What changed in this filing

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Item 1A. Risk Factors

2021-09-28 compared with 2020-09-28 · 377 added, 410 removed, 29 unchanged (96% of the section changed)

Risk Factors .

Rising interest rates may hurt our

profits and asset values .

In response to the Covid-19 virus pandemic,

the Federal Reserve Board’s Open Market Committee (“FOMC”) decreased interest rates to near zero in March 2020.

The low interest rate environment remained in effect at June 30, 2020, and the FOMC announced at its September 2020 meeting that

it expects interest rates to remain low through 2023.

If interest rates rise, our net interest

income may decline in the short term since, due to the generally shorter terms of interest-bearing liabilities, interest expense

paid on interest-bearing liabilities, increases more quickly than interest income earned on interest-earning assets, such as loans

and investments.

In addition, rising interest rates may hurt our income because of reduced demand for new loans, the demand for

refinancing loans and the interest and fee income earned on new loans and refinancings.

While we believe that modest interest

rate increases will not significantly hurt our interest rate spread over the long term due to our high level of liquidity and

the presence of a significant amount of adjustable-rate mortgage loans in our loan portfolio, interest rate increases may initially

reduce our interest rate spread until such time as our loans and investments reprice to higher levels.

Changes in interest rates also affect

the value of our interest-earning assets, and in particular our securities portfolio.

Generally, the value of fixed-rate securities

fluctuates inversely with changes in interest rates.

Unrealized gains and losses on securities available for sale are reported

as separate components of equity.

Decreases in the fair value of securities available for sale resulting from increases in interest

rates therefore could have an adverse effect on stockholders’

We may be adversely affected by

recent changes in U.S.

interest rates may hurt our profits and asset values .

response to the COVID-19 virus pandemic, the Federal Reserve Board’s Open Market Committee (“FOMC”) decreased interest

rates to near zero in March 2020.

The low interest rate environment remained in effect at June 30, 2021, and the FOMC announced at its

September 2021 meeting that it could commence increasing interest rates in 2022.

interest rates rise, our net interest income may decline in the short term since, due to the generally shorter terms of interest-bearing

liabilities, interest expense paid on interest-bearing liabilities, increases more quickly than interest income earned on interest-earning

assets, such as loans and investments.

In addition, rising interest rates may hurt our income because of reduced demand for new loans

and refinancing loans may in turn result in reduced interest and fee income earned on new loans and loan refinancings.

While we believe

that modest interest rate increases will not significantly hurt our interest rate spread over the long term due to our high level of

liquidity and the presence of a significant amount of adjustable-rate mortgage loans in our loan portfolio, interest rate increases may

initially reduce our interest rate spread until such time as our loans and investments reprice to higher levels.

in interest rates also affect the value of our interest-earning assets, and in particular our securities portfolio.

Generally, the value

of fixed-rate securities fluctuates inversely with changes in interest rates.

Unrealized gains and losses on securities available for

sale are reported as separate components of equity.

Decreases in the fair value of securities available for sale resulting from increases

in interest rates therefore could have an adverse effect on stockholders’ equity.

Related to the COVID-19 Pandemic and Associated Economic Slowdown

ongoing COVID-19 pandemic and measures intended to prevent its spread could have a material adverse effect on our business, results of

operations and financial condition, and such effects will depend on future developments, which are highly uncertain and are difficult

health concerns relating to the COVID-19 outbreak and related government actions taken to reduce the spread of the virus have been weighing

on the macroeconomic environment, and the outbreak has significantly increased economic uncertainty and reduced economic activity.

outbreak has resulted in authorities implementing numerous measures to try to contain the virus, such as travel bans and restrictions,

quarantines, shelter in place or stay-at-home orders and business limitations and shutdowns.

Such measures have significantly contributed

to rising unemployment and negatively impacted consumer and business spending.

Local jurisdictions have subsequently lifted stay-at-home

orders and moved to phased reopening of businesses, capacity restrictions and health and safety recommendations that encourage continued

physical distancing and teleworking have limited the ability of businesses to return to pre-pandemic levels of activity.

The United States

government has taken steps to attempt to mitigate some of the more severe anticipated economic effects of the virus, including the passage

of the CARES Act, but there can be no assurance that such steps will be effective or achieve their desired results in a timely fashion.

outbreak has adversely impacted and is likely to further adversely impact our workforce and operations and the operations of our borrowers,

customers and business partners.

