Kentucky First Federal Bancorp 10-Q

10-Q 1 f10q0920_kentuckyfirst.htm QUARTERLY REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2020 OR ☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT For the transition period from ____________ to _______________ Commission File Number: 0-51176 KENTUCKY FIRST FEDERAL BANCORP (Exact name of registrant as specified in its charter) United States of America 61-1484858 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 655 Main Street, Hazard, Kentucky 41702 (Address of principal executive offices)(Zip Code) (502) 223-1638 (Registrant’s telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of each class Trading symbol(s) Name of each exchange on which registered Common Stock, $0.01 par value per share KFFB The NASDAQ Stock Market LLC Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 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 ☒ No ☐ Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ☐ Accelerated filer ☐ Non-Accelerated filer ☐ Smaller Reporting Company ☒ Emerging Growth Company ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒ Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: At November 9, 2020, the latest practicable date, the Corporation had 8,244,215 shares of $.01 par value common stock outstanding. INDEX Page PART I FINANCIAL INFORMATION 1 ITEM 1 FINANCIAL STATEMENTS Condensed Consolidated Balance Sheets 1 Condensed Consolidated Statements of Operations 2 Condensed Consolidated Statements of Comprehensive Income 3 Consolidated Statements of Changes in Shareholders’ Equity 4 Condensed Consolidated Statements of Cash Flows 5 Notes to Condensed Consolidated Financial Statements 7 ITEM 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations 24 ITEM 3 Quantitative and Qualitative Disclosures About Market Risk 32 ITEM 4 Controls and Procedures 32 PART II OTHER INFORMATION 33 SIGNATURES 34 i PART I ITEM 1: Financial Statements Kentucky First Federal Bancorp CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands, except share data) September 30, June 30, 2020 2020 ASSETS Cash and due from financial institutions $ 1,906 $ 1,662 Interest-bearing demand deposits 15,210 12,040 Cash and cash equivalents 17,116 13,702 Time deposits in other financial institutions 1,241 2,229 Securities available-for-sale 36 541 Securities held-to-maturity, at amortized cost- approximate fair value of $582 and $611 at September 30, 2020 and June 30, 2020, respectively 564 598 Loans held for sale 1,035 667 Loans, net of allowance of $1,536 and $1,488 at September 30, 2020 and June 30, 2020, respectively 290,509 285,887 Real estate owned, net 679 640 Premises and equipment, net 4,863 4,916 Federal Home Loan Bank stock, at cost 6,498 6,498 Accrued interest receivable 700 830 Bank-owned life insurance 2,614 2,594 Goodwill 947 947 Prepaid federal income taxes – 135 Prepaid expenses and other assets 882 952 Total assets $ 327,684 $ 321,136 LIABILITIES AND SHAREHOLDERS’ EQUITY Deposits $ 215,102 $ 212,273 Federal Home Loan Bank advances 58,392 54,715 Advances by borrowers for taxes and insurance 1,084 800 Accrued interest payable 24 27 Accrued federal income taxes 95 – Deferred income taxes 593 837 Other liabilities 565 573 Total liabilities 275,855 269,225 Commitments and contingencies – – Shareholders’ equity Preferred stock, 500,000 shares authorized, $.01 par value; no shares issued and outstanding – – Common stock, 20,000,000 shares authorized, $.01 par value; 8,596,064 shares issued 86 86 Additional paid-in capital 34,963 34,981 Retained earnings 19,873 19,932 Unearned employee stock ownership plan (ESOP), 24,262 shares and 28,931 shares at September 30, 2020 and June 30, 2020, respectively (243 ) (289 ) Treasury shares at cost, 351,849 and 342,849 common shares at September 30, 2020 and June 30, 2020, respectively (2,850 ) (2,801 ) Accumulated other comprehensive income – 2 Total shareholders’ equity 51,829 51,911 Total liabilities and shareholders’ equity $ 327,684 $ 321,136 See accompanying notes to condensed consolidated financial statements. 1 Kentucky First Federal Bancorp CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (Dollars in thousands, except per share data) Three months ended September 30, 2020 2019 Interest income Loans, including fees $ 2,976 $ 3,172 Mortgage-backed securities 4 6 Other securities 3 6 Interest-bearing deposits and other 46 144 Total interest income 3,029 3,328 Interest expense Interest-bearing demand deposits 7 5 Savings 59 52 Certificates of Deposit 448 531 Deposits 514 588 Borrowings 125 359 Total interest expense 639 947 Net interest income 2,390 2,381 Provision for loan losses 84 59 Net interest income after provision for loan losses 2,306 2,322 Non-interest income Earnings on bank-owned life insurance 20 19 Net gain on sales of loans 58 6 Net gain on sales of real estate owned 1 – Other 49 49 Total non-interest income 128 74 Non-interest expense Employee compensation and benefits 1,343 1,360 Occupancy and equipment 138 143 FDIC insurance premiums 57 14 Voice and data communications 21 61 Advertising 37 48 Outside service fees 63 51 Data processing 147 105 Auditing and accounting 40 47 Franchise and other taxes 65 65 Foreclosure and real estate owned expenses (net) 17 34 Other 155 174 Total non-interest expense 2,083 2,102 Income before income taxes 351 294 Income tax expense 66 60 NET INCOME $ 285 $ 234 EARNINGS PER SHARE Basic and diluted $ 0.04 $ 0.03 DIVIDENDS PER SHARE $ 0.10 $ 0.10 See accompanying notes to condensed consolidated financial statements. 2 Kentucky First Federal Bancorp CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) (In thousands) Three months ended September 30, 2020 2019 Net income $ 285 $ 234 Other comprehensive income, net of tax: Unrealized holding gains on securities designated as available-for-sale, net of taxes of $(1), and $0 during the respective periods (2 ) – Comprehensive income $ 283 $ 234 See accompanying notes to condensed consolidated financial statements. 3 Kentucky First Federal Bancorp CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY For the three months ended (Dollar amounts in thousands, except per share data) September 30, 2020 Unearned employee stock Accumulated Additional ownership other Common paid-in Retained plan Treasury comprehensive stock capital earnings (ESOP) shares income Total Balance at June 30, 2020 $ 86 $ 34,981 $ 19,932 $ (289 ) $ (2,801 ) $ 2 $ 51,911 Net income – – 285 – – – 285 Allocation of ESOP shares – (18 ) – 46 – – 28 Acquisition of shares for Treasury – – – – (49 ) – (49 ) Other comprehensive income (2 ) (2 ) Cash dividends of $0.10 per common share – – (344 ) – – – (344 ) Balance at September 30, 2020 $ 86 $ 34,963 $ 19,873 $ (243 ) $ (2,850 ) $ – $ 51,829 September 30, 2019 Unearned employee stock Accumulated Additional ownership other Common paid-in Retained plan Treasury comprehensive stock capital earnings (ESOP) shares income Total Balance at June 30, 2019 $ 86 $ 35,056 $ 33,867 $ (476 ) $ (2,259 ) $ 4 $ 66,278 Net income – – 234 – – – 234 Allocation of ESOP shares – (34 ) – 47 – – 13 Acquisition of shares for treasury – – – – (151 ) – (151 ) Other comprehensive income – – – – – – – Cash dividends of $0.10 per common share – – (334 ) – – – (334 ) Balance at September 30, 2019 $ 86 $ 35,022 $ 33,767 $ (429 ) $ (2,410 ) $ 4 $ 66,040 See accompanying notes to condensed consolidated financial statements. 4 Kentucky First Federal Bancorp CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands) Three months ended September 30, 2020 2019 Cash flows from operating activities: Net income $ 285 $ 234 Adjustments to reconcile net income to net cash provided by operating activities Depreciation 72 74 Accretion of purchased loan credit discount (15 ) (28 ) Amortization of purchased loan premium 2 3 Amortization of deferred loan origination costs (fees) 10 23 Amortization of premiums on investment securities 2 – Net gain on sale of loans (58 ) (6 ) Net gain on sale of real estate owned (1 ) – ESOP compensation expense 28 13 Earnings on bank-owned life insurance (20 ) (19 ) Provision for loan losses 84 59 Origination of loans held for sale (1,613 ) (586 ) Proceeds from loans held for sale 1,303 151 Increase (decrease) in cash, due to changes in: Accrued interest receivable 130 15 Prepaid expenses and other assets 70 (4 ) Accrued interest payable (3 ) 1 Other liabilities (8 ) 25 Federal income taxes (13 ) 63 Net cash provided by operating activities 255 18 Cash flows from investing activities: Maturities of time deposits in other financial institutions 988 3,497 Securities maturities, prepayments and calls: Held to maturity 32 92 Available for sale 502 1 Loans originated for investment, net of principal collected (4,899 ) 984 Proceeds from sale of real estate owned 159 44 Additions to real estate owned (1 ) (4 ) Additions to premises and equipment, net (19 ) (53 ) Net cash provided by (used in) investing activities (3,238 ) 4,561 Cash flows from financing activities: Net increase in deposits 2,829 243 Payments by borrowers for taxes and insurance, net 284 287 Proceeds from Federal Home Loan Bank advances 17,900 4,000 Repayments on Federal Home Loan Bank advances (14,223 ) (6,330 ) Treasury stock purchased (49 ) (151 ) Dividends paid on common stock (344 ) (334 ) Net cash provided by (used in) financing activities 6,397 (2,285 ) Net increase in cash and cash equivalents 3,414 2,294 Beginning cash and cash equivalents 13,702 9,861 Ending cash and cash equivalents $ 17,116 $ 12,155 See accompanying notes to condensed consolidated financial statements. 