Loan Bank stock, at cost 6,498 6,498 Accrued interest receivable 649 694 Bank-owned life insurance 2,711 2,672 Goodwill 947 947 Prepaid federal income taxes 208 40 Prepaid expenses and other assets 856 834 Total assets $ 339,568 $ 338,063 LIABILITIES AND SHAREHOLDERS’ EQUITY Deposits $ 236,838 $ 226,843 Federal Home Loan Bank advances 48,822 56,873 Advances by borrowers for taxes and insurance 246 838 Accrued interest payable 16 20 Deferred income taxes 579 614 Other liabilities 408 579 Total liabilities 286,909 285,767 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 34,893 34,916 Retained earnings 20,718 20,364 Unearned employee stock ownership plan (ESOP), 917 shares and 10,255 shares at December 31, 2021 and June 30, 2021, respectively ( 9 ) ( 102 ) Treasury shares at cost, 377,849 and 369,349 common shares at December 31, 2021 and June 30, 2021, respectively ( 3,029 ) ( 2,968 ) Accumulated other comprehensive income – – Total shareholders’ equity 52,659 52,296 Total liabilities and shareholders’ equity $ 339,568 $ 338,063 See accompanying notes to condensed consolidated financial statements. 1 Kentucky First Federal Bancorp CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (Dollars in thousands, except per share data) Six months ended December 31, Three months ended December 31, 2021 2020 2021 2020 Interest income Loans, including fees $ 5,677 $ 5,936 $ 2,743 $ 2,960 Mortgage-backed securities 6 8 3 4 Other securities -- 3 -- -- Interest-bearing deposits and other 72 84 35 38 Total interest income 5,755 6,031 2,781 3,002 Interest expense Interest-bearing demand deposits 19 15 10 8 Savings 135 125 67 66 Certificates of Deposit 565 800 274 352 Deposits 719 940 351 426 Borrowings 198 228 97 103 Total interest expense 917 1,168 448 529 Net interest income 4,838 4,863 2,333 2,473 Provision for loan losses -- 192 -- 108 Net interest income after provision for loan losses 4,838 4,671 2,333 2,365 Non-interest income Earnings on bank-owned life insurance 40 39 21 20 Net gain on sales of loans 208 155 46 97 Net gain (loss) on sales of real estate owned ( 8 ) ( 18 ) 3 ( 19 ) Valuation adjustment for real estate owned -- ( 19 ) -- ( 19 ) Other 88 94 30 44 Total non-interest income 328 251 100 123 Non-interest expense Employee compensation and benefits 2,438 2,644 1,096 1,301 Data processing 307 292 186 145 Occupancy and equipment 301 280 150 142 FDIC insurance premiums 26 88 22 31 Voice and data communications 62 57 30 36 Advertising 86 76 43 39 Outside service fees 102 96 75 33 Auditing and accounting 80 79 26 39 Regulatory assessments 52 -- 26 -- Foreclosure and real estate owned expenses (net) 44 47 38 30 Franchise and other taxes 91 130 90 65 Other 286 323 112 168 Total non-interest expense 3,875 4,112 1,894 2,029 Income before income taxes 1,291 810 539 459 Income tax expense 241 155 57 89 NET INCOME $ 1,050 $ 655 $ 482 $ 370 EARNINGS PER SHARE Basic and diluted $ 0.13 $ 0.08 $ 0.06 $ 0.04 DIVIDENDS PER SHARE $ 0.20 $ 0.20 $ 0.10 $ 0.10 See accompanying notes to condensed consolidated financial statements. 2 Kentucky First Federal Bancorp CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) (In thousands) Six months ended December 31, Three months ended December 31, 2021 2020 2021 2020 Net income $ 1,050 $ 655 $ 482 $ 370 Other comprehensive gains (losses), net of tax: Unrealized holding Gains (losses) on securities designated as available-for-sale, net of taxes of $ 0 , $( 1 ), $ 0 and $ 0 during the respective periods -- ( 2 ) -- -- Comprehensive income $ 1,050 $ 653 $ 482 $ 370 See accompanying notes to condensed consolidated financial statements. 3 Kentucky First Federal Bancorp CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY For the six months ended (Dollar amounts in thousands, except per share data) December 31, 2021 Common stock Additional paid-in capital Retained earnings Unearned employee stock ownership plan (ESOP) Treasury shares Accumulated other comprehensive income Total Balance at June 30, 2021 $ 86 $ 34,916 $ 20,364 $ ( 102 ) $ ( 2,968 ) $ - $ 52,296 Net income – – 1,050 – – – 1,050 Allocation of ESOP shares – ( 23 ) – 93 – – 70 Acquisition of shares for Treasury – – – – ( 61 ) – ( 61 ) Cash dividends of $ 0.20 per common share – – ( 696 ) – – – ( 696 ) Balance at December 31, 2021 $ 86 $ 34,893 $ 20,718 $ ( 9 ) $ ( 3,029 ) $ – $ 52,659 December 31, 2020 Common stock Additional paid-in capital Retained earnings Unearned employee stock ownership plan (ESOP) Treasury shares Accumulated other comprehensive income Total Balance at June 30, 2020 $ 86 $ 34,981 $ 19,932 $ ( 289 ) $ ( 2,801 ) $ 2 $ 51,911 Net income – – 655 – – – 655 Allocation of ESOP shares – ( 33 ) – 93 – – 60 Acquisition of shares for Treasury – – – – ( 101 ) – ( 101 ) Other comprehensive loss – – – – – ( 2 ) ( 2 ) Cash dividends of $ 0.20 per common share – – ( 691 ) – – – ( 691 ) Balance at December 31, 2020 $ 86 $ 34,948 $ 19,896 $ ( 196 ) $ ( 2,902 ) $ – $ 51,832 See accompanying notes to condensed consolidated financial statements. 4 Kentucky First Federal Bancorp CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY For the three months ended (Dollar amounts in thousands, except per share data) December 31, 2021 Common stock Additional paid-in capital Retained earnings Unearned employee stock ownership plan (ESOP) Treasury shares Accumulated other comprehensive income Total Balance at September 30, 2021 $ 86 $ 34,906 $ 20,581 $ ( 56 ) $ ( 2,968 ) $ – $ 52,549 Net income – – 482 – – – 482 Allocation of ESOP shares – ( 13 ) – 47 – – 34 Acquisition of shares for Treasury – – – – ( 61 ) – ( 61 ) Cash dividends of $ 0.10 per common share – – ( 345 ) – – – ( 345 ) Balance at December 31, 2021 $ 86 $ 34,893 $ 20,718 $ ( 9 ) $ ( 3,029 ) $ – $ 52,659 December 31, 2020 Common stock Additional paid-in capital Retained earnings Unearned employee stock ownership plan (ESOP) Treasury shares Accumulated other comprehensive income Total Balance at September 30, 2020 $ 86 $ 34,963 $ 19,873 $ ( 243 ) $ ( 2,850 ) $ – $ 51,829 Net income – – 370 – – – 370 Allocation of ESOP shares – ( 15 ) – 47 – – 32 Acquisition of shares for Treasury – – – – ( 52 ) – ( 52 ) Cash dividends of $ 0.10 per common share – – ( 347 ) – – – ( 347 ) Balance at December 31, 2020 $ 86 $ 34,948 $ 19,896 $ ( 196 ) $ ( 2,902 ) $ – $ 51,832 See accompanying notes to condensed consolidated financial statements. 5 Kentucky First Federal Bancorp CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands) Six months ended December 31, 2021 2020 Cash flows from operating activities: Net income $ 1,050 $ 655 Adjustments to reconcile net income to net cash provided by operating activities Depreciation 131 145 Accretion of purchased loan credit discount ( 26 ) ( 29 ) Amortization of purchased loan premium -- 4 Amortization of deferred loan origination costs (fees) ( 139 ) ( 1 ) Amortization of premiums on investment securities 2 4 Net gain on sale of loans ( 208 ) ( 155 ) Net (gain) loss on sale of real estate owned 8 18 Valuation adjustments of real estate owned -- 19 ESOP compensation expense 70 60 Earnings on bank-owned life insurance ( 40 ) ( 39 ) Provision for loan losses -- 192 Origination of loans held for sale ( 4,146 ) ( 5,285 ) Proceeds from loans held for sale 5,076 4,377 Increase (decrease) in cash, due to changes in: Accrued interest receivable 45 136 Prepaid expenses and other assets ( 20 ) 162 Accrued interest payable ( 4 ) ( 7 ) Other liabilities ( 171 ) ( 121 ) Income taxes ( 203 ) ( 24 ) Net cash provided by operating activities 1,425 111 Cash flows from investing activities: Maturities of time deposits in other financial institutions 247 1,484 Securities maturities, prepayments and calls: Held to maturity 49 60 Available for sale 3 503 Loans originated for investment, net of principal collected 21,347 ( 10,856 ) Proceeds from sale of real estate owned 58 753 Additions to real estate owned -- ( 1 ) Additions to premises and equipment, net ( 80 ) ( 54 ) Net cash provided by (used in) investing activities 21,624 ( 8,111 ) Cash flows from financing activities: Net increase in deposits 9,995 4,025 Payments by borrowers for taxes and insurance, net ( 592 ) ( 538 ) Proceeds from Federal Home Loan Bank advances 8,000 33,500 Repayments on Federal Home Loan Bank advances ( 16,051 ) ( 27,167 ) Treasury stock purchased ( 61 ) ( 101 ) Dividends paid on common stock ( 696 ) ( 691 ) Net cash provided by financing activities 595 9,028 Net increase in cash and cash equivalents 23,644 1,028 Beginning cash and cash equivalents 21,648 13,702 Ending cash and cash equivalents $ 45,292 $ 14,730 See accompanying notes to condensed consolidated financial statements. 