In particular, we may experience financial losses due to a number of operational factors impacting us

or our borrowers, customers or business partners, including but not limited to:

for our products and services may decline, making it difficult to grow assets and income;

losses resulting from financial stress being experienced by our borrowers as a result of the outbreak and related governmental actions,

particularly in the hospitality, energy, retail and restaurant industries, but across other industries as well;

the economy is unable to substantially reopen, and high levels of unemployment continue for an extended period of time, loan delinquencies,

problem assets, and foreclosures may increase, resulting in increased charge-offs and reduced income;

for loans, especially real estate, may decline in value, which could cause loan losses to increase;

allowance for loan losses may have to be increased if borrowers experience financial difficulties beyond forbearance periods, which

will adversely affect our net income;

net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us;

the result of the decline in the Federal Reserve Board’s target federal funds rate, the yield on our assets may decline to

a greater extent than the decline in our cost of interest-bearing liabilities, reducing our net interest margin and spread and reducing

material decrease in net income or a net loss over several quarters could result in a decrease in the rate of our quarterly cash

failures due to changes in our normal business practices necessitated by the outbreak and related governmental actions.

cyber and payment fraud risk, as cybercriminals attempt to profit from the disruption, given increased online and remote activity;

prolonged weakness in economic conditions resulting in a reduction of future projected earnings could result in our recording a valuation

allowance against our current outstanding deferred tax assets;

rely on third party vendors for certain services and the unavailability of a critical service due to the COVID-19 outbreak could

have an adverse effect on us;

Deposit Insurance Corporation premiums may increase if the agency experiences additional resolution costs.

pandemic has introduced increasing uncertainty around the local and national economy.

Regulatory treatment of loan deferrals has been

changed to encourage loan deferrals.

Although the deferrals may lessen credit losses in the long run, they make our credit metrics less

transparent, timely and useful.

The increased volume of loan related work including processing deferrals, processing PPP loan requests

and changing regulations increases inherent credit risks, and loans with deferred payments are more likely to default in the future.

The Company believes there could be potential stresses on liquidity management as a direct result of the COVID-19 pandemic.

manage their own liquidity stress, we could experience an increase in the utilization of existing lines of credit.

spread of COVID-19 has caused us to modify our business practices (including restricting employee travel, and developing work from home

and social distancing plans for our employees), and we may take further actions as may be required by government authorities or as we

determine are in the best interests of our employees, customers and business partners.

There is no certainty that such measures will

be sufficient to mitigate the risks posed by the virus or will otherwise be satisfactory to government authorities.

extent to which the coronavirus outbreak impacts our business, results of operations and financial condition will depend on future developments,

which are highly uncertain and are difficult to predict, including, but not limited to, the duration and spread of the outbreak, its

severity, the actions to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions

Even after the COVID-19 outbreak has subsided, we may continue to experience materially adverse impacts to our business as

a result of the virus’s global economic impact, including the availability of credit, adverse impacts on our liquidity and any

recession that has occurred or may occur in the future.

are no comparable recent events that provide guidance as to the effect the spread of COVID-19 as a global pandemic may have, and, as

a result, the ultimate impact of the outbreak is highly uncertain and subject to change.

We do not yet know the full extent of the impacts

on our business, our operations or the global economy as a whole.

Related to Our Lending Activities

our allowance for loan losses is not sufficient to cover actual loan losses, our results of operations would be negatively affected.

determining the amount of the allowance for loan losses, we analyze our loss and delinquency experience by loan categories and we consider

the effect of existing economic conditions.

In addition, we make various assumptions and judgments about the collectability of our loan

portfolio, including the creditworthiness of our borrowers and the value of the real estate and other assets serving as collateral for

the repayment of many of our loans.

If the actual results are different from our estimates, or our analyses are incorrect, our allowance

for loan losses may not be sufficient to cover losses inherent in our loan portfolio, which would require additions to our allowance

and would decrease our net income.

Our emphasis on loan growth and on increasing our portfolio, as well as any future credit deterioration,

will require us to increase our allowance further in the future.

In addition, our banking regulators periodically review our allowance

for loan losses and could require us to increase our provision for loan losses.

Any increase in our allowance for loan losses or loan

charge-offs as required by regulatory authorities may have a material adverse effect on our results of operations and financial condition.

large percentage of our loans are collateralized by real estate and disruptions in the real estate market may result in losses and hurt

our earnings.

