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What changed in Kentucky First Federal Bancorp's 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of Kentucky First Federal Bancorp's 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+150 added−119 removedSource: 10-K (2024-10-03) vs 10-K (2023-09-28)

Top changes in Kentucky First Federal Bancorp's 2024 10-K

150 paragraphs added · 119 removed · 103 edited across 5 sections

Item 1. Business

Business — how the company describes what it does

63 edited+24 added−7 removed213 unchanged
Biggest changeRisks 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 level of inflation; changes in the demand for loans, deposits and other financial services that we provide; the possibility that future credit losses may be higher than currently expected; the impact of the interest rate environment on our business, financial condition and results of operations; competitive pressures among financial services companies; the ability to attract, develop and retain qualified employees; the ability to pay future dividends at currently expected rates; our ability to maintain the security of our data processing and information technology systems; the outcome of pending or threatened litigation, or of matters before regulatory agencies; 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), the impacts related to or resulting from Russia’s military action in Ukraine, including the broader impacts to financial markets, and the other matters mentioned in Item 1A of this Annual Report on Form 10-K.
Biggest changeRisks 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; the interest rate environment and the impact of the interest rate environment on our business, financial condition and results of operations; our ability to successfully execute our strategy to increase earnings, increase core deposits, reduce reliance on higher cost funding sources and shift more of our loan portfolio towards higher-earning loans; our ability to pay future dividends and if so at what level; our ability to receive any required regulatory approval or non-objection for the payment of dividends from First Federal Savings and Loan Association of Hazard and First Federal Savings Bank of Kentucky to the Company or from the Company to shareholders; the ability of First Federal MHC to receive approval of its members to waive the payment of any Company dividends to First Federal MHC competitive conditions in the financial services industry; changes in the level of inflation; changes in the demand for loans, deposits and other financial services that we provide; the possibility that future credit losses may be higher than currently expected; competitive pressures among financial services companies; the ability to attract, develop and retain qualified employees; our ability to maintain the security of our data processing and information technology systems; the outcome of pending or threatened litigation, or of matters before regulatory agencies; changes in law, governmental policies and regulations, rapidly changing technology affecting financial services, and the other matters mentioned in Item 1A of the Company’s Annual Report on Form 10-K.
Both of the Banks are members of the Federal Home Loan Bank of Cincinnati, which is one of the 11 regional banks in the FHLB System. See “ Regulation and Supervision .” 1 First Federal Savings and Loan Association of Hazard. First Federal of Hazard was formed as a federally chartered mutual savings and loan association in 1960.
Both of the Banks are members of the Federal Home Loan Bank of Cincinnati, which is one of the 11 regional banks in the FHLB System. See “ Regulation and Supervision .” First Federal Savings and Loan Association of Hazard. First Federal of Hazard was formed as a federally chartered mutual savings and loan association in 1960.
We also are required to maintain an investment in FHLB-Cincinnati stock, the level of which is largely dependent on our level of borrowings from the FHLB. At June 30, 2023, our investment portfolio consisted of mortgage-backed securities issued and guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae with stated final maturities of 30 years or less.
We also are required to maintain an investment in FHLB-Cincinnati stock, the level of which is largely dependent on our level of borrowings from the FHLB. At June 30, 2024, our investment portfolio consisted of mortgage-backed securities issued and guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae with stated final maturities of 30 years or less.
Consumer loans generally entail greater risk than do residential mortgage loans, particularly in the case of consumer loans which are unsecured or secured by rapidly depreciable assets. Automobile and unsecured loans at June 30, 2023, totaled 0.2% of the Company’s total loan portfolio. Loan Originations, Purchases and Sales . Loan originations come from a number of sources.
Consumer loans generally entail greater risk than do residential mortgage loans, particularly in the case of consumer loans which are unsecured or secured by rapidly depreciable assets. Automobile and unsecured loans at June 30, 2024, totaled 0.2% of the Company’s total loan portfolio. Loan Originations, Purchases and Sales . Loan originations come from a number of sources.
Failure to correct the violation within 12 months will cause the association’s savings and loan holding company to register as and be deemed a bank holding company. At June 30, 2023, First Federal of Hazard and First Federal of Kentucky were in compliance with the qualified thrift lender test in each of the prior 12 months. Transactions with Related Parties.
Failure to correct the violation within 12 months will cause the association’s savings and loan holding company to register as and be deemed a bank holding company. At June 30, 2024, First Federal of Hazard and First Federal of Kentucky were in compliance with the qualified thrift lender test in each of the prior 12 months. Transactions with Related Parties.
The following discussion of tax matters is intended only as a summary and does not purport to be a comprehensive description of the tax rules applicable to us. Our federal income tax returns are subject to examination for years 2017 and later. The federal statutory tax rate was 21% for the fiscal years ended June 30, 2023 and 2022.
The following discussion of tax matters is intended only as a summary and does not purport to be a comprehensive description of the tax rules applicable to us. Our federal income tax returns are subject to examination for years 2017 and later. The federal statutory tax rate was 21% for the fiscal years ended June 30, 2024 and 2023.
A change in statutes, regulations, or regulatory policies applicable to Kentucky First or any of its subsidiaries could have a material effect on the business of the Company. 15 Federal and State Taxation General. We report our income on a fiscal year basis using the cash method of accounting.
A change in statutes, regulations, or regulatory policies applicable to Kentucky First or any of its subsidiaries could have a material effect on the business of the Company. 16 Federal and State Taxation General. We report our income on a fiscal year basis using the cash method of accounting.
Under such limitations, as of June 30, 2023, First Federal of Hazard and First Federal of Kentucky were authorized to invest up to $1.8 million and $5.2 million, respectively, in the stock of or loans to subsidiaries, including the additional 1% investment for community, inner-city and community development purposes.
Under such limitations, as of June 30, 2023, First Federal of Hazard and First Federal of Kentucky were authorized to invest up to $1.8 million and $5.7 million, respectively, in the stock of or loans to subsidiaries, including the additional 1% investment for community, inner-city and community development purposes.
Kentucky First is only permitted to engage in activities that are permitted for First Federal MHC subject to the same restrictions and conditions. 14 Waivers of Dividends by First Federal MHC . Federal Reserve Board regulations require First Federal MHC to notify the Federal Reserve Board if it proposes to waive the right to receive dividends declared by Kentucky First.
Kentucky First is only permitted to engage in activities that are permitted for First Federal MHC subject to the same restrictions and conditions. 15 Waivers of Dividends by First Federal MHC . Federal Reserve Board regulations require First Federal MHC to notify the Federal Reserve Board if it proposes to waive the right to receive dividends declared by Kentucky First.
Financial institutions that fail to observe this regulatory guidance on cybersecurity may be subject to various regulatory sanctions, including financial penalties. 12 Anti-Money Laundering and OFAC. Under federal law, financial institutions must maintain anti-money laundering programs that include established internal policies, procedures, and controls.
Financial institutions that fail to observe this regulatory guidance on cybersecurity may be subject to various regulatory sanctions, including financial penalties. 13 Anti-Money Laundering and OFAC. Under federal law, financial institutions must maintain anti-money laundering programs that include established internal policies, procedures, and controls.
Among other things, this authority permits the Federal Reserve Board to restrict or prohibit activities that are determined to be a serious risk to First Federal of Hazard and/or First Federal of Kentucky. 13 Restrictions Applicable to Mutual Holding Companies.
Among other things, this authority permits the Federal Reserve Board to restrict or prohibit activities that are determined to be a serious risk to First Federal of Hazard and/or First Federal of Kentucky. 14 Restrictions Applicable to Mutual Holding Companies.
We began utilizing brokered funds in June 2023 and had $21.0 million in such deposits at June 30, 2023. Deposit account terms vary according to the minimum balance required, the time periods the funds must remain on deposit and the interest rate, among other factors.
We began utilizing brokered funds in June 2023 and had $52.0 million in such deposits at June 30, 2024. Deposit account terms vary according to the minimum balance required, the time periods the funds must remain on deposit and the interest rate, among other factors.
The Banks’ Board of Directors has the overall responsibility for each institution’s investment portfolio, including approval of investment policies . The management of each Bank may authorize investments as prescribed in each of the Bank’s investment policies. Bank Owned Life Insurance First Federal of Kentucky owns several Bank Owned Life Insurance policies totaling $2.8 million at June 30, 2023.
The Banks’ Board of Directors has the overall responsibility for each institution’s investment portfolio, including approval of investment policies . The management of each Bank may authorize investments as prescribed in each of the Bank’s investment policies. Bank Owned Life Insurance First Federal of Kentucky owns several Bank Owned Life Insurance policies totaling $2.9 million at June 30, 2024.
