# Kentucky First Federal Bancorp: Form 10-Q for the period ended Mar 31, 2023

- Company: [Kentucky First Federal Bancorp](/companies/kffb.md) (CIK 1297341)
- Form: 10-Q
- Filed: 2023-05-15
- Accepted by EDGAR: May 15, 2023, 14:54 ET
- Period: 2023-03-31
- Accession: 0001213900-23-039626
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1297341/000121390023039626/f10q0323_kentuckyfirst.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1297341/000121390023039626/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Interest expense | 3 months, 2023-01-01 to 2023-03-31 | $1.2m | us-gaap:InterestExpense |
| Interest expense | 9 months, 2022-07-01 to 2023-03-31 | $2.3m | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-01-01 to 2023-03-31 | $54.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2022-07-01 to 2023-03-31 | $283.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-01-01 to 2023-03-31 | $144.0k | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2022-07-01 to 2023-03-31 | $891.0k | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-01-01 to 2023-03-31 | $0.02 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2022-07-01 to 2023-03-31 | $0.11 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-01-01 to 2023-03-31 | $0.02 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2022-07-01 to 2023-03-31 | $0.11 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-01-01 to 2023-03-31 | 8,129,006 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2022-07-01 to 2023-03-31 | 8,144,767 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2022-07-01 to 2023-03-31 | $1.0m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2022-07-01 to 2023-03-31 | $122.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 9 months, 2022-07-01 to 2023-03-31 | $1.0m | us-gaap:PaymentsOfDividendsCommonStock |
| Cash and equivalents | at 2023-03-31 | $8.1m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Total assets | at 2023-03-31 | $342.9m | us-gaap:Assets |
| Total liabilities | at 2023-03-31 | $291.8m | us-gaap:Liabilities |
| Shareholders' equity | at 2023-03-31 | $51.1m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 26,781 characters.

#### 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. 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 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. 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 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; 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), and the other matters mentioned in Item 1A of the Company’s Annual Report on Form 10-K for the year ended June 30, 2022. 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.

#### Asset/Liability Management

Management and the boards of the subsidiary Banks are responsible for the asset/liability management issues that affect the individual Banks. Either Bank may work with its sister Bank to mitigate potential asset/liability risks to the Banks and to the Company as a whole. Management utilizes a third-party to perform interest rate risk (“IRR”) calculations for each of the Banks. Management monitors and considers methods of managing the rate sensitivity and repricing characteristics of each of the Bank’s balance sheet components to maintain acceptable levels of change in the economic value of equity (“EVE”) as well as evaluating the impact on earnings in the event of changes in prevailing market interest rates. Interest rate sensitivity analysis is used to measure our interest rate risk by computing estimated changes in EVE that are a result of changes in the net present value of its cash flows from assets, liabilities, and off-balance sheet items. These changes in cash flow are estimated based on hypothetical instantaneous and permanent increases and decreases in market interest rates.

In March 2022 the Federal Open Market Committee (“FOMC”) of the Federal Reserve Bank began raising the target range for the fed funds rate of interest and since that time has raised the short-term interest rate by 500 basis points. At March 31, 2023, we believe our risk associated with rising interest rates was moderate. Our IRR model indicated that at March 31, 2023, our EVE was approximately 16.5%, despite the historic interest rate increases during the previous twelve months. Although general market participants believe that the FOMC will now pause interest rate increases for a period of time, our March 31, 2023 EVE is anticipated to be approximately 14.7% and 11.7% under sudden and sustained increase in prevailing market interest rates of 100 basis points and 200 basis points, respectively. Computations or prospective effects of hypothetical interest rate changes are based on numerous assumptions, including relative levels of market interest rates, loan prepayments, and deposit run-offs. These computations should not be relied upon as indicative of actual results. Further, the computations do not contemplate any actions the Banks may undertake in response to changes in interest rates. Certain shortcomings are inherent in this method of computing EVE. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in differing degrees to changes in market interest rates. The interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates.