Approximately

96.3% of our loan portfolio at June 30, 2021 was comprised of loans collateralized by real estate.

Disruptions in the real estate market

could significantly impair the value of our collateral and our ability to sell the collateral upon foreclosure.

The real estate collateral

in each case provides an alternate source of repayment in the event of default by the borrower and may deteriorate in value during the

time the credit is extended.

If real estate values decline, it will become more likely that we would be required to increase our allowance

for loan losses.

If during a period of reduced real estate values, we are required to liquidate the collateral securing a loan to satisfy

the debt or to increase our allowance for loan losses, it could materially reduce our profitability and adversely affect our financial

concentration of residential mortgage loans exposes us to increased lending risks.

June 30, 2021, $224.1 million, or 74.8%, of our loan portfolio was secured by one-to-four family real estate, all of which is located

in the Commonwealth of Kentucky, and we intend to continue this type of lending in the foreseeable future.

One-to-four family residential

mortgage lending is generally sensitive to regional and local economic conditions that significantly impact the ability of borrowers

to meet their loan payment obligations, making loss levels difficult to predict.

A decline in residential real estate values as a result

of a downturn in the local housing markets or in the markets in neighboring states in which we originate residential mortgage loans could

reduce the value of the real estate collateral securing these types of loans.

Declines in real estate values could cause some of our

residential mortgages to be inadequately collateralized, which would expose us to a greater risk of loss if we seek to recover on defaulted

loans by selling the real estate collateral.

distressed economy in First Federal of Hazard’s market area could hurt our profits and slow our growth.

banks operate in three distinct market areas.

First Federal of Hazard’s market area consists of Perry and surrounding counties

in eastern Kentucky.

The economy in this market area has been distressed in recent years due to the decline in the coal industry on which

the economy has been dependent.

While the region has seen improvement in the economy from the influx of other industries, such as health

care and manufacturing, the competition provided by new methods of extracting natural gas has recently hurt the coal industry.

As a consequence,

the economy in First Federal of Hazard’s market area continues to lag behind the economies of Kentucky and the United States and

First Federal of Hazard has experienced insufficient loan demand in its market area.

Moreover, the slow economy in First Federal of Hazard’s

market area will limit our ability to grow our asset base in that market.

competition within our market areas could hurt our profits and slow growth.

we consider ourselves competitive in our market areas, we face intense competition both in making loans and attracting deposits.

competition for loans and deposits might result in our earning less on our loans and paying more on our deposits, which reduces net interest

Some of the institutions with which we compete have substantially greater resources than we have and may offer services that

we do not provide.

We expect competition to increase in the future as a result of legislative, regulatory and technological changes and

the continuing trend of consolidation in the financial services industry.

Our profitability will depend upon our continued ability to

compete successfully in our market areas.

Related to Our Business and Industry Generally

expect that the implementation of a new accounting standard could require us to increase our allowance for loan losses and may have a

material adverse effect on our financial condition and results of operations.

Financial Accounting Standards Board (“FASB”) has adopted a new accounting standard that will be effective for the Kentucky

First, First Federal of Hazard and First Federal of Kentucky for our fiscal year beginning July 1, 2023.

This standard, referred to as

Current Expected Credit Loss, or CECL, will require financial institutions to determine periodic estimates of lifetime expected credit

losses on loans, and provide for the expected credit losses as allowances for loan losses.

This will change the current method of providing

allowances for loan losses that are probable, which we expect could require us to increase our allowance for loan losses, and will likely

greatly increase the data we would need to collect and review to determine the appropriate level of the allowance for loan losses.

increase in our allowance for loan losses, or expenses incurred to determine the appropriate level of the allowance for loan losses,

may have a material adverse effect on our financial condition and results of operations.

liquidity management could adversely affect our financial results and condition.

liquidity management is essential for the operation of our business.

We require sufficient liquidity to meet customer loan requests,

customer deposit maturities/withdrawals, payments on our debt obligations as they come due and other cash commitments under both normal

operating conditions and other unpredictable circumstances causing industry or general financial market stress.

Our access to funding

sources in amounts adequate to finance our activities on terms that are acceptable to us could be impaired by factors that affect us

specifically or the financial services industry or economy generally.