At June 30, 2023, the regulatory limit on loans to one borrower was $2.8 million for First Federal of Hazard and $4.6 million for First Federal of Kentucky. Neither of the Banks had lending relationships in excess of their respective lending limits.
At June 30, 2024, the regulatory limit on loans to one borrower was $2.8 million for First Federal of Hazard and $4.7 million for First Federal of Kentucky. Neither of the Banks had lending relationships in excess of their respective lending limits.
Federal savings associations pay assessments to the OCC to fund its operations. The general assessments, paid on a semi-annual basis, are based upon the savings association’s total assets, including consolidated subsidiaries, its financial condition and the complexity of its portfolio. 11 Insurance of Deposit Accounts.
Federal savings associations pay assessments to the OCC to fund its operations. The general assessments, paid on a semi-annual basis, are based upon the savings association’s total assets, including consolidated subsidiaries, its financial condition and the complexity of its portfolio.
In addition, First Federal of Kentucky believes it has developed strong relationships with the businesses, real estate agents, builders and general public in its market area. Personnel At June 30, 2023, we had 60 full-time employees and two part-time employees, none of whom was represented by a collective bargaining unit. We believe our relationship with our employees is good.
In addition, First Federal of Kentucky believes it has developed strong relationships with the businesses, real estate agents, builders and general public in its market area. Personnel At June 30, 2024, we had 56 full-time employees and three part-time employees, none of whom was represented by a collective bargaining unit. We believe our relationship with our employees is good.
The interest rate is varying percentage points above the rate paid on the savings account, and the account must be pledged as collateral to secure the loan. At June 30, 2023, loans on savings accounts totaled 0.3% of the Company’s total loan portfolio.
The interest rate is varying percentage points above the rate paid on the savings account, and the account must be pledged as collateral to secure the loan. At June 30, 2024, loans on savings accounts totaled 0.2% of the Company’s total loan portfolio.
Competition for deposits and the origination of loans could limit our growth in the future. 7 According to the Federal Deposit Insurance Corporation (“FDIC”), at June 30, 2022, the latest date for which data is available, First Federal of Hazard had a deposit market share of 6.9% in Perry County.
Competition for deposits and the origination of loans could limit our growth in the future. 7 According to the Federal Deposit Insurance Corporation (“FDIC”), at June 30, 2024, the latest date for which data is available, First Federal of Hazard had a deposit market share of 7.8% in Perry County.
Effective January 1, 2021, the Savings and Loan Tax no longer applies to financial institutions. 16
Effective January 1, 2021, the Savings and Loan Tax no longer applies to financial institutions. 17
We earn income on the loans sold through fees we charge on the origination, interest spread premiums earned when we sell the loans, and loan servicing fees on an on-going basis, because servicing rights are retained on such loans. At June 30, 2023, $21.7 million in loans were being serviced by First Federal of Kentucky for the FHLB-Cincinnati.
We earn income on the loans sold through fees we charge on the origination, interest spread premiums earned when we sell the loans, and loan servicing fees on an on-going basis, because servicing rights are retained on such loans. At June 30, 2024, $20.4 million in loans were being serviced by First Federal of Kentucky for the FHLB-Cincinnati.
Main Street, Frankfort, Kentucky 40602 and its main telephone number is (502) 223-1638. Market Areas First Federal of Hazard and First Federal of Kentucky operate in three distinct market areas.
Main Street, Frankfort, Kentucky 40602 and its main telephone number is (502) 223-1638. Market Areas First Federal of Hazard and First Federal of Kentucky operate in four market areas.
At June 30, 2023, the total outstanding home equity loans amounted to 2.9% of the Company’s total loan portfolio. 4 Loans secured by savings are originated for up to 90% of the depositor’s savings account balance.
At June 30, 2024, the total outstanding home equity loans amounted to 3.2% of the Company’s total loan portfolio. 4 Loans secured by savings are originated for up to 90% of the depositor’s savings account balance.
In reaching a decision on whether to make a multi-family or nonresidential real estate loan, we consider the net cash flow of the project, the borrower’s expertise, credit history and the value of the underlying property. Commercial Non-mortgage Loans . At June 30, 2023, commercial non-mortgage loans totaled $1.2 million, or 0.4%, of our total loan portfolio.
In reaching a decision on whether to make a multi-family or nonresidential real estate loan, we consider the net cash flow of the project, the borrower’s expertise, credit history and the value of the underlying property. Commercial Non-mortgage Loans . At June 30, 2024, commercial non-mortgage loans totaled $700,000, or 0.2%, of our total loan portfolio.
At June 30, 2023, nonresidential real estate loans totaled $30.2 million, or 9.6% of our total loan portfolio. We originate nonresidential real estate loans for terms of generally 25 years or less and loan amounts generally do not exceed 80% of the appraised value and tend to range much lower.
At June 30, 2024, nonresidential real estate loans totaled $34.3 million, or 10.2% of our total loan portfolio. We originate nonresidential real estate loans for terms of generally 25 years or less and loan amounts generally do not exceed 80% of the appraised value and tend to range much lower.
At June 30, 2023, First Federal of Hazard had total assets of $89.1 million, net loans of $81.0 million, total mortgage-backed and other securities of $4.3 million, deposits of $45.5 million and total capital of $18.0 million. First Federal Savings Bank of Kentucky.
At June 30, 2024, First Federal of Hazard had total assets of $89.8 million, net loans of $81.1 million, total mortgage-backed and other securities of $3.4 million, deposits of $54.4 million and total capital of $18.0 million. First Federal Savings Bank of Kentucky.
Its largest competitors for depositors are the Boyle Bancorp, Inc. (The Farmers National Bank of Danville) at 24.5%, Wesbanco Bank, Inc. (Wesbanco) at 17.3% and Community Trust Bancorp, Inc., (Community Trust Bank) at 6.8% market share in the three-county area.
Its largest competitors for depositors are the Boyle Bancorp, Inc. (The Farmers National Bank of Danville) at 28.1%, Wesbanco Bank, Inc. (Wesbanco) at 15.5% and Community Trust Bancorp, Inc., (Community Trust Bank) at 8.3% market share in the three-county area.
First Federal of Kentucky principally competes for deposits by offering a variety of deposit accounts, convenient business hours and branch locations, customer service and a well-trained staff. According to the FDIC, at June 30, 2022, First Federal of Kentucky had deposit market share of 8.2%, 7.0% and 16.9% for the Kentucky counties of Franklin, Boyle and Garrard.
First Federal of Kentucky principally competes for deposits by offering a variety of deposit accounts, convenient business hours and branch locations, customer service and a well-trained staff. According to the FDIC, at June 30, 2024, First Federal of Kentucky had deposit market share of 7.0%, 7.1% and 13.6% for the Kentucky counties of Franklin, Boyle and Garrard.
First Federal of Hazard and First Federal of Kentucky were in compliance with this requirement with investments in Federal Home Loan Bank of Cincinnati stock at June 30, 2023, of $1.3 million and $3.4 million, respectively. Reserve Requirements.
First Federal of Hazard and First Federal of Kentucky were in compliance with this requirement with investments in Federal Home Loan Bank of Cincinnati stock at June 30, 2024, of $960,000 million and $3.3 million, respectively. Reserve Requirements.
This discussion does not purport to be a complete description of the laws and regulations involved, and is qualified in its entirety by the actual laws and regulations. Moreover, laws and regulations are subject to changes by the U.S. Congress or the regulatory agencies as applicable. Regulation of Federal Savings Associations Business Activities.
This discussion does not purport to be a complete description of the laws and regulations involved and is qualified in its entirety by the actual laws and regulations. Moreover, laws and regulations are subject to changes by the U.S. Congress or the regulatory agencies as applicable. Agreements with Regulators .
Loan Approval Procedures and Authority . Our lending activities follow written, nondiscriminatory, underwriting standards and loan origination procedures established by each Bank’s Board of Directors and management. Each Bank’s loan committee can approve or deny loans on one- to four-family properties totaling $500,000 or less.
Loan Approval Procedures and Authority . Our lending activities follow written, nondiscriminatory, underwriting standards and loan origination procedures established by each Bank’s Board of Directors and management. Each Bank’s loan staff can approve or deny loans totaling $500,000 or less.
Its largest competitors, Hazard Bancorp (Peoples Bank & Trust Company of Hazard,) 1 st Trust Bank, Inc., and Community Trust Bancorp, Inc. (Community Trust Bank, Inc.) had Perry County deposit market shares of 38.7%, 24.0% and 27.6%, respectively.
Its largest competitors, Hazard Bancorp (Peoples Bank & Trust Company of Hazard,) 1 st Trust Bank, Inc., and Community Trust Bancorp, Inc. (Community Trust Bank, Inc.) had Perry County deposit market shares of 42.7%, 23.6% and 28.7%, respectively.