5 Kentucky First Federal Bancorp CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (Unaudited) (In thousands) Three months ended September 30, 2020 2019 Supplemental disclosure of cash flow information: Cash paid during the period for: Federal income taxes $ 75 $ – Interest on deposits and borrowings $ 642 $ 946 Transfers of loans to real estate owned, net $ 196 $ 295 Loans made on sale of real estate owned $ – $ – See accompanying notes to condensed consolidated financial statements. 6 Kentucky First Federal Bancorp NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2020 (unaudited) The Kentucky First Federal Bancorp (“Kentucky First” or the “Company”) was incorporated under federal law in March 2005, and is the mid-tier holding company for First Federal Savings and Loan Association of Hazard, Hazard, Kentucky (“First Federal of Hazard”) and Frankfort First Bancorp, Inc. (“Frankfort First”). Frankfort First is the holding company for First Federal Savings Bank of Kentucky, Frankfort, Kentucky (“First Federal of Kentucky”). First Federal of Hazard and First Federal of Kentucky (hereinafter collectively the “Banks”) are Kentucky First’s primary operations, which consist of operating the Banks as two independent, community-oriented savings institutions. In December 2012, the Company acquired CKF Bancorp, Inc., a savings and loan holding company which operated three banking locations in Boyle and Garrard Counties in Kentucky. In accounting for the transaction, the assets and liabilities of CKF Bancorp were recorded on the books of First Federal of Kentucky in accordance with accounting standard ASC 805, Business Combinations. 1. Basis of Presentation The accompanying unaudited condensed consolidated financial statements, which represent the condensed consolidated balance sheets and results of operations of the Company, were prepared in accordance with the instructions for Form 10-Q and, therefore, do not include information or footnotes necessary for a complete presentation of financial position, results of operations and cash flows in conformity with U.S. generally accepted accounting principles. However, in the opinion of management, all adjustments (consisting of only normal recurring adjustments) which are necessary for a fair presentation of the condensed consolidated financial statements have been included. The results of operations for the three-month period ended September 30, 2020, are not necessarily indicative of the results which may be expected for an entire fiscal year. The condensed consolidated balance sheet as of June 30, 2020 has been derived from the audited consolidated balance sheet as of that date. Certain information and note disclosures normally included in the Company’s annual financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Form 10-K annual report for 2020 filed with the Securities and Exchange Commission. Principles of Consolidation - The consolidated financial statements include the accounts of the Company, Frankfort First, and its wholly-owned banking subsidiaries, First Federal of Hazard and First Federal of Kentucky (collectively hereinafter “the Banks”). All intercompany transactions and balances have been eliminated in consolidation. Reclassifications - Certain amounts presented in prior periods may have been reclassified to conform to the current period presentation. Such reclassifications had no impact on prior years’ net income or shareholders’ equity. 7 Kentucky First Federal Bancorp NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) September 30, 2020 (unaudited) 1. Basis of Presentation (continued) New Accounting Standards FASB ASC 326 - In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The final standard will change estimates for credit losses related to financial assets measured at amortized cost such as loans, held-to-maturity debt securities, and certain other contracts. For estimating credit losses, the FASB is replacing the incurred loss model with an expected loss model, which is referred to as the current expected credit loss (CECL) model. The Company will now use forward-looking information to enhance its credit loss estimates. The amendment requires enhanced disclosures to aid investors and other users of financial statements to better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of our portfolio. The largest impact to the Company will be on its allowance for loan and lease losses, although the ASU also amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The standard is effective for public companies for annual periods and interim periods within those annual periods beginning after December 15, 2019. However, the FASB has delayed the implementation of the ASU for smaller reporting companies until years beginning after December 15, 2022, or in the Company’s case the fiscal year beginning July 1, 2023. ASU 2016-13 will be applied through a cumulative effect adjustment to retained earnings (modified-retrospective approach), except for debt securities for which an other-than-temporary impairment had been recognized before the effective date. A prospective transition approach is required for these debt securities. We have formed a functional committee that is assessing our data and system needs and are evaluating the impact of adopting the new guidance. We expect to recognize a one-time cumulative effect adjustment to the allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective, but cannot yet determine the magnitude of any such one-time adjustment or the overall impact of the new guidance on the consolidated financial statements. However, the Company does expect ASU 2016-13 to add complexity and costs to its current credit loss evaluation process. FASB ASC 820 – In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820) Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. This guidance reduces the level of detail surrounding the processes used by the Company in determining the fair value of some of its assets. The Company adopted this ASU effective July 1, 2020, with no material impact to the financial statements. FASB ASC 740– In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes. The amendments in this ASU removes certain exceptions for recognizing deferred taxes for investments, performing intraperiod allocation and calculating income taxes during interim periods. The ASU also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. For public business entities, the amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, or July 1, 2021, with respect to the Company. Early adoption is permitted. We do not anticipate a significant impact to our consolidated financial statements. Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material impact on the Company’s financial position, results of operations or cash flows. 8 Kentucky First Federal Bancorp NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) September 30, 2020 (unaudited) 2. Earnings Per Share Diluted earnings per share is computed taking into consideration common shares outstanding and dilutive potential common shares to be issued or released under the Company’s share-based compensation plans. The factors used in the basic and diluted earnings per share computations follow: Three months ended September 30, 2020 2019 Net income allocated to common shareholders, basic and diluted $ 285,000 $ 234,000 Earnings per share, basic and diluted $ 0.04 $ 0.03 Weighted average common shares outstanding, basic and diluted 8,222,813 8,277,502 There were no stock option shares outstanding for the three-month periods ended September 30, 2020 and 2019. 