UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
(Mark
One)
x
QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) of
THE
SECURITIES EXCHANGE ACT OF 1934
For
the quarterly period ended:
March 31,
2008
OR
o
TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) of
THE
SECURITIES EXCHANGE ACT OF 1934
For the
transition period from _____ to _____
Commission
File Number:
000-50592
K-FED
BANCORP
(Exact
name of registrant as specified in its charter)
|
Federal
|
|
20-0411486
|
|
(State
or other jurisdiction of incorporation)
|
|
(I.R.S.
Employer Identification No.)
|
|
|
|
|
|
1359 N. Grand Avenue, Covina,
CA
|
|
91724
|
|
(Address
of principal executive offices)
|
|
(Zip
Code)
|
(800)
524-2274
(Registrant’s
telephone number, including area code)
Indicate
by check mark whether the registrant: (1) has filed all reports required to be
filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes
x
No
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange act. (Check one):
Large
accelerated filer
o
Accelerated
filer
x
Non-accelerated filer
o
Smaller
Reporting Company
x
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes
o
No
x
APPLICABLE
ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of
the issuer’s classes of common stock, as of the latest practicable
date:
Common
Stock, $.01 par value – 13,679,247 shares outstanding as of May 2,
2008.
Form
10-Q
K-FED
BANCORP
Table
of Contents
|
|
|
Page
|
|
Part
I.
|
Financial Information
|
|
|
|
|
|
|
Item
1:
|
|
|
|
|
|
1
|
|
|
|
2
|
|
|
|
3
|
|
|
|
4
|
|
|
|
5
|
|
|
|
|
|
Item
2:
|
|
7
|
|
|
|
|
|
Item
3:
|
|
17
|
|
|
|
|
|
Item
4:
|
|
18
|
|
|
|
|
|
Part
II.
|
Other Information
|
|
|
|
|
|
|
Item
1:
|
|
20
|
|
Item
1A:
|
|
20
|
|
Item
2:
|
|
20
|
|
Item
3:
|
|
20
|
|
Item
4:
|
|
20
|
|
Item
5:
|
|
20
|
|
Item
6:
|
|
20
|
|
|
|
|
|
|
|
21
|
|
|
|
|
|
|
|
|
Part
I — FINANCIAL INFORMATION
Item
1. Financial Statements
K-FED
BANCORP AND SUBSIDIARY
Consolidated
Statements of Financial Condition
(Unaudited)
(Dollars
in thousands, except share data)
|
|
|
March
31
2008
|
|
June
30
2007
|
|
|
ASSETS
|
|
|
|
|
|
|
Cash
and due from banks
|
|
$
|
7,087
|
|
$
|
10,982
|
|
|
Federal
funds sold
|
|
|
69,265
|
|
|
15,750
|
|
|
Total
cash and cash equivalents
|
|
|
76,352
|
|
|
26,732
|
|
|
Interest
earning deposits in other financial institutions
|
|
|
—
|
|
|
2,970
|
|
|
Securities
available-for-sale
|
|
|
9,522
|
|
|
13,579
|
|
|
Securities
held-to-maturity, fair value of $9,801 and
$20,514
at March 31, 2008 and June 30, 2007, respectively
|
|
|
9,766
|
|
|
21,096
|
|
|
Federal
Home Loan Bank stock, at cost
|
|
|
12,366
|
|
|
9,870
|
|
|
Loans
receivable
|
|
|
732,790
|
|
|
701,962
|
|
|
Deferred
net loan origination fees
|
|
|
(11
|
)
|
|
(134
|
)
|
|
Net
premium on purchased loans
|
|
|
7
|
|
|
120
|
|
|
Allowance
for loan losses
|
|
|
(3,057
|
)
|
|
(2,805
|
)
|
|
Loans
receivable, net
|
|
|
729,729
|
|
|
699,143
|
|
|
Accrued
interest receivable
|
|
|
3,263
|
|
|
3,259
|
|
|
Premises
and equipment, net
|
|
|
3,059
|
|
|
3,484
|
|
|
Core
deposit intangible
|
|
|
249
|
|
|
323
|
|
|
Goodwill
|
|
|
3,950
|
|
|
3,950
|
|
|
Bank-owned
life insurance
|
|
|
11,289
|
|
|
10,954
|
|
|
Other
assets
|
|
|
4,060
|
|
|
4,265
|
|
|
Total
assets
|
|
$
|
863,605
|
|
$
|
799,625
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
|
|
|
|
|
|
Noninterest
bearing
|
|
$
|
54,993
|
|
$
|
43,169
|
|
|
Interest
bearing
|
|
|
441,409
|
|
|
450,959
|
|
|
Total
deposits
|
|
|
496,402
|
|
|
494,128
|
|
|
Federal
Home Loan Bank advances, short-term
|
|
|
38,000
|
|
|
20,000
|
|
|
Federal
Home Loan Bank advances, long-term
|
|
|
207,019
|
|
|
190,016
|
|
|
State
of California time deposit
|
|
|
25,000
|
|
|
—
|
|
|
Accrued
expenses and other liabilities
|
|
|
3,719
|
|
|
3,164
|
|
|
Total
liabilities
|
|
|
770,140
|
|
|
707,308
|
|
|
Commitments
and contingent liabilities
|
|
|
—
|
|
|
—
|
|
|
Stockholders’
equity
|
|
|
|
|
|
|
|
|
Nonredeemable
serial preferred stock, $.01 par value;
2,000,000
shares authorized; issued and outstanding — none
|
|
|
—
|
|
|
—
|
|
|
Common
stock, $0.01 par value; 18,000,000 authorized;
March
31, 2008 — 14,725,440 shares issued.
June
30, 2007 — 14,724,760 shares issued.
|
|
|
147
|
|
|
147
|
|
|
Additional
paid-in capital
|
|
|
58,231
|
|
|
57,626
|
|
|
Retained
earnings
|
|
|
50,345
|
|
|
49,084
|
|
|
Accumulated
other comprehensive loss, net of tax
|
|
|
97
|
|
|
(126
|
)
|
|
Unearned
employee stock ownership plan shares
|
|
|
(2,730
|
)
|
|
(3,071
|
)
|
|
Treasury
stock, at cost (March 31, 2008 — 895,001 shares;
June
30, 2007 — 775,815 shares)
|
|
|
(12,625
|
)
|
|
(11,343
|
)
|
|
Total
stockholders’ equity
|
|
|
93,465
|
|
|
92,317
|
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
863,605
|
|
$
|
799,625
|
|
|
The
accompanying notes are an integral part of these unaudited consolidated
financial statements
|
K-FED BANCORP AND SUBSIDIARY
Consolidated
Statements of Income and Comprehensive Income
(Unaudited)
(Dollars
in thousands, except per share data)
|
|
|
Three
Months Ended
March
31
|
|
Nine
Months Ended
March
31
|
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
Interest
Income
|
|
|
|
|
|
|
|
|
|
|
Interest
and fees on loans
|
|
$
|
10,948
|
|
$
|
9,617
|
|
$
|
31,855
|
|
$
|
27,634
|
|
|
Interest
on securities, taxable
|
|
|
224
|
|
|
324
|
|
|
882
|
|
|
1,008
|
|
|
Federal
Home Loan Bank dividends
|
|
|
146
|
|
|
133
|
|
|
398
|
|
|
369
|
|
|
Other
interest
|
|
|
268
|
|
|
394
|
|
|
690
|
|
|
1,428
|
|
|
Total
interest income
|
|
|
11,586
|
|
|
10,468
|
|
|
33,825
|
|
|
30,439
|
|
|
Interest
Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
on deposits
|
|
|
3,575
|
|
|
3,867
|
|
|
11,493
|
|
|
10,788
|
|
|
Interest
on borrowings
|
|
|
2,924
|
|
|
2,071
|
|
|
7,955
|
|
|
6,162
|
|
|
Total
interest expense
|
|
|
6,499
|
|
|
5,938
|
|
|
19,448
|
|
|
16,950
|
|
|
Net
interest income
|
|
|
5,087
|
|
|
4,530
|
|
|
14,377
|
|
|
13,489
|
|
|
Provision
for loan losses
|
|
|
200
|
|
|
116
|
|
|
551
|
|
|
419
|
|
|
Net
interest income after provision
for
loan losses
|
|
|
4,887
|
|
|
4,414
|
|
|
13,826
|
|
|
13,070
|
|
|
Noninterest
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
charges and fees
|
|
|
558
|
|
|
509
|
|
|
1,739
|
|
|
1,510
|
|
|
ATM
fees and charges
|
|
|
410
|
|
|
441
|
|
|
1,144
|
|
|
1,214
|
|
|
Referral
commissions
|
|
|
98
|
|
|
54
|
|
|
232
|
|
|
195
|
|
|
Loss
on equity investment
|
|
|
(105
|
)
|
|
(30
|
)
|
|
(315
|
)
|
|
(85
|
)
|
|
Bank-owned
life insurance
|
|
|
113
|
|
|
113
|
|
|
335
|
|
|
325
|
|
|
Other
noninterest income
|
|
|
58
|
|
|
6
|
|
|
77
|
|
|
20
|
|
|
Total
noninterest income
|
|
|
1,132
|
|
|
1,093
|
|
|
3,212
|
|
|
3,179
|
|
|
Noninterest
expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries
and benefits
|
|
|
2,064
|
|
|
2,048
|
|
|
6,056
|
|
|
5,745
|
|
|
Occupancy
and equipment
|
|
|
571
|
|
|
516
|
|
|
1,702
|
|
|
1,545
|
|
|
ATM
expense
|
|
|
326
|
|
|
308
|
|
|
952
|
|
|
933
|
|
|
Advertising
and promotional
|
|
|
99
|
|
|
130
|
|
|
225
|
|
|
262
|
|
|
Professional
services
|
|
|
242
|
|
|
280
|
|
|
709
|
|
|
636
|
|
|
Postage
|
|
|
73
|
|
|
82
|
|
|
221
|
|
|
230
|
|
|
Telephone
|
|
|
123
|
|
|
122
|
|
|
377
|
|
|
340
|
|
|
Stock
offering costs
|
|
|
10
|
|
|
—
|
|
|
1,279
|
|
|
—
|
|
|
Other
operating expense
|
|
|
420
|
|
|
365
|
|
|
1,339
|
|
|
1,122
|
|
|
Total
noninterest expense
|
|
|
3,928
|
|
|
3,851