We offer mortgage loans secured by multi-family property (residential real estate comprised of five or more units.) At June 30, 2023, multi-family loans totaled $19.1 million, or 6.0%, of our total loan portfolio. We originate multi-family real estate loans for terms of generally 25 years or less.
We offer mortgage loans secured by multi-family property (residential real estate comprised of five or more units.) At June 30, 2024, multi-family loans totaled $15.8 million, or 4.7%, of our total loan portfolio. We originate multi-family real estate loans for terms of generally 25 years or less.
Kentucky First’s and First Federal of Hazard’s executive offices are located at 655 Main Street, Hazard, Kentucky, 41702 and the telephone number for investor relations is (888) 818-3372. At June 30, 2023, Kentucky First had total assets of $349.0 million, deposits of $226.3 million and stockholders’ equity of $50.7 million.
Kentucky First’s and First Federal of Hazard’s executive offices are located at 655 Main Street, Hazard, Kentucky, 41702 and the telephone number for investor relations is (888) 818-3372. 1 At June 30, 2024, Kentucky First had total assets of $375.0 million, deposits of $256.1 million and stockholders’ equity of $48.0 million.
The operations of First Federal of Hazard and First Federal of Kentucky are also subject to federal laws applicable to credit transactions, such as the: ● Truth-In-Lending Act, governing disclosures of credit terms to consumer borrowers; ● Home Mortgage Disclosure Act, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves; ● Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed or other prohibited factors in extending credit; ● Fair Credit Reporting Act, governing the use and provision of information to credit reporting agencies; ● Fair Debt Collection Act, governing the manner in which consumer debts may be collected by collection agencies; ● Truth in Savings Act, prescribing disclosure and advertising requirements with respect to deposit accounts; and ● Rules and regulations of the various federal agencies charged with the responsibility of implementing such federal laws.
The operations of First Federal of Hazard and First Federal of Kentucky are also subject to federal laws applicable to credit transactions, such as the: ● Truth-In-Lending Act, governing disclosures of credit terms to consumer borrowers; ● Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed or other prohibited factors in extending credit; ● Fair Credit Reporting Act, governing the use and provision of information to credit reporting agencies; ● Fair Debt Collection Act, governing the manner in which consumer debts may be collected by collection agencies; ● Truth in Savings Act, prescribing disclosure and advertising requirements with respect to deposit accounts; and ● Rules and regulations of the various federal agencies charged with the responsibility of implementing such federal laws.
In the most recent available data, using information from the Commonwealth of Kentucky Economic Development and the United States Bureau of Labor Statistics, median household income in Perry County is $43,931 compared to personal income of $52,326 in Kentucky and $74,580 in the United States. Total population in Perry County is approximately 28,000.
In the most recent available data, using information from the Commonwealth of Kentucky Economic Development and the United States Bureau of Labor Statistics, median household income in Perry County is $48,328 compared to personal income of $61,118 in Kentucky and $80,610 in the United States. Total population in Perry County is approximately 28,000.
Wesbanco Bank, Inc., Boyle Bancorp, Inc., and Community Trust Bancorp, Inc. had assets at June 30, 2023, of $17.4 billion, $921.0 million and $5.5 billion, respectively. The Bank also faces considerable competition from credit unions including the Commonwealth Credit Union ($1.8 billion in assets) and the Expree Credit Union ($92.0 million in assets).
Boyle Bancorp, Wesbanco, Inc., and Community Trust Bancorp, Inc. had assets at June 30, 2024, of $940.3 million, $18.1 billion, and $5.8 billion, respectively. The Bank also faces considerable competition from credit unions including the Commonwealth Credit Union ($2.3 billion in assets) and the Expree Credit Union ($102.1 million in assets).
At June 30, 2023, our consumer loan balance totaled $10.8 million, or 3.5%, of our total loan portfolio. Of the consumer loan balance at June 30, 2023, $9.2 million were home equity loans, $855,000 were loans secured by savings deposits and $715,000 were automobile or unsecured loans.
At June 30, 2024, our consumer loan balance totaled $12.2 million, or 3.6%, of our total loan portfolio. Of the consumer loan balance at June 30, 2024, $10.6 million were home equity loans, $819,000 were loans secured by savings deposits and $117,000 were automobile or unsecured loans.
First Federal of Hazard and First Federal of Kentucky are members of the Federal Home Loan Bank System, which consists of 12 regional Federal Home Loan Banks. The Federal Home Loan Bank provides a central credit facility primarily for member institutions.
Management cannot predict what insurance assessment rates will be in the future. Federal Home Loan Bank System. First Federal of Hazard and First Federal of Kentucky are members of the Federal Home Loan Bank System, which consists of 12 regional Federal Home Loan Banks. The Federal Home Loan Bank provides a central credit facility primarily for member institutions.
As of June 30, 2023, the capital levels of First Federal of Hazard and First Federal of Kentucky exceed the minimum required capital amounts for capital adequacy. See Note K-Stockholders’ Equity and Regulatory Capital in notes to financial statements. Prompt Corrective Regulatory Action .
As of June 30, 2024, the capital levels of First Federal of Hazard and First Federal of Kentucky exceed the minimum required capital amounts for capital adequacy. See Note K-Stockholders’ Equity and Regulatory Capital in notes to financial statements. In August 2024, First Federal of Kentucky entered into an Agreement with the OCC.
During the last five years, the unemployment rate (not seasonally adjusted) has been higher than most regions, and in July 2023, was 6.6%, compared to 3.8% in Kentucky and 3.8% in the United States.
During the last five years, the unemployment rate (not seasonally adjusted) has been higher than most regions, and in July 2024, was 7.0%, compared to 5.1% in Kentucky and 4.2% in the United States.
The Banks generally do not require title insurance, although it may be required for loans made in certain programs. The Banks do require fire and casualty insurance on all security properties and flood insurance when the collateral property is located in a designated flood hazard area. Loans to One Borrower .
The Banks do require fire and casualty insurance on all security properties and flood insurance when the collateral property is located in a designated flood hazard area. Loans to One Borrower .
In addition, the OCC could prohibit a proposed capital distribution that would otherwise be permitted by the regulation, if the agency determines that such distribution would constitute an unsafe or unsound practice. 10 Qualified Thrift Lender Test. Federal law requires federal savings associations to meet a qualified thrift lender test.
In addition, the OCC could prohibit a proposed capital distribution that would otherwise be permitted by the regulation, if the agency determines that such distribution would constitute an unsafe or unsound practice.
However, there are unquantifiable credit risks resulting from potential increases in costs to borrowers in the event of upward repricing of adjustable-rate loans. It is possible that during periods of rising interest rates, the risk of default on adjustable-rate loans may increase due to increases in interest costs to borrowers.
It is possible that during periods of rising interest rates, the risk of default on adjustable-rate loans may increase due to increases in interest costs to borrowers.
At June 30, 2023, First Federal of Kentucky had total assets of $260.4 million, net loans of $232.7 million, total mortgage-backed and other securities of $8.1 million, deposits of $182.8 million and total capital of $30.5 million. First Federal of Kentucky’s main office is located at 216 W.
At June 30, 2024, First Federal of Kentucky had total assets of $287.1 million, net loans of $251.9 million, total mortgage-backed and other securities of $6.4 million, deposits of $204.4 million and total capital of $28.9 million. First Federal of Kentucky’s main office is located at 216 W.
The Banks offer various programs for the purchase and refinance of one- to four-family loans. Most of these loans have loan-to-value ratios of 80% or less, based on an appraisal provided by a state licensed or certified appraiser.
Most of these loans have loan-to-value ratios of 80% or less, based on an appraisal provided by a state licensed or certified appraiser.
For purposes of determining the amount of risk-weighted assets, all assets, including certain off-balance sheet assets, recourse obligations, residual interests and direct credit substitutes, are multiplied by a risk-weight factor of 0% to 150%, as assigned by the capital regulation based on the risks believed inherent in the type of asset. 9 The EGRRCPA required the federal banking agencies, including the OCC, to establish a “community bank leverage ratio” (CBLR) for qualifying community banking organizations having less than $10 billion in average total consolidated assets and a leverage ratio of greater than 9%.
For purposes of determining the amount of risk-weighted assets, all assets, including certain off-balance sheet assets, recourse obligations, residual interests and direct credit substitutes, are multiplied by a risk-weight factor of 0% to 150%, as assigned by the capital regulation based on the risks believed inherent in the type of asset.
However, as a regional economic center, Hazard tends to draw consumers and workers who commute from surrounding counties. Employment in the market area, particularly in Perry County, consists service sector (50.4%), retail trade (23.6%), public administration (7.0%), and finance, insurance and real estate (6.8%).