6 Kentucky First Federal Bancorp CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (Unaudited) (In thousands) Six months ended December 31, 2021 2020 Supplemental disclosure of cash flow information: Cash paid during the period for: Federal income taxes $ 500 $ 175 Interest on deposits and borrowings $ 921 $ 1,175 Transfers of loans to real estate owned, net $ 35 $ 276 Loans made on sale of real estate owned $ 32 $ 70 See accompanying notes to condensed consolidated financial statements. 7 Kentucky First Federal Bancorp NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS December 31, 2021 (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 and six-month periods ended December 31, 2021, 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, 2021, 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 2021 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. 8 Kentucky First Federal Bancorp NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) December 31, 2021 (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. Management is in the final stages of selecting a third-party vendor to partner with and expects to begin working with the successful vendor on data validation and implementation efforts over the next several months. 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 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. The Company adopted ASU 2019-12 effective July 1, 2021, with no material 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. 9 Kentucky First Federal Bancorp NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) December 31, 2021 (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: Six months ended December 31, Three months ended December 31, (in thousands) 2021 2020 2021 2020 Net income allocated to common shareholders, basic and diluted $ 1,050 $ 655 $ 482 $ 370 Six months ended December 31, Three months ended December 31, 2021 2020 2021 2020 Weighted average common shares outstanding, basic and diluted 8,216,836 8,220,552 8,217,207 8,218,292 There were no stock option shares outstanding for the six- or three-month periods ended December 31, 2021 and 2020. 3. Investment Securities The following table summarizes the amortized cost and fair value of securities available-for-sale and securities held-to-maturity at December 31, 2021 and June 30, 2021, the corresponding amounts of gross unrealized gains recognized in accumulated other comprehensive income and gross unrecognized gains and losses: December 31, 2021 (in thousands) Amortized cost Gross unrealized/ unrecognized gains Gross unrealized/ unrecognized losses Estimated fair value Available-for-sale Securities Agency mortgage-backed: residential $ 30 $ – $ – $ 30 Held-to-maturity Securities Agency mortgage-backed: residential $ 411 $ 13 $ 3 $ 421 June 30, 2021 (in thousands) Amortized cost Gross unrealized/ unrecognized gains Gross unrealized/ unrecognized losses Estimated fair value Available-for-sale Securities Agency mortgage-backed: residential $ 33 $ – $ – $ 33 Held-to-maturity Securities Agency mortgage-backed: residential $ 462 $ 16 $ 2 $ 476 10 Kentucky First Federal Bancorp NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) December 31, 2021 (unaudited) 3. Investment Securities (continued) Our pledged securities (including overnight and time deposits in other financial institutions) totaled $ 1.7 million and $ 1.8 million at December 31, 2021 and June 30, 2021, 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: December 31, June 30, (in thousands) 2021 2021 Residential real estate One- to four-family $ 217,244 $ 224,125 Multi-family 11,865 19,781 Construction 2,877 5,433 Land 315 1,308 Farm 2,274 2,234 Nonresidential real estate 33,483 35,492 Commercial nonmortgage 1,148 2,259 Consumer and other: Loans on deposits 997 1,129 Home equity 7,431 7,135 Automobile 94 75 Unsecured 559 553 278,287 299,524 Allowance for loan losses ( 1,603 ) ( 1,622 ) $ 276,684 $ 297,902 The amounts above include net deferred loan costs of $ 270,000 and $ 167,000 as of December 31, 2021 and June 30, 2021, respectively. 