Kentucky First Federal Bancorp’s Regulatory Order Lifted Sooner Than Expected
Regulatory orders in the banking industry are a common occurrence, often requiring significant resources and time to resolve. However, Kentucky First Federal Bancorp found itself in a unique situation when its regulatory order was lifted after just 20 months, a significantly shorter duration than the expected four years.
The Unexpected Early Resolution
In August 2024, Kentucky First Federal Bancorp entered into a written agreement with the Office of the Comptroller of the Currency (OCC). Given the complexity and demands of such agreements, the bank’s executives anticipated a resolution period of up to four years. However, after just 18 months, the bank announced the termination of the written agreement, a move that was greeted with both relief and surprise.
Don Jennings, the President of Kentucky First Federal Bancorp, attributed this swift resolution to the concerted efforts of the entire bank, which not only returned the bank to profitability but also expedited its transformation from a traditional thrift to a more commercially oriented business model.
Understanding the Significance
According to Konrad Alt, co-founder and partner at Klaros Group, the bank was right to anticipate a lengthy resolution period. “The median time period for getting out from under these orders, until quite recently, was trending in a direction of getting longer,” Alt revealed. This makes the early termination of Kentucky First’s regulatory order all the more notable.
Regulatory Trends in the Trump Era
The unexpected early termination of Kentucky First’s regulatory order aligns with recent trends in the banking industry. Amid the deregulatory push of the Trump administration, enforcement activities have declined, with a notable increase in the termination of enforcement actions and a significant drop in new actions. As Alt observed, “In this administration, the regulators are lifting enforcement actions quite aggressively, and the median time frames for relief are falling as a consequence.”
Overcoming Challenges
Despite the challenges presented by the written agreement with the OCC, which covered a broad spectrum of issues from strategic planning to liquidity risk, Kentucky First managed to turn its fortunes around. A critical part of this turnaround was returning to profitability after a challenging period of losses, a move that, according to Jennings, “had a big effect on the overall picture.”
Such a turnaround, however, required significant changes. The bank strengthened its liquidity and interest-rate policies, increased its focus on collecting noninterest deposits, and boosted its multifamily and commercial real estate loans. These changes paid off as the bank’s net interest margin improved, contributing to the bank’s return to profitability.
A Story of Resilience
The early termination of Kentucky First’s regulatory order is a testament to the bank’s resilience and adaptability. The bank not only managed to navigate the challenges of regulatory action but also used the experience to drive transformation and return to profitability.
As Jennings noted, the bank was prepared for a long and challenging process but was pleasantly surprised by the early termination of the regulatory order. This experience, while undoubtedly challenging, has made Kentucky First a stronger and better bank.
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