However, as a regional economic center, Hazard tends to draw consumers and workers who commute from surrounding counties. Employment in the market area, particularly in Perry County, is led by healthcare, followed by retail, education, and public administration.
No institution may pay a dividend if in default of the federal deposit insurance assessment. Assessment rates currently range from 1.5 to 30 basis points of total average assets (excluding PPP loans) less average tangible equity. The FDIC has authority to increase insurance assessments.
Assessment rates currently range from 1.5 to 30 basis points of total average assets (excluding PPP loans) less average tangible equity. The FDIC has authority to increase insurance assessments. A significant increase in insurance premiums would likely have an adverse effect on the operating expenses and results of operations of the Banks.
First Federal of Hazard’s loan committee consists of its two senior officers, while First Federal of Kentucky’s loan approval process allows for various combinations of experienced bank officers to approve or deny loans which are one- to four-family properties.
First Federal of Hazard’s loan committee consists of its two senior officers, while First Federal of Kentucky’s loan approval process allows for various combinations of experienced bank officers to approve or deny loans. Loans that do not conform to this criteria must be submitted to the Board of Directors or Loan Committee composed of at least three directors, for approval.
Beginning with the dividend paid in September 2012, First Federal MHC has annually sought member approval to obtain Federal Reserve Board approval to waive the MHC’s dividends from the Company. This effort has been successful each year, including an approval in 2023, which will cover quarterly dividends of $0.10 per common share through May 2024.
Beginning with the dividend paid in September 2012, First Federal MHC has annually sought member approval to obtain Federal Reserve Board approval to waive the MHC’s dividends from the Company.
Therefore, average loan maturity is a function of, among other factors, the level of purchase and sale activity in the real estate market, prevailing interest rates and the interest rates payable on outstanding loans. As interest rates declined and remained low over the past few years, we have experienced high levels of loan repayments and refinancings.
Therefore, average loan maturity is a function of, among other factors, the level of purchase and sale activity in the real estate market, prevailing interest rates and the interest rates payable on outstanding loans. The Banks offer various programs for the purchase and refinance of one- to four-family loans.
On a case-by-case basis we consider construction loans on other than owner-occupied, residential property. At June 30, 2023, construction loans totaled $12.3 million, or 3.9%, of our total loan portfolio. Our construction loans generally provide for the payment of interest only during the construction phase, which is usually less than one year.
At June 30, 2024 construction loans totaled $13.8 million, or 4.1%, of our total loan portfolio. Our construction loans generally provide for the payment of interest only during the construction phase, which is usually less than one year. Loans generally can be made with a maximum loan to value ratio of 80% of the appraised value.
After the initial term, the rate adjustments on most of our adjustable-rate loans are indexed to the MIRS Transition Index, formerly known as PMMS+ Index. The interest rates on these mortgages are adjusted once a year, with limitations on adjustments generally of one percentage point per adjustment period, and a lifetime cap of five percentage points.
The interest rates on these mortgages are adjusted once a year, with limitations on adjustments generally of one percentage point per adjustment period, and a lifetime cap of five percentage points. We determine loan fees charged, interest rates and other provisions of mortgage loans on the basis of our own pricing criteria and competitive market conditions.
We also offer loans secured by deposit accounts and home equity loans. Substantially all of our loans are made within the Banks’ respective market areas. Residential Mortgage Loans . Our primary lending activity is the origination of mortgage loans to enable borrowers to purchase or refinance existing homes in the Banks’ respective market areas.
Our loan portfolio consists primarily of one- to four-family residential mortgage loans. As opportunities arise, we also offer loans secured by churches, commercial real estate, and multi-family real estate. We also offer loans secured by deposit accounts and home equity loans. Substantially all of our loans are made within the Banks’ respective market areas. Residential Mortgage Loans .
At June 30, 2023, residential mortgage loans including construction loans and multi-family totaled $271.4 million, or 85.9%, of our total loan portfolio. We offer a mix of adjustable-rate and fixed-rate mortgage loans with terms up to 30 years. Adjustable-rate loans have an initial fixed term of one, three, five or seven years.
We offer a mix of adjustable-rate and fixed-rate mortgage loans with terms up to 30 years. Adjustable-rate loans have an initial fixed term of one, three, five or seven years. After the initial term, the rate adjustments on most of our adjustable-rate loans are indexed to the MIRS Transition Index, formerly known as PMMS+ Index.
We determine loan fees charged, interest rates and other provisions of mortgage loans on the basis of our own pricing criteria and competitive market conditions. Some loans originated by the Banks have an additional advance clause which allows the borrower to obtain additional funds at prevailing interest rates, subject to managements’ approval.
Some loans originated by the Banks have an additional advance clause which allows the borrower to obtain additional funds at prevailing interest rates, subject to managements’ approval. At June 30, 2024, the Company’s loan portfolio included $252.6 million in adjustable-rate residential mortgage loans, or 88.4% of the Company’s residential mortgage loan portfolio.
An institution’s assessment rate depends upon the category to which it is assigned, and certain adjustments specified by FDIC regulations. Institutions deemed less risky pay lower assessments. The FDIC may adjust the scale uniformly, except that no adjustment can deviate more than two basis points from the base scale without notice and comment.
The FDIC may adjust the scale uniformly, except that no adjustment can deviate more than two basis points from the base scale without notice and comment. No institution may pay a dividend if in default of the federal deposit insurance assessment.
The deposits of both First Federal of Hazard and First Federal of Kentucky are insured up to applicable limits by the DIF administered by the FDIC. Deposit insurance per account owner is currently $250,000. Under the FDIC’s risk-based assessment system, insured depository are assigned a risk category based on supervisory evaluations, regulatory capital levels and certain other factors.
During the current year, our assessments totaled $81,000 and are expected to increase in the fiscal year ended June 30, 2025. 12 Insurance of Deposit Accounts. The deposits of both First Federal of Hazard and First Federal of Kentucky are insured up to applicable limits by the DIF administered by the FDIC. Deposit insurance per account owner is currently $250,000.
The services sector employs about 33.4% of the workforce followed by public administration (31.0%), followed by the retail (11.4%), and construction (7.8%.). The unemployment rate was 4.1% for July 2023. The median household income in Franklin County is $64,016. Boyle County has a population of approximately 31,000.
The primary sources of employment are public administration, education, other services, and health care. The median household income in Franklin County is $67,788. The unemployment rate is 4.20% Boyle County has a population of approximately 31,000. The primary sources of employment are health care, retail, information services, and manufacturing.
Loans that do not conform to this criteria must be submitted to the Board of Directors or Loan Committee composed of at least three directors, for approval. It is the Company’s practice to record a lien on the real estate securing a loan.
It is the Company’s practice to record a lien on the real estate securing a loan. The Banks generally do not require title insurance, although it may be required for loans made in certain programs.
The CBLR is an alternative framework that permits qualifying institutions to calculate a leverage ratio to measure capital adequacy.
The EGRRCPA required the federal banking agencies, including the OCC, to establish a “community bank leverage ratio” (CBLR) for qualifying community banking organizations having less than $10 billion in average total consolidated assets and a leverage ratio of greater than 9%. The CBLR is an alternative framework that permits qualifying institutions to calculate a leverage ratio to measure capital adequacy.
At June 30, 2023, the Company’s loan portfolio included $237.4 million in adjustable-rate residential mortgage loans, or 87.5% of the Company’s residential mortgage loan portfolio. The retention of adjustable-rate loans in the portfolio helps reduce our exposure to increases in prevailing market interest rates.
The retention of adjustable-rate loans in the portfolio helps reduce our exposure to increases in prevailing market interest rates. However, there are unquantifiable credit risks resulting from potential increases in costs to borrowers in the event of upward repricing of adjustable-rate loans.
Item 1. Business . 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.
Item 1. Business . Forward-Looking Statements Certain statements contained in this report, as well as other periodic reports filed with the Securities and Exchange Commission, that are not historical facts are considered “forward-looking statements” under the Private Securities Litigation Reform Act of 1995, that are subject to certain risks and uncertainties.
Removed
Accordingly, actual results may differ from those expressed in the forward-looking statements, and the making of such statements should not be regarded as a representation by the Company or any other person that results expressed therein will be achieved.
Added
These forward-looking statements may be identified by the use of words such as “believe,” “expect,” “anticipate,” “plan,” “estimate,” “intend” and “potential,” or words of similar meaning, or future or conditional verbs such as “should,” “could,” or “may.” Forward-looking statements include statements of our goals, intentions and expectations; statements regarding our ability to fully and timely address the deficiencies that resulted in the Agreement that First Federal Savings Bank of Kentucky has entered into with the Office of the Comptroller of the Currency (“OCC”); First Federal Savings Bank of Kentucky’s ability to satisfy the Individual Minimum Capital Requirements imposed by the OCC; statements regarding our business plans, prospects, growth and operating strategies; statements regarding the quality of our loan and investment portfolios; and estimates of our risks and future costs and benefits.