11 Kentucky First Federal Bancorp NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) December 31, 2021 (unaudited) 4. Loans receivable (continued) The following table presents the activity in the allowance for loan losses by portfolio segment for the six months ended December 31, 2021: (in thousands) Beginning balance Provision for loan losses Loans charged off Recoveries Ending balance Residential real estate: One- to four-family $ 794 $ 54 $ ( 17 ) $ – $ 831 Multi-family 291 ( 79 ) – – 212 Construction 12 ( 6 ) – – 6 Land 3 ( 3 ) – – – Farm 5 1 – – 6 Nonresidential real estate 494 32 – – 526 Commercial nonmortgage 5 ( 2 ) – – 3 Consumer and other: Loans on deposits 2 ( 1 ) – – 1 Home equity 15 2 – – 17 Automobile – – – – – Unsecured 1 2 ( 3 ) 1 1 Totals $ 1,622 $ -- $ ( 20 ) $ 1 $ 1,603 The following table presents the activity in the allowance for loan losses by portfolio segment for the three months ended December 31, 2021: (in thousands) Beginning balance Provision for loan losses Loans charged off Recoveries Ending balance Residential real estate: One- to four-family $ 754 $ 85 $ ( 8 ) $ – $ 831 Multi-family 290 ( 78 ) – – 212 Construction 13 ( 7 ) – – 6 Land – – – – -- Farm 6 – – – 6 Nonresidential real estate 526 -- – – 526 Commercial nonmortgage 3 – – – 3 Consumer and other: Loans on deposits 2 ( 1 ) – – 1 Home equity 16 1 – – 17 Automobile – – – – – Unsecured – – – 1 1 Totals $ 1,610 $ – $ ( 8 ) $ 1 $ 1,603 12 Kentucky First Federal Bancorp NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) December 31, 2021 (unaudited) 4. Loans receivable (continued) The following table presents the activity in the allowance for loan losses by portfolio segment for the six months ended December 31, 2020: (in thousands) Beginning balance Provision for loan losses Loans charged off Recoveries Ending balance Residential real estate: One- to four-family $ 671 $ ( 1 ) $ ( 23 ) $ – $ 647 Multi-family 184 93 – – 277 Construction 6 – – – 6 Land 1 1 – – 2 Farm 4 1 – – 5 Nonresidential real estate 405 64 – – 469 Commercial nonmortgage 3 ( 1 ) – – 2 Consumer and other: Loans on deposits 2 – – – 2 Home equity 11 38 ( 45 ) 7 11 Automobile – – – – – Unsecured 1 ( 3 ) – 3 1 Unallocated 200 – – – 200 Totals $ 1,488 $ 192 $ ( 68 ) $ 10 $ 1,622 The following table presents the activity in the allowance for loan losses by portfolio segment for the three months ended December 31, 2020: (in thousands) Beginning balance Provision for loan losses Loans charged off Recoveries Ending balance Residential real estate: One- to four-family $ 670 $ – $ ( 23 ) $ – $ 647 Multi-family 217 60 – – 277 Construction 7 ( 1 ) – – 6 Land 1 1 – – 2 Farm 5 – – – 5 Nonresidential real estate 418 51 – – 469 Commercial nonmortgage 4 ( 2 ) – – 2 Consumer and other: Loans on deposits 2 – – – 2 Home equity 11 – – – 11 Automobile – – – – – Unsecured 1 ( 1 ) – 1 1 Unallocated 200 – – – 200 Totals $ 1,536 $ 108 $ ( 23 ) $ 1 $ 1,622 13 Kentucky First Federal Bancorp NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) December 31, 2021 (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 December 31, 2021. The recorded investment in loans excludes accrued interest receivable due to immateriality. December 31, 2021: (in thousands) Loans individually evaluated Loans acquired with deteriorated credit quality Unpaid principal balance and recorded investment Ending allowance attributed to loans Loans individually evaluated for impairment: Residential real estate: One- to four-family $ 3,408 $ 476 $ 3,884 $ – Multi-family 580 – 580 – Farm 274 – 274 – Nonresidential real estate 1,339 – 1,339 – Consumer: Home equity 16 -- 16 Unsecured 5 -- 5 5,622 476 6,098 – Loans collectively evaluated for impairment: Residential real estate: One- to four-family $ 213,360 $ 831 Multi-family 11,285 212 Construction 2,877 6 Land 315 -- Farm 2,000 6 Nonresidential real estate 32,144 526 Commercial nonmortgage 1,148 3 Consumer: Loans on deposits 997 1 Home equity 7,415 17 Automobile 94 – Unsecured 554 1 272,189 1,603 $ 278,287 $ 1,603 14 Kentucky First Federal Bancorp NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) December 31, 2021 (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, 2021. June 30, 2021: (in thousands) Loans individually evaluated Loans acquired with deteriorated credit quality