#### Average Balance Sheets

The following table represents the average balance sheets for the nine-month periods ended March 31, 2023 and 2022, along with the related calculations of tax-equivalent net interest income, net interest margin and net interest spread for the related periods.

*(Dollars in thousands)*

| Interest-earning assets: | Nine Months Ended March 31, 2023 Average Balance | Interest And Dividends | Yield/ Cost | 2022 Average Balance | Interest And Dividends | Yield/ Cost |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Loans 1 | $294,651 | $8,522 | 3.86% | $287,377 | $8,190 | 3.80% |
| Mortgage-backed securities | 13,787 | 345 | 3.34 | 445 | 8 | 2.40 |
| Other interest-earning assets | 13,241 | 359 | 3.61 | 40,067 | 118 | 0.39 |
| Total interest-earning assets | 321,679 | 9,226 | 3.82 | 327,889 | 8,316 | 3.38 |
| Less: Allowance for loan losses | (1,611) |  |  | (1,607) |  |  |
| Non-interest-earning assets | 12,026 |  |  | 12,124 |  |  |
| Total assets | $332,094 |  |  | $338,406 |  |  |
| Interest-bearing liabilities: |  |  |  |  |  |  |
| Demand deposits | $20,415 | $29 | 0.19% | $19,398 | $29 | 0.20% |
| Savings | 70,844 | 235 | 0.44 | 72,729 | 203 | 0.37 |
| Certificates of deposit | 115,822 | 844 | 0.97 | 126,614 | 823 | 0.87 |
| Total interest-bearing deposits | 207,081 | 1,108 | 0.71 | 218,741 | 1,055 | 0.64 |
| Borrowings | 58,348 | 1,193 | 2.73 | 49,934 | 285 | 0.76 |
| Total interest-bearing liabilities | 265,429 | 2,301 | 1.16 | 268,675 | 1,340 | 0.67 |
| Noninterest-bearing demand deposits | 13,588 |  |  | 15,155 |  |  |
| Noninterest-bearing liabilities | 1,467 |  |  | 2,246 |  |  |
| Total liabilities | 280,484 |  |  | 286,076 |  |  |
| Shareholders’ equity | 51,610 |  |  | 52,330 |  |  |
| Total liabilities and shareholders’ equity | $332,094 |  |  | $338,406 |  |  |
| Net interest spread |  | $6,925 | 2.66% |  | $6,976 | 2.71% |
| Net interest margin |  |  | 2.87% |  |  | 2.84% |
| Average interest-earning assets to average interest-bearing liabilities |  |  | 120.19% |  |  | 122.04% |

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

#### Average Balance Sheets

The following table represents the average balance sheets for the three-month periods ended March 31, 2023 and 2022, along with the related calculations of tax-equivalent net interest income, net interest margin and net interest spread for the related periods.