Removed
The services sector employs about 43.6% of the work force, while retail trade represents the next largest job counts with approximately 18.6% of the workforce. The transportation and communications sector and the manufacturing sector represent approximately 10.8% and 10.6% of the workforces, respectively. Centre College is one of the larger employers in the community.
Added
The unemployment rate is 5.0% while the median household income in Boyle County is $60,218. Garrard County has a population of approximately 18,000. The primary sources of employment are education, health care, retail, and construction. There is a 4.5% unemployment rate and $62,546 median household income. 2 Lending Activities General .
Removed
The unemployment rate was 5.1% in July 2023, while the median household income in Boyle County is $59,250. 2 Lending Activities General . Our loan portfolio consists primarily of one- to four-family residential mortgage loans. As opportunities arise, we also offer loans secured by churches, commercial real estate, and multi-family real estate.
Added
Historically, our primary lending activity is the origination of mortgage loans to enable borrowers to purchase or refinance existing homes in the Banks’ respective market areas. At June 30, 2024, residential mortgage loans including construction loans and multi-family totaled $285.8 million, or 85.3%, of our total loan portfolio.
Removed
Loans generally can be made with a maximum loan to value ratio of 80% of the appraised value.
Added
In recent months, the Company has attempted to shift direction from adjustable-rate loans secured by owner-occupied homes. The Company is well-positioned to originate fixed-rate loans secured by owner-occupied homes for sale into the secondary market. Doing so will free capital and liquidity for potential investment in higher-yielding types of assets.
Removed
As residential loans are approved in the normal course of business, and those loans are underwritten to the standards of the Banks, management does not believe alteration of the allowance for loan losses is warranted. At June 30, 2023, no commitment losses were reflected in a separate liability.
Added
On a case-by-case basis we consider construction loans on other than owner-occupied, residential property. Due to demand in our local markets, we have also increased lending to borrowers who are building homes to sell. These tend to be established borrowers building one or a few moderately-priced homes.
Removed
A significant increase in insurance premiums would likely have an adverse effect on the operating expenses and results of operations of the Banks. Management cannot predict what insurance assessment rates will be in the future. Federal Home Loan Bank System.
Added
Upon implementation of ASU 2016-13 or the current expected credit loss (CECL) model at July 1, 2023, the Banks began to utilize a separate liability to reflect anticipated credit losses on loan commitments. At June 30, 2024, this amount totaled $60,000.
Removed
It is expected that First Federal MHC will continue to waive future dividends, except to the extent dividends are needed to fund First Federal MHC’s continuing operations, subject to the ability of First Federal MHC to obtain regulatory approval of its requests to waive dividends and to its ability to obtain member approval of dividend waivers.
Added
On August 13, 2024, First Federal of Kentucky entered into a formal written agreement (the “Agreement”) with the OCC, which became effective as of the same date. The Agreement will remain effective until it is amended by First Federal of Kentucky and the OCC, or the OCC modifies, waives or terminates the Agreement.
Added
As a result of the Agreement, pursuant to 12 C.F.R. § 5.51(c)(7)(ii), First Federal of Kentucky is in “troubled condition,” and is not an “eligible savings association” for purposes of 12 C.F.R. § 5.3, unless otherwise informed in writing by the OCC.
Added
In addition to the Agreement, the OCC has also imposed individual minimum capital requirements (“IMCRs”) on First Federal of Kentucky.
Added
The IMCRs require First Federal of Kentucky to maintain a common equity tier 1 capital ratio of at least 9.0%, a tier 1 capital ratio of at least 11.0%, a total capital ratio of at least 12.0%, and a leverage ratio of at least 9.0%.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

34 edited+22 added−9 removed91 unchanged
Biggest changeIt is expected that First Federal MHC will continue to waive future dividends, except to the extent dividends are needed to fund First Federal MHC’s continuing operations, subject to the ability of First Federal MHC to obtain regulatory approval of its requests to waive dividends and to its ability to obtain member approval of dividend waivers. 24 We cannot predict whether members will continue to approve annual dividend waiver requests or whether the Federal Reserve Board will grant future dividend waiver requests and, if granted, there can be no assurance as to the conditions, if any, the Federal Reserve Board will place on future dividend waiver requests by grandfathered mutual holding companies such as First Federal MHC.
Biggest changeWe cannot predict whether members will continue to approve annual dividend waiver requests or whether the Federal Reserve Board will grant future dividend waiver requests and, if granted, there can be no assurance as to the conditions, if any, the Federal Reserve Board will place on future dividend waiver requests by grandfathered mutual holding companies such as First Federal MHC.
If during a period of reduced real estate values, we are required to liquidate the collateral securing a loan to satisfy the debt or to increase our allowance for loan losses, it could materially reduce our profitability and adversely affect our financial condition. Our concentration of residential mortgage loans exposes us to increased lending risks.
If during a period of reduced real estate values, we are required to liquidate the collateral securing a loan to satisfy the debt or to increase our allowance for credit losses, it could materially reduce our profitability and adversely affect our financial condition. Our concentration of residential mortgage loans exposes us to increased lending risks.
We have not been subject to fines or other penalties, or have suffered business or reputational harm, as a result of money laundering activities in the past. 20 Monetary policies and regulations of the Federal Reserve Board could adversely affect our business, financial condition and results of operations.
We have not been subject to fines or other penalties, or have suffered business or reputational harm, as a result of money laundering activities in the past. Monetary policies and regulations of the Federal Reserve Board could adversely affect our business, financial condition and results of operations.
See “Regulation and Supervision—Regulation of Federal Savings Associations—Capital Requirements.” 21 The Federal Reserve Board may require us to commit capital resources to support the Banks. Federal law requires that a holding company act as a source of financial and managerial strength to its subsidiary banks and to commit resources to support such subsidiary banks.
See “Regulation and Supervision—Regulation of Federal Savings Associations—Capital Requirements.” The Federal Reserve Board may require us to commit capital resources to support the Banks. Federal law requires that a holding company act as a source of financial and managerial strength to its subsidiary banks and to commit resources to support such subsidiary banks.
If our allowance for loan losses is not sufficient to cover actual loan losses, our results of operations would be negatively affected. In determining the amount of the allowance for loan losses, we analyze our loss and delinquency experience by loan categories and we consider the effect of existing economic conditions.
If our allowance for credit losses is not sufficient to cover actual loan losses, our results of operations would be negatively affected. In determining the amount of the allowance for credit loss, we analyze our loss and delinquency experience by loan categories and we consider the effect of existing economic conditions.
These changes could materially impact, potentially even retroactively, how we report our financial condition and results of operations. Non-compliance with the USA PATRIOT Act, Bank Secrecy Act, or other laws and regulations could result in fines or sanctions.
These changes could materially impact, potentially even retroactively, how we report our financial condition and results of operations. 22 Non-compliance with the USA PATRIOT Act, Bank Secrecy Act, or other laws and regulations could result in fines or sanctions.
The ability to keep pace with technological change is important, and the failure to do so, due to cost, proficiency or otherwise, could have a material adverse impact on our business and therefore on our financial condition and results of operations. 23 Risks Related to Our Holding Company Structure First Federal MHC owns a majority of our common stock and is able to exercise voting control over most matters put to a vote of stockholders, including preventing sale or merger transactions you may like or a second-step conversion by First Federal MHC.
The ability to keep pace with technological change is important, and the failure to do so, due to cost, proficiency or otherwise, could have a material adverse impact on our business and therefore on our financial condition and results of operations. 25 Risks Related to Our Holding Company Structure First Federal MHC owns a majority of our common stock and is able to exercise voting control over most matters put to a vote of stockholders, including preventing sale or merger transactions you may like or a second-step conversion by First Federal MHC.
Rising interest rates could have a negative impact on our results of operations by reducing the ability of borrowers to repay their current loan obligations as interest rates rise, the borrower’s payments rise, increasing the potential for delinquencies and defaults. 17 Risks Related to Our Lending Activities Inflationary pressures and rising prices may affect our results of operations and financial condition.
Rising interest rates could have a negative impact on our results of operations by reducing the ability of borrowers to repay their current loan obligations as interest rates rise, the borrower’s payments rise, increasing the potential for delinquencies and defaults. 18 Risks Related to Our Lending Activities Inflationary pressures and rising prices may affect our results of operations and financial condition.
Moreover, the slow economy in First Federal of Hazard’s market area will limit our ability to grow our asset base in that market. 18 Our mortgage banking revenue and the value of our mortgage servicing rights can be volatile. We plan to continue to sell our longer-term, conforming and non-conforming fixed-rate loans that we originate to generate noninterest income.