|
|
|
12,860
|
|
|
10,813
|
|
|
Income
before income tax expense
|
|
|
2,091
|
|
|
1,656
|
|
|
4,178
|
|
|
5,436
|
|
|
Income
tax expense
|
|
|
766
|
|
|
543
|
|
|
1,453
|
|
|
1,863
|
|
|
Net
income
|
|
$
|
1,325
|
|
$
|
1,113
|
|
$
|
2,725
|
|
$
|
3,573
|
|
|
Comprehensive
Income
|
|
$
|
1,426
|
|
$
|
1,149
|
|
$
|
2,948
|
|
$
|
3,733
|
|
|
Earnings
per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.10
|
|
$
|
0.08
|
|
$
|
0.20
|
|
$
|
0.26
|
|
|
Diluted
|
|
$
|
0.10
|
|
$
|
0.08
|
|
$
|
0.20
|
|
$
|
0.26
|
|
|
|
|
The
accompanying notes are an integral part of these unaudited consolidated
financial statements
|
K-FED
BANCORP AND SUBSIDIARY
Consolidated Statements of Stockholders’
Equity
And
Other Comprehensive Income
(Unaudited)
(Dollars
in thousands, except share data)
|
|
|
|
|
Common
Stock
|
|
|
|
|
|
|
|
|
|
Treasury
Stock
|
|
|
|
|
|
|
Comprehensive
Income
|
|
Shares
|
|
Amount
|
|
Additional
Paid-in
Capital
|
|
Retained
Earnings
|
|
Accumulated
Other
Comprehensive
Loss,
net
|
|
Unearned
ESOP
Shares
|
|
Shares
|
|
Amount
|
|
Total
|
|
|
Balance
June 30, 2007
|
|
|
|
|
14,724,760
|
|
$
|
147
|
|
$
|
57,626
|
|
$
|
49,084
|
|
$
|
(126
|
)
|
$
|
(3,071
|
)
|
(775,815
|
)
|
$
|
(11,343
|
)
|
$
|
92,317
|
|
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income for the nine months ended March 31, 2008
|
|
$
|
2,725
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,725
|
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
|
2,725
|
|
|
Other
comprehensive income – unrealized gain on securities, net of
tax
|
|
|
223
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
223
|
|
|
—
|
|
—
|
|
|
—
|
|
|
223
|
|
|
Total
comprehensive income
|
|
$
|
2,948
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
paid ($0.31 per share)
*
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,464
|
)
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
|
(1,464
|
)
|
|
Purchase
of treasury stock
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
(119,186
|
)
|
|
(1,282
|
)
|
|
(1,282
|
)
|
|
Stock
options earned
|
|
|
|
|
—
|
|
|
—
|
|
|
238
|
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
|
238
|
|
|
Allocation
of stock awards
|
|
|
|
|
—
|
|
|
—
|
|
|
325
|
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
|
325
|
|
|
Tax
benefit of RRP shares
|
|
|
|
|
—
|
|
|
—
|
|
|
(30
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
|
(30
|
)
|
|
Issuance
of stock awards
|
|
|
|
|
5,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Forfeiture
of stock awards
|
|
|
|
|
(4,320
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Allocation
of ESOP common stock
|
|
|
|
|
—
|
|
|
—
|
|
|
72
|
|
|
—
|
|
|
—
|
|
|
341
|
|
—
|
|
|
—
|
|
|
413
|
|
|
Balance
March 31, 2008
|
|
|
|
|
14,725,440
|
|
$
|
147
|
|
$
|
58,231
|
|
$
|
50,345
|
|
$
|
97
|
|
$
|
(2,730
|
)
|
(895,001
|
)
|
$
|
(12,625
|
)
|
$
|
93,465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
K-Fed Mutual Holding Company waived its receipt of dividends on the
8,861,750 shares it owns.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these unaudited consolidated
financial statements
|
K-FED
BANCORP AND SUBSIDIARY
Consolidated Statements of Cash
Flows
(Unaudited)
|
|
|
Nine
Months Ended
March
31
|
|
|
|
|
2008
|
|
2007
|
|
|
Operating
Activities
|
|
|
|
|
|
|
Net
income
|
|
$
|
2,725
|
|
$
|
3,573
|
|
|
Adjustments
to reconcile net income to cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
Amortization
of net premiums on securities
|
|
|
17
|
|
|
37
|
|
|
Amortization
of net premiums on loan purchases
|
|
|
113
|
|
|
239
|
|
|
Accretion
of net loan origination fees
|
|
|
(41
|
)
|
|
(52
|
)
|
|
Provision
for loan losses
|
|
|
551
|
|
|
419
|
|
|
Federal
Home Loan Bank stock dividend
|
|
|
(398
|
)
|
|
(369
|
)
|
|
Depreciation
and amortization
|
|
|
636
|
|
|
537
|
|
|
Amortization
of core deposit intangible
|
|
|
74
|
|
|
87
|
|
|
Loss
on equity investment
|
|
|
315
|
|
|
85
|
|
|
Increase
in cash surrender value of bank-owned life insurance
|
|
|
(335
|
)
|
|
(325
|
)
|
|
Accretion
of net premiums on purchased certificates of deposits
|
|
|
(37
|
)
|
|
(37
|
)
|
|
Amortization
of debt exchange costs
|
|
|
4
|
|
|
54
|
|
|
Allocation
of ESOP common stock
|
|
|
413
|
|
|
585
|
|
|
Allocation
of stock awards
|
|
|
325
|
|
|
249
|
|
|
Stock
options earned
|
|
|
238
|
|
|
181
|
|
|
Net
increase in accrued interest receivable
|
|
|
(4
|
)
|
|
(414
|
)
|
|
Net
(increase) decrease in other assets
|
|
|
(269
|
)
|
|
235
|
|
|
Net
increase in accrued expenses and other liabilities
|
|
|
555
|
|
|
396
|
|
|
Net
cash provided by operating activities
|
|
|
4,882
|
|
|
5,480
|
|
|
|
|
|
|
|
|
|
|
|
Investing
Activities
|
|
|
|
|
|
|
|
|
Proceeds
from maturities and principal repayments of available-for-sale
securities
|
|
|
4,423
|
|
|
869
|
|
|
Proceeds
from maturities and principal repayments of held-to-maturity
securities
|
|
|
11,330
|
|
|
2,719
|
|
|
Decrease
in interest bearing deposits at other institutions
|
|
|
2,970
|
|
|
6,040
|
|
|
Purchases
of loans
|
|
|
—
|
|
|
(72,670
|
)
|
|
(Increase)
decrease in loans, excluding loan purchases
|
|
|
(31,209
|
)
|
|
35,817
|
|
|
Purchases
of FHLB stock
|
|
|
(2,099
|
)
|
|
(71
|
)
|
|
Purchases
of premises and equipment
|
|
|
(212
|
)
|
|
(683
|
)
|
|
Net
cash used in investing activities
|
|
|
(14,797
|
)
|
|
(27,979
|
)
|
|
|
|
|
|
|
|
|
|
|
Financing
Activities
|
|
|
|
|
|
|
|
|
Proceeds
from FHLB advances
|
|
|
93,500
|
|
|
20,000
|
|
|
Repayment
of FHLB advances
|
|
|
(58,500
|
)
|
|
(10,000
|
)
|
|
Dividends
paid on common stock
|
|
|
(1,464
|
)
|
|
(1,378
|
)
|
|
Purchases
of treasury stock
|
|
|
(1,282
|
)
|
|
(4,556
|
)
|
|
Net
increase in deposits
|
|
|
2,311
|
|
|
50,513
|
|
|
Increase
in State of California time deposit
|
|
|
25,000
|
|
|
—
|
|
|
Exercise
of stock options
|
|
|
—
|
|
|
170
|
|
|
Tax
benefit from RRP shares vesting
|
|
|
(30
|
)
|
|
35
|
|
|
Net
cash provided by financing activities
|
|
|
59,535
|
|
|
54,784
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase in cash and cash equivalents
|
|
|
49,620
|
|
|
32,285
|
|
|
Beginning
cash and cash equivalents
|
|
|
26,732
|
|
|
25,579
|
|
|
Ending
cash and cash equivalents
|
|
$
|
76,352
|
|
$
|
57,864
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these unaudited consolidated
financial statements
|
K-FED
BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
Note
1 –
Nature of Business
and Significant Accounting Policies
Nature of
Business
: K-Fed Bancorp (or the “Company”) is a majority-owned
subsidiary of K-Fed Mutual Holding Company (or the “Parent”). The Company and
its Parent are holding companies that are federally chartered. The Company’s
sole subsidiary, Kaiser Federal Bank (or the “Bank”), is a federally chartered
savings association, which provides retail and commercial banking services to
individuals and business customers from its nine branch locations throughout
California. While the Bank originates all types of retail and commercial real
estate loans, the majority of its residential real estate loans have been
purchased from other financial institutions.
The
Company’s business activities generally are limited to passive investment
activities and oversight of our investment in the Bank. Unless the context
otherwise requires, all references to the Company include the Bank and the
Company on a consolidated basis.