3. Investment Securities The following table summarizes the amortized cost and fair value of securities available-for-sale and securities held-to-maturity at September 30, 2020 and June 30, 2020, the corresponding amounts of gross unrealized gains recognized in accumulated other comprehensive income and gross unrecognized gains and losses: September 30, 2020 (in thousands) Amortized cost Gross unrealized/ unrecognized gains Gross unrealized/ unrecognized losses Estimated fair value Available-for-sale Securities Agency mortgage-backed: residential $ 36 $ – $ – $ 36 Held-to-maturity Securities Agency mortgage-backed: residential $ 564 $ 21 $ 3 $ 582 June 30, 2020 (in thousands) Amortized cost Gross unrealized/ unrecognized gains Gross unrealized/ unrecognized losses Estimated fair value Available-for-sale Securities Agency bonds $ 500 $ 3 $ – $ 503 Agency mortgage-backed: residential 38 – – 38 $ 538 $ 3 $ – $ 541 Held-to-maturity Securities Agency mortgage-backed: residential $ 598 $ 16 $ 3 $ 611 9 Kentucky First Federal Bancorp NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) September 30, 2020 (unaudited) 3. Investment Securities (continued) Our pledged securities (including overnight and time deposits in other financial institutions) totaled $1.9 million and $1.9 million at September 30, 2020 and June 30, 2020, respectively. We evaluated securities in unrealized loss positions for evidence of other-than-temporary impairment, considering duration, severity, financial condition of the issuer, our intention to sell or requirement to sell. Those securities were agency mortgage backed securities, which carry a very limited amount of risk. Also, we have no intention to sell nor feel that we will be compelled to sell such securities before maturity. Based on our evaluation, no impairment has been recognized through earnings. 4. Loans receivable The composition of the loan portfolio was as follows: September 30, June 30, (in thousands) 2020 2020 Residential real estate One- to four-family $ 221,659 $ 222,489 Multi-family 14,503 12,373 Construction 4,769 4,045 Land 912 765 Farm 2,506 2,354 Nonresidential real estate 35,681 33,503 Commercial nonmortgage 2,608 2,214 Consumer and other: Loans on deposits 1,280 1,245 Home equity 7,396 7,645 Automobile 74 67 Unsecured 657 675 292,045 287,375 Allowance for loan losses (1,536 ) (1,488 ) $ 290,509 $ 285,887 10 Kentucky First Federal Bancorp NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) September 30, 2020 (unaudited) 4. Loans receivable (continued) The following table presents the activity in the allowance for loan losses by portfolio segment for the three months ended September 30, 2020: (in thousands) Beginning balance Provision for loan losses Loans charged off Recoveries Ending balance Residential real estate: One- to four-family $ 671 $ (1 ) $ – $ – $ 670 Multi-family 184 33 – – 217 Construction 6 1 – – 7 Land 1 – – – 1 Farm 4 1 – – 5 Nonresidential real estate 405 13 – – 418 Commercial nonmortgage 3 1 – – 4 Consumer and other: Loans on deposits 2 – – – 2 Home equity 11 38 45 7 11 Automobile – – – – – Unsecured 1 (2 ) – 2 1 Unallocated 200 – – – 200 Totals $ 1,488 $ 84 $ 45 $ 9 $ 1,536 The following table presents the activity in the allowance for loan losses by portfolio segment for the three months ended September 30, 2019: (in thousands) Beginning balance Provision for loan losses Loans charged off Recoveries Ending balance Residential real estate: One- to four-family $ 685 $ 66 $ 65 $ – $ 686 Multi-family 200 (7 ) – – 193 Construction 6 – – – 6 Land 1 – – – 1 Farm 6 – – – 6 Nonresidential real estate 336 3 – – 339 Commercial nonmortgage 5 – – – 5 Consumer and other: Loans on deposits 3 (1 ) – – 2 Home equity 14 (2 ) – – 12 Automobile – – – – – Unsecured – – – – – Unallocated 200 – – – 200 Totals $ 1,456 $ 59 $ 65 $ – $ 1,450 11 Kentucky First Federal Bancorp NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) September 30, 2020 (unaudited) 4. Loans receivable (continued) The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio class and based on impairment method as of September 30, 2020. The recorded investment in loans excludes accrued interest receivable due to immateriality. September 30, 2020: (in thousands) Loans individually evaluated Loans acquired with deteriorated credit quality Unpaid principal balance and recorded investment Ending allowance attributed to loans Unallocated allowance Total allowance Loans individually evaluated for impairment: Residential real estate: One- to four-family $ 3,894 $ 736 $ 4,630 $ – $ – $ – Multi-family 665 – 665 – – – Construction 63 – 63 – – – Farm 292 – 292 – – – Nonresidential real estate 654 – 654 – – – 5,568 736 6,304 – – – Loans collectively evaluated for impairment: Residential real estate: One- to four-family $ 217,029 $ 670 $ – $ 670 Multi-family 13,838 217 – 217 Construction 4,706 7 – 7 Land 912 1 – 1 Farm 2,214 5 – 5 Nonresidential real estate 35,027 418 – 418 Commercial nonmortgage 2,608 4 – 4 Consumer: Loans on deposits 1,280 2 – 2 Home equity 7,396 11 – 11 Automobile 74 – – – Unsecured 657 1 – 1 Unallocated – – 200 200 285,741 1,336 200 1,536 $ 292,045 $ 1,336 $ 200 $ 1,536 12 Kentucky First Federal Bancorp NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) September 30, 2020 (unaudited) 4. Loans receivable (continued) The following tables present the balance in the allowance for loan losses and the recorded investment in loans by portfolio class and based on impairment method as of June 30, 2020. June 30, 2020: (in thousands) Loans individually evaluated Loans acquired with deteriorated credit quality Unpaid principal balance and recorded investment Ending allowance attributed to loans Unallocated allowance Total allowance Loans individually evaluated for impairment: Residential real estate: One- to four-family $ 3,983 $ 751 $ 4,734 $ – $ – $ – Multi-family 671 – 671 – – – Construction 63 – 63 – – – Farm 309 – 309 – – – Nonresidential real estate 660 – 660 – – – 5,686 751 6,437 – – – Loans collectively evaluated for impairment: Residential real estate: One- to four-family $ 217,755 $ 671 $ – $ 671 Multi-family 11,702 184 – 184 Construction 3,982 6 – 6 Land 765 1 – 1 Farm 2,045 4 – 4 Nonresidential real estate 32,843 405 – 405 Commercial nonmortgage 2,214 3 – 3 Consumer: Loans on deposits 1,245 2 – 2 Home equity 7,645 11 – 11 Automobile 67 – – – Unsecured 675 1 – 1 Unallocated – – 200 200 280,938 1,288 200 1,488 $ 287,375 $ 1,288 $ 200 $ 1,488 13 Kentucky First Federal Bancorp NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) September 30, 2020 (unaudited) 4. Loans receivable (continued) The following table presents interest income on loans individually evaluated for impairment by class of loans for the three months ended September 30: (in thousands) Average Recorded Investment Interest Income Recognized Cash Basis Income Recognized Average Recorded Investment Interest Income Recognized Cash Basis Income Recognized 2020 2019 With no related allowance recorded: One- to four-family $ 3,938 $ 47 $ 47 $ 3,694 $ 34 $ 34 Multi-family 668 6 6 683 11 11 Construction 63 – – – – – Farm 301 23 23 310 – – Nonresidential real estate 657 3 3 705 7 7 Purchased credit-impaired loans 744 14 14 926 18 18 6,371 93 93 6,318 70 70 With an allowance recorded: One- to four-family – – – – – – $ 6,371 $ 93 $ 93 $ 6,318 $ 70 $ 70 The following table presents the recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans as of September 30, 2020 and June 30, 2020: September 30, 2020 June 30, 2020 (in thousands) Nonaccrual Loans Past Due Over 90 Days Still Accruing Nonaccrual Loans Past Due Over 90 Days Still Accruing Residential real estate: One- to four-family residential real estate $ 4,343 $ 786 $ 4,458 $ 1,135 Multifamily 665 – 671 – Construction 63 – 63 – Farm 292 – 309 – Nonresidential real estate and land 654 – 660 – Commercial and industrial – – 4 – Consumer 50 9 95 – $ 6,067 $ 795 $ 6,260 $ 1,135 14 Kentucky First Federal Bancorp NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) September 30, 2020 (unaudited) 4. Loans receivable (continued) One- to four-family loans in process of foreclosure totaled $563,000 and $694,000 at September 30, 2020 and June 30, 2020, respectively. Troubled Debt Restructurings: A Troubled Debt Restructuring (“TDR”) is the situation where the Bank grants a concession to the borrower that the Banks would not otherwise have considered due to the borrower’s financial difficulties. All TDRs are considered “impaired.” The provisions of the CARES Act included an election to not apply the guidance on accounting for troubled debt restructurings to loan modifications, such as extensions or deferrals, related to COVID-19 made between March 1, 2020 and the earlier of (i) December 31, 2020 or (ii) 60 days after the end of the COVID-19 national emergency. The relief can only be applied to modifications for borrowers that were not more than 30 days past due as of December 31, 2019. The Company elected to adopt these provisions of the CARES Act. As of September 30, 2020, the Banks had granted deferrals to 96 loans totaling $18.1 million. At September 30, 2020, 81 loans totaling $16.2 million had completed their approved deferral periods and $16.0 million or 98.6% had returned to normal repayment status. At September 30, 2020, 15 loans totaling $1.9 million remained on their original deferral periods. At September 30, 2020 and June 30, 2020, the Company had $1.8 million and $1.9 million of loans classified as TDRs, respectively. Of the TDRs at September 30, 2020, approximately 23.7% were related to the borrower’s completion of Chapter 7 bankruptcy proceedings with no reaffirmation of the debt to the Banks. During the three months ended September 30, 2020, the Company had no loans restructured as TDRs. During the three months ended September 30, 2019, the Company had one loan restructured as a TDR. A borrower refinanced a piece of one- to four-family, non-owner occupied, residential property to bring to current amounts owed on other loans with the Bank. Because the borrower’s financial condition had deteriorated, it was unlikely that the borrower could have secured financing elsewhere. The restructured loan is collateralized and cross-collateralized by real estate. The following table summarizes TDR loan modifications that occurred during the three months ended September 30, 2019, and their performance, by modification type: (in thousands) Troubled Debt Restructurings Performing to Modified Terms Troubled Debt Restructurings Not Performing to Modified Terms Total Troubled Debt Restructurings Three months ended September 30, 2019 Residential real estate: Terms extended and additional funds advanced $ 120 $ – $ 120 No TDRs defaulted during the three-month periods ended September 30, 2020 or 2019. 