Moreover, the slow economy in First Federal of Hazard’s market area will limit our ability to grow our asset base in that market. 19 Our mortgage banking revenue and the value of our mortgage servicing rights can be volatile. We plan to continue to sell our longer-term, conforming and non-conforming fixed-rate loans that we originate to generate noninterest income.
Inflation has risen sharply since the end of 2021 to levels not seen for over 40 years. Inflationary pressures are currently expected to remain elevated throughout 2023. Inflation could lead to increased costs to our customers, making it more difficult for them to repay their loans or other obligations.
Inflation has risen sharply since the end of 2021 to levels not seen for over 40 years. Inflationary pressures are currently expected to remain elevated throughout 2024. Inflation could lead to increased costs to our customers, making it more difficult for them to repay their loans or other obligations.
Any increase in our allowance for loan losses or loan charge-offs as required by regulatory authorities may have a material adverse effect on our results of operations and financial condition. A large percentage of our loans are collateralized by real estate and disruptions in the real estate market may result in losses and hurt our earnings.
Any increase in our allowance for credit loss or loan charge-offs as required by regulatory authorities may have a material adverse effect on our results of operations and financial condition. A large percentage of our loans are collateralized by real estate and disruptions in the real estate market may result in losses and hurt our earnings.
If the actual results are different from our estimates, or our analyses are incorrect, our allowance for loan losses may not be sufficient to cover losses inherent in our loan portfolio, which would require additions to our allowance and would decrease our net income.
If the actual results are different from our estimates, or our analyses are incorrect, our allowance for credit loss may not be sufficient to cover losses inherent in our loan portfolio, which would require additions to our allowance and would decrease our net income.
Regulatory authorities have extensive discretion in their supervisory and enforcement activities, including the imposition of restrictions on our operations, the classification of our assets and determination of the adequacy of the level of our allowance for loan losses.
Regulatory authorities have extensive discretion in their supervisory and enforcement activities, including the imposition of restrictions on our operations, the classification of our assets and determination of the adequacy of the level of our allowance for credit losses.
If interest rates continue to rise, our net interest income may decline in the short term since, due to the generally shorter terms of interest-bearing liabilities, interest expense paid on interest-bearing liabilities, increases more quickly than interest income earned on interest-earning assets, such as loans and investments.
Nevertheless, if interest rates rise in the future, our net interest income may decline in the short term since, due to the generally shorter terms of interest-bearing liabilities, interest expense paid on interest-bearing liabilities, increases more quickly than interest income earned on interest-earning assets, such as loans and investments.
At June 30, 2023, we had off-balance sheet liquidity sources totaling $89.3 million, including $87.3 million in additional borrowing capacity at the Federal Home Loan Bank of Cincinnati. Notwithstanding our significant liquidity, large deposit outflows could adversely affect our financial condition and results of operations and could result in the closure of the Banks.
At June 30, 2024, we had off-balance sheet liquidity sources totaling $89.3 million, including $71.4 million in additional borrowing capacity at the Federal Home Loan Bank of Cincinnati. Notwithstanding our significant liquidity, large deposit outflows could adversely affect our financial condition and results of operations and could result in the closure of the Banks.
Approximately 96.3% of our loan portfolio at June 30, 2023 was comprised of loans collateralized by real estate. Disruptions in the real estate market could significantly impair the value of our collateral and our ability to sell the collateral upon foreclosure.
Approximately 96.1% of our loan portfolio at June 30, 2024 was comprised of loans collateralized by real estate. Disruptions in the real estate market could significantly impair the value of our collateral and our ability to sell the collateral upon foreclosure.
First Federal MHC is not required to waive dividends, but Kentucky First expects this practice to continue, subject to member and regulatory approval annually. First Federal MHC is required to obtain a waiver from the Federal Reserve Board allowing it to waive its right to dividends.
First Federal MHC is not required to waive dividends, but Kentucky First expects this practice to continue, subject to member and regulatory approval annually, to the extent Kentucky First continues to pay dividends in future periods. First Federal MHC is required to obtain a waiver from the Federal Reserve Board allowing it to waive its right to dividends.
At June 30, 2023, $240.1 million, or 76.1%, of our loan portfolio was secured by one-to-four family real estate, all of which is located in the Commonwealth of Kentucky, and we intend to continue this type of lending in the foreseeable future.
At June 30, 2024, $256.2 million, or 76.5%, of our loan portfolio was secured by one-to-four family real estate, all of which is located in the Commonwealth of Kentucky, and we intend to continue this type of lending in the foreseeable future.
First Federal MHC has historically waived its right to dividends on the Kentucky First common shares it owns, in which case the amount of dividends paid to public stockholders is significantly higher than it would be if First Federal MHC accepted dividends.
First Federal MHC has historically waived its right to dividends on the Kentucky First common shares it owns and, without the waiver of such dividends, the amount of dividends paid to public stockholders is significantly higher than it would be if First Federal MHC accepted dividends.
Consequently, the increase in our interest expense was attributed primarily to higher average rates paid on both deposits and FHLB advances, while the increase in our interest income was a combination of both higher average balances and higher rates earned on those assets.
Our funding sources repriced more quickly during the interest rate increases than our assets. Consequently, the increase in our interest expense was attributed primarily to higher average rates paid on both deposits and FHLB advances, while the increase in our interest income was a combination of both higher average balances and higher rates earned on those assets.
To further bolster the banking system, the Federal Reserve Board created a new Bank Term Funding Program to provide an additional source of liquidity. At June 30, 2023, we had $20.2 million in available liquidity, including $8.2 million in cash and cash equivalents. Our uninsured deposits are estimated to be approximately $13.8 million or 6.10% of total deposits.
To further bolster the banking system, the Federal Reserve Board created a new Bank Term Funding Program to provide an additional source of liquidity. At June 30, 2024, we had $27.9 million in available liquidity, including $18.3 million in cash and cash equivalents. Our uninsured deposits are estimated to be approximately $17.5 million or 6.83% of total deposits.
Our emphasis on loan growth and on increasing our portfolio, as well as any future credit deterioration, will require us to increase our allowance further in the future. In addition, our banking regulators periodically review our allowance for loan losses and could require us to increase our provision for loan losses.
An emphasis on loan growth or shifting the types of loans the banks make, as well as any future credit deterioration, could require us to increase our allowance further in the future. In addition, our banking regulators periodically review our allowance for loan losses and could require us to increase our provision for loan losses.
Any substantial, unexpected, and/or prolonged change in the level or cost of liquidity, or any liquidity related requirements imposed by our regulators, could impair our ability to fund operations, pay dividends on outstanding shares of stock, enact stock repurchases, and meet our obligations as they become due and could have a material adverse effect on our business, financial condition and results of operations. 19 Risks Related to Our Business and Industry Generally We expect that the implementation of a new accounting standard could require us to increase our allowance for loan losses and may have a material adverse effect on our financial condition and results of operations.
Any substantial, unexpected, and/or prolonged change in the level or cost of liquidity, or any liquidity related requirements imposed by our regulators, could impair our ability to fund operations, pay dividends on outstanding shares of stock, enact stock repurchases, and meet our obligations as they become due and could have a material adverse effect on our business, financial condition and results of operations.
We offer fixed-rate and adjustable-rate mortgage loans with terms of up to 30 years; however, across our loan portfolio, interest rates and payments adjust annually after a one-, three-, five- or seven-year initial fixed period. At June 30, 2023, 87.5% of our residential real estate loan portfolio were adjustable-rate loans.
Rising interest rates may adversely affect the ability of borrowers to repay loans. We offer fixed-rate and adjustable-rate mortgage loans with terms of up to 30 years; however, across our loan portfolio, interest rates and payments adjust annually after a one-, three-, five- or seven-year initial fixed period.
Future write-downs of intangibles and other long-lived assets could affect certain of the financial covenants under our debt agreements, could restrict our financial flexibility, and would impact our results of operations. 22 Risks Related to Operational Matters We are subject to certain risks in connection with our use of technology.
Future write-downs of intangibles and other long-lived assets could affect certain of the financial covenants under our debt agreements, could restrict our financial flexibility, and would impact our results of operations.
As of June 30, 2023, the capital levels of First Federal of Hazard and First Federal of Kentucky exceed the required capital amounts according to the Community Bank Leverage Ratio regulations and we believe they also meet the fully-phased in minimum capital requirements. See Note K-Stockholders’ Equity and Regulatory Capital of Notes to Consolidated Financial Statements.
As of June 30, 2024, the capital levels of First Federal of Hazard and First Federal of Kentucky exceed the required capital amounts according to the Community Bank Leverage Ratio regulations and we believe they also meet the fully-phased in minimum capital requirements. As previously discussed, in August 2024, First Federal of Kentucky entered into an Agreement with the OCC.