Basis of
Presentation:
The financial statements of K-Fed Bancorp have
been prepared in conformity with accounting principles generally accepted in the
United States (“GAAP”) for interim financial information and predominant
practices followed by the financial services industry, and are unaudited. In the
opinion of the Company’s management, all adjustments consisting of normal
recurring accruals necessary for a fair presentation of the financial condition
and results of operations for the interim periods included herein have been
made.
The
results of operations for the nine months ended March 31, 2008 are not
necessarily indicative of the results of operations that may be expected for any
other interim period or for the fiscal year ending June 30, 2008. Certain
information and note disclosures normally included in the Company’s annual
financial statements have been condensed or omitted. Therefore, these
consolidated financial statements and notes thereto should be read in
conjunction with the consolidated financial statements and notes included in the
2007 Annual Report on Form 10-K filed with the Securities and Exchange
Commission.
Principles of
Consolidation:
The consolidated financial statements presented
in this quarterly report include the accounts of K-Fed Bancorp and its
wholly-owned subsidiary, Kaiser Federal Bank. All material intercompany balances
and transactions have been eliminated in consolidation.
Use of
Estimates:
The preparation of consolidated financial
statements in conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of income and expenses during the
reporting period. Changes in these estimates and assumptions are considered
reasonably possible and may have a material impact on the consolidated financial
statements and thus actual results could differ from the amounts reported and
disclosed herein. Material estimates that are particularly susceptible to
significant change in the near term relate to the determination of the allowance
for loan losses, the valuation of financial instruments, and mortgage-loan
prepayment assumptions used to determine the effective interest amortization of
loan purchase premiums and discounts.
Newly
Issued Accounting Standards:
In July
2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation
No. 48 (“FIN 48”) “Accounting for Uncertainty in Income Taxes: an
interpretation of Statement of Financial Accounting Standards (“SFAS”) Statement
No. 109.” This interpretation clarifies the accounting for
uncertainty in income taxes recognized in an entity’s financial statements in
accordance with SFAS No. 109, “Accounting for Income Taxes.” FIN 48
prescribes a recognition threshold and measurement attribute for a tax position
taken or expected to be taken in a tax return. Under FIN 48, an
income tax position will be recognized if it is more likely than not that it
will be sustained upon IRS examination, based upon its technical merits. Once
that status is met, the amount recorded will be the largest amount of benefit
that is greater than 50 percent likely of being realized upon ultimate
settlement. FIN 48 also provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods, disclosure, and
transition. FIN 48 is effective as of the beginning of fiscal years that begin
after December 15, 2006.
We
adopted FIN 48 effective July 1, 2007. There was no cumulative effect of
applying the provisions of FIN 48 and there was no material effect on our
provision for income taxes for the three and nine months ended March 31,
2008. The adoption of FIN 48 had no material effect on our financial
condition or results of operations.
Note
2 –
Earnings Per
Share
Basic
earnings per common share is net income divided by the weighted average number
of common shares outstanding during the period. ESOP shares are considered
outstanding for this calculation unless unearned. Diluted earnings per common
share includes the dilutive effect of additional potential common shares
issuable under stock options and stock awards.
|
|
|
Three
months ended
March
31,
|
|
|
|
Nine
months ended
March
31,
|
|
|
|
|
2008
|
|
|
|
2007
|
|
|
|
2008
|
|
|
|
2007
|
|
|
|
|
(Dollars
in thousands)
|
|
|
Net
income
|
|
$
|
1,325
|
|
|
|
$
|
1,113
|
|
|
|
$
|
2,725
|
|
|
|
$
|
3,573
|
|
|
Weighted
average common shares outstanding
|
|
|
13,543,148
|
|
|
|
|
13,582,837
|
|
|
|
|
13,559,650
|
|
|
|
|
13,654,354
|
|
|
Basic
earnings per share
|
|
$
|
0.10
|
|
|
|
$
|
0.08
|
|
|
|
$
|
0.20
|
|
|
|
$
|
0.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share assuming dilution
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income available to common shareholders
|
|
$
|
1,325
|
|
|
|
$
|
1,113
|
|
|
|
$
|
2,725
|
|
|
|
$
|
3,573
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding
|
|
|
13,543,148
|
|
|
|
|
13,582,837
|
|
|
|
|
13,559,650
|
|
|
|
|
13,654,354
|
|
|
Dilutive
effect of stock options
|
|
|
—
|
|
|
|
|
21,023
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
Dilutive
effect of stock awards
|
|
|
—
|
|
|
|
|
23,894
|
|
|
|
|
—
|
|
|
|
|
20,871
|
|
|
Average
common shares and dilutive potential common shares
|
|
|
13,543,148
|
|
|
|
|
13,627,754
|
|
|
|
|
13,559,650
|
|
|
|
|
13,675,225
|
|
|
Diluted
earnings per share
|
|
$
|
0.10
|
|
|
|
$
|
0.08
|
|
|
|
$
|
0.20
|
|
|
|
$
|
0.26
|
|
For the
three and nine months ended March 31, 2008, outstanding stock options to
purchase 339,400 shares and outstanding stock awards of 78,560 shares were not
considered in computing diluted earnings per common share because they were
anti-dilutive.
|
Item 2.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
Forward-Looking
Information
This Quarterly Report on Form 10-Q
contains certain forward-looking statements and information relating to the
Company and the Bank that are based on the beliefs of management as well as
assumptions made by and information currently available to management. In
addition, in portions of this document the words “anticipate,” “believe,”
“estimate,” “expect,” “intend,” “should” and similar expressions or the negative
thereof, as they relate to the Company or the Bank or their management, are
intended to identify forward-looking statements. Such statements reflect the
current views of the Company and/or the Bank with respect to forward-looking
events and are subject to certain risks, uncertainties and assumptions. Should
one or more of these risks or uncertainties materialize or should underlying
assumptions prove incorrect, actual results may vary materially from those
described herein as anticipated, believed, estimated, expected or intended. The
Company does not intend to update these forward-looking
statements.
Comparison
of Financial Condition at March 31, 2008 and June 30, 2007.
Assets:
Cash and cash
equivalents increased $49.7 million, or 185.6% to $76.4 million at March 31,
2008 from $26.7 million at June 30, 2007. The increase related to federal funds
sold, which increased $53.5 million to $69.3 million at March 31, 2008 from
$15.8 million at June 30, 2007 offset by a $3.9 million decrease in cash and due
from banks to $7.1 million at March 31, 2008 from $11.0 million at June 30,
2007. The increase in federal funds sold was primarily due to an increase in
borrowings to fund multifamily and commercial real estate loan growth and
seasonal deposit outflows which have begun to reverse.
Our
investment portfolio decreased $15.4 million, or 44.4% to $19.3 million at March
31, 2008 from $34.7 million at June 30, 2007. The decrease was attributable to
maturities and normal repayments of principal on our mortgage-backed securities
and collateralized mortgage obligations.
Our gross
loan portfolio increased $30.8 million, or 4.4% to $732.8 million at March 31,
2008 from $702.0 million at June 30, 2007. The increase was primarily due to the
bank’s focus on multifamily and commercial real estate loans as a means of
diversifying the mortgage portfolio. One-to four-family real estate loans
decreased $30.2 million, or 6.4% to $439.3 million at March 31, 2008 from $469.5
million at June 30, 2007. Commercial real estate loans increased
$23.7 million, or 30.4% to $101.5 million at March 31, 2008 from $77.8 million
at June 30, 2007. Multifamily loans increased $30.7 million, or 34.9%
to $118.8 million at March 31, 2008 from $88.1 million at June 30,
2007. Other loans which are comprised primarily of automobile loans
increased $6.5 million, or 9.8% to $73.1 million at March 31, 2008 from $66.6
million at June 30, 2007. Real estate loans comprised 90.0% of the total loan
portfolio at March 31, 2008, compared with 90.5% at June 30, 2007.
Deposits:
Total deposits
increased $2.3 million, or 0.5% to $496.4 million at March 31, 2008 from $494.1
million at June 30, 2007. The increase was primarily due to growth in money
market products as a result of the Company’s promotional rates
program.
Borrowings:
Advances from the
Federal Home Loan Bank of San Francisco increased $35.0 million, or 16.7% to
$245.0 million at March 31, 2008 from $210.0 million at June 30,
2007. We interchange the use of deposits and borrowings to fund
assets, such as the origination and purchase of loans, depending on various
factors including liquidity and asset/liability management strategies. Other
borrowings are comprised of $25.0 million in deposits from the State of
California through the state’s time deposit program in exchange for pledging
certain investment securities and mortgage loans as collateral.
Stockholders’ Equity:
Stockholders’ equity increased $1.2 million to $93.5 million at March 31, 2008
from $92.3 million at June 30, 2007 primarily as a result of $2.7 million in net
income earned for the nine months ended March 31, 2008, an unrealized gain on
securities of $223,000 net of tax and the allocation of ESOP shares, stock
awards, and stock options earned totaling $976,000. This increase was offset by
cash payments of $1.5 million in dividends to stockholders of record, excluding
shares held by K-Fed Mutual Holding Company, of $0.31 per share for the nine
months ended March 31, 2008.
