Kentucky First Federal Bancorp 10-Q

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, 2021. 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. 27 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 six month periods ended December 31, 2021 and 2020, along with the related calculations of tax-equivalent net interest income, net interest margin and net interest spread for the related periods. Six Months Ended December 31, 2021 2020 Average Balance Interest And Dividends Yield/ Cost Average Balance Interest And Dividends Yield/ Cost (Dollars in thousands) Interest-earning assets: Loans 1 $ 293,644 $ 5,677 3.87 % $ 292,778 $ 5,936 4.06 % Mortgage-backed securities 467 6 2.57 604 8 2.65 Other securities – – – 196 3 3.06 Other interest-earning assets 34,924 72 0.41 21,341 84 0.79 Total interest-earning assets 329,035 5,755 3.50 314,919 6,031 3.83 Less: Allowance for loan losses (1,611 ) (1,518 ) Non-interest-earning assets 12,254 12,555 Total assets $ 339,678 $ 325,956 Interest-bearing liabilities: Demand deposits $ 20,786 $ 19 0.18 % $ 17,675 $ 15 0.17 % Savings 71,762 135 0.38 60,298 125 0.42 Certificates of deposit 126,564 565 0.89 130,479 800 1.23 Total deposits 219,112 719 0.66 208,452 940 0.90 Borrowings 52,423 198 0.76 54,261 228 0.84 Total interest-bearing liabilities 271,535 917 0.68 262,713 1,168 0.89 Noninterest-bearing demand deposits 13,766 9,006 Noninterest-bearing liabilities 2,131 2,247 Total liabilities 287,432 273,966 Shareholders’ equity 52,246 51,990 Total liabilities and shareholders’ equity $ 339,678 $ 325,956 Net interest spread $ 4,838 2.82 % $ 4,863 2.94 % Net interest margin 2.94 % 3.09 % Average interest-earning assets to average interest-bearing liabilities 121.18 % 119.87 % 1 Includes loan fees, immaterial in amount, in both interest income and the calculation of yield on loans. Also includes loans on nonaccrual status. 28 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 December 31, 2021 and 2020, 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 December 31, 2021 2020 Average Balance Interest And Dividends Yield/ Cost Average Balance Interest And Dividends Yield/ Cost (Dollars in thousands) Interest-earning assets: Loans 1 $ 289,434 $ 2,743 3.79 % $ 296,294 $ 2,960 4.00 % Mortgage-backed securities 453 3 2.65 587 4 2.73 Other securities – – – – – – Other interest-earning assets 38,318 35 0.37 20,859 38 0.73 Total interest-earning assets 328,205 2,781 3.39 317,740 3,002 3.78 Less: Allowance for loan losses (1,607 ) (1,544 ) Non-interest-earning assets 12,549 12,579 Total assets $ 339,147 $ 328,775 Interest-bearing liabilities: Demand deposits $ 20,423 $ 10 0.20 % $ 18,358 $ 8 0.17 % Savings 73,086 67 0.37 63,112 66 0.42 Certificates of deposit 127,088 274 0.86 127,215 352 1.11 Total deposits 220,597 351 0.64 208,685 426 0.82 Borrowings 49,963 97 0.78 56,730 103 0.73 Total interest-bearing liabilities 270,560 448 0.66 265,415 529 0.80 Noninterest-bearing demand deposits 14,129 9,380 Noninterest-bearing liabilities 2,042 2,158 Total liabilities 286,731 276,953 Shareholders’ equity 52,416 51,822 Total liabilities and shareholders’ equity $ 339,147 $ 328,775 Net interest spread $ 2,333 2.73 % $ 2,473 2.98 % Net interest margin 2.84 % 3.11 % Average interest-earning assets to average interest-bearing liabilities 121.31 % 119.71 % 1 Includes loan fees, immaterial in amount, in both interest income and the calculation of yield on loans. Also includes loans on nonaccrual status. 29 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, 2021 to December 31, 2021 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 closed or limited the operations of many 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 continues to monitor 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. 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. While the pandemic has affected the physical operations of the Banks, the business has been mostly unchanged with consistent levels of consumer transactions and loan originations. The potential for a deterioration in asset quality remains, but actual asset quality has improved. Classified assets at December 31, 2021 totaled $8.1 million compared to $10.5 million at March 31, 2020. Management attributes some of this improved performance to the overall strengthening in the residential real estate market. Approximately 95% of the Company’s loans are secured by residential real estate. Business Continuity, Processes and Controls In response to the COVID-19 pandemic the Banks are considered essential businesses and have remained open for business. We implemented our pandemic preparedness plan and generally maintained regular business hours through drive-thru facilities, automated teller machines, remote deposit capture and online and mobile banking applications. We offer 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. 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. 