Unpaid principal balance and recorded investment Ending allowance attributed to loans Loans individually evaluated for impairment: Residential real estate: One- to four-family $ 3,738 $ 595 $ 4,333 $ – Multi-family 646 – 646 – Farm 274 – 274 – Nonresidential real estate 1,367 – 1,367 – Consumer and other: Unsecured 16 – 16 – 6,041 595 6,636 – Loans collectively evaluated for impairment: Residential real estate: One- to four-family $ 219,792 $ 794 Multi-family 19,135 291 Construction 5,433 12 Land 1,308 3 Farm 1,960 5 Nonresidential real estate 34,125 494 Commercial nonmortgage 2,259 5 Consumer: Loans on deposits 1,129 2 Home equity 7,135 15 Automobile 75 – Unsecured 537 1 292,888 1,622 $ 299,524 $ 1,622 15 Kentucky First Federal Bancorp NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) December 31, 2021 (unaudited) 4. Loans receivable (continued) The following table presents interest income on loans individually evaluated for impairment by class of loans for the six months ended December 31: (in thousands) Average Recorded Investment Interest Income Recognized Cash Basis Income Recognized Average Recorded Investment Interest Income Recognized Cash Basis Income Recognized 2021 2020 With no related allowance recorded: One- to four-family $ 3,572 $ 67 $ 67 $ 4,011 $ 84 $ 84 Multi-family 613 11 11 665 12 12 Construction -- – – 32 – – Farm 274 -- -- 300 23 23 Nonresidential real estate 1,353 30 30 653 7 7 Consumer 19 1 1 Purchased credit-impaired loans 536 15 15 718 24 24 6,169 124 124 6,379 150 150 With an allowance recorded: One- to four-family – – – – – – $ 6,367 $ 124 $ 124 $ 6,379 $ 150 $ 150 The following table presents interest income on loans individually evaluated for impairment by class of loans for the three months ended December 31: (in thousands) Average Recorded Investment Interest Income Recognized Cash Basis Income Recognized Average Recorded Investment Interest Income Recognized Cash Basis Income Recognized 2021 2020 With no related allowance recorded: Residential real estate: One- to four-family $ 3,476 $ 33 $ 33 $ 3,965 $ 39 $ 39 Multi-family 584 5 5 662 6 6 Construction -- 32 -- -- Farm 273 -- -- 292 -- -- Nonresidential real estate 1,344 14 14 650 3 3 Consumer 24 1 1 Purchased credit-impaired loans 468 7 7 711 10 10 6,169 60 60 6,312 58 58 With an allowance recorded: One- to four-family – – – – – – $ 6,169 $ 60 $ 60 $ 6,312 $ 58 $ 58 16 Kentucky First Federal Bancorp NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) December 31, 2021 (unaudited) 4. Loans receivable (continued) 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 December 31, 2021 and June 30, 2021: December 31, 2021 June 30, 2021 (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 $ 3,787 $ 371 $ 4,104 $ 243 Multifamily 580 – 646 – Construction -- – -- – Farm 274 – 274 – Nonresidential real estate and land 1,339 – 1,367 – Consumer 20 71 21 – $ 6,000 $ 442 $ 6,412 $ 243 One- to four-family loans in process of foreclosure totaled $ 479,000 and $ 577,000 at December 31, 2021 and June 30, 2021, 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.” In December 2020, Congress amended the CARES Act through the Consolidated Appropriation Act of 2021, which provided additional COVID-19 relief to American families and businesses, including extending the TDR relief under the CARES Act until the earlier of December 31, 2021 or 60 days following the termination of the 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. In response to the COVID-19 pandemic and the widespread economic downturn that immediately resulted, the Company adopted a loan forbearance plan in which then-current affected borrowers could request deferral of their loan payments for a period of three months. A total of $ 815,000 in loans were accepted into the plan for the twelve months ended June 30, 2021. At June 30, 2021 all of those loans had reached the end of their three-month deferral data period and returned to regular payment status. At December 31, 2021 and June 30, 2021, the Company had $ 1.6 million and $ 1.7 million of loans classified as TDRs, respectively. Of the TDRs at December 31, 2021, approximately 27.2 % were related to the borrower’s completion of Chapter 7 bankruptcy proceedings with no reaffirmation of the debt to the Banks. During the six- and three-months ended December 31, 2021, the Company restructured no loans as TDRs. No TDRs defaulted during the six-month periods ended December 31, 2021 or 2020. 