Average
Balances, Net Interest Income, Yields Earned and Rates Paid
|
|
|
For
the three months ended March 31,
|
|
|
|
|
|
2008
(4)
|
|
|
|
|
|
|
|
2007
(4)
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
Average
|
|
|
|
Yield/
|
|
|
|
Average
|
|
|
|
Yield/
|
|
|
|
|
Balance
|
|
Interest
|
|
Cost
|
|
|
|
Balance
|
|
Interest
|
|
Cost
|
|
|
|
|
(Dollars
in thousands)
|
|
INTEREST-EARNING
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
receivable
(1)
|
|
$
|
738,462
|
|
$
|
10,948
|
|
5.93
|
%
|
|
|
$
|
670,319
|
|
$
|
9,617
|
|
5.74
|
%
|
|
Securities
(2)
|
|
|
19,631
|
|
|
224
|
|
4.56
|
%
|
|
|
|
32,992
|
|
|
324
|
|
3.93
|
%
|
|
Federal
funds sold
|
|
|
40,263
|
|
|
268
|
|
2.66
|
%
|
|
|
|
25,832
|
|
|
333
|
|
5.16
|
%
|
|
Federal
Home Loan Bank stock
|
|
|
12,257
|
|
|
146
|
|
4.76
|
%
|
|
|
|
9,142
|
|
|
133
|
|
5.82
|
%
|
|
Interest-earning
deposits in other financial institutions
|
|
|
—
|
|
|
—
|
|
—
|
%
|
|
|
|
2,970
|
|
|
25
|
|
3.37
|
%
|
|
Other
interest-earning assets
|
|
|
—
|
|
|
—
|
|
—
|
%
|
|
|
|
2,700
|
|
|
36
|
|
5.33
|
%
|
|
Total
interest-earning assets
|
|
|
810,613
|
|
|
11,586
|
|
5.72
|
%
|
|
|
|
743,955
|
|
|
10,468
|
|
5.63
|
%
|
|
Noninterest
earning assets
|
|
|
33,021
|
|
|
|
|
|
|
|
|
|
34,177
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
843,634
|
|
|
|
|
|
|
|
|
$
|
778,132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST-BEARING LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money
market
|
|
$
|
74,833
|
|
$
|
446
|
|
2.38
|
%
|
|
|
$
|
88,028
|
|
$
|
631
|
|
2.87
|
%
|
|
Savings
deposits
|
|
|
120,037
|
|
|
402
|
|
1.34
|
%
|
|
|
|
124,827
|
|
|
585
|
|
1.87
|
%
|
|
Certificates
of deposit
|
|
|
233,742
|
|
|
2,727
|
|
4.67
|
%
|
|
|
|
233,447
|
|
|
2,651
|
|
4.54
|
%
|
|
Other
borrowings
|
|
|
270,019
|
|
|
2,924
|
|
4.33
|
%
|
|
|
|
189,996
|
|
|
2,071
|
|
4.36
|
%
|
|
Total
interest-bearing liabilities
|
|
|
698,631
|
|
|
6,499
|
|
3.72
|
%
|
|
|
|
636,298
|
|
|
5,938
|
|
3.73
|
%
|
|
Noninterest
bearing liabilities
|
|
|
51,372
|
|
|
|
|
|
|
|
|
|
49,986
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
750,003
|
|
|
|
|
|
|
|
|
|
686,284
|
|
|
|
|
|
|
|
Equity
|
|
|
93,631
|
|
|
|
|
|
|
|
|
|
91,848
|
|
|
|
|
|
|
|
Total
liabilities and equity
|
|
$
|
843,634
|
|
|
|
|
|
|
|
|
$
|
778,132
|
|
|
|
|
|
|
|
Net
interest/spread
|
|
|
|
|
$
|
5,087
|
|
2.00
|
%
|
|
|
|
|
|
$
|
4,530
|
|
1.90
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Margin
(3)
|
|
|
|
|
|
|
|
2.51
|
%
|
|
|
|
|
|
|
|
|
2.44
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio
of interest-earning assets to interest bearing liabilities
|
|
|
116.03
|
%
|
|
|
|
|
|
|
|
|
116.92
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Calculated net of deferred fees and loss reserves.
|
|
(2)
Calculated based on amortized cost.
|
|
(3)
Net interest income divided by interest-earning assets.
|
|
(4)
Yields earned and rates paid have been annualized.
|
|
|
|
|
|
For
the nine months ended March 31,
|
|
|
|
|
|
2008
(4)
|
|
|
|
|
|
|
|
2007
(4)
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
Average
|
|
|
|
Yield/
|
|
|
|
Average
|
|
|
|
Yield/
|
|
|
|
|
Balance
|
|
Interest
|
|
Cost
|
|
|
|
Balance
|
|
Interest
|
|
Cost
|
|
|
|
|
(Dollars
in thousands)
|
|
INTEREST-EARNING
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
receivable
(1)
|
|
$
|
720,826
|
|
$
|
31,855
|
|
5.89
|
%
|
|
|
$
|
652,651
|
|
$
|
27,634
|
|
5.65
|
%
|
|
Securities
(2)
|
|
|
26,328
|
|
|
882
|
|
4.47
|
%
|
|
|
|
34,255
|
|
|
1,008
|
|
3.92
|
%
|
|
Federal
funds sold
|
|
|
24,823
|
|
|
598
|
|
3.21
|
%
|
|
|
|
30,220
|
|
|
1,166
|
|
5.14
|
%
|
|
Federal
Home Loan Bank stock
|
|
|
10,952
|
|
|
398
|
|
4.85
|
%
|
|
|
|
8,998
|
|
|
369
|
|
5.47
|
%
|
|
Interest-earning
deposits in other financial institutions
|
|
|
1,485
|
|
|
35
|
|
3.14
|
%
|
|
|
|
5,911
|
|
|
153
|
|
3.45
|
%
|
|
Other
interest-earning assets
|
|
|
1,452
|
|
|
57
|
|
5.23
|
%
|
|
|
|
2,495
|
|
|
109
|
|
5.82
|
%
|
|
Total
interest-earning assets
|
|
|
785,866
|
|
|
33,825
|
|
5.74
|
%
|
|
|
|
734,530
|
|
|
30,439
|
|
5.53
|
%
|
|
Noninterest
earning assets
|
|
|
32,937
|
|
|
|
|
|
|
|
|
|
28,575
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
818,803
|
|
|
|
|
|
|
|
|
$
|
763,105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST-BEARING LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money
market
|
|
$
|
74,391
|
|
$
|
1,484
|
|
2.66
|
%
|
|
|
$
|
100,273
|
|
$
|
2,145
|
|
2.85
|
%
|
|
Savings
deposits
|
|
|
129,172
|
|
|
1,527
|
|
1.58
|
%
|
|
|
|
110,221
|
|
|
1,221
|
|
1.48
|
%
|
|
Certificates
of deposit
|
|
|
238,916
|
|
|
8,482
|
|
4.73
|
%
|
|
|
|
229,545
|
|
|
7,422
|
|
4.31
|
%
|
|
Other
borrowings
|
|
|
238,525
|
|
|
7,955
|
|
4.45
|
%
|
|
|
|
186,978
|
|
|
6,162
|
|
4.39
|
%
|
|
Total
interest-bearing liabilities
|
|
|
681,004
|
|
|
19,448
|
|
3.81
|
%
|
|
|
|
627,017
|
|
|
16,950
|
|
3.60
|
%
|
|
Noninterest
bearing liabilities
|
|
|
44,492
|
|
|
|
|
|
|
|
|
|
43,622
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
725,496
|
|
|
|
|
|
|
|
|
|
670,639
|
|
|
|
|
|
|
|
Equity
|
|
|
93,307
|
|
|
|
|
|
|
|
|
|
92,466
|
|
|
|
|
|
|
|
Total
liabilities and equity
|
|
$
|
818,803
|
|
|
|
|
|
|
|
|
$
|
763,105
|
|
|
|
|
|
|
|
Net
interest/spread
|
|
|
|
|
$
|
14,377
|
|
1.93
|
%
|
|
|
|
|
|
$
|
13,489
|
|
1.93
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Margin
(3)
|
|
|
|
|
|
|
|
2.44
|
%
|
|
|
|
|
|
|
|
|
2.45
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio
of interest-earning assets to interest bearing liabilities
|
|
|
115.40
|
%
|
|
|
|
|
|
|
|
|
117.15
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Calculated net of deferred fees and loss reserves.
|
|
(2)
Calculated based on amortized cost.
|
|
(3)
Net interest income divided by interest-earning assets.
|
|
(4)
Yields earned and rates paid have been annualized.
|
|
|
Comparison
of Results of Operations for the Three Months Ended March 31, 2008 and March 31,
2007.
General.
Net income for the
three months ended March 31, 2008 was $1.3 million, an increase of $212,000, or
19.0%, compared to net income of $1.1 million for the three months ended March
31, 2007. Earnings per basic and diluted common share were $0.10 for the three
months ended March 31, 2008 compared to $0.08 for the three months ended March
31, 2007. The increase in net income was primarily the result of an increased
net interest margin resulting from a higher yielding loan
portfolio.
Interest Income.
Interest
income increased by $1.1 million or 10.7%, to $11.6 million for the three months
ended March 31, 2008 from $10.5 million for the three months ended March 31,
2007. The primary factor for the increase in interest income was an increase in
the average loans receivable balance of $68.2 million or 10.2%, from $670.3
million for the three months ended March 31, 2007 to $738.5 million for the
three months ended March 31, 2008. Interest income was also positively impacted
by a 19 basis point increase in the average yield on loans receivable from 5.74%
for the three months ended March 31, 2007 to 5.93% for the three months ended
March 31, 2008. The increase in the average yield on loans receivable
was primarily attributable to the addition of higher-yielding multifamily and
non-residential real estate loans to the Bank’s portfolio.
Interest
income on securities decreased by $100,000 or 30.9%, to $224,000 for the three
months ended March 31, 2008 from $324,000 for the three months ended March 31,
2007. The decrease was attributable to a $13.4 million decrease in the average
balance of investment securities from $33.0 million for the three months ended
March 31, 2007 to $19.6 million for the three months ended March 31,
2008. The decrease was attributable to maturities and normal
repayments of principal on our mortgage-backed securities and collateralized
mortgage obligations.