30 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, 2021 to December 31, 2021 (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 actively worked 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 continued to accrue to income While interest and fees, 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 December 31, 2021 all loans had returned to current status. The deferral program did not have a material impact to the Company’s financial condition and results of operation. At December 31, 2021 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. During the year ended June 30, 2021, a total of $815,000 in loans were accepted into the Company’s loan payment deferral plan. At June 30, 2021 all of those loans had reached the end of their three-month deferral periods and returned to regular payment 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 December 31, 2021, First Federal of Kentucky had approved and closed with the SBA 75 PPP loans representing $2.6 million in funding. Of those loans a total of 50 loans aggregating $2.2 million had been repaid at the end of the period. 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. 31 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, 2021 to December 31, 2021 (continued) Assets: At December 31, 2021, the Company’s assets totaled $339.6 million, an increase of $1.5 million, or 0.4%, from total assets at June 30, 2021. This increase was attributed primarily to an increase in cash and cash equivalents. Cash and cash equivalents: Cash and cash equivalents increased $23.6 million or 109.2% to $45.3 million at December 31, 2021, and was primarily due to increased deposits and loan repayments. Investment securities: At December 31, 2021, our securities portfolio consisted of mortgage-backed securities. Investment securities decreased $54,000 or 10.9% to $441,000 at December 31, 2021. Loans : Loans receivable, net, decreased by $21.2 million or 7.1% to $276.7 million at December 31, 2021. There are multiple reasons for the decline in loan balances. Some borrowers have decided to take advantage of high prices and sell all or part of their real estate holdings. Some borrowers have sold their properties due to age or death and some loans have been lost to competing financial institutions who offered terms that our Banks did not believe were prudent to match. Non-Performing and Classified Loans: At December 31, 2021, the Company had non-performing loans (loans 90 or more days past due or on nonaccrual status) of approximately $6.4 million, or 2.3% of total loans (including acquired loans), compared to $6.7 million or 2.2%, of total loans at June 30, 2021. The Company’s allowance for loan losses totaled $1.6 million at December 31, 2021 and June 30, 2021. The allowance for loan losses at December 31, 2021, represented 24.9% of nonperforming loans and 0.6% of total loans (including acquired loans), while at June 30, 2021, the allowance represented 24.4% of nonperforming loans and 0.5% of total loans. The Company had $8.1 million in assets classified as substandard for regulatory purposes at December 31, 2021, including loans ($8.0 million) and real estate owned (“REO”) ($51,000.) Classified loans as a percentage of total loans (including loans acquired) was 2.9% and 3.0% at December 31, 2021 and June 30, 2021, respectively. Of substandard loans, 100.0% 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) December 31, 2021 June 30, 2021 Substandard assets $ 8,097 $ 8,925 Doubtful assets – – Loss assets – – Total classified assets $ 8,097 $ 8,925 At December 31, 2021, the Company’s real estate acquired through foreclosure represented 0.6% of substandard assets compared to 0.9% at June 30, 2021. During the period presented the Company made one loan totaling $32,000 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 $43,000 at December 31, 2021 and June 30, 2021. 32 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, 2021 to December 31, 2021 (continued) The following table presents the aggregate carrying value of REO at the dates indicated: December 31, 2021 June 30, 2021 Number of Properties Net Carrying Value Number of Properties Net Carrying Value One- to four-family 1 $ 51 2 $ 82 Building lot -- – 1 – Total REO 1 $ 51 3 $ 82 At December 31, 2021 and June 30, 2021, the Company had $1.5 million and $1.6 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 $1.1 million, or 0.4% to $286.9 million at December 31, 2021, primarily as a result an increase in deposits. Deposits increased $10.0 million or 4.4% to $236.8 million at December 31, 2021, while advances decreased $8.1 million or 14.2% to $48.8 million. Shareholders’ Equity: At December 31, 2021, the Company’s shareholders’ equity totaled $52.7 million, an increase of $363,000 or 0.7% from the June 30, 2021 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 $696,000 or 66.3% of net income for the six-month period just ended. On July 8, 2021, 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 2022. 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, 2021 for additional discussion regarding dividends. 