17 Kentucky First Federal Bancorp NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) December 31, 2021 (unaudited) 4. Loans receivable (continued) During the six months ended December 31, 2020, the Company had two loans, which were associated with a single borrower and were both secured by a single-family residence, restructured as TDRs. The loans were classified as TDRs pursuant to court action under Chapter 7 bankruptcy proceedings without the borrower reaffirming the debt personally. The following table summarizes TDR loan modifications that occurred during the six months ended December 31, 2020, 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 Six months ended December 31, 2020 Residential real estate: Chapter 7 bankruptcy $ 144 $ – $ 144 The following table summarizes TDR loan modifications that occurred during the three months ended December 31, 2020, 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 December 31, 2020 Residential real estate: Chapter 7 bankruptcy $ 144 $ – $ 144 18 Kentucky First Federal Bancorp NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) December 31, 2021 (unaudited) 4. Loans receivable (continued) The following table presents the aging of the principal balance outstanding in past due loans as of December 31, 2021, 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 $ 2,123 $ 1,292 $ 3,415 $ 213,829 $ 217,244 Multi-family – – – 11,865 11,865 Construction 12 -- 12 2,865 2,877 Land – – – 315 315 Farm 98 – 98 2,176 2,274 Nonresidential real estate 99 237 336 33,147 33,483 Commercial non-mortgage – – – 1,148 1,148 Consumer and other: Loans on deposits – – – 997 997 Home equity 76 71 147 7,284 7,431 Automobile -- – -- 94 94 Unsecured 2 – 2 557 559 Total $ 2,410 $ 1,600 $ 4,010 $ 274,277 $ 278,287 The following tables present the aging of the principal balance outstanding in past due loans as of June 30, 2021, 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 $ 2,392 $ 1,338 $ 3,730 $ 220,395 $ 224,125 Multi-family – – – 19,781 19,781 Construction 80 -- 80 5,353 5,433 Land – – – 1,308 1,308 Farm 101 -- 101 2,133 2,234 Nonresidential real estate -- 241 241 35,251 35,492 Commercial and industrial 6 – 6 2,253 2,259 Consumer: Loans on deposits – – – 1,129 1,129 Home equity 116 -- 116 7,019 7,135 Automobile – – – 75 75 Unsecured 4 – 4 549 553 Total $ 2,699 $ 1,579 $ 4,278 $ 295,246 $ 299,524 19 Kentucky First Federal Bancorp NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) December 31, 2021 (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 December 31, 2021, 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 $ 210,945 $ 573 $ 5,726 $ – Multi-family 11,285 – 580 – Construction 2,877 – – – Land 315 – – – Farm 2,000 – 274 – Nonresidential real estate 31,232 912 1,339 – Commercial nonmortgage 1,148 – – – Consumer: Loans on deposits 997 – – – Home equity 7,269 40 122 – Automobile 94 – – – Unsecured 553 – 6 – $ 268,715 $ 1,525 $ 8,047 $ – 20 Kentucky First Federal Bancorp NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) December 31, 2021 (unaudited) 4. Loans receivable (continued) At June 30, 2021, 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 $ 217,485 $ 596 $ 6,044 $ – Multi-family 19,135 – 646 – Construction 5,433 – – – Land 1,308 – – – Farm 1,960 – 274 – Nonresidential real estate 32,748 924 1,820 – Commercial nonmortgage 2,259 – – – Consumer: Loans on deposits 1,129 – – – Home equity 7,044 39 52 – Automobile 75 – – – Unsecured 546 – 7 – $ 289,122 $ 1,559 $ 8,843 $ – 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 $ 88,000 and $ 88,000 at December 31, 2021 and June 30, 2021, respectively, is as follows: (in thousands) December 31, 2021 June 30, 2021 One- to four-family residential real estate $ 434 $ 595 21 Kentucky First Federal Bancorp NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) December 31, 2021 (unaudited) 4. Loans receivable (continued) Accretable yield, or income expected to be collected, is as follows: (in thousands) Six months ended December 31, 2021 Twelve months ended June 30, 2021 Balance at beginning of period $ 390 $ 447 Accretion of income ( 26 ) ( 57 ) Disposals, net of recoveries – – Balance at end of period $ 364 $ 390 For those purchased loans disclosed above, the Company made no increase in allowance for loan losses for the year ended June 30, 2021, nor for the six-month period ended December 31, 2021. 