*(Dollars in thousands)*

| Interest-earning assets: | Three Months Ended March 31, 2023 Average Balance | Interest And Dividends | Yield/ Cost | 2022 Average Balance | Interest And Dividends | Yield/ Cost |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Loans 1 | $304,014 | $2,983 | 3.93% | $274,197 | $2,513 | 3.67% |
| Mortgage-backed securities | 13,498 | 116 | 3.44 | 405 | 2 | 2.96 |
| Other interest-earning assets | 9,562 | 111 | 4.64 | 51,544 | 46 | 0.35 |
| Total interest-earning assets | 327,074 | 3,210 | 3.93 | 326,146 | 2,561 | 3.14 |
| Less: Allowance for loan losses | (1,665) |  |  | (1,599) |  |  |
| Non-interest-earning assets | 12,309 |  |  | 12,094 |  |  |
| Total assets | $337,718 |  |  | $336,641 |  |  |
| Interest-bearing liabilities: |  |  |  |  |  |  |
| Demand deposits | $19,370 | $9 | 0.19% | $19,398 | $10 | 0.21% |
| Savings | 63,810 | 62 | 0.39 | 75,004 | 68 | 0.36 |
| Certificates of deposit | 112,683 | 383 | 1.36 | 126,964 | 258 | 0.81 |
| Total interest-bearing deposits | 195,863 | 454 | 0.93 | 221,366 | 336 | 0.61 |
| Borrowings | 76,888 | 711 | 3.70 | 45,302 | 87 | 0.77 |
| Total interest-bearing liabilities | 272,751 | 1,165 | 1.71 | 266,668 | 423 | 0.63 |
| Noninterest-bearing demand deposits | 12,418 |  |  | 15,155 |  |  |
| Noninterest-bearing liabilities | 1,109 |  |  | 2,282 |  |  |
| Total liabilities | 286,279 |  |  | 284,105 |  |  |
| Shareholders’ equity | 51,440 |  |  | 52,536 |  |  |
| Total liabilities and shareholders’ equity | $337,719 |  |  | $336,641 |  |  |
| Net interest spread |  | $2,045 | 2.22% |  | $2,138 | 2.51% |
| Net interest margin |  |  | 2.50% |  |  | 2.62% |
| Average interest-earning assets to average interest-bearing liabilities |  |  | 119.92% |  |  | 122.30% |

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

#### Discussion of Financial Condition Changes from June 30, 2022 to March 31, 2023

#### Financial Position and Results of Operations

At March 31, 2023 the Company and the Banks were considered well-capitalized with capital ratios in excess of regulatory requirements. However, an extended economic recession could adversely impact the Company’s and the Banks’ capital position and regulatory capital ratios due to a potential increase in credit losses.

***Assets:*** At March 31, 2023, the Company’s assets totaled $342.9 million, an increase of $14.8 million, or 4.5%, from total assets at June 30, 2022. This increase was attributed primarily to increases in loans, net.

***Cash and cash equivalents:*** Cash and cash equivalents decreased $17.7 million or 68.7% to $8.1 million at March 31, 2023. Most of the Company’s cash and cash equivalents are held in interest-bearing demand deposits.

***Investment securities:*** At March 31, 2023, our securities portfolio, which consisted of mortgage-backed securities, increased $2.3 million or 21.6% and totaled $13.2 million, compared to June 30, 2022.

***Loans:*** Loans, net increased $32.4 million or 11.8% and totaled $307.0 million at March 31, 2023. Residential real estate loans comprise 86.2% of our loan portfolio at March 31, 2023, and approximately 86.6% of those loans have adjustable rates, although newly-originated loans have a period of time during which no rate adjustments can occur. After the initial period the applicable interest rates can change annually within limits and all such loans have ceiling rates. One- to four-family, multi-family and construction loans increased $20.4 million, $5.6 million and $7.9 million from June 30, 2022, respectively. Equity lines of credit, which have interest rates that can change monthly with the prime rate of interest, totaled $8.7 million at March 31, 2023. Management continues to look for high-quality loans to add to its portfolio and will continue to emphasize loan originations to the extent that it is profitable, prudent and consistent with our interest rate risk strategies.

***Non-Performing and Classified Loans:*** At March 31, 2023, the Company had non-performing loans (loans 90 or more days past due or on nonaccrual status) of approximately $5.9 million, or 1.9% of total loans (including acquired loans), compared to $5.8 million or 2.1%, of total loans at June 30, 2022. The Company’s allowance for loan losses totaled $1.6 million and $1.5 million at March 31, 2023 and June 30, 2022, respectively. The allowance for loan losses at March 31, 2023, represented 27.8% of nonperforming loans and 0.5% of total loans (including acquired loans), while at June 30, 2022, the allowance represented 26.3% of nonperforming loans and 0.6% of total loans.