Factors that could detrimentally impact our access to liquidity

sources include a downturn in the geographic markets in which our loans and operations are concentrated or difficult credit markets.

Our access to deposits may also be affected by the liquidity needs of our depositors.

In particular, a majority of our liabilities are

checking accounts and other liquid deposits, which are payable on demand or upon several days’ notice, while by comparison, a substantial

majority of our assets are loans, which cannot be called or sold in the same time frame.

Although we have historically been able to replace

maturing deposits and advances as necessary, we might not be able to replace such funds in the future, especially if a large number of

our depositors seek to withdraw their accounts, regardless of the reason.

A failure to maintain adequate liquidity could materially and

adversely affect our business, results of operations or financial condition.

may be adversely affected by recent changes in U.S.

tax laws and regulations.

Changes in tax laws contained in the Tax

Cuts and Jobs Act, which was enacted in December 2017, include a number of provisions that will have an impact on the banking

industry, borrowers and the market for residential real estate.

in tax laws contained in the Tax Cuts and Jobs Act, which was enacted in December 2017, include a number of provisions that will

have an impact on the banking industry, borrowers and the market for residential real estate.

Included in this legislation were:

(i) a lower limit on the

deductibility of mortgage interest on single-family residential mortgage loans, (ii) the elimination of interest deductions for

home equity loans, (iii) a limitation on the deductibility of business interest expense and (iv) a limitation on the deductibility

lower limit on the deductibility of mortgage interest on single-family residential mortgage loans, (ii) the elimination of interest deductions

for home equity loans, (iii) a limitation on the deductibility of business interest expense and (iv) a limitation on the deductibility

of property taxes and state and local income taxes.

The recent changes in the tax laws may

have an adverse effect on the market for, and valuation of, residential properties, and on the demand for such loans in the future,

and could make it harder for borrowers to make their loan payments.

If home ownership becomes less attractive, demand for mortgage

loans could decrease.

The value of the properties securing loans in our loan portfolio may be adversely impacted as a result of

the changing economics of home ownership, which could require an increase in our provision for loan losses, which would reduce

our profitability and could materially adversely affect our business, financial condition and results of operations.

A larger percentage of our loans

are collateralized by real estate and disruptions in the real estate market may result in losses and hurt our earnings.

Approximately 95.9% of our loan portfolio

at June 30, 2020 was comprised of loans collateralized by real estate.

Disruptions in the real estate market could significantly

impair the value of our collateral and our ability to sell the collateral upon foreclosure.

The real estate collateral in each

case provides an alternate source of repayment in the event of default by the borrower and may deteriorate in value during the

time the credit is extended.

If real estate values decline, it will become more likely that we would be required to increase our

allowance for loan losses.

If during a period of reduced real estate values, we are required to liquidate the collateral securing

a loan to satisfy the debt or to increase our allowance for loan losses, it could materially reduce our profitability and adversely

affect our financial condition.

Strong competition within our market

areas could hurt our profits and slow growth.

Although we consider ourselves competitive

in our market areas, we face intense competition both in making loans and attracting deposits.

Price competition for loans and

deposits might result in our earning less on our loans and paying more on our deposits, which reduces net interest income.

of the institutions with which we compete have substantially greater resources than we have and may offer services that we do

We expect competition to increase in the future as a result of legislative, regulatory and technological changes

and the continuing trend of consolidation in the financial services industry.

Our profitability will depend upon our continued

ability to compete successfully in our market areas.

The distressed economy in First

Federal of Hazard’s market area could hurt our profits and slow our growth.

First Federal of Hazard’s market

area consists of Perry and surrounding counties in eastern Kentucky.

The economy in this market area has been distressed in recent

years due to the decline in the coal industry on which the economy has been dependent.

While the region has seen improvement in

the economy from the influx of other industries, such as health care and manufacturing, the competition provided by new methods

of extracting natural gas has recently hurt the coal industry.

As a consequence, the economy in First Federal of Hazard’s

market area continues to lag behind the economies of Kentucky and the United States and First Federal of Hazard has experienced

insufficient loan demand in its market area.

Moreover, the slow economy in First Federal of Hazard’s market area will limit

our ability to grow our asset base in that market.

Regulation of the financial services

industry is undergoing major changes, and we may be adversely affected by changes in laws and regulations.

We are subject to extensive government

regulation, supervision and examination.