Our ability to pay dividends is subject to the ability of First Federal of Hazard and First Federal of Kentucky to make capital distributions to Kentucky First Federal and the waiver of dividends by First Federal MHC.
Our ability to pay future dividends is subject to the ability of First Federal of Hazard and First Federal of Kentucky to make capital distributions to Kentucky First Federal and the waiver of dividends by First Federal MHC. On January 16, 2024, we announced that the Board had determined to suspend the payment of dividends indefinitely.
If First Federal MHC is unable to waive the receipt of dividends, our ability to pay dividends to our stockholders may be substantially impaired and the amounts of any such dividends may be significantly reduced. Item 1B. Unresolved Staff Comments . None.
If First Federal MHC is unable to waive the receipt of dividends, our ability to pay dividends to our stockholders may be substantially impaired and the amounts of any such dividends may be significantly reduced. On January 16, 2024, we announced that the Board had determined to suspend the payment of dividends indefinitely.
The application of more stringent capital requirements for us could among other things, result in lower returns on equity, require the raising of additional capital, and result in regulatory actions constraining us from paying dividends or repurchasing shares if we were unable to comply with such requirements.
At June 30, 2024, First Federal of Kentucky exceeded the requirements of the IMCRs as its common equity tier 1 capital ratio was 16.25%, its tier 1 capital ratio was 16.25%, its total capital ratio was 16.25%, and its leverage ratio was 10.24% See Note K-Stockholders’ Equity and Regulatory Capital of Notes to Consolidated Financial Statements. 23 The application of more stringent capital requirements for us could among other things, result in lower returns on equity, require the raising of additional capital, and result in regulatory actions constraining us from paying dividends or repurchasing shares if we were unable to comply with such requirements.
During the fiscal year ended June 30, 2023, non-interest income decreased $213,000 or 41.4% and totaled $302,000, primarily due to decreased gains on loan sales.
During the fiscal year ended June 30, 2024, non-interest income decreased $51,000 or 16.9% and totaled $251,000, primarily due to decreased participation and service fee income.
Item 1A. Risk Factors . Interest Rate Risk Rising interest rates may hurt our profits and asset values . In response to the COVID-19 virus pandemic, the Federal Reserve Board’s Open Market Committee (“FOMC”) decreased interest rates to near zero in March 2020. The low interest rate environment remained in effect until March 2022.
Item 1A. Risk Factors . Interest Rate Risk Rising interest rates may hurt our profits and asset values . Beginning in March, 2022, the Federal Reserve Board’s Open Market Committee (“FOMC”) started raising interest rates to combat elevated inflation and a strong labor market. Rates continued to increase through August 2023.
The Banks are subject to extensive regulation, supervision and examination by the OCC. The Company is subject to extensive regulation, supervision and examination by the Federal Reserve Board.
Changes in laws and regulations and the cost of regulatory compliance with new laws and regulations may adversely affect our operations and/or increase our costs of operations. The Banks are subject to extensive regulation, supervision and examination by the OCC. The Company is subject to extensive regulation, supervision and examination by the Federal Reserve Board.
Our profitability will depend upon our continued ability to compete successfully in our market areas. Risks Related to Laws and Regulations Changes in laws and regulations and the cost of regulatory compliance with new laws and regulations may adversely affect our operations and/or increase our costs of operations.
Our profitability will depend upon our continued ability to compete successfully in our market areas. Risks Related to Laws and Regulations We are required to comply with the terms of a formal written agreement and IMCRs issued by the OCC, and lack of compliance could result in monetary penalties and /or additional regulatory actions.
Decreases in the fair value of securities available for sale resulting from increases in interest rates therefore could have an adverse effect on stockholders’ equity. Rising interest rates may adversely affect the ability of borrowers to repay loans.
Decreases in the fair value of securities available for sale resulting from increases in interest rates therefore could have an adverse effect on stockholders’ equity. At June 30, 2024, this decrease in fair value of the securities, otherwise known as Accumulated other comprehensive loss totaled $336,000 or 3.4% of our securities portfolio.
Removed
However, in light of elevated inflation and a strong labor market, the FOMC commenced increasing the target range for the federal funds rate.
Added
The increase in interest rates has caused our net interest income to decline. Net interest income decreased $1.8 million or 20.3% compared to the fiscal year ended June 30, 2023 primarily due to an increase in interest expense of $5.4 million or 137.9%, offset somewhat by an increase in interest income $3.5 million or 27.6%.
Removed
Since maintaining a federal funds rate target in the range of 0% to 0.25% from March 2020 through 2021, the Federal Reserve Board made multiple rate increases during 2022 and 2023 increasing the target federal funds rate to a range of 5.00% to 5.25% as of June 2023, and subsequently to a range of 5.25% to 5.50% as of August 2023.
Added
In September 2024, the FOMC decided to lower the target range for the federal funds rate by 50 basis points to 4 3/4 to 5 percent.
Removed
The future direction and levels of interest rates remain uncertain. The increase in interest rates has caused our net interest income to decline.
Added
At June 30, 2024, 83.3% of our residential real estate loan portfolio were adjustable-rate loans.
Removed
Net income decreased $657,000 or 41.3% compared to the fiscal year ended June 30, 2022 primarily due to decreased net interest income, decreased non-interest income, increased provision for loan losses, and increased non-interest expenses, which were somewhat offset by decreased income taxes.
Added
On January 16, 2024, the Company announced the suspension of quarterly dividends indefinitely. The suspension of our quarterly cash dividend could have an adverse impact on the market price of our common stock.
Removed
Net interest income decreased $304,000 or 3.3% and totaled $8.9 million for the year just ended, as interest income increased $1.8 million or 16.9% to $12.8 million and interest expense increased $2.1 million or 122.5% to $3.9 million. Our funding sources repriced more quickly during the interest rate increases than our assets.
Added
Holders of our common stock are only entitled to receive such dividends as our Board of Directors may declare out of funds available for such payments under applicable law and regulatory guidance.
Removed
The Financial Accounting Standards Board (“FASB”) has adopted a new accounting standard that will be effective for the Kentucky First, First Federal of Hazard and First Federal of Kentucky for our fiscal year beginning July 1, 2023.
Added
Although we have historically declared cash dividends on our common stock, we are not required to do so, and on January 16, 2024, the Company announced the suspension of quarterly dividends indefinitely. We cannot predict when or whether the Company will be able to pay future common stock dividends and if so, the amount of any such common stock dividends.
Removed
This standard, referred to as Current Expected Credit Loss, or CECL, will require financial institutions to determine periodic estimates of lifetime expected credit losses on loans, and provide for the expected credit losses as allowances for loan losses.
Added
The suspension of our common stock dividend could adversely affect the market price of our common stock. 20 Risks Related to Our Business and Industry Generally Our FDIC deposit insurance premiums and assessments may increase, which would reduce our profitability.
Removed
This will change the current method of providing allowances for loan losses that are probable, which we expect could require us to increase our allowance for loan losses, and will likely greatly increase the data we would need to collect and review to determine the appropriate level of the allowance for loan losses.
Added
On August 13, 2024, First Federal of Kentucky entered into a formal written agreement (the “Agreement”) with the OCC, which became effective as of the same date.
Removed
Any increase in our allowance for loan losses, or expenses incurred to determine the appropriate level of the allowance for loan losses, may have a material adverse effect on our financial condition and results of operations. Our FDIC deposit insurance premiums and assessments may increase, which would reduce our profitability.
Added
As a result of the Agreement, pursuant to 12 C.F.R. § 5.51(c)(7)(ii), First Federal of Kentucky is in “troubled condition,” and is not an “eligible savings association” for purposes of 12 C.F.R. § 5.3, unless otherwise informed in writing by the OCC.
Added
In addition to the formal written Agreement, the OCC has also imposed individual minimum capital requirements (“IMCRs”) on First Federal of Kentucky.
Added
The IMCRs require First Federal of Kentucky to maintain a common equity tier 1 capital ratio of at least 9.0%, a tier 1 capital ratio of at least 11.0%, a total capital ratio of at least 12.0%, and a leverage ratio of at least 9.0%.