The Company had $7.6 million in assets classified as substandard for regulatory purposes at March 31, 2023, and real estate owned (“REO”) of $70,000. Classified loans as a percentage of total loans (including loans acquired) was 2.5% and 2.7% at March 31, 2023 and June 30, 2022, respectively. Of substandard loans, 99.0% 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)*

|  | March 31, 2023 | June 30, 2022 |
| --- | ---: | ---: |
| Substandard assets | $7,629 | $7,458 |
| Doubtful assets | – | – |
| Loss assets | – | – |
| Total classified assets | $7,629 | $7,458 |

At March 31, 2023, the Company’s real estate acquired through foreclosure represented 0.9% of substandard assets compared to 0.1% at June 30, 2022. During the period presented the Company made no loans to facilitate the purchase of its other real estate owned by qualified buyers. Loans to facilitate the sale of other real estate owned, which were included in substandard loans, totaled $0 and $0 at March 31, 2023 and June 30, 2022, respectively.

#### Comparison of Operating Results for the Nine-month Periods Ended March 31, 2023 and 2022

#### General

Net income totaled $891,000 or $0.11 diluted earnings per share for the nine months ended March 31, 2023, a decrease of $493,000 or 35.6% from net income of $1.4 million or $0.17 diluted earnings per share for the same period in 2022. The decrease in net income on a nine-month basis was primarily attributable to increased provision for loan losses, lower non-interest income, higher non-interest expense, and decreased net interest income.

#### Net Interest Income

Net interest income before provision for loan losses decreased $51,000 or 0.7% to $6.9 million for the nine-month period just ended, as interest expense increased by $961,000, or 71.7%, to $2.3 million, while interest income increased $910,000 or 10.9% to $9.2 million for the nine months ended March 31, 2023.

The increase in interest expense period-to-period was due primarily to a 49 basis points increase in the average rate paid on interest-bearing liabilities, which increased to 1.16% for the recently-ended nine-month period compared to the prior year period despite a decrease in the average balance of interest-bearing liabilities by $3.2 million or 1.2% to $265.4 million for the nine months ended March 31, 2023. Deposits and FHLB advances are the primary funding sources utilized by the Company and interest expense on those funds increased in response to the 500 basis point increase in the discount rate implemented by the Federal Open Market Committee of the Federal Reserve Bank (“FOMC”) beginning March 2022. Although the yield on the Company’s assets generally changes in response to interest rate changes, those assets do not reprice as quickly as funding sources reprice. As such, interest expense on borrowings increased $908,000 or 318.6% to $1.2 million for the nine months just ended, while interest expense on deposits increased $53,000 or 5.0% to $1.1 million. Deposit balances decreased in the first two quarters of the fiscal year as general interest rates in the market rose and customers sought higher yields on their interest-bearing funds. Many financial institutions experienced an outflow of deposit balances in 2022 after balance sheets swelled during the COVID-19 pandemic due to government stimulus funding and limited spending opportunities for customers. Our deposit balances decreased approximately $13.6 million and $17.0 million for the quarterly periods ended September 30, and December 31, 2022, respectively, but increased approximately $8,000 for the recently-ended quarter. Unlike some financial institutions which have struggled with high levels of uninsured bank deposits on their books, our Banks maintain a relatively low 13% of deposits which are not insured by the Federal Deposit Insurance Corporation (“FDIC”). If the FOMC continues to increase, management expects net earnings to be negatively impacted as the cost of funding is expected to increase faster than the yield on assets increases. The extent of any such negative impact will be largely dependent on whether and how much the FOMC continues to escalate interest rates. The fed funds futures market at this time indicates a general belief that the FOMC is finished increasing rates for the time being, which is anticipated to benefit our Company by allowing assets to continue repricing while the repricing of deposits slows.