15 Kentucky First Federal Bancorp NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) September 30, 2020 (unaudited) 4. Loans receivable (continued) The following table presents the aging of the principal balance outstanding in past due loans as of September 30, 2020, by class of loans: (in thousands) 30-89 Days Past Due 90 Days or Greater Past Due Total Past Due Loans Not Past Due Total Residential real estate: One-to four-family $ 3,227 $ 2,319 $ 5,546 $ 216,113 $ 221,659 Multi-family – – – 14,503 14,503 Construction 36 63 99 4,670 4,769 Land – – – 912 912 Farm 105 – 105 2,401 2,506 Nonresidential real estate 99 251 350 35,331 35,681 Commercial non-mortgage – – – 2,608 2,608 Consumer and other: Loans on deposits – – – 1,280 1,280 Home equity 306 54 360 7,036 7,396 Automobile 1 – 1 73 74 Unsecured 4 – 4 653 657 Total $ 3,778 $ 2,687 $ 6,465 $ 285,580 $ 292,045 The following tables present the aging of the principal balance outstanding in past due loans as of June 30, 2020, by class of loans: (in thousands) 30-89 Days Past Due 90 Days or Greater Past Due Total Past Due Loans Not Past Due Total Residential real estate: One-to four-family $ 2,546 $ 2,670 $ 5,216 $ 217,273 $ 222,489 Multi-family – – – 12,373 12,373 Construction 192 63 255 3,790 4,045 Land – – – 765 765 Farm 107 309 416 1,938 2,354 Nonresidential real estate 57 253 310 33,193 33,503 Commercial nonmortgage – – – 2,214 2,214 Consumer: Loans on deposits – – – 1,245 1,245 Home equity 255 90 345 7,300 7,645 Automobile – – – 67 67 Unsecured – – – 675 675 Total $ 3,157 $ 3,385 $ 6,542 $ 280,833 $ 287,375 16 Kentucky First Federal Bancorp NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) September 30, 2020 (unaudited) 4. Loans receivable (continued) Credit Quality Indicators: The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis is performed on an annual basis. The Company uses the following definitions for risk ratings: Special Mention. Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date. Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. Loans not meeting the criteria above that are analyzed individually as part of the above-described process are considered to be pass rated loans. Loans listed that are not rated are included in groups of homogeneous loans and are evaluated for credit quality based on performing status. See the aging of past due loan table above. As of September 30, 2020, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows: (in thousands) Pass Special Mention Substandard Doubtful Residential real estate: One- to four-family $ 214,552 $ 703 $ 6,404 $ – Multi-family 13,838 – 665 – Construction 4,706 – 63 – Land 912 – – – Farm 2,214 – 292 – Nonresidential real estate 33,713 943 1,025 – Commercial nonmortgage 2,608 – – – Consumer: Loans on deposits 1,280 – – – Home equity 7,294 37 65 – Automobile 74 – – – Unsecured 652 – 5 – $ 281,843 $ 1,683 $ 8,519 $ – 17 Kentucky First Federal Bancorp NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) September 30, 2020 (unaudited) 4. Loans receivable (continued) At June 30, 2020, the risk category of loans by class of loans was as follows: (in thousands) Pass Special Mention Substandard Doubtful Residential real estate: One- to four-family $ 215,010 $ 742 $ 6,737 $ – Multi-family 11,702 – 671 – Construction 3,982 – 63 – Land 765 – – – Farm 2,045 – 309 – Nonresidential real estate 31,529 939 1,035 – Commercial nonmortgage 2,188 – 26 – Consumer: Loans on deposits 1,245 – – – Home equity 7,505 39 101 – Automobile 67 – – – Unsecured 670 – 5 – $ 276,708 $ 1,720 $ 8,947 $ – Purchased Credit Impaired Loans: The Company purchased loans during fiscal year 2013 for which there was, at acquisition, evidence of deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected. The carrying amount of those loans, net of a purchase credit discount of $351,000 and $351,000 at September 30, 2020 and June 30, 2020, respectively, is as follows: (in thousands) September 30, 2020 June 30, 2020 One- to four-family residential real estate $ 736 $ 751 18 Kentucky First Federal Bancorp NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) September 30, 2020 (unaudited) 4. Loans receivable (continued) Accretable yield, or income expected to be collected, is as follows: (in thousands) Three months ended September 30, 2020 Twelve months ended June 30, 2020 Balance at beginning of period $ 447 $ 544 Accretion of income (15 ) (97 ) Disposals, net of recoveries – – Balance at end of period $ 432 $ 447 For those purchased loans disclosed above, the Company made no increase in allowance for loan losses for the year ended June 30, 2020, nor for the three-month period ended September 30, 2020. Neither were any allowance for loan losses reversed during those periods. 5. Disclosures About Fair Value of Assets and Liabilities ASC topic 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants (exit price) at the measurement date. ASC topic 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes six levels of inputs that may be used to measure fair value: Level 1 – Quoted prices in active markets for identical assets or liabilities. Level 2 – Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in active markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Following is a description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy. Securities Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics. Level 2 securities include agency mortgage-backed securities and agency bonds. 19 Kentucky First Federal Bancorp NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) September 30, 2020 (unaudited) 5. Disclosures About Fair Value of Assets and Liabilities (continued) Impaired Loans At the time a loan is considered impaired, it is evaluated for loss based on the fair value of collateral securing the loan if the loan is collateral dependent. If a loss is identified, a specific allocation will be established as part of the allowance for loan losses such that the loan’s net carrying value is at its estimated fair value. Impaired loans carried at fair value generally receive specific allocations of the allowance for loan losses. For collateral-dependent loans, fair value is commonly based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification. Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly. Other Real Estate Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. Fair value is commonly based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Financial assets measured at fair value on a recurring basis are summarized below: Fair Value Measurements Using (in thousands) Fair Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) September 30, 2020 Agency mortgage-backed: residential $ 36 $ – $ 36 $ – June 30, 2020 Agency bonds $ 503 $ – $ 503 $ – Agency mortgage-backed: residential 38 – 38 – $ 541 $ – $ 541 $ – 20 Kentucky First Federal Bancorp NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) September 30, 2020 (unaudited) 5. Disclosures About Fair Value of Assets and Liabilities (continued) Assets measured at fair value on a non-recurring basis are summarized below: Fair Value Measurements Using (in thousands) Fair Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) June 30, 2020 Other real estate owned, net One- to four-family $ 465 $ – $ – $ 465 There were no impaired loans, which were measured using the fair value of the collateral for collateral-dependent loans, at September 30, 2020, or at June 30, 2020. There was a charge off of $8,000 for the three-month period ended September 30, 2019. There was no other real estate owned written down during the three-months ended September 30, 2020 or 2019. Other real estate owned measured at fair value less costs to sell, had a carrying amount of $577,000 at September 30, 2020. The following table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at September 30, 2020 and June 30, 2020: Range Fair Value Valuation Unobservable (Weighted