Other
interest income decreased by $126,000 or 32.0% to $268,000 for the three months
ended March 31, 2008 from $394,000 for the three months ended March 31,
2007. The decrease was primarily attributable to a 250 basis point
decrease in the average yield earned on Federal funds sold from 5.16% for the
three months ended March 31, 2007 to 2.66% for the three months ended March 31,
2008. The decrease in the average yield on Federal funds sold was
primarily attributable to declines in the Federal funds rate during the
comparable periods as a result of actions taken by the Federal Reserve in
lowering the federal funds rate.
Interest Expense
. Interest
expense increased $561,000 or 9.4% to $6.5 million for the three months ended
March 31, 2008 compared to $5.9 million for the three months ended March 31,
2007. The increase was primarily attributable to an increase in the average
balance of FHLB advances and other borrowings. The average balance of
interest-bearing liabilities increased $62.3 million or 9.8% to $698.6 million
for the three months ended March 31, 2008 from $636.3 million for the three
months ended March 31, 2007.
Net Interest
Income
. Net income before provision for loan losses increased
$557,000 or 12.3%, to $5.1 million for the three months ended March 31, 2008
from $4.5 million for the three months ended March 31, 2007. The
increase was attributable to an increase in the net interest margin as a result
of higher yielding multifamily and non-residential loans. The net
interest margin increased 7 basis points to 2.51% for the three months ended
March 31, 2008 from 2.44% for the three months ended March 31,
2007.
Provision for Loan
Losses
.
We
maintain an allowance for loan losses to absorb probable incurred losses
inherent in the loan portfolio. The allowance is based on ongoing, quarterly
assessments of the probable losses inherent in the loan portfolio. Our
methodology for assessing the appropriateness of the allowance consists of
several key elements, which include loss ratio analysis by type of loan and
specific allowances for identified problem loans, including the results of
measuring impaired loans as provided in Statement of Financial Accounting
Standards (“SFAS”) No. 114, “Accounting by Creditors for Impairment of a Loan”
and SFAS No. 118, “Accounting by Creditors for Impairment of a Loan – Income
Recognition and Disclosures.” These accounting standards prescribe
the measurement methods, income recognition and disclosures related to impaired
loans.
The loss
ratio analysis component of the allowance is calculated by applying loss factors
to outstanding loans based on the internal risk evaluation of the loans or pools
of loans. Changes in risk evaluations of both performing and nonperforming loans
affect the amount of the formula allowance. Loss factors are based both on our
historical loss experience as well as on significant factors that, in
management’s judgment, affect the collectibility of the portfolio as of the
evaluation date.
The
appropriateness of the allowance is reviewed and established by management based
upon its evaluation of then-existing economic and business conditions affecting
our key lending areas and other conditions, such as credit quality trends
(including trends in nonperforming loans expected to result from existing
conditions), collateral values, loan volumes and concentrations, specific
industry conditions within portfolio segments and recent loss experience in
particular segments of the portfolio that existed as of the balance sheet date
and the impact that such conditions were believed to have had on the
collectibility of the loan. Senior management reviews these conditions quarterly
in discussions with our senior credit officers. To the extent that any of these
conditions is evidenced by a specifically identifiable problem credit or
portfolio segment as of the evaluation date, management’s estimate of the effect
of such condition may be reflected as a specific allowance applicable to such
credit or portfolio segment. Where any of these conditions is not evidenced by a
specifically identifiable problem credit or portfolio segment as of the
evaluation date, management’s evaluation of the loss related to this condition
is reflected in the general allowance. The evaluation of the inherent loss with
respect to these conditions is subject to a higher degree of uncertainty because
they are not identified with specific problem credits or portfolio
segments.
Management
also evaluates the adequacy of the allowance for loan losses based on a review
of individual loans, historical loan loss experience, the value and adequacy of
collateral and economic conditions in our market area. This evaluation is
inherently subjective as it requires material estimates, including the amounts
and timing of future cash flows expected to be received on impaired loans that
may be susceptible to significant change. For all specifically reviewed loans
for which it is probable that we will be unable to collect all amounts due
according to the terms of the loan agreement, we determine impairment by
computing a fair value either based on discounted cash flows using the loan’s
initial interest rate or the fair value of the collateral if the loan is
collateral dependent. Large groups of smaller balance homogenous loans that are
collectively evaluated for impairment and are excluded from specific impairment
evaluation, and their allowance for loan losses is calculated in accordance with
the allowance for loan losses policy described above.
Because
the allowance for loan losses is based on estimates of losses inherent in the
loan portfolio, actual losses can vary significantly from the estimated amounts.
Our methodology as described above permits adjustments to any loss factor used
in the computation of the formula allowance in the event that, in management’s
judgment, significant factors which affect the collectibility of the portfolio
as of the evaluation date are not reflected in the loss factors. By assessing
the estimated losses inherent in the loan portfolio on a quarterly basis, we are
able to adjust specific and inherent loss estimates based upon any more recent
information that has become available. In addition, management’s determination
as to the amount of our allowance for loan losses is subject to review by the
Office of Thrift Supervision and the FDIC, which may require the establishment
of additional general or specific allowances based upon their judgment of the
information available to them at the time of their examination of Kaiser Federal
Bank.
Our
provision for loan losses was $200,000 for the three months ended March 31, 2008
compared to $116,000 for the three months ended March 31, 2007. The allowance
for loan losses as a percent of total loans was 0.42% at March 31, 2008 as
compared to 0.44% at March 31, 2007. The balance of the
allowance for loan losses at March 31, 2008 and the related provision for the
quarter then ended was impacted by a decrease in the amount of classified loans,
increases in historical loss factors for consumer loans based on the recent
charge-off activity and some adjustments to the real estate loan subjective
factors based on current market conditions. Our gross loan portfolio
increased $59.5 million, or 8.8% to $732.8 million at March 31, 2008 from $673.3
million at March 31, 2007. The assumptions are based both on current
industry and economic trends in addition to our internal loan loss
history. We used the same methodology and generally similar
assumptions in assessing the adequacy of the allowance for consumer and real
estate loans for both periods.
Noninterest Income.
Our
noninterest income increased $39,000, or 3.6% to $1.13 million for the three
months ended March 31, 2008 compared to $1.09 million for the three months ended
March 31, 2007. The increase was primarily the result of stock redemption
proceeds related to the VISA IPO and an increase in referral commissions and
customer service charges offset by declines in ATM fees and charges and higher
losses attributable to our investment in a California Affordable Housing Program
Fund.
Noninterest Expense.
Our
noninterest expense increased $77,000, or 2.0% to $3.93 million for the three
months ended March 31, 2008 from $3.85 million for the three months ended March
31, 2007. The increase was primarily due to increases in general operational
costs to support continued growth of the Bank.
Income Tax Expense
. Income tax
expense increased $223,000, or 41.1% to $766,000 for the three months ended
March 31, 2008 compared to $543,000 for the three months ended March 31, 2007.
This increase was primarily the result of higher pre-tax income of $2.1 million
for the three months ended March 31, 2008 compared to $1.7 million for the three
months ended March 31, 2007. The effective tax rate was 36.6% and 32.8% for the
three months ended March 31, 2008 and 2007, respectively. The
increase in effective tax rate was attributable to low income housing credits
which have a smaller impact on our tax rate when our taxable income is
higher.
Comparison
of Results of Operations for the Nine Months Ended March 31, 2008 and March 31,
2007.
General.
Net income for the
nine months ended March 31, 2008 was $2.7 million, a decrease of $848,000, or
23.7%, compared to net income of $3.6 million for the nine months ended March
31, 2007. Earnings per basic and diluted common share were $0.20 for the nine
months ended March 31, 2008 compared to $0.26 for the nine months ended March
31, 2007. The decline in net income for the nine months ended March 31, 2008
compared to the nine months ended March 31, 2007 was primarily attributable to
recognizing $1.3 million in stock offering costs in December 2007 resulting from
the cancellation of the stock offering in connection with the proposed second
step conversion of K-Fed Mutual Holding Company. If the stock
offering had been successful, these costs would have been deducted from the
proceeds of the offering as required by GAAP instead of being expensed. The
recognition of these expenses resulted in a decline of 5-cents-per-share in the
Company’s diluted earnings per share numbers for the nine months ended March 31,
2008.
Interest Income.
Interest
income increased by $3.4 million or 11.1%, to $33.8 million for the nine months
ended March 31, 2008 from $30.4 million for the nine months ended March 31,
2007. The primary factor for the increase in interest income was an increase in
the average loans receivable balance of $68.1 million or 10.4%, from $652.7
million for the nine months ended March 31, 2007 to $720.8 million for the nine
months ended March 31, 2008. Interest income was also positively impacted by a
24 basis point increase in the average yield on loans receivable from 5.65% for
the nine months ended March 31, 2007 to 5.89% for the nine months ended March
31, 2008. The increase in the average yield on loans receivable was
primarily attributable to the addition of higher-yielding multifamily and
non-residential real estate loans to the Bank’s portfolio.
Interest
income on securities decreased by $126,000 or 12.5%, to $882,000 for the nine
months ended March 31, 2008 from $1.0 million for the nine months ended March
31, 2007. The decrease was attributable to an $8.0 million or 23.1% decrease in
the average balance of investment securities from $34.3 million for the nine
months ended March 31, 2007 to $26.3 million for the nine months ended March 31,
2008. The decrease was attributable to maturities and normal
repayments of principal on our mortgage-backed securities and collateralized
mortgage obligations.