Interest income increased year over year for all components of interest-earning assets due primarily to reallocation of the assets and an increase in the average rate earned on those assets, which increased 44 basis points to 3.82%. Although the average balance decreased $6.2 million or 1.9% to $321.7 million for the nine-month period ended March 31, 2023, we were able to redirect $26.8 million or 67.0% of our other interest-earning assets into loans and investments, which were able to earn higher yields. Interest income from loans increased $332,000 or 4.1% to $8.5 million, due chiefly to a $7.3 million or 2.5% increase in average balances, which totaled $294.7 million for the recently-ended period, while the average yield earned increased six basis points to 3.86%. Interest income from mortgage-backed securities increased $337,000 to $345,000 primarily due to an increase in average balance maintained during the period, which totaled $13.8 million for the current year period compared to $445,000 in the prior year and a 94 basis points increase in the average rate earned, which totaled 3.34% for the nine months just ended. Interest income on interest-bearing deposits and other increased $241,000 and totaled $359,000 for the nine months just ended due to an increase in the average rate earned on those assets, which totaled 3.61% for the nine months ended March 31, 2023, compared to 39 basis points for the prior year period.

Net interest spread decreased from 2.71% for the prior year period to 2.66% for the nine-month period ended March 31, 2023.

#### Provision for Losses on Loans

Management determined that a $113,000 provision for loan loss was appropriate in light of the relatively large increase in the loan portfolio during the period. Loans, net, increased $32.4 million or 11.8% and totaled $307.0 million at March 31, 2023, compared to $274.6 million at June 30, 2022. The additional provision was appropriate not only for the increase in the loan portfolio but also, in part, to reflect an increase in multi-family loans, which increased $5.6 million or 39.3% and totaled $19.9 million at March 31, 2023. Multi-family loans carry a slightly higher risk profile than 1-4 family residential loans, which makes up the greatest portion of the Company’s loan portfolio.

Comparison of Operating Results for the Nine-month Periods Ended March 31, 2023 and 2022 (continued)

#### Non-interest Income

Non-interest income decreased $186,000 or 44.1% to $236,000 for the nine months ended March 31, 2023, compared to the prior year period, primarily due to decreased net gains on sales of loans. Net gain on sales of loans decreased $225,000 to $6,000 for the recently-ended nine-month period. Interest rates in the general market have risen significantly since March 2022, which has resulted in a reduced demand for long-term fixed rate loans. The Company routinely sells long-term, fixed rate loans to the FHLB of Cincinnati after they are originated.

#### Non-interest Expense

Non-interest expense increased $128,000 or 2.2% to $5.9 million for the nine months ended March 31, 2023, primarily due to higher auditing and accounting costs and outside service fees.

Auditing and accounting costs increased $84,000 or 65.6% to $212,000 for the recently-ended period due to increased internal and external audit expenses. Outside service fees increased $48,000 or 36.1% to $181,000 for the nine months just ended as we incurred additional costs across our banking business including loan review, computer technology services, and interest rate monitoring, as well as general business expenses associated with public company operation and operation of employee benefits.

Other non-interest expense increased $40,000 or 9.3% to $468,000 for the nine months ended March 31, 2023 due primarily to costs associated with various administrative expenses including employee training, bank logistics and contributions to aid those who suffered historic flash flooding in our easternmost bank service area.

#### Income Tax Expense

Income tax expense decreased $91,000 or 24.3% to $283,000 for the nine months ended March 31, 2023, compared to the prior year period. The effective tax rates for the nine-month periods ended March 31, 2023 and 2022, were 24.1% and 21.3%, respectively.

#### Comparison of Operating Results for the Three-month Periods Ended March 31, 2023 and 2022

#### General

Net income totaled $144,000 or $0.02 diluted earnings per share for the three months ended March 31, 2023, a decrease of $190,000 or 56.9% from net income of $334,000 or $0.04 diluted earnings per share for the same period in 2022. The decrease in net earnings for the quarter ended was primarily attributable to provision for losses on loans and lower net interest income.