Such regulation, supervision and examination governs the activities in which we may engage,

and is intended primarily for the protection of the deposit insurance fund and our depositors.

In 2010 and 2011, in response to the financial

crisis and recession that began in 2008, significant regulatory and legislative changes resulted in broad reform and increased

regulation affecting financial institutions.

The Dodd-Frank Act has created a significant shift in the way financial institutions

operate and has restructured the regulation of depository institutions by merging the Office of Thrift Supervision, which previously

regulated the Banks, into the Office of the Comptroller of the Currency, and assigning the regulation of savings and loan holding

recent changes in the tax laws may have an adverse effect on the market for, and valuation of, residential properties, and on the demand

for such loans in the future, and could make it harder for borrowers to make their loan payments.

If home ownership becomes less attractive,

demand for mortgage loans could decrease.

The value of the properties securing loans in our loan portfolio may be adversely impacted

as a result of the changing economics of home ownership, which could require an increase in our provision for loan losses, which would

reduce our profitability and could materially adversely affect our business, financial condition and results of operations.

of the financial services industry is undergoing major changes, and we may be adversely affected by changes in laws and regulations.

are subject to extensive government regulation, supervision and examination.

Such regulation, supervision and examination governs the

activities in which we may engage, and is intended primarily for the protection of the deposit insurance fund and our depositors.

2010 and 2011, in response to the financial crisis and recession that began in 2008, significant regulatory and legislative changes

resulted in broad reform and increased regulation affecting financial institutions.

The Dodd-Frank Act has created a significant

shift in the way financial institutions operate and has restructured the regulation of depository institutions by merging the Office

of Thrift Supervision, which previously regulated the Banks, into the OCC, and assigning the regulation of savings and loan holding

companies, including the Company and the MHC, to the Federal Reserve Board.

10 unchanged sentences

final regulations implementing the legislation are adopted.

The Dodd-Frank Act may have a material impact on our operations, particularly

through increased regulatory burden and compliance costs.

Any future legislative changes could have a material impact on our profitability,

the value of assets held for investment or the value of collateral for loans.

Future legislative changes could also require changes

to business practices and potentially expose us to additional costs, liabilities, enforcement action and reputational risk.

In addition to the enactment of the Dodd-Frank

Act, the federal regulatory agencies recently have begun to take stronger supervisory actions against financial institutions that

have experienced increased loan losses and other weaknesses as a result of the recent economic crisis.

These actions include the

entering into of written agreements and cease and desist orders that place certain limitations on their operations.

Federal banking

regulators recently have also been using with more frequency their ability to impose individual minimal capital requirements on

banks, which requirements may be higher than those imposed under the Dodd-Frank Act or which would otherwise qualify the bank

as being “well capitalized”

under the Office of the Comptroller of the Currency’s prompt corrective action regulations.

If we were to become subject to a supervisory agreement or higher individual capital requirements, such action may have a negative

impact on our ability to execute our business plans, as well as our ability to grow, pay dividends, repurchase stock or engage

in mergers and acquisitions and may result in restrictions in our operations.

See “Regulation and Supervision—Regulation

of Federal Savings Institutions—Capital Requirements”

for a discussion of regulatory capital requirements.

We expect that our return on equity

will be low compared to other companies as a result of our high level of capital.

Return on average equity, which equals

net income divided by average equity, is a ratio used by many investors to compare the performance of a particular company with

other companies.

For the year ended June 30, 2020, our return on average equity was -19.0%.

We may manage excess capital through

a stock repurchase program when cash availability and market prices make such purchases appropriate.

Our goal of generating a

return on average equity that is competitive with other publicly-held subsidiaries of mutual holding companies, by increasing

earnings per share and book value per share, without assuming undue risk, could take a number of years to achieve, and we cannot

assure that our goal will be attained.

Consequently, you should not expect a competitive return on average equity in the near

Failure to achieve a competitive return on average equity might make an investment in our common stock unattractive to

some investors and might cause our common stock to trade at lower prices than comparable companies with higher returns on average

We may be subject to more stringent

capital requirements.

In July 2013, the OCC and the Federal

Reserve Board approved a new rule that will substantially amend the regulatory risk-based capital rules applicable to First

Federal of Hazard, First Federal of Kentucky and Kentucky First.

The final rule implements the “Basel III”

regulatory capital reforms and changes required by the Dodd-Frank Act.