Other
interest income decreased by $738,000 or 51.7% to $690,000 for the nine months
ended March 31, 2008 from $1.4 million for the nine months ended March 31,
2007. The decrease was primarily attributable to a decrease in the
average balance of federal funds sold of $5.4 million or 17.9%, from $30.2
million for the nine months ended March 31, 2007 to $24.8 million for the nine
months ended March 31, 2008. The decrease in federal funds was
attributable to increased loan growth during the comparable periods. Interest
income was also negatively impacted by a 193 basis point decrease in the average
yield earned on federal funds sold from 5.14% for the nine months ended March
31, 2007 to 3.21% for the nine months ended March 31, 2008. The
decrease in the average yield on federal funds sold was primarily attributable
to declines in the federal funds rate during the comparable periods as a result
of actions taken by the Federal Reserve in lowering the federal funds
rate.
Interest Expense
. Interest
expense increased $2.4 million, or 14.7% to $19.4 million for the nine months
ended March 31, 2008 compared to $17.0 million for the nine months ended March
31, 2007. The increase was primarily attributable to an increase in the average
balance of deposits and FHLB advances, combined with higher interest rate
levels. The average balance of interest-bearing liabilities increased $54.0
million or 8.6% to $681.0 million for the nine months ended March 31, 2008 from
$627.0 million for the nine months ended March 31, 2007. Interest
expense was also negatively impacted by a 21 basis point increase in the average
interest rate paid on interest-bearing liabilities to 3.81% for the nine months
ended March 31, 2008 from 3.60% for the nine months ended March 31,
2007.
Provision for Loan Losses
. Our
provision for loan losses was $551,000 for the nine months ended March 31, 2008
compared to $419,000 for the nine months ended March 31, 2007. The allowance for
loan losses as a percent of total loans was 0.42% at March 31, 2008 as compared
to 0.44% at March 31, 2007. The increase in provision for loan losses was
primarily attributable to an increase in multifamily and commercial real estate
lending, which generally has a higher risk than traditional one-to four-family
real estate lending. Our gross loan portfolio increased $59.5
million, or 8.8% to $732.8 million at March 31, 2008 from $673.3 million at
March 31, 2007. The assumptions are based both on current industry
and economic trends in addition to our internal loan loss history. We
used the same methodology and generally similar assumptions in assessing the
adequacy of the allowance for consumer and real estate loans for both
periods.
Noninterest Income.
Our
noninterest income decreased $33,000, or 1.0% to $3.21 million for the nine
months ended March 31, 2008 compared to $3.18 million for the nine months ended
March 31, 2007. The increase was primarily the result of stock redemption
proceeds related to the VISA IPO, an increase in fee and transaction income
related to increased customer service charges and fees and referral commissions
offset by an increase in losses attributable to our investment in a California
Affordable Housing Program Fund.
Noninterest Expense.
Our
noninterest expense increased $2.0 million, or 18.9% to $12.9 million for the
nine months ended March 31, 2008 from $10.8 million for the nine months ended
March 31, 2007. The increase was primarily due to the recognition of $1.3
million in stock offering costs, a $311,000 increase in salaries and benefits, a
$157,000 increased in occupancy and equipment, a $73,000 increase in
professional services and a $217,000 increase in other operating
expense.
Total
salaries and benefit expense increased $311,000, or 5.4% to $6.1 million for the
nine months ended March 31, 2008 from $5.7 million for the nine months ended
March 31, 2007. The increase was primarily due to annual salary increases and an
increase in the number of full-time equivalent employees.
Occupancy
and equipment expense increased $157,000, or 10.2% to $1.7 million for the nine
months ended March 31, 2008 from $1.5 million for the nine months ended March
31, 2007. The increase was primarily due to a general increase in operating
lease rents and additional data processing costs.
Professional
service expense increased $73,000, or 11.5% to $709,000 for the nine months
ended March 31, 2008 from $636,000 for the nine months ended March 31, 2007. The
increase in professional services was primarily due to increased legal costs
stemming from the bankruptcy of U.S. Mortgage as discussed in Part II Item 1 —
Legal Proceedings.
Other
operating expense increased $217,000, or 19.3% to $1.3 million for the nine
months ended March 31, 2008 from $1.1 million for the nine months ended March
31, 2007. The increase was primarily attributable to the Federal Deposit
Insurance Corporation imposing additional deposit insurance assessments
effective January 1, 2007.
Income Tax Expense
. Income tax
expense decreased $410,000, or 22.0% to $1.5 million for the nine months ended
March 31, 2008 compared to $1.9 million for the nine months ended March 31,
2007. This decrease was primarily the result of lower pre-tax income of $4.2
million for the nine months ended March 31, 2008 compared to $5.4 million for
the nine months ended March 31, 2007. The effective tax rate was 34.8% and 34.3%
for the nine months ended March 31, 2008 and 2007, respectively.
Asset
Quality
The asset
quality of the Bank has remained strong and consistent over the past quarter.
This has been accomplished by the strict adherence to its long standing
disciplined credit culture that emphasizes the consistent application of
underwriting standards to all loans. In this regard, the Bank fully underwrite
all loans based on an applicant’s employment history, credit history and an
appraised value of the subject property. With respect to purchased loans, the
Bank underwrites each loan based upon our own underwriting standards prior to
making the purchase.
The
following underwriting guidelines have been used by the Bank as underwriting
tools to further limit the Bank’s potential loss exposure:
|
1.
|
All
variable rate loans are underwritten using the fully indexed
rate.
|
|
2.
|
All
interest-only loans are underwritten using the fully amortized
payment.
|
|
3.
|
We
only lend up to 80% of the lesser of the appraised value or purchase price
for one- to four-family residential loans. Should we grant a loan with a
loan-to-value ratio in excess of 80%, we require private mortgage
insurance in order to reduce our exposure below
80%.
|
Additionally,
the Bank’s portfolio has remained strongly anchored in traditional mortgage
products. In this regard, we do not originate, purchase or hold in portfolio
teaser option-ARM loans, negatively amortizing loans or high LTV
loans.
Delinquent
Loans
.
The
following table sets forth certain information with respect to our loan
portfolio delinquencies at the dates indicated.
|
|
|
Loans
Delinquent :
|
|
|
|
|
|
|
|
|
60-89
Days
|
|
90
Days or More
|
|
Total
Delinquent Loans
|
|
|
|
|
Number
of Loans
|
|
Amount
|
|
Number
of Loans
|
|
Amount
|
|
Number
of Loans
|
|
Amount
|
|
|
|
|
(Dollars
in thousands)
|
|
|
At March 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-
to four-family
|
|
|
2
|
|
$
|
856
|
|
|
3
|
|
$
|
1,439
|
|
|
5
|
|
$
|
2,295
|
|
|
Commercial
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Multi-family
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Other
loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile
|
|
|
11
|
|
|
136
|
|
|
2
|
|
|
44
|
|
|
13
|
|
|
180
|
|
|
Home
equity
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Other
|
|
|
15
|
|
|
29
|
|
|
10
|
|
|
18
|
|
|
25
|
|
|
47
|
|
|
Total
loans
|
|
|
28
|
|
$
|
1,021
|
|
|
15
|
|
$
|
1,501
|
|
|
43
|
|
$
|
2,522
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-
to four-family
|
|
|
—
|
|
$
|
—
|
|
|
2
|
|
$
|
1,115
|
|
|
2
|
|
$
|
1,115
|
|
|
Commercial
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Multi-family
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Other
loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile
|
|
|
7
|
|
|
111
|
|
|
2
|
|
|
19
|
|
|
9
|
|
|
130
|
|
|
Home
equity
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Other
|
|
|
5
|
|
|
8
|
|
|
4
|
|
|
7
|
|
|
9
|
|
|
15
|
|
|
Total
loans
|
|
|
12
|
|
$
|
119
|
|
|
8
|
|
$
|
1,141
|
|
|
20
|
|
$
|
1,260
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-
to four-family
|
|
|
2
|
|
$
|
383
|
|
|
—
|
|
$
|
—
|
|
|
2
|
|
$
|
383
|
|
|
Commercial
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Multi-family
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Other
loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile
|
|
|
8
|
|
|
108
|
|
|
7
|
|
|
57
|
|
|
15
|
|
|
165
|
|
|
Home
equity
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Other
|
|
|
3
|
|
|
3
|
|
|
6
|
|
|
10
|
|
|
9
|
|
|
13
|
|
|
Total
loans
|
|
|
13
|
|
$
|
494
|
|
|
13
|
|
$
|
67
|
|
|
26
|
|
$
|
561
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N
on-Performing
Assets.
The following table sets forth the amounts and categories of
non-performing assets in our loan portfolio. Non-performing assets consist of
non-accrual loans and foreclosed assets. Loans to a customer whose financial
condition has deteriorated are considered for non-accrual status whether or not
the loan is 90 days and over past due. All loans past due 90 days and over are
classified as non-accrual. On non-accrual loans, interest income is not
recognized until actually collected. At the time the loan is placed on
non-accrual status, interest previously accrued but not collected is reversed
and charged against current income. Interest is not accrued on loans
greater than 90 days or more delinquent. At each date presented, we had no
troubled debt restructurings (loans for which a portion of interest or principal
has been forgiven and loans modified at interest rates materially less than
current market rates).