June 30, 2020 (in thousands) Technique(s) Input(s) Average) Foreclosed and repossessed assets: One- to four-family $ 465 Sales comparison approach Adjustments for differences between comparable sales -2.7% to 41.2% (20.4%) 21 Kentucky First Federal Bancorp NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) September 30, 2020 (unaudited) 5. Disclosures About Fair Value of Assets and Liabilities (continued) The following is a disclosure of the fair value of financial instruments, both assets and liabilities, whether or not recognized in the consolidated balance sheet, for which it is practicable to estimate that value. For financial instruments where quoted market prices are not available, fair values are based on estimates using present value and other valuation methods. The methods used are greatly affected by the assumptions applied, including the discount rate and estimates of future cash flows. Therefore, the fair values presented may not represent amounts that could be realized in an exchange for certain financial instruments. Based on the foregoing methods and assumptions, the carrying value and fair value of the Company’s financial instruments at September 30, 2020 and June 30, 2020 are as follows: Fair Value Measurements at Carrying September 30, 2020 Using (in thousands) Value Level 1 Level 2 Level 3 Total Financial assets Cash and cash equivalents $ 17,116 $ 17,116 $ 17,116 Time deposits in other financial institutions 1,241 1,254 1,254 Available-for-sale securities 36 $ 36 36 Held-to-maturity securities 564 582 582 Loans held for sale 1,035 $ 1,064 1,064 Loans receivable - net 290,509 300,232 300,232 Federal Home Loan Bank stock 6,498 n/a Accrued interest receivable 700 700 700 Financial liabilities Deposits $ 215,102 $ 84,030 $ 131,898 215,928 Federal Home Loan Bank advances 58,392 59,140 59,140 Advances by borrowers for taxes and insurance 1,084 1,084 1,084 Accrued interest payable 24 24 24 Fair Value Measurements at Carrying June 30, 2020 Using (in thousands) Value Level 1 Level 2 Level 3 Total Financial assets Cash and cash equivalents $ 13,702 $ 13,702 $ 13,702 Term deposits in other financial institutions 2,229 2,252 2,252 Available-for-sale securities 541 $ 541 541 Held-to-maturity securities 598 611 611 Loans held for sale 667 685 685 Loans receivable – net 285,887 $ 295,431 295,431 Federal Home Loan Bank stock 6,498 n/a Accrued interest receivable 830 830 830 Financial liabilities Deposits $ 212,273 $ 78,118 $ 135,000 $ 213,118 Federal Home Loan Bank advances 54,715 55,416 55,416 Advances by borrowers for taxes and insurance 800 800 800 Accrued interest payable 27 27 27 22 Kentucky First Federal Bancorp NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) September 30, 2020 (unaudited) 6. Other Comprehensive Income (Loss) The Company’s other comprehensive income is comprised solely of unrealized gains and losses on available-for-sale securities. The following is a summary of the accumulated other comprehensive income balances, net of tax: Three months ended September 30, 2020 Beginning balance $ 2 Current year change (2 ) Ending balance $ – Other comprehensive income (loss) components and related tax effects for the periods indicated were as follows: Three months ended September 30, (in thousands) 2020 2019 Unrealized holding gains (losses) on available-for-sale securities $ – $ – Tax effect – – Net-of-tax amount $ – $ – 23 Kentucky First Federal Bancorp ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forward-Looking Statements Certain statements contained in this report that are not historical facts are forward-looking statements that are subject to certain risks and uncertainties. When used herein, the terms “anticipates,” “plans,” “expects,” “believes,” and similar expressions as they relate to Kentucky First Federal Bancorp or its management are intended to identify such forward looking statements. Kentucky First Federal Bancorp’s actual results, performance or achievements may materially differ from those expressed or implied in the forward-looking statements. Risks and uncertainties that could cause or contribute to such material differences include, but are not limited to, general economic conditions, prices for real estate in the Company’s market areas, interest rate environment, competitive conditions in the financial services industry, changes in law, governmental policies and regulations, rapidly changing technology affecting financial services, the potential effects of the COVID-19 pandemic on the local and national economic environment, on our customers and on our operations (as well as any changes to federal, state and local government laws, regulations and orders in connection with the pandemic), and the other matters mentioned in Item 1A of the Company’s Annual Report on Form 10-K for the year ended June 30, 2020. Except as required by applicable law or regulation, the Company does not undertake the responsibility, and specifically disclaims any obligation, to release publicly the result of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of the statements or to reflect the occurrence of anticipated or unanticipated events. 24 Kentucky First Federal Bancorp MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Average Balance Sheets The following table represents the average balance sheets for the three-month periods ended September 30, 2020 and 2019, along with the related calculations of tax-equivalent net interest income, net interest margin and net interest spread for the related periods. Three Months Ended September 30, 2020 2019 Average Balance Interest And Dividends Yield/ Cost Average Balance Interest And Dividends Yield/ Cost (Dollars in thousands) Interest-earning assets: Loans 1 $ 289,262 $ 2,976 4.12 % $ 281,646 $ 3,172 4.50 % Mortgage-backed securities 621 4 2.58 789 6 3.04 Other securities 393 3 3.05 1,002 6 2.40 Other interest-earning assets 21,824 46 0.84 21,366 144 2.70 Total interest-earning assets 312,100 3,029 3.88 304,803 3,328 4.37 Less: Allowance for loan losses (1,490 ) (1,436 ) Non-interest-earning assets 12,526 26,129 Total assets $ 323,136 $ 329,496 Interest-bearing liabilities: Demand deposits $ 17,171 $ 7 0.16 % $ 14,384 $ 5 0.14 % Savings 57,485 59 0.41 51,157 52 0.41 Certificates of deposit 133,743 448 1.34 126,937 531 1.67 Total deposits 208,399 514 0.99 192,478 588 1.22 Borrowings 51,793 125 0.97 62,796 359 2.29 Total interest-bearing liabilities 260,192 639 0.98 255,274 947 1.48 Noninterest-bearing demand deposits 8,453 5,793 Noninterest-bearing liabilities 2,437 2,128 Total liabilities 271,082 263,195 Shareholders’ equity 52,054 66,301 Total liabilities and shareholders’ equity $ 323,136 $ 329,496 Net interest spread $ 2,390 2.90 % $ 2,381 2.89 % Net interest margin 3.06 % 3.13 % Average interest-earning assets to average interest-bearing liabilities 119.95 % 119.40 % 1 Includes loan fees, immaterial in amount, in both interest income and the calculation of yield on loans. Also includes loans on nonaccrual status. 25 Kentucky First Federal Bancorp MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Discussion of Financial Condition Changes from June 30, 2020 to September 30, 2020 Risks and Uncertainties Related to COVID-19 - In March 2020 the World Health Organization determined that the spread of a new coronavirus, COVID-19, had risen to such a level as to constitute a worldwide pandemic. The spread of this virus has created a global public health crisis. Uncertainty related to the effects of the virus have disrupted financial markets, activity in all aspects of life including governmental, business and consumer routines and the markets in which the Company operates. In response to the crisis governmental authorities have closed non-essential businesses and required various responses from individuals including stay-at-home restrictions and social distancing. These governmental restrictions, along with a fear of contracting the virus, have resulted in severe reduction of commercial and consumer activity, which is resulting in loss of revenues by businesses, a dramatic spike in unemployment, material decreases in oil and gas prices and in business valuations, disrupted global supply chains and market volatility. Management expects the general impact of COVID-19, as well as certain provisions of the Coronavirus Aid, Relief and Economic Security (“CARES”) Act, enacted on March 27, 2020, and other more recent legislative and regulatory relief efforts, to have a material impact on the Company’s operations. Because the impact is contingent upon the duration and severity of the economic downturn, management cannot determine or estimate the magnitude of the impact at this time. However, we are disclosing potentially material items of which we are currently aware. Business Continuity, Processes and Controls As a financial institution, the Banks are considered essential businesses and have remained open for business. We have implemented our pandemic preparedness