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. 22 Kentucky First Federal Bancorp NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) December 31, 2021 (unaudited) 5. Disclosures About Fair Value of Assets and Liabilities (continued) 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) December 31, 2021 Agency mortgage-backed: residential $ 30 $ – $ 30 $ – June 30, 2021 Agency mortgage-backed: residential $ 33 $ – $ 33 $ – Impaired Loans Following is a description of the valuation methodologies and inputs used for assets measured at fair value on a nonrecurring basis and recognized in the accompanying consolidated balance sheet as well as the general classification of such assets pursuant to the valuation hierarchy. For assets classified within Level 3 of the fair value hierarchy, the process used to develop the reported fair value is described below. 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. There were no loans measured on a nonrecurring basis using the fair value of the collateral for collateral-dependent loans, at December 31, 2021 or at June 30, 2021. 23 Kentucky First Federal Bancorp NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) December 31, 2021 (unaudited) 5. Disclosures About Fair Value of Assets and Liabilities (continued) 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. There was no other real estate owned (“OREO”) written down during the six- or three-month periods ended December 31, 2021 or 2020. There was no OREO measured on a nonrecurring basis during the period at fair value less costs to sell at December 31, 2021 or June 30, 2021. 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. 24 Kentucky First Federal Bancorp NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) December 31, 2021 (unaudited) 5. Disclosures About Fair Value of Assets and Liabilities (continued) Based on the foregoing methods and assumptions, the carrying value and fair value of the Company’s financial instruments at December 31, 2021 and June 30, 2021 are as follows: Fair Value Measurements at Carrying December 31, 2021 Using (in thousands) Value Level 1 Level 2 Level 3 Total Financial assets Cash and cash equivalents $ 45,292 $ 45,292 $ 45,292 Available-for-sale securities 30 $ 30 30 Held-to-maturity securities 411 421 421 Loans held for sale 585 $ 595 595 Loans receivable - net 276,684 282,961 282,961 Federal Home Loan Bank stock 6,498 n/a Accrued interest receivable 649 649 649 Financial liabilities Deposits $ 236,838 $ 109,176 $ 127,936 237,112 Federal Home Loan Bank advances 48,822 49,109 49,109 Advances by borrowers for taxes and insurance 246 246 246 Accrued interest payable 16 16 16 Fair Value Measurements at Carrying June 30, 2021 Using (in thousands) Value Level 1 Level 2 Level 3 Total Financial assets Cash and cash equivalents $ 21,648 $ 21,648 $ 21,648 Term deposits in other financial institutions 247 248 248 Available-for-sale securities 33 $ 33 33 Held-to-maturity securities 462 476 476 Loans held for sale 1,307 1,336 1,336 Loans receivable – net 297,902 $ 306,346 306,346 Federal Home Loan Bank stock 6,498 n/a Accrued interest receivable 694 694 694 Financial liabilities Deposits $ 226,843 $ 101,951 $ 125,232 $ 227,183 Federal Home Loan Bank advances 56,873 57,314 57,314 Advances by borrowers for taxes and insurance 838 838 838 Accrued interest payable 20 20 20 25 Kentucky First Federal Bancorp NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) December 31, 2021 (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: Six months ended December 31, 2021 Beginning balance $ – Current year change – Ending balance $ – Other comprehensive income (loss) components and related tax effects for the periods indicated were as follows: Six months ended December 31, (in thousands) 2021 2020 Unrealized holding gains (losses) on available-for-sale securities $ – $ – Tax effect – – Net-of-tax amount $ – $ – 26 Kentucky First Federal Bancorp