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Kentucky First Federal
joined two banks, First Federal Hazard and Frankfort First Bankcorp, as partners while
maintaining separate identities
Kentucky First Federal Bancorp.
216 W. Main Street
PO Box 535
Frankfort, KY 40602
Don D. Jennings
President and COO
Interview conducted by:
Lynn Fosse, Senior Editor
June 16, 2005
Don D. Jennings, 40, is the President and Chief Operating Officer of Kentucky First
Federal Bancorp, a newly-formed holding company for First Federal Savings and Loan of
Hazard, Kentucky, and First Federal Savings Bank of Frankfort, Kentucky. Mr.
Jennings also serves as Executive Vice President, Secretary, and Director of First Federal
of Frankfort where he has been employed since 1991. Formerly, Mr. Jennings was
President and CEO of Frankfort First Bancorp, Inc., where he helped guide the company from
the IPO through nine successful years.
Kentucky First Federal Bancorp was founded in 2005 through the mutual-to-stock conversion
and initial public offering of First Federal Savings and Loan of Hazard, Kentucky.
Simultaneous with their IPO, Kentucky First also acquired Frankfort First Bancorp,
Inc., and their subsidiary, First Federal Savings Bank of Frankfort, Kentucky.
Kentucky First intends to primarily serve as the holding company for banking
institutions serving consumers in their distinct local markets. Those consumers will
be served by four offices and approximately 40 employees. Based on pro forma data
from the Kentucky First Federal Bancorp prospectus, the company will have $290 million in
assets, $156 million in loans receivable, $173 million in deposits, and $61 million in
CEOCFOinterviews: Mr. Jennings, will you please give us a
background on Kentucky First Federal Bancorp.?
Mr. Jennings: Kentucky First Federal is a new entity
made up of two long-established financial institutions. It was created with the initial
public offering and the conversion from a mutual form of ownership to stock form of
ownership of First Federal Savings and Loan of Hazard located in Hazard, Kentucky. They
have been in business over forty years and are one of the stronger financial institutions
in this part of the country. They made the decision to do the initial public offering, as
many savings and loan type of institutions have done over the last fifteen years. They
were highly capitalized and the regulatory process that facilitates this initial public
offering would require them to raise quite a bit of capital, so they did not want to do it
unless they had some use for the capital. The use they found was to acquire our company,
which was Frankfort First Bancorp. We became public in 1995 through the same process of
mutual to stock conversion and initial public offering. We are also a community savings
bank, with a long history of serving our community as well. We had a successful run as a
public company and the time was right to have these discussions. We really came at this in
working with Tony Whitaker, who is President and now Chairman and CEO of the new company.
We came to the process that would essentially join two banks as partners. We are going to
have two separate operating facilities and we will have the umbrella holding company going
forward using some of our experience here in Frankfort with public companies and
reporting, and still being able to concentrate on our core banking business.
decision to continue operation as two separate subsidiaries rather than become one unit?
Mr. Jennings: You always look at the pros and cons of
doing that. We do not see much potential savings with a consolidation. We are about 140
miles apart geographically and both run lean operations. We are one of the industry
leaders in our non-interest expense as a part of total expenses and assets. We do not see
a lot that we could save and, in some ways, we could lose some of our brand identification
in our communities. We happen to have the same name and we have a long reputation. Our
customers will continue to see the same people, and the decisions will be made by the same
people. We did not see much upside to the combination and there are some potential
negatives by taking away something with which our customers are familiar.
you tell us about the economy in your markets?
Mr. Jennings: They are separate economies. Hazard is in
the eastern part of the state of Kentucky. They are significantly less varied as far as
industry and employment opportunities down there; it is primarily coal mining country.
They have some industry and a good healthcare regional center but the opportunities are
limited. Part of our further discussions in this deal is the fact that they have found
themselves to be a cash-rich or liquidity-rich financial institution. They can take in
more deposits than they have loans to make. In Frankfort, it is the opposite. We are
solidly middle-class but we are the seat of state government, and it has been a steady
economy for a number of years. Our housing market is very solid. We have always been able
to make loans while the deposit competition has been our problem. We saw a nice dovetail
there where we can utilize bank loans and sell loans back-and-forth, to where we can
utilize their strength, which gives the ability to attract deposits compared to our
strength, which is making loans. We found that even though we have the first communities,
we think they can complement one another nicely.