33 Kentucky First Federal Bancorp MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Comparison of Operating Results for the Six-month Periods Ended December 31, 2021 and 2020 General Net income totaled $1.1 million or $0.13 diluted earnings per share for the six months ended December 31, 2021, an increase of $395,000 or 60.3% from net income of $655,000 or $0.08 diluted earnings per share for the same period in 2020. The increase in net income on a six-month basis was primarily attributable to lower non-interest expense, decreased provision for loan losses, and higher non-interest income, which were partially offset by increased provision for income tax and decreased net interest income. Net Interest Income Net interest income before provision for loan losses decreased $25,000 or 0.5% to $4.8 million for the six-month period just ended. Interest income decreased by $276,000, or 4.6%, to $5.8 million, while interest expense decreased $251,000 or 21.5% to $917,000 for the six months ended December 31, 2021. The decrease in interest income period-to-period was due primarily to a decrease in the average rate earned on interest-earning assets, which decreased 33 basis points to 3.50% for the recently-ended six-month period compared to the prior year period. The average balance of interest-earning assets increased $14.1 million or 4.5% to $329.0 million for the six months ended December 31, 2021. Interest income on loans decreased $259,000 or 4.4% to $5.7 million, due primarily to a decrease in the average rate earned on the loan portfolio, which decreased 19 basis points to 3.87%, while the average balance increased $866,000 or 0.3% to $293.6 million for the six-month period ended December 31, 2021. Interest income from interest-bearing deposits and other decreased $12,000 or 14.3% to $72,000 for the six months just ended due to a decrease in the average rate earned, which decreased 38 basis points to 0.41% for the recently-ended period compared to the period a year ago. Interest expense decreased $251,000 or 21.5% to $917,000 for the six months ended December 31, 2021. The decrease in interest expense was due primarily to a decrease in the average rate paid on funding sources, which decreased 21 basis points and totaled 0.68% for the recently-ended period. Interest expense on deposits decreased $221,000 or 23.5% to $719,000 for the six months just ended, while the average balance of deposits increased $10.7 million or 5.1% to $219.1 million. Interest expense on certificates of deposit decreased $235,000 or 29.4% to $565,000, for the six months just ended primarily due to a decrease in the average cost, which decreased by 34 bps to 0.89%. Also contributing to the overall decrease in interest expense was a decrease in interest expense on borrowings, which decreased $30,000 or 13.2% to $198,000 for the period. The decrease in interest expense on borrowings was attributed primarily to a lower average rate paid on the borrowings, which decreased eight bps to 0.76% for the recently-ended period. The average balance of borrowings outstanding decreased $1.8 million or 3.4% to $52.4 million for the recently ended six-month period. Net interest spread decreased from 2.94% for the prior year semiannual period to 2.82% for the six-month period ended December 31, 2021. Provision for Losses on Loans The Company recorded no provision for loan losses for the six-month period ended December 31, 2021, compared to a provision of $192,000 recorded for the prior year period. The lower provision was primarily in response to decreases in total loans during the period. 34 Kentucky First Federal Bancorp MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Comparison of Operating Results for the Six-month Periods Ended December 31, 2021 and 2020 (continued) Non-interest Income Non-interest income increased $77,000 or 30.7% to $328,000 for the six months ended December 31, 2021, 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 $53,000 to $208,000 for the recently-ended six-month period. In the current interest rate environment, many borrowers are choosing long-term, fixed rate loans, which the Banks usually sell to the Federal Home Loan Bank of Cincinnati (“FHLB”). An increase in volume of these loans sold was responsible for the increase in gain on sale of loans. Non-interest Expense Non-interest expense decreased $237,000 or 5.8% and totaled $3.9 million for the six months ended December 31, 2021, primarily due to a decrease in expenses related to the Company’s employee compensation and benefits. Employee compensation and benefits decreased $165,000 or 6.3% to $2.4 million primarily due to a decrease in the required contribution to its defined benefit (“DB”) pension plan for the current fiscal year. The Company’s DB plan administrator estimates contributions for the fiscal year ending June 30, 2022, to be approximately $376,000, compared to $955,000 in contributions for the fiscal year ended June 30, 2021. FDIC insurance decreased $62,000 or 70.5% to $26,000 for the six months just ended, as premiums decreased. FDIC insurance premiums increased in the prior year due primarily to a goodwill impairment charge recognized at one of the Company’s Banks in the three month period ended June 30, 2020. Franchise and other taxes decreased $39,000 or 30.0% period to period as the Banks became subject to Kentucky income taxes rather than the Kentucky Savings & Loan Deposits tax effective January 1, 2021. Occupancy and equipment expense decreased $20,000 or 6.2% to $301,000 for the six months ended December 31, 2021, primarily due to lower general computer and software expenses, depreciation expenses and utilities. Income Tax Expense Income tax expense increased $86,000 or 55.5% to $241,000 for the six months ended December 31, 2021, compared to the prior year period. The effective tax rates for the six-month periods ended December 31, 2021 and 2020, were 18.7% and 19.1%, respectively. 