Foreclosed
assets consist of real estate and other assets which have been acquired through
foreclosure on loans. At the time of foreclosure, assets are recorded at the
lower of their estimated fair value less selling costs or the loan balance, with
any write-down charged against the allowance for loan losses.
|
|
|
At
March 31,
|
|
At
June 30,
|
|
At
June 30,
|
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
(Dollars
in thousands)
|
|
|
Non-accrual loans:
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
One-
to four-family
|
|
$
|
1,439
|
|
$
|
1,115
|
|
$
|
—
|
|
|
Commercial
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Multi-family
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Other loans:
|
|
|
|
|
|
|
|
|
|
|
|
Automobile
|
|
|
44
|
|
|
19
|
|
|
57
|
|
|
Home
Equity
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Other
|
|
|
18
|
|
|
7
|
|
|
10
|
|
|
Total
|
|
|
1,501
|
|
|
1,141
|
|
|
67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate owned and Repossessed
assets:
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
One-
to four-family
|
|
|
—
|
|
|
238
|
|
|
—
|
|
|
Commercial
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Multi-family
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Other loans:
|
|
|
|
|
|
|
|
|
|
|
|
Automobile
|
|
|
89
|
|
|
74
|
|
|
69
|
|
|
Home
equity
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Other
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total
|
|
|
89
|
|
|
312
|
|
|
69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
non-performing assets
|
|
$
|
1,590
|
|
$
|
1,453
|
|
$
|
136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-performing
loans to total loans
(1)
|
|
|
0.20
|
%
|
|
0.16
|
%
|
|
0.01
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-performing
assets to total assets
|
|
|
0.18
|
%
|
|
0.18
|
%
|
|
0.02
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Total loans are net of deferred fees and costs
|
|
|
Liquidity
and Commitments
Liquidity
may increase or decrease depending upon the availability of funds and
comparative yields on investments in relation to the return on loans.
Historically, we have maintained liquid assets at levels above the minimum
requirements imposed by Office of Thrift Supervision regulations and above
levels believed to be adequate to meet the requirements of normal operations,
including potential deposit outflows. Cash flow projections are regularly
reviewed and updated to assure that adequate liquidity is maintained. See
“Consolidated Statements of Cash Flows” contained in the unaudited Consolidated
Financial Statements included in this document.
Our
liquidity, represented by cash and cash equivalents and mortgage-backed and
related securities, is a product of operating, investing and financing
activities. Our primary sources of funds are deposits; amortization, prepayments
and maturities of outstanding loans and mortgage-backed and related securities,
and other short-term investments; and funds provided from operations. While
scheduled payments from the amortization of loans and mortgage-backed related
securities and maturing investment securities and short-term investments are
relatively predictable sources of funds, deposit flows and loan prepayments are
greatly influenced by general interest rates, economic conditions, and
competition. In addition, we invest excess funds in short-term interest-earning
assets, which provide liquidity to meet lending requirements. We also generate
cash through borrowings. We utilize Federal Home Loan Bank advances to leverage
our capital base and provide funds for our lending and investment activities and
enhance our interest rate risk management.
Liquidity
management is both a daily and long-term function of business management. Excess
liquidity is generally invested in short-term investments such as overnight
deposits. On a longer-term basis, we maintain a strategy of investing in various
lending products. We use our sources of funds primarily to meet ongoing
commitments, to pay maturing time deposits and savings withdrawals, to fund loan
commitments and to maintain our portfolio of mortgage-backed and related
securities. At March 31, 2008, the total approved loan commitments unfunded
amounted to $8.3 million, which includes the unadvanced portion of loans of $5.5
million.
During
the nine months ended March 31, 2008, the Bank pledged certain investment
securities and mortgage loans to obtain $25.0 million in deposits with the State
of California through the state’s time deposit program. Time deposits
and advances from the Federal Home Loan Bank of San Francisco scheduled to
mature in one year or less at March 31, 2008, totaled $93.0 million and $38.0
million, respectively. Based on historical experience, management believes that
a significant portion of maturing deposits will remain with Kaiser Federal Bank.
We anticipate that we will continue to have sufficient funds, through deposits
and borrowings, to meet our current commitments.
At March
31, 2008, we had available additional advances from the Federal Home Loan Bank
of San Francisco in the amount of $83.0 million. Kaiser Federal
Bank’s credit limit with the Federal Home Loan Bank is limited to 40% of the
Bank’s total assets.
Capital
The table
below sets forth Kaiser Federal Bank’s capital position relative to its Office
of Thrift Supervision capital requirements at March 31, 2008. The definitions of
the terms used in the table are those provided in the capital regulations issued
by the Office of Thrift Supervision.
|
|
|
Actual
|
|
Minimum
Capital Requirements
|
|
Minimum
required to be Well Capitalized Under Prompt Corrective Actions
Provisions
|
|
|
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
|
|
|
(Dollars
in thousands)
|
|
|
Total
risk-based capital (to risk-weighted assets)
|
|
$72,163
|
|
12.93
|
%
|
$44,650
|
|
8.00
|
%
|
$55,813
|
|
10.00
|
%
|
|
Tier
1 risk-based capital (to risk-weighted assets)
|
|
69,155
|
|
12.39
|
|
22,325
|
|
4.00
|
|
33,488
|
|
6.00
|
|
|
Tier
1 (core) capital (to adjusted tangible assets)
|
|
69,155
|
|
8.14
|
|
33,975
|
|
4.00
|
|
42,469
|
|
5.00
|
|
Consistent
with our goal to operate a sound and profitable financial organization, we
actively seek to maintain a “well capitalized” institution in accordance with
regulatory standards. At March 31, 2008, Kaiser Federal Bank was a
“well-capitalized” institution under regulatory standards.
Impact
of Inflation
The
consolidated financial statements presented herein have been prepared in
accordance with GAAP. These principles require the measurement of financial
position and operating results in terms of historical dollars, without
considering changes in the relative purchasing power of money over time due to
inflation.
Our
primary assets and liabilities are monetary in nature. As a result, interest
rates have a more significant impact on our performance than the effects of
general levels of inflation. Interest rates, however, do not necessarily move in
the same direction or with the same magnitude as the price of goods and
services, since such prices are affected by inflation. In a period of rapidly
rising interest rates, the liquidity and maturity structure of our assets and
liabilities are critical to the maintenance of acceptable performance
levels.
The
principal effect of inflation, as distinct from levels of interest rates, on
earnings is in the area of noninterest expense. Such expense items as employee
compensation, employee benefits and occupancy and equipment costs may be subject
to increases as a result of inflation. An additional effect of inflation is the
possible increase in the dollar value of the collateral securing loans that we
have made. We are unable to determine the extent, if any, to which properties
securing our loans have appreciated in dollar value due to
inflation.
ITEM
3. Quantitative and Qualitative Disclosures About Market Risk
Our Risk When Interest Rates Change.
The rates of interest we earn on assets and pay on liabilities generally
are established contractually for a period of time. Market interest rates change
over time. Our loans generally have longer maturities than our deposits.
Accordingly, our results of operations, like those of other financial
institutions, are impacted by changes in interest rates and the interest rate
sensitivity of our assets and liabilities. The risk associated with changes in
interest rates and our ability to adapt to these changes is known as interest
rate risk and is our most significant market risk.
How We Measure Our Risk of Interest
Rate Changes.
As part of our attempt to manage our exposure to changes in
interest rates and comply with applicable regulations, we monitor our interest
rate risk. In monitoring interest rate risk we continually analyze and manage
assets and liabilities based on their payment streams and interest rates, the
timing of their maturities, and their sensitivity to actual or potential changes
in market interest rates.
In order
to minimize the potential for adverse effects of material and prolonged
increases in interest rates on our results of operations, we have adopted
investment/asset and liability management policies to better match the
maturities and repricing terms of our interest-earning assets and
interest-bearing liabilities. The board of directors sets and recommends the
asset and liability policies of Kaiser Federal Bank, which are implemented by
the asset/liability management committee.
The
purpose of the asset/liability management committee is to communicate,
coordinate and control asset/liability management consistent with our business
plan and board approved policies. The committee establishes and monitors the
volume and mix of assets and funding sources taking into account relative costs
and spreads, interest rate sensitivity and liquidity needs. The objectives are
to manage assets and funding sources to produce results that are consistent with
liquidity, capital adequacy, growth, risk and profitability goals.
The
asset/liability management committee generally meets on a weekly basis to
review, among other things, economic conditions and interest rate outlook,
current and projected liquidity needs and capital position, anticipated changes
in the volume and mix of assets and liabilities and interest rate risk exposure
limits versus current projections pursuant to net present value of portfolio
equity analysis and income simulations. The asset/liability management committee
regularly reviews interest rate risk by forecasting the impact of alternative
interest rate environments on net interest income and market value of portfolio
equity, which is defined as the net present value of an institution’s existing
assets, liabilities and off-balance sheet instruments, and evaluating such
impacts against the maximum potential changes in net interest income and market
value of portfolio equity that are authorized by the board of directors of
Kaiser Federal Bank. The asset/liability management committee recommends
appropriate strategy changes based on this review. The chairman or his designee
is responsible for reviewing and reporting on the effects of the policy
implementations and strategies to the board of directors at least
quarterly.
In order
to manage our assets and liabilities and achieve the desired liquidity, credit
quality, interest rate risk, profitability and capital targets, we have focused
our strategies on: (1) originating and purchasing adjustable rate loans; (2)
originating a reasonable volume of short- and intermediate-term consumer loans;
(3) managing our deposits to establish stable deposit relationships; and (4)
using Federal Home Loan Bank advances, and pricing on fixed-term non-core
deposits to align maturities and repricing terms.
At times,
depending on the level of general interest rates, the relationship between long-
and short-term interest rates, market conditions and competitive factors, the
asset/liability management committee may determine to increase our interest rate
risk position somewhat in order to maintain our net interest margin. In the
future, we intend to continue our existing strategy of originating and
purchasing relatively short-term and/or adjustable rate loans. The Bank does not
maintain any securities for trading purposes. The Bank does not currently engage
in trading activities or use instruments such as interest rate swaps, hedges, or
other similar derivatives to control interest rate risk.