#### Net Interest Income

Net interest income before provision for losses on loans decreased $93,000 or 4.4% to $2.0 million for the three-month period just ended, as interest expense increased at a faster pace than interest income. Interest expense increased by $742,000, or 175.4%, to $1.2 million, while interest income increased $649,000 or 25.3% to $3.2 million for the three months ended March 31, 2023.

The increase in interest income period-to-period was led by an increase in interest income on loans and was strongly supported by increases in interest income on mortgage-backed securities. Interest income on loans increased $470,000 or 18.7% to $3.0 million for the quarterly period just ended due to both increased average balance of loans in the portfolio and increased average rate earned. The average balance of loans, net increased $29.8 million or 10.9% to $304.0 million for the period, while the average balance earned on those assets increased 26 basis points to 3.93%. Interest income on mortgage-backed securities increased $114,000 to $116,000 for the three months ended March 31, 2023, and was due primarily to an increase in the average balance, which increased $13.1 million to $13.5 million for the quarter just ended, while the average rate increased 48 basis points to 3.44% for the period. Interest income on interest-bearing deposits and other increased $65,000 and totaled $111,000 for the quarter just ended due to a 4.29% increase in the average rate earned on those assets, which totaled 4.64% for the period. The average balance of other interest-earning assets decreased $42.0 million or 81.4% to $9.6 million for the recently-ended quarter, as we redeployed assets primarily into loans.

The increase in interest expense was attributed primarily to an increase in interest expense on borrowings, which increased $624,000 to $711,000 for the recently-ended quarterly period, while interest expense on deposits increased $118,000 or 35.1% to $454,000. Interest expense on borrowings increased chiefly due to an increase in the average rate paid on those funds, which increased 293 basis points to 3.70% for the three months just ended, while the average balance increased $31.6 million or 67.7% to $76.9 million. Advances were used to replace deposits, whose average balance decreased $25.5 million or 11.5% to $195.9 million for the three months just ended due to deposit decreases occurring in the first two quarters of this fiscal year, as described above. The average rate paid on interest-bearing deposits increased 32 basis points to 0.93% for the recently ended period.

Net interest spread decreased 29 basis points from 2.51% for the prior year quarterly period to 2.22% for the three-month period ended March 31, 2023.

#### Provision for Losses on Loans

The Company recorded no provision for loan losses for the three-month period ended March 31, 2023, while a negative provision of $106,000 was made for the three-month period ended March 31, 2022.

Comparison of Operating Results for the Three-month Periods Ended March 31, 2023 and 2022 (continued)

#### Non-interest Income

Non-interest income decreased $25,000 or 26.6% to $69,000 for the recently ended quarter due primarily to decreased net gains on sales of loans. Interest rates have risen significantly since March 2022, which has resulted in a reduced demand for long-term fixed rate loans, which the Company routinely sells to the FHLB of Cincinnati after they are originated.

#### Non-interest Expense

Non-interest expense increased $45,000 or 2.4% to $1.9 million for the quarter ended March 31, 2023, due primarily to higher outside service fees. Outside service fees increased $46,000 or 148.4% to $77,000 for the three months just ended as we incurred additional costs across our banking business including loan review, computer technology services, and interest rate monitoring, as well as general business expenses associated with public company operation and operation of employee benefits. Management expects these higher costs to continue at the higher levels and, although in some cases these costs are related to expanded services, the primary cause of the higher costs was general inflation.

#### Income Tax Expense

Income tax expense decreased $79,000 or 59.4% to $54,000 for the three months ended March 31, 2023, compared to the prior year period. The effective tax rates for the three-month periods ended March 31, 2023 and 2022 were 27.3% and 28.5%, respectively.

## Controls and procedures

As filed, 1,326 characters.

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

Based upon their evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have also concluded that there were no significant changes during the quarter ended March 31, 2023 in the Company’s internal control over financial reporting or in other factors that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

## Risk factors

As filed, 5,654 characters.