Added
At June 30, 2024, First Federal of Kentucky exceeded the requirements of the IMCRs as its common equity tier 1 capital ratio was 16.25%, its tier 1 capital ratio was 16.25%, its total capital ratio was 16.25%, and its leverage ratio was 10.24%. 21 Under the terms of the Agreement, First Federal of Kentucky is required to take the following actions within the time frames specified in the Agreement: ● create a compliance committee composed of at least three of First Federal of Kentucky’s directors to monitor and oversee First Federal of Kentucky’s compliance with the provisions of the Agreement and submit quarterly evaluation reports to First Federal of Kentucky’s board of directors regarding actions First Federal of Kentucky has taken to comply with the Agreement and the results and status of such actions; ● submit to the OCC, adopt and implement an acceptable revised written three-year strategic plan establishing objectives for First Federal of Kentucky’s overall risk profile, balance sheet mix, funding structure, interest rate risk, liquidity and capital adequacy, earnings performance, and asset and core deposit growth, together with strategies to achieve those objectives; ● submit to the OCC, adopt and implement an acceptable revised written succession plan for First Federal of Kentucky that is designed to promote adequate staffing and continuity of capable management; ● adopt a revised written liquidity risk management program for First Federal of Kentucky that provides for the identification, measurement, monitoring, and control of First Federal of Kentucky’s liquidity risk exposure, and that emphasizes the importance of cash flow projections, diversified funding sources, a cushion of highly liquid assets, robust liquidity stress testing scenario analyses, and a formal, well-developed contingency funding plan as primary tools for measuring and managing liquidity risk; and ● adopt a revised written interest rate risk program that includes risk management systems to identify, measure, monitor, and control interest rate risk.
Added
The Agreement requires First Federal of Kentucky’s Board to (i) ensure that First Federal of Kentucky timely adopts and implements all corrective actions required by the Agreement and (ii) verify that First Federal of Kentucky adheres to the corrective actions and that they are effective in addressing First Federal of Kentucky’s deficiencies that resulted in the Agreement.
Added
The Agreement will remain in effect until it is amended by First Federal of Kentucky and the OCC, or the OCC modifies, waives or terminates the Agreement.
Added
While First Federal of Kentucky is subject to the Agreement, we expect that the Board and management will be required to focus considerable time and attention on taking corrective actions to comply with its terms. First Federal of Kentucky’s Board and management are committed to fully addressing the provisions of the Agreement within the required time frames.
Added
The OCC may determine, however, in its sole discretion that the issues raised by the Agreement have not been addressed satisfactorily, or that any current or past actions, violations or deficiencies could be the subject of further regulatory enforcement actions.
Added
If the OCC were to determine that First Federal of Kentucky was not in compliance with the Agreement, it would have available various remedies, including among others, the power to enjoin “unsafe or unsound” practices, to require affirmative action to correct any conditions resulting from any violation or practice, to direct an increase in capital, to restrict the growth of First Federal of Kentucky, to remove officers and/or directors, to assess civil monetary penalties, and to impose limitations on our business at First Federal of Kentucky, any of which could negatively affect our ability to implement our business plan and pay dividends on or our common stock, and may negatively affect the value of our common stock as well as our financial condition and results of operations.
Added
The OCC has also imposed IMCRs which require First Federal of Kentucky to achieve and maintain capital levels in excess of the minimum capital standards required under OCC’s Prompt Corrective Action framework.
Added
Under the IMCRs, First Federal of Kentucky must achieve and maintain a common equity tier 1 capital ratio of at least 9.0%, a tier 1 capital ratio of at least 11.0%, a total capital ratio of at least 12.0%, and a leverage ratio of at least 9.0%.
Added
In the period ended June 30, 2024, the Company recorded a goodwill impairment charge, which had no tax impact, of $947,000, which represents 100.0% of goodwill previously reported. 24 Risks Related to Operational Matters We are subject to certain risks in connection with our use of technology.
Added
It is expected that First Federal MHC will continue to waive future dividends, to the extent Kentucky First continues to pay dividends in future periods, except to the extent dividends are needed to fund First Federal MHC’s continuing operations, subject to the ability of First Federal MHC to obtain regulatory approval of its requests to waive dividends and to its ability to obtain member approval of dividend waivers.
Added
For additional information regarding suspension of our quarterly dividend, please see “Liquidity Risk - On January 16, 2024, the Company announced the suspension of quarterly dividends indefinitely. The suspension of our quarterly cash dividend could have an adverse impact on the market price of our common stock.” 26 Item 1B. Unresolved Staff Comments . None.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeYear Opened/ Acquired Owned or Leased Net Book Value at June 30, 2023 Approximate Square Footage (Dollars in thousands) First Federal of Hazard Main Office: 655 Main Street Hazard, Kentucky 41701 2016 Owned $ 667 5,600 First Federal of Kentucky Main Office: 216 West Main Street Frankfort, Kentucky 40601 2005 Owned 875 14,000 194 Versailles Road Frankfort, Kentucky 40601 2015 Owned 804 2,700 1220 US 127 South Frankfort, Kentucky 40601 2005 Owned 428 2,480 340 West Main Street Danville, Kentucky 40422 2012 Owned 483 8,700 120 Skywatch Drive Danville, Kentucky 40422 2012 Owned 669 2,300 208 Lexington Street Lancaster, Kentucky 40444 2012 Owned 388 4,300 The net book value of our investment in premises and equipment was $4.4 million at June 30, 2023.
Biggest changeYear Opened/ Acquired Owned or Leased Net Book Value at June 30, 2024 Approximate Square Footage (Dollars in thousands) First Federal of Hazard Main Office: 655 Main Street Hazard, Kentucky 41701 2016 Owned $ 646 5,600 First Federal of Kentucky Main Office: 216 West Main Street Frankfort, Kentucky 40601 2005 Owned 847 14,000 194 Versailles Road Frankfort, Kentucky 40601 2015 Owned 788 2,700 1220 US 127 South Frankfort, Kentucky 40601 2005 Owned 420 2,480 340 West Main Street Danville, Kentucky 40422 2012 Owned 477 8,700 120 Skywatch Drive Danville, Kentucky 40422 2012 Owned 648 2,300 208 Lexington Street Lancaster, Kentucky 40444 2012 Owned 376 4,300 The net book value of our investment in premises and equipment was $ 4.3 million at June 30, 2024.
Item 2. Properties . We conduct our business through seven offices. The following table sets forth certain information relating to our offices at June 30, 2023.
Item 2. Properties . We conduct our business through seven offices. The following table sets forth certain information relating to our offices at June 30, 2024.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeWe are not a party to any pending legal proceedings that we believe could have a material adverse effect on our financial condition, results of operations or cash flows. Item 4. Mine Safety Disclosures . Not applicable. 25 PART II
Biggest changeWe are not a party to any pending legal proceedings that we believe could have a material adverse effect on our financial condition, results of operations or cash flows. Item 4. Mine Safety Disclosures . Not applicable. 29 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest change(b) Not applicable. (c) The Company repurchased the following equity securities registered under the Securities Exchange Act of 1934, as amended, during the fourth quarter of the fiscal year ended June 30, 2023.
Biggest change(d) The company repurchased the following equity securities registered under the Securities Exchange Act of 1934, as amended, during the fourth quarter of the fiscal year ended June 30, 2023.
Period (a) Total Number of Shares Purchased (b) Average Price Paid per Share (c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (d) Maximum Number of Shares That May Yet Be Purchased Under the Plans or Programs (1) April 2023 Beginning date: April 1 Ending date: April 30 — — — 10,980 May 2023 Beginning date: May 1 Ending date: May 31 10,980 $ 6.05 10,980 — June 2023 Beginning date: June 1 Ending date: June 30 — — — — Total 10,980 $ 6.05 10,980 10,980 (1) On May 18, 2023, the Company announced that it had substantially completed its program to repurchase up to 150,000 shares of its Common Stock, which was initiated on February 3, 2021. 26 Item 6. [Reserved] .
Period (a) Total Number of Shares Purchased (b) Average Price Paid per Share (c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (d) Maximum Number of Shares That May Yet Be Purchased Under the Plans or Programs (1) April 2023 Beginning date: April 1 Ending date: April 30 — — — 10,980 May 2023 Beginning date: May 1 Ending date: May 31 10,980 $ 6.05 10,980 — June 2023 Beginning date: June 1 Ending date: June 30 — — — — Total 10,980 $ 6.05 10,980 10,980 (1) On May 18, 2023, the Company announced that it had substantially completed its program to repurchase up to 150,000 shares of its Common Stock, which was initiated on February 3, 2021. 30 Item 6. [Reserved] .
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities . (a) The information contained under the sections captioned “ Market Information ” in the Company’s Annual Report to Stockholders for the Fiscal Year Ended June 30, 2023 (the “Annual Report”) filed as Exhibit 13 hereto is incorporated herein by reference.
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities . (a) The information contained under the sections captioned “ Market Information ” in the Company’s Annual Report to Stockholders for the Fiscal Year Ended June 30, 2024 (the “Annual Report”) filed as Exhibit 13 hereto is incorporated herein by reference.
Added
(b) Not applicable. (c) The Company repurchased no equity securities registered under the Securities Exchange Act of 1934, as amended, during any quarter of the fiscal year ended June 30, 2024.

Other KFFB 10-K year-over-year comparisons