plan and have maintained regular business hours except for closing for business on Fridays at 4:30 p.m. We continue to offer customer service through drive-thru facilities, automated teller machines, remote deposit capture and online and mobile banking applications. We are offering by-appointment options for transactions requiring in-person contact while maintaining social distancing mandates and surface cleaning protocols. Our staff is practicing recommended personal hygiene protocols and social distancing while working on premises. A small number of employees are working remotely. We do not face current material resource constraints through the implementation of our pandemic preparedness plan and do not anticipate incurring any material cost related to its implementation. We have not identified any material operational or internal control challenges or risks, nor do we anticipate any significant challenges to our ability to maintain our systems and controls, related to operational changes resulting from implementation of the pandemic preparedness plan. 26 Kentucky First Federal Bancorp MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Discussion of Financial Condition Changes from June 30, 2020 to September 30, 2020 (continued) Financial Position and Results of Operations Bank regulators have issued guidance and are encouraging banks to work with customers affected by COVID-19. Accordingly, we have been actively working with borrowers affected by COVID-19 by offering a payment deferral program providing for either a three-month interest-only period or a full payment deferral for three months. While interest and fees will continue to accrue to income, under normal GAAP accounting if eventual credit losses on these deferred payments emerge, interest and/or fee income accrued may need to be reversed. As a result, interest income in future periods could be negatively impacted. At this time management anticipates that the deferral program will have an immaterial impact to the Company’s financial condition and results of operation, while recognizing that a sustained negative economic impact from COVID-19 could change this assessment, as borrowers’ ability to repay is impacted in future periods. At September 30, 2020 the Company and the Banks were considered well-capitalized with capital ratios in excess of regulatory requirements. However, an extended economic recession resulting from the COVID-19 pandemic could adversely impact the Company’s and the Banks’ capital position and regulatory capital ratios due to a potential increase in credit losses. Lending Operations and Credit Risk As noted herein the Company is working with its borrowers who are negatively impacted by COVID-19 by offering a payment deferral program. As of September 30, 2020, we had 96 customers to avail themselves of our payment deferral program with a total principal balance of $18.1 million in loans modified. Of those 81 customers with principal balances totaling $16.2 million had returned to amortizing status, while 15 customers (with principal totaling $1.9 million) had not completed the allowed deferral period and three customers (with principal totaling $226,000) had not returned to amortizing status. The CARES Act includes a Paycheck Protection Program (“PPP”), which is administered by the Small Business Administration (“SBA”) and is designed to aid small- and medium-sized businesses through federally-guaranteed loans disbursed through banks. These loans are intended to provide eight weeks of payroll and other costs to assist those businesses to either remain open or to re-open quickly and allow their workers to pay their bills. First Federal of Kentucky qualified as an SBA lender to assist the small business community in securing this important funding. As of September 30, 2020, First Federal of Kentucky had approved and closed with the SBA 44 PPP loans representing $1.4 million in funding. It is our understanding that loans funded through the PPP are fully guaranteed by the United States government. Should those circumstances change, the bank could be required to increase its allowance for loan and lease losses related to these loans resulting in an increase in the provision for loan and lease losses. The Banks are prepared to continue to offer short-term assistance in accordance with regulatory guidelines. Management continues to identify and monitor weaknesses in the loan portfolio resulting from fallout from the pandemic. On a portfolio level, management continues to monitor aggregate exposures to highly sensitive segments such as residential rental properties for changes in asset quality and payment performance. Management also monitors unfunded commitments such as lines of credit and overdraft protection to determine liquidity and funding issues that may arise with our customers. If economic conditions worsen, the Company could need to increase its required allowance for loan losses through additional provisions for loan losses. It is possible that the Company’s asset quality metrics could be materially and adversely impacted in future periods, if the effects of COVID-19 are prolonged. 27 Kentucky First Federal Bancorp MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Discussion of Financial Condition Changes from June 30, 2020 to September 30, 2020 (continued) Assets: At September 30, 2020, the Company’s assets totaled $327.7 million, an increase of $6.5 million, or 2.0%, from total assets at June 30, 2020. This increase was attributed primarily to an increase in loans, net, and an increase in cash and cash equivalents. Cash and cash equivalents: Cash and cash equivalents increased $3.4 million or 24.9% to $17.1 million at September 30, 2020. Most of the Company’s cash and cash equivalents are held in interest-bearing demand deposits. Time deposits in other financial institutions: Time deposits in other financial institutions decreased by $988,000 or 44.3% to $1.2 million at September 30, 2020. As short-term time deposits matured the funds were used to repay FHLB advances, reinvested at the highest earning level possible or simply carried as interest-bearing demand deposits. Investment securities: At September 30, 2020, our securities portfolio consisted of mortgage-backed securities. Investment securities decreased $539,000 or 47.3% to $600,000 at September 30, 2020. Loans : Loans receivable, net, increased by $4.6 million or 1.6% to $290.5 million at September 30, 2020. Management continues to look for high-quality loans to add to its portfolio and will continue to emphasize loan originations to the extent that it is profitable, prudent and consistent with our interest rate risk strategies. Non-Performing and Classified Loans: At September 30, 2020, the Company had non-performing loans (loans 90 or more days past due or on nonaccrual status) of approximately $6.9 million, or 2.4% of total loans (including acquired loans), compared to $7.4 million or 2.6%, of total loans at June 30, 2020. The Company’s allowance for loan losses totaled $1.5 million and $1.5 million at September 30, 2020 and June 30, 2020, respectively. The allowance for loan losses at September 30, 2020, represented 22.4% of nonperforming loans and 0.5% of total loans (including acquired loans), while at June 30, 2020, the allowance represented 20.1% of nonperforming loans and 0.5% of total loans. The Company had $9.2 million in assets classified as substandard for regulatory purposes at September 30, 2020, including loans ($8.5 million), including loans acquired in the CKF Bancorp transaction and also including real estate owned (“REO”) ($679,000.) Classified loans as a percentage of total loans (including loans acquired) was 2.9% and 3.1% at September 30, 2020 and June 30, 2020, respectively. Of substandard loans, 99.9% were secured by real estate on which the Banks have priority lien position. The table below shows the aggregate amounts of our assets classified for regulatory purposes at the dates indicated: (dollars in thousands) September 30, 2020 June 30, 2020 Substandard assets $ 9,197 $ 9,587 Doubtful assets – – Loss assets – – Total classified assets $ 9,197 $ 9,587 At September 30, 2020, the Company’s real estate acquired through foreclosure represented 7.4% of substandard assets compared to 6.7% at June 30, 2020. During the periods presented the Company made no loans to facilitate the purchase of its other real estate owned by qualified buyers. Loans to facilitate the sale of other real estate owned, which were included in substandard loans, totaled $46,000 and $23,000 at September 30, 2020 and June 30, 2020, respectively. 