In addition to the other information set forth in this report, you should carefully consider the risk factors disclosed in Part I, “Item 1A- Risk Factors” in the Form 10-K for the year ended June 30, 2022 that the Company filed with the SEC on September 28, 2022.

The most significant risk factors affecting our business include the factors discussed in our Annual Report on Form 10-K for the year ended June 30, 2022 under the Item 1A, “Risk Factors” and the following additional factors:

***Financial challenges at other banking institutions could lead to depositor concerns that spread within the banking industry causing disruptive and destabilizing deposit outflows.***

In March 2023, Silicon Valley Bank and Signature Bank experienced large deposit outflows coupled with insufficient liquidity to meet withdrawal demands, resulting in the institutions being placed into FDIC receivership. In May 2023, First Republic Bank was also placed into FDIC receivership. In the aftermath of these events, there has been substantial market disruption and concerns that diminished depositor confidence could spread across the banking industry, leading to deposit outflows that could destabilize other institutions. To strengthen public confidence in the banking system, the FDIC took action to protect funds held in uninsured deposit accounts at Silicon Valley Bank, Signature Bank and First Republic Bank. However, the FDIC has not committed to protecting uninsured deposits in other institutions that experience outsized withdrawal demands. 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 March 31, 2023, we had $20.9 million in available liquidity, including $8.1 million in cash and cash equivalents. Our uninsured deposits are estimated to be approximately $27.8 million or 13.2% of total deposits. At March 31, 2023, we had off-balance sheet liquidity sources totaling $80.7 million, including $59.7 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 Bank. Furthermore, the recent bank failures may result in strengthening of capital and liquidity rules which, if the revised rules apply to us, could adversely affect our financial condition and results of operations.

***Insufficient liquidity or liquidity related concerns could impair our ability to fund operations, pay dividends on outstanding shares of stock, and jeopardize our financial condition, growth and prospects.***

We require sufficient liquidity to fund loan commitments, satisfy depositor withdrawal requests, make payments on our debt obligations as they become due, and meet other cash commitments. Liquidity risk is the potential that we will be unable to meet our obligations as they become due because of an inability to liquidate assets or obtain adequate funding at a reasonable cost, in a timely manner and without adverse conditions or consequences. Our sources of liquidity consist primarily of cash, assets readily convertible to cash (such as investment securities), increases in deposits, advances, as needed, from the FHLB, borrowings, as needed, from the Federal Reserve Bank of Cleveland and other borrowings. Our access to funding sources in amounts adequate to finance our activities or on acceptable terms could be impaired by factors that affect our organization specifically or the financial services industry or economy in general. 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.

These risk factors could materially affect our business, financial condition or future results. The risks described are not the only risks that the Company face. Additional risks and uncertainties not currently known or that the Company currently deem to be immaterial also may materially adversely affect its business, financial condition and/or operating results.

***Our FDIC deposit insurance premiums and assessments may increase, which would reduce our profitability.***

On March 12, 2023, the Department of the Treasury, the Federal Reserve and the FDIC issued a joint statement relating to the resolution of Silicon Valley Bank and Signature Bank that stated that losses to support uninsured deposits of those banks would be recovered via a special assessment on banks. On May 11, 2023 the FDIC Board of Directors approved a notice of proposed rulemaking, which would implement a special assessment to recover the cost associated with protecting uninsured depositors following the closures of Silicon Valley Bank and Signature Bank. In general, large banks with large amounts of uninsured deposits benefitted most from the protection of uninsured depositors. Banking organizations with total assets over $50 billion would pay more than 95 percent of the special assessment and banking organizations with total assets under $5 billion would not be subject to the special assessment. Under the current provisions of this notice of proposed rulemaking, we believe that we would not be impacted by the special assessment associated with the most recent banking organization closures.

Filed May 15, 2023.
Source: SEC EDGAR, the filing index for accession 0001213900-23-039626. Last ingested by Listed: Nov 2, 2026, 15:32 ET. No prices; not investment advice.