The Dodd-Frank Act may have a material impact on our operations,

particularly through increased regulatory burden and compliance costs.

Any future legislative changes could have a material impact

on our profitability, the value of assets held for investment or the value of collateral for loans.

Future legislative changes could

also require changes to business practices and potentially expose us to additional costs, liabilities, enforcement action and

reputational risk.

In addition to the enactment of the Dodd-Frank Act, the federal regulatory agencies recently have begun to take

stronger supervisory actions against financial institutions that have experienced increased loan losses and other weaknesses as a

result of the recent economic crisis.

These actions include the entering into of written agreements and cease and desist orders that

place certain limitations on their operations.

Federal banking regulators recently have also been using with more frequency their

ability to impose individual minimal capital requirements on banks, which requirements may be higher than those imposed under the

Dodd-Frank Act or which would otherwise qualify the bank as being “well capitalized” under the OCC’s prompt

corrective action regulations.

If we were to become subject to a supervisory agreement or higher individual capital requirements,

such action may have a negative impact on our ability to execute our business plans, as well as our ability to grow, pay dividends,

repurchase stock or engage in mergers and acquisitions and may result in restrictions in our operations.

See “Regulation

and Supervision—Regulation of Federal Savings Associations—Capital Requirements” for a discussion of

regulatory capital requirements.

may be subject to more stringent capital requirements which could result in lower returns on equity, require the raising of additional

capital, and limit our ability to pay dividends or repurchase shares of our common stock.

July 2013, the OCC and the Federal Reserve Board approved a new rule that will substantially amend the regulatory risk-based capital

rules applicable to First Federal of Hazard, First Federal of Kentucky and Kentucky First.

The final rule implements the “Basel

III” regulatory capital reforms and changes required by the Dodd-Frank Act.

The final rule includes new minimum risk-based capital

and leverage ratios, which became effective for First Federal of Hazard, First Federal of Kentucky and Kentucky First on

January 1, 2015, and refines the definition of what constitutes “capital”

for purposes of calculating these

The new minimum capital requirements are:

and leverage ratios, which became effective for First Federal of Hazard, First Federal of Kentucky and Kentucky First on January 1, 2015,

and refines the definition of what constitutes “capital” for purposes of calculating these ratios.

The new minimum capital

requirements are:

(i) a new common equity Tier 1 capital ratio of 4.5%;

(ii) a Tier 1 to

risk-based assets capital ratio of 6% (increased from 4%);

(ii) a Tier 1 to risk-based assets capital ratio of 6% (increased

(iii) a total capital ratio of 8% (unchanged from current rules);

and (iv) a Tier 1 leverage ratio of 4%.

The final rule also establishes a “capital conservation”

buffer of 2.5%,

and will result in the following minimum ratios:

(i) a common equity Tier 1 capital ratio of 7%;

(ii) a Tier 1 to risk-based

assets capital ratio of 8.5%;

The final rule also

establishes a “capital conservation” buffer of 2.5%, and will result in the following minimum ratios:

(i) a common equity

Tier 1 capital ratio of 7%;

(ii) a Tier 1 to risk-based assets capital ratio of 8.5%;

and (iii) a total capital ratio of 10.5%.

The new capital conservation buffer requirement was

phased in beginning in January 2016 at 0.625% of risk-weighted assets and increased each year until fully implemented in

January 2019.

An institution will be subject to limitations on paying dividends, engaging in share repurchases, and paying

discretionary bonuses if its capital level falls below the buffer amount.

These limitations will establish a maximum

percentage of eligible retained income that can be utilized for such actions.

As of June 30, 2020, the capital levels of

First Federal of Hazard and First Federal of Kentucky exceed the required capital amounts according to the Community Bank

Leverage Ratio regulations and we believe they also meet the fully-phased in minimum capital requirements.

See Note K-Stockholders’

Equity and Regulatory Capital of Notes to Consolidated Financial Statements.

The application of more stringent capital

requirements for us could among other things, result in lower returns on equity, require the raising of additional capital, and

result in regulatory actions constraining us from paying dividends or repurchasing shares if we were unable to comply with such

capital conservation buffer requirement was phased in beginning in January 2016 at 0.625% of risk-weighted assets and increased each

year until fully implemented in January 2019.

An institution will be subject to limitations on paying dividends, engaging in share repurchases,

and paying discretionary bonuses if its capital level falls below the buffer amount.