28 Kentucky First Federal Bancorp MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Discussion of Financial Condition Changes from June 30, 2020 to September 30, 2020 (continued) The following table presents the aggregate carrying value of REO at the dates indicated: September 30, 2020 June 30, 2020 Number Net Number Net of Carrying of Carrying Properties Value Properties Value One- to four-family 5 $ 679 5 $ 640 Building lot 1 – 1 – Total REO 6 $ 679 6 $ 640 At September 30, 2020 and June 30, 2020, the Company had $1.7 million and $1.7 million of loans classified as special mention, respectively (including loans acquired in the CKF Bancorp transaction on December 31, 2012.) This category includes assets which do not currently expose us to a sufficient degree of risk to warrant classification, but do possess credit deficiencies or potential weaknesses deserving our close attention. Liabilities: Total liabilities increased $6.6 million, or 2.5% to $275.9 million at September 30, 2020, primarily as a result of increases in advances and deposits. Advances increased $3.7 million or 6.7% to $58.4 million at September 30, 2020, while deposits increased $2.8 million or 1.3% to $215.1 million at September 30, 2020. Shareholders’ Equity: At September 30, 2020, the Company’s shareholders’ equity totaled $51.8 million, a decrease of $82,000 or 0.2% from the June 30, 2020 total. The change in shareholders’ equity was primarily associated with common shares purchased by the Company to hold as treasury shares, and net profits for the period less dividends paid on common stock. The Company paid dividends of $344,000 or 120.7% of net income for the three-month period just ended. On July 7, 2020, the members of First Federal MHC again approved a dividend waiver on annual dividends of up to $0.40 per share of Kentucky First Federal Bancorp common stock. The Board of Directors of First Federal MHC applied for approval of another waiver. The Federal Reserve Bank of Cleveland has notified the Company that it did not object to the waiver of dividends paid by the Company to First Federal MHC, and, as a result, First Federal MHC will be permitted to waive the receipt of dividends for quarterly dividends up to $0.10 per common share through the third calendar quarter of 2021. Management believes that the Company has sufficient capital to continue the current dividend policy without affecting the well-capitalized status of either subsidiary bank. Management cannot speculate on future dividend levels, because various factors, including capital levels, income levels, liquidity levels, regulatory requirements and overall financial condition of the Company are considered before dividends are declared. However, management continues to believe that a strong dividend is consistent with the Company’s long-term capital management strategy. See “Risk Factors” in Part II, Item 1A, of the Company’s Annual Report on Form 10-K for the year ended June 30, 2020 for additional discussion regarding dividends. 29 Kentucky First Federal Bancorp MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Comparison of Operating Results for the Three-month Periods Ended September 30, 2020 and 2019 General Net income totaled $285,000 or $0.04 diluted earnings per share for the three months ended September 30, 2020, an increase of $51,000 or 21.8% from net income of $234,000 for the same period in 2019. Net Interest Income Net interest income before provision for loan losses increased $9,000 or 0.4% to $2.4 million for the three-month period just ended. Interest income decreased by $299,000, or 9.0%, to $3.0 million, while interest expense decreased $308,000 or 32.5% to $639,000 for the three months ended September 30, 2020. Interest income on loans decreased $196,000 or 6.2% to $3.0 million, due primarily to a decrease in the average rate earned on the loan portfolio. The average rate earned on the loan portfolio decreased 39 basis points to 4.12%, while the average balance increased $7.6 million or 2.7% to $289.3 million for the three-month period ended September 30, 2020. Interest income on mortgage-backed securities decreased $2,000 or 33.3% to $4,000 for the three-month period just ended due to lower asset levels and lower yields earned. Interest income from other securities decreased $3,000 to $3,000 for the recently-ended period due primarily to a lower average volume of other securities period to period. Interest income from interest-bearing deposits and other decreased $98,000 or 68.1% to $46,000 for the three months just ended due to a decrease in the average rate earned, which decreased 186 basis points to 84 basis points for the recently-ended period compared to the period a year ago. Interest expense on deposits decreased $74,000 or 12.6% to $514,000 for the three months ended September 30, 2020, while interest expense on borrowings decreased $234,000 or 65.2% to $125,000 for the same period. The decrease in interest expense on deposits was attributed primarily to a decrease in the average rate paid on interest-bearing deposits, which decreased 23 basis points to 99 basis points for the recently ended period. The average balance of interest-bearing deposits increased $15.9 million or 8.3% to $208.4 million for the most recent period. The decrease in interest expense on borrowings was attributed to both to a lower average rate paid on the borrowings and a lower average balance of borrowings decreased period to period. The average balance of borrowings outstanding decreased $11.0 million or 17.5% to $51.8 million for the recently ended three-month period, while the average rate paid on borrowings decreased 132 basis points to 97 basis points for the most recent period. Net interest spread increased from 2.89% for the prior year quarterly period to 2.90% for the three-month period ended September 30, 2020. Provision for Losses on Loans The Company recorded an $84,000 provision for losses on loans during the three months ended September 30, 2020, compared to a provision of $59,000 for the three months ended September 30, 2019. 30 Kentucky First Federal Bancorp MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Comparison of Operating Results for the Three-month Periods Ended September 30, 2020 and 2019 (continued) Non-interest Income Non-interest income increased $54,000 or 73.0% to $128,000 for the three months ended September 30, 2020, compared to the prior year period, primarily because of an increase in net gains on sales of loans. Net gain on sales of loans increased $52,000 to $58,000 for the recently-ended three-month period over the prior year amount. The Company has seen significant loan refinance activity since the emergency interest rate cut implemented by the Federal Open Market Committee in March of this year. The Company’s long-term, fixed rate loans, which some borrowers are preferring at this time, are usually sold to the FHLB of Cincinnati after they are originated, which produced the gains. Non-interest Expense Non-interest expense decreased $19,000 or 0.9% and totaled $2.1 million for the three months ended September 30, 2020, primarily due to cost-saving measures implemented by management. Voice and data communications expense decreased $40,000 or 65.6% to $21,000 for the quarterly period just ended, as upgraded technology was implemented. Other non-interest expense decreased $19,000 or 10.9% to $155,000 for the three months ended September 30, 2020, primarily due to lower general loan expenses. Employee compensation and benefits decreased $17,000 or 1.3% to $1.3 million primarily due to lower employee compensation. The Banks were operating with two fewer full-time equivalent employees in the recently-ended quarterly period compared to the prior year quarter, which resulted in lower compensation cost, lower fringe benefit cost and lower payroll taxes period to period. Somewhat offsetting the decreases in other employee compensation and benefits expense was an increase in contributions to the Company’s Defined Benefit (“DB”) pension plan. DB pension contributions increased $73,000 or 41.2% to $252,000 for the three-month period recently ended compared to the prior year period. Higher DB pension contributions were a result of higher administrative fees and Pension Benefit Guarantee Corporation premiums, as the Company’s DB plan was frozen effective April 1, 2019. Foreclosure and OREO expenses, net decreased $17,000 or 50.0% to $17,000 for the quarter just ended, due to lower levels of such activity. Advertising expenses decreased $11,000 or 22.9% to $37,000 for the recently ended three-month period. Somewhat offsetting the decreases in various non-interest expense items were increases in FDIC insurance premiums, data processing expenses, and outside service fees. FDIC insurance premiums increased $43,000 to $57,000 for the three months ended September 30, 2020. In the prior year quarterly period the Banks were able to utilize their Small Bank Assessment Credits (“SBAC”). The SBAC were depleted in the quarterly period ended June 30, 2020. Data processing increased $42,000 or 40.0% to $147,000 for the period just ended as core processing costs increased and the Company expanded its technology infrastructure. Outside service fees increased $12,000 or 23.5% to $63,000 for the quarter ended September 30, 2020, primarily due to professional services related to the Company’s goodwill impairment valuation during the period. Federal Income Tax Expense Federal income tax expense increased $6,000 or 10.0% to $66,000 for the three months ended September 30, 2020, compared to the prior year period. The effective tax rates for the three-month periods ended September 30, 2020 and 2019, were 18.8% and 20.4%, respectively. 