35 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 December 31, 2021 and 2020 General Net income totaled $482,000 or $0.06 diluted earnings per share for the three months ended December 31, 2021, an increase of $112,000 or 30.3% from net income of $370,000 or $0.04 diluted earnings per share for the same period in 2020. The increase in net earnings for the quarter ended December 31, 2021 was primarily attributable to lower non-interest expense, lower provision for loan losses, and lower income taxes, which were partially offset by decreased net interest income and decreased non-interest income. Net Interest Income Net interest income before provision for loan losses decreased $140,000 or 5.7% to $2.3 million for the three-month period just ended, as interest income decreased at a faster pace than interest expense decreased for the quarter. Interest income decreased by $221,000, or 7.4%, to $2.8 million, while interest expense decreased $81,000 or 15.3% to $448,000 for the three months ended December 31, 2021. Interest income on loans decreased $217,000 or 7.3% to $2.7 million, due decreases in the average rate earned on the loan portfolio, as well a decrease in the average balance. The average rate earned on the loan portfolio decreased 21 basis points to 3.79%, while the average balance decreased $6.8 million or 2.3% to $289.4 million for the three-month period ended December 31, 2021. Interest expense on deposits decreased $75,000 or 17.6% to $351,000 for the three months ended December 31, 2021, while interest expense on borrowings decreased $6,000 or 5.8% to $97,000 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 18 basis points to 0.64% for the recently ended period, while the average balance of interest-bearing deposits increased $11.9 million or 5.7% to $220.6 million for the most recent period. The decrease in interest expense on borrowings was attributed primarily to a lower average balance of borrowings outstanding period to period, which decreased $6.7 million or 11.9% to $50.0 million for the recently ended three-month period. Net interest spread increased 25 basis points from 2.98% for the prior year quarterly period to 2.73% for the three-month period ended December 31, 2021. Provision for Losses on Loans The Company recorded no provision for loan losses for the three-month period ended December 31, 2021, compared to a provision of $108,000 recorded for the prior year quarter. The lower provision was primarily in response to decreases in total loans during the period. 36 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 December 31, 2021 and 2020 (continued) Non-interest Income Non-interest income decreased $23,000 or 18.7% to $100,000 for the recently ended quarter due primarily to decreased net gains on sales of loans. The decrease in net gains on sales of loans was primarily due to reduced volume of loans sold during the comparable period. The Company sells most of its long-term, fixed-rate mortgage loans to the Federal Home Loan Bank of Cincinnati, while retaining the servicing rights on the loans. Non-interest Expense Non-interest expense decreased $135,000 or 6.7% to $1.9 million for the quarter ended December 31, 2021, due primarily to a decrease to expenses relating to the Company’s employee compensation and benefits, which decreased $184,000 or 14.4% and totaled $1.1 million for the recently-ended quarter. The decrease in employee compensation and benefits was primarily due to a decrease in the required contribution to the Company’s defined benefit (“DB”) pension plan for the current fiscal year. The Company’s DB plan administrator estimates contributions for the fiscal year ending June 30, 2022, to be approximately $376,000, compared to $955,000 in contributions for the fiscal year ended June 30, 2021. Somewhat offsetting the decrease in employee compensation and benefits were increases in outside service fees and data processing. Outside service fees increased $42,000 or 127.3% to $75,000 for the quarter just ended, while data processing expenses increased $41,000 or 28.3% to $186,000. Income Tax Expense Income tax expense decreased $32,000 or 36.0% to $57,000 for the three months ended December 31, 2021, compared to the prior year period. The effective tax rates for the three-month periods ended December 31, 2021 and 2020 were 10.6% and 19.4%, respectively. 37 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.