Customer service is always a big factor for local banks; how does Kentucky First
Mr. Jennings: We stand out mainly through very personal
service. It goes back to keeping the same people in the same positions. We both have
employees that have been with us, some for as long as 40 years. They are very good at what
they do, the customers are used to seeing them, they know what the customers issues
are and they can handle those problems sufficiently. I think a continuity that we both
have offered over a long period is customer service. We have an experienced, professional
staff. Many of our competitors go the opposite direction and hire less experienced and
less expensive personnel to do the same types of jobs. We keep our products up-to-date and
make sure we offer the things that suit our customers. Part of our larger discussion, and
the issues surrounding our initial discussions, is that we can work together to develop
either new products or share products one or the other bank has developed.
is the split between commercial and consumer?
Mr. Jennings: We are almost entirely consumer and we do
not have any intention of changing. We are a thrift or savings-and-loan, whichever
designation people would like, but we are consumer oriented. We help consumers with
personal deposits, home loans, and loans for personal and household use. We may make a few
commercial property loans, but thats it.
there much competition from other community banks and how do you differentiate yourselves
Mr. Jennings: We have a number of banks here in
Frankfort that are similarly structured to what Kentucky First is going to be. They are
local banks, and may have been in town for a hundred years, but they are owned by a parent
company that is part of a larger group. I think that is something we will continue to do
and that is to keep the local bank here even though another company is the owner. As far
as handling competition, it is difficult. The continuity is important. We have other banks
that provide very good service, as do we, and they have a long history of doing so. We
want to be an institution that offers the highest level of service. People in the
community will know about us and understand we are part of the fabric of the community.
your customers jump quickly over rate differentiation?
Mr. Jennings: There are certainly some products any
bank offers that are dont necessarily engender loyalty. For instance, certificates
of deposits become more of a commodity more than anything else and I think that is fine.
The issue is who needs the money, who is going to pay the most for it on a day-to-day
basis and there is not much service involved. I think it is important for us to
distinguish ourselves for the things that are more service intensive such as a checking
account or mortgage loans. By doing that, we create loyalty, especially if our service can
be compared to those that do not provide what we provide. That is where you get your
loyalty and it works."
CEOCFOinterviews: Do you
keep the mortgages that you write?
Mr. Jennings: We keep most of them. We have begun
selling some loans but we keep all of the servicing. That is our intention to do forever.
We think that is an important marketing point for us that when someone has an issue or
something that comes up, they have someone that they can talk to.
CEOCFOinterviews: Do you
see new branches for either of the banks in the future?
Mr. Jennings: In our prospectus, we talked about the
potential for acquisition but we have no specifics. If we find some similarly minded
financial institutions in the geographic areas that make sense to us, I think it is
something that we would explore. I think branching is a possibility too, but probably less
likely. I think we have our two markets covered well.
you be more aggressive now that you have more funds available?
Mr. Jennings: I think that is possible; however, we
have been in a very competitive interest rate environment lately. I do not know how to get
more aggressive given the historically low prices on loans and closing costs. I think as
time goes by and the rock-bottom lows get a little bit higher, that some of the new
players on the market and mortgage companies will weed themselves out. Then we will be
back to the more established lenders in the market. At that point we will have an extra
incentive to get some money out there.
closing, why should potential investors be interested in and what should they look for in
your company that they might not see on the surface?
Mr. Jennings: It is an investment opportunity that is
very much in its early stages. There is potential. I think we have identified it and can
talk about our perspectives for enhancements to earnings, whether it is through the inner
bank structure or through moving in other areas through acquisitions and things along
those lines. I think out of the gate, any company that does a mutual to stock conversion,
is similar. They have a lot of capital and they have to decide which opportunities they
are going to take to maximize the investment. We have had a good track record of being
able to make that return very beneficial to our shareholders. We did a good job coming
from a highly capitalized institution to a relatively lean company that provided a strong
return to our shareholders. We are hoping for the same type of results in the new company,
and we think, long-term, these types of situations can turn out very well for the
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