31 Kentucky First Federal Bancorp ITEM 3: Quantitative and Qualitative Disclosures About Market Risk This item is not applicable as the Company is a smaller reporting company. ITEM 4: Controls and Procedures The Company’s Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined under Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report, and have concluded that the Company’s disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the Securities and Exchange Commission (the “SEC”) (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Based upon their evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have also concluded that there were no significant changes during the quarter ended September 30, 2020 in the Company’s internal control over financial reporting or in other factors that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. 32 Kentucky First Federal Bancorp PART II ITEM 1. Legal Proceedings None. ITEM 1A. Risk Factors The information below updates, and should be read in conjunction with, the risk factors disclosed in Part I, “Item 1A- Risk Factors” in the Form 10-K for the year ended June 30, 2020 that we filed with the Securities and Exchange Commission on September 30, 2019. These risk factors could materially affect our business, financial condition or future results. The risks described are not the only risks that we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results. Except as presented below, there have been no material changes in the risk factors as discussed in our Form 10-K. The recent global coronavirus (COVID-19) pandemic has led to periods of significant volatility in financial, commodities and other markets and could harm our business and results of operations. In December 2019, a novel strain of coronavirus (COVID-19) was first reported in Wuhan, Hubei Province, China. Since then, COVID-19 infections have spread to additional countries including the United States. In March 2020, the World Health Organization declared COVID-19 to be a pandemic. Given the ongoing and dynamic nature of the circumstances, it is difficult to predict the impact of the coronavirus pandemic on our business, and there is no guarantee that our efforts to address or mitigate the adverse impacts of the coronavirus will be effective. The impact to date has included periods of significant volatility in financial, commodities and other markets. This volatility, if it continues, could have an adverse impact on our customers and on our business, financial condition and results of operations as well as our growth strategy. Our business is dependent upon the willingness and ability of our customers to conduct banking and other financial transactions. The spread of COVID-19 has caused and could continue to cause severe disruptions in the U.S. economy at large, and has resulted and may continue to result in disruptions to our customers’ businesses, and a decrease in consumer confidence and business generally. In addition, recent actions by US federal, state and local governments to address the pandemic, including travel bans, stay-at-home orders and school, business and entertainment venue closures, may have a significant adverse effect on our customers and the markets in which we conduct our business. The extent of impacts resulting from the coronavirus pandemic and other events beyond our control will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the coronavirus pandemic and actions taken to contain the coronavirus or its impact, among others. Disruptions to our customers could result in increased risk of delinquencies, defaults, and foreclosures and losses on our loans. The escalation of the pandemic may also negatively impact regional economic conditions for a period of time, resulting in declines in local loan demand, liquidity of loan guarantors, loan collateral (particularly in real estate), loan originations and deposit availability. If the global response to contain COVID-19 escalates or is unsuccessful, we could experience a material adverse effect on our business, financial condition, results of operations and cash flows. The spread of the COVID-19 outbreak and the governmental responses may disrupt banking and other financial activity in the areas in which we operate and could potentially create widespread business continuity issues for us. The outbreak of COVID-19 and the US federal, state and local governmental responses may result in a disruption in the services we provide. We rely on our third-party vendors to conduct business and to process, record, and monitor transactions. If any of these vendors are unable to continue to provide us with these services or experience interruptions in their ability to provide us with these services, it could negatively impact our ability to serve our customers. Furthermore, the coronavirus pandemic could negatively impact the ability of our employees and customers to engage in banking and other financial transactions in the geographic areas in which we operate and could create widespread business continuity issues for us. We also could be adversely affected if key personnel or a significant number of employees were to become unavailable due to infection, quarantine or other effects and restrictions of a COVID-19 outbreak in our market areas. Although we have business continuity plans and other safeguards in place, there is no assurance that such plans and safeguards will be effective. If we are unable to promptly recover from such business disruptions, our business, financial condition and results of operations would be adversely affected. We also may incur additional costs to remedy damages caused by such disruptions, which could adversely affect our financial condition and results of operations. 33 ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds (c) The following table sets forth information regarding Company’s repurchases of its common stock during the quarter ended September 30, 2020. Period Total # of shares purchased Average price paid per share (including commissions) Total # of shares purchased as part of publicly announced plans or programs Maximum # of shares that may yet be purchased under the plans or programs July 1-31, 2020 – $ – – 18,900 August 1-31, 2020 – $ – – 18,900 September 1-30, 2020 8,000 $ 6.12 8,000 10,900 (1) On December 19, 2018, the Company announced that it had substantially completed its program initiated on January 16, 2014 to repurchase of up to 150,000 shares of its common stock and that it was initiating a new stock repurchase plan in which the Board of Directors authorized the purchase of up to 150,000 shares of its common stock. ITEM 3. Defaults Upon Senior Securities Not applicable. ITEM 4. Mine Safety Disclosures. Not applicable. ITEM 5. Other Information None. ITEM 6. Exhibits 3.1 1 Charter of Kentucky First Federal Bancorp 3.2 2 Bylaws of Kentucky First Federal Bancorp, as amended and restated 3.3 3 Amendment No. 1 to the Bylaws of Kentucky First Federal Bancorp 3.4 4 Amendment No. 2 to the Bylaws of Kentucky First Federal Bancorp 4.1 1 Specimen Stock Certificate of Kentucky First Federal Bancorp 31.1 CEO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 C FO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1 CEO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2 CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 101.0 The following materials from Kentucky First Federal Bancorp’s Quarterly Report On Form 10-Q for the quarter ended September 30, 2020 formatted in Extensible Business Reporting Language (XBRL): (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of Income; (iii) the Consolidated Statements of Comprehensive Income; (iv) the Consolidated Statements of Cash Flows: and (v) the related Notes. (1) Incorporated herein by reference to the Company’s Registration Statement on Form S-1 (File No. 333-119041). (2) Incorporated herein by reference to the Company’s Annual Report on Form 10-K for the Year Ended June 30, 2012 (File No. 0-51176). (3) Incorporated herein by reference to the Company’s Current Report on Form 8-K filed August 25, 2017 (File No. 0-51176). (4) Incorporated herein by reference to the Company’s Current Report on Form 8-K filed September 28, 2020 (File No. 0-51176). 34 Kentucky First Federal Bancorp 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. KENTUCKY FIRST FEDERAL BANCORP Date: November 16, 2020 By: /s/ Don D. Jennings Don D. Jennings Chief Executive Officer Date: November 16, 2020 By: /s/ R. Clay Hulette R. Clay Hulette Vice President and Chief Financial Officer 35