These limitations will establish a maximum percentage

of eligible retained income that can be utilized for such actions.

As of June 30, 2021, the capital levels of First Federal of Hazard

and First Federal of Kentucky exceed the required capital amounts according to the Community Bank Leverage Ratio regulations and we believe

they also meet the fully-phased in minimum capital requirements.

See Note K-Stockholders’ Equity and Regulatory Capital of Notes

to Consolidated Financial Statements.

application of more stringent capital requirements for us could among other things, result in lower returns on equity, require the raising

of additional capital, and result in regulatory actions constraining us from paying dividends or repurchasing shares if we were unable

to comply with such requirements.

See “Regulation and Supervision—Regulation of Federal Savings Associations—Capital

Requirements.”

See “Regulation and Supervision—Regulation of Federal Savings Institutions—Capital Requirements.”

Additional annual employee compensation

and benefit expenses may reduce our profitability and stockholders’

We will continue to recognize employee

compensation and benefit expenses for employees and executives under our benefit plans.

With regard to the employee stock ownership

plan, applicable accounting practices require that the expense be based on the fair market value of the shares of common stock

at specific points in the future, therefore we will recognize expenses for our employee stock ownership plan when shares are committed

to be released to participants’

In addition, employees of both subsidiary Banks participate in a defined-benefit

plan through Pentegra.

Costs associated with the defined-benefit plans could increase or legislation could be enacted that would

increase the Banks’

obligations under the plan or change the methods the Banks use in accounting for the plans.

Those changes

could adversely affect personnel expense and the Company’s balance sheet.

The Company froze the defined benefit plan in

April 2019 after which time active employees will no longer accrue additional benefits in the plan and no new employees will be

enrolled in the plan.

First Federal MHC owns a majority

of our common stock and is able to exercise voting control over most matters put to a vote of stockholders, including preventing

sale or merger transactions you may like or a second-step conversion by First Federal MHC.

First Federal MHC owns a majority of our

common stock and, through its Board of Directors, is able to exercise voting control over most matters put to a vote of stockholders.

As a federally chartered mutual holding company, the board of directors of First Federal MHC must ensure that the interests of

depositors of First Federal of Hazard are represented and considered in matters put to a vote of stockholders of Kentucky First.

Therefore, the votes cast by First Federal MHC may not be in your personal best interests as a stockholder.

For example, First

Federal MHC may exercise its voting control to prevent a sale or merger transaction in which stockholders could receive a premium

for their shares, prevent a second-step conversion transaction by First Federal MHC or defeat a stockholder nominee for election

to the Board of Directors of Kentucky First.

However, implementation of a stock-based incentive plan will require approval of

Kentucky First’s stockholders other than First Federal MHC.

Federal Reserve Board regulations would likely prevent an acquisition

of Kentucky First other than by another mutual holding company or a mutual institution.

There may be a limited market for

our common stock which may lower our stock price.

Although our shares of common stock are

listed on the Nasdaq Global Market, there is no guarantee that the shares will be regularly traded.

If an active trading market

for our common stock does not develop, you may not be able to sell all of your shares of common stock on short notice and the

sale of a large number of shares at one time could temporarily depress the market price.

Our ability to pay dividends is

subject to the ability of First Federal of Hazard and First Federal of Kentucky to make capital distributions to Kentucky First

and the waiver of dividends by First Federal MHC.

Our long-term ability to pay dividends

to our stockholders is based primarily upon the ability of the Banks to make capital distributions to Kentucky First, and also

on the availability of cash at the holding company level in the event earnings are not sufficient to pay dividends according to

the cash dividend payout policy.

Under Office of the Comptroller of the Currency safe harbor regulations, the Banks may each distribute

to Kentucky First capital not exceeding net retained income for the current calendar year and the prior two calendar years.

Federal MHC owns a majority of Kentucky First’s outstanding stock.

First Federal MHC has historically waived its right to

dividends on the Kentucky First common shares it owns, in which case the amount of dividends paid to public stockholders is significantly

higher than it would be if First Federal MHC accepted dividends.

First Federal MHC is not required to waive dividends, but Kentucky

First expects this practice to continue, subject to member and regulatory approval annually.

First Federal MHC is required to

obtain a waiver from the Federal Reserve Board allowing it to waive its right to dividends.

The Federal