The
Office of Thrift Supervision provides Kaiser Federal Bank with the information
presented in the following table, which is based on information provided to the
Office of Thrift Supervision by Kaiser Federal Bank. It presents the change in
Kaiser Federal Bank’s net portfolio value at December 31, 2007 which is the
latest information available that would occur upon an immediate change in
interest rates based on Office of Thrift Supervision assumptions but without
giving effect to any steps that management might take to counteract that
change.
|
|
|
December
31, 2007
|
|
|
Change
in interest rates in basis points (“bp”)
(Rate
shock in rates)
|
|
|
|
|
|
|
|
|
|
Net
portfolio value (NPV)
|
|
|
|
NPV
as % of PV of assets
|
|
|
|
$
amount
|
|
|
|
$
change
|
|
|
|
%
change
|
|
|
|
NPV
ratio
|
|
|
|
Change(bp)
|
|
|
|
|
|
(Dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
+300
bp
|
|
$
|
53,672
|
|
|
|
$
|
(28,891
|
)
|
|
|
(35
|
)%
|
|
|
6.85
|
%
|
|
|
(302
|
)bp
|
|
+200
bp
|
|
|
65,058
|
|
|
|
|
(17,505
|
)
|
|
|
(21
|
)
|
|
|
8.10
|
|
|
|
(177
|
)
|
|
+100
bp
|
|
|
74,949
|
|
|
|
|
(7,614
|
)
|
|
|
(9
|
)
|
|
|
9.13
|
|
|
|
(74
|
)
|
|
0
bp
|
|
|
82,563
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
9.87
|
|
|
|
—
|
|
|
-100
bp
|
|
|
84,139
|
|
|
|
|
1,576
|
|
|
|
2
|
|
|
|
9.94
|
|
|
|
7
|
|
|
-200
bp
|
|
|
82,171
|
|
|
|
|
(392)
|
|
|
|
0
|
|
|
|
9.63
|
|
|
|
(24)
|
|
The
Office of Thrift Supervision uses certain assumptions in assessing the interest
rate risk of savings associations. These assumptions relate to interest rates,
loan prepayment rates, deposit decay rates, and the market values of certain
assets under differing interest rate scenarios.
As with
any method of measuring interest rate risk, shortcomings are inherent in the
method of analysis presented in the foregoing tables. For example, although
assets and liabilities may have similar maturities or periods to repricing, they
may react in different degrees to changes in the market interest rates. Also,
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. Additionally, certain assets, such as
adjustable rate mortgage loans, have features, that restrict changes in interest
rates on a short-term basis and over the life of the asset. Further, if interest
rates change, expected rates of prepayments on loans and early withdrawals from
certificates of deposit could deviate significantly from those assumed in
calculating the table.
ITEM
4. Controls and Procedures
Our
management evaluated, with the participation of our Chief Executive Officer and
Chief Financial Officer, the effectiveness of our disclosure controls and
procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934 (the “Act”)) as of the end of the period covered by this
report. The Company’s Chief Executive Officer and Chief Financial Officer
concluded that the Company’s disclosure controls and procedures as of the end of
the period covered by this report are effective in ensuring that the information
required to be disclosed by the Company in the reports it files or submits under
the Act is (i) accumulated and communicated to the Company’s management
(including the Chief Executive Officer and Chief Financial Officer) in a timely
manner, and (ii) recorded, processed, summarized, and reported within the time
periods specified in the SEC’s rules and forms.
There
have been no changes in our internal control over financial reporting (as
defined in Rule 13a-15(f) under the Act) that occurred during the quarter ended
March 31, 2008 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial
reporting.
PART
II. OTHER INFORMATION
Item 1. Legal Proceedings
In March
2007, U.S. Mortgage converted its Chapter 11 bankruptcy proceeding to a Chapter
7 in the District Court of Nevada. U.S. Mortgage was responsible for servicing
various commercial real estate participation loans totaling approximately $1.0
million that Kaiser Federal Bank purchased from the company. Through this
transition period, all servicing functions of U.S. Mortgage are being handled by
the Bankruptcy Trustee.
During
the course of these proceedings, U.S. Bank has asserted a claim against $500,000
in loan principal being serviced by U.S. Mortgage on the basis that U.S. Bank
has a priority right to the funds. Kaiser Federal Bank is vigorously contesting
this claim and believes it has the priority ownership interest in these
loans.
There
have been no material changes to the risk factors that were previously disclosed
in the Company’s annual report on Form 10-K for the fiscal year ended June 30,
2007.
|
|
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
|
Issuer
Purchases of Equity Securities
|
Period
|
|
Total
Number of Shares Purchased
|
|
Weighted
Average Price Paid Per Share
|
|
Total
Number of Shares Purchased as Part of Publicly Announced Plans
*
|
|
Maximum
Number of Shares That May Yet be Purchased Under the Plan
|
|
|
1/1/08 –
1/31/08
|
|
—
|
|
$
|
—
|
|
—
|
|
—
|
|
|
2/1/08
– 2/29/08
|
|
71,886
|
|
|
10.93
|
|
71,886
|
|
436,902
|
|
|
3/1/08
– 3/31/08
|
|
47,300
|
|
|
10.50
|
|
119,186
|
|
389,602
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
On
January 26, 2008, the Company announced its intention to repurchase an
additional 10% of its outstanding publicly held common stock, or 508,788 shares
of stock.
Item 3. Defaults Upon Senior
Securities
None.
Item 4. Submission of Matters to a Vote of
Security Holders
None.
Item
5. Other Information
None.
Item 6. Exhibits
31.1 Certification
of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act
31.1 Certification
of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act
32.1 Certification
of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley
Act
32.2 Certification
of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley
Act
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
K-Fed
Bancorp
Registrant
Date:
May 7,
2008
/s/ Kay M.
Hoveland
Kay M. Hoveland
President, Chief Executive
Officer
/s/ Dustin
Luton
Dustin Luton
Chief Financial Officer
EXHIBIT
31.1
Certification
of the Chief Executive Officer
Pursuant
to Section 302 of the Sarbanes-Oxley Act
I, Kay M.
Hoveland, certify that:
|
1.
|
I
have reviewed this Quarterly Report on Form 10-Q of K-Fed
Bancorp;
|
|
2.
|
Based
on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
|
|
3.
|
Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
report;
|
|
4.
|
The
registrant’s other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
|
|
|
(a)
|
Designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
|
|
|
(b)
|
Designed
such internal control over financial reporting, or cause such internal
control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles;
|
|
|
(c)
|
Evaluated
the effectiveness of the registrant’s disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation;
and
|
|
|
(d)
|
Disclosed
in this report any changes in the registrant’s internal control over
financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially effect, the registrant’s internal control over financial
reporting; and
|
|
|
5.
|
The
registrant’s other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting,
to the registrant’s auditors and the audit committee of the registrant’s
board of directors (or persons performing the equivalent
functions):
|
|
|
(a)
|
All
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information;
and
|
|
|
(b)
|
Any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant’s internal control
over financial reporting.
|
Date:
May 7,
2008
/s/ Kay M.
Hoveland
Kay M. Hoveland
President and Chief Executive
Officer
EXHIBIT
31.2
Certification
of the Chief Financial Officer
Pursuant
to Section 302 of the Sarbanes-Oxley Act
I, Dustin
Luton, certify that:
|
1.
|
I
have reviewed this Quarterly Report on Form 10-Q of K-Fed
Bancorp;
|
|
2.
|
Based
on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
|
|
3.
|
Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
report;
|
|
4.
|
The
registrant’s other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
|
|
|
(a)
|
Designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
|
|
|
(b)
|
Designed
such internal control over financial reporting, or cause such internal
control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles;
|
|
|
(c)
|
Evaluated
the effectiveness of the registrant’s disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation;
and
|
|
|
(d)
|
Disclosed
in this report any changes in the registrant’s internal control over
financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially effect, the registrant’s internal control over financial
reporting; and
|
|
5.
|
The
registrant’s other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting,
to the registrant’s auditors and the audit committee of the registrant’s
board of directors (or persons performing the equivalent
functions):
|
|
|
(a)
|
All
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information;
and
|
|
|
(b)
|
Any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant’s internal control
over financial reporting.
|
Date:
May 7,
2008
/s/ Dustin
Luton
Dustin Luton
Chief Financial
Officer
EXHIBIT
32.1
Certification
of the Chief Executive Officer
Pursuant
to 18 U.S.C. Section 1350,
as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In
connection with the Quarterly Report of K-Fed Bancorp (the “Company”) on Form
10-Q for the period ended March 31, 2008 as filed with the Securities and
Exchange Commission on the date hereof (the “Report”), I, Kay M. Hoveland, Chief
Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and in
connection with this quarterly report on Form 10-Q that:
|
|
1.
|
The
Report fully complies with the requirements of sections 13(a) or 15(d) of
the Securities Exchange Act of 1934, as amended,
and
|
|
|
2.
|
The
information contained in the report fairly presents, in all material
respects, the company’s financial condition and results of
operations.
|
Date:
May 7,
2008
/s/ Kay M.
Hoveland
Kay M. Hoveland
Chief Executive Officer
EXHIBIT
32.2
Certification
of the Chief Financial Officer
Pursuant
to 18 U.S.C. Section 1350,
as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In
connection with the Quarterly Report of K-Fed Bancorp (the “Company”) on Form
10-Q for the period ended March 31, 2008 as filed with the Securities and
Exchange Commission on the date hereof (the “Report”), I, Dustin Luton, Chief
Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and in
connection with this quarterly report on Form 10-Q that:
|
|
1.
|
The
Report fully complies with the requirements of sections 13(a) or 15(d) of
the Securities Exchange Act of 1934, as amended,
and
|
|
|
2.
|
The
information contained in the report fairly presents, in all material
respects, the company’s financial condition and results of
operations.
|
Date:
May 7,
2008
/s/ Dustin
Luton
Dustin Luton
Chief Financial
Officer
K-Fed Bancorp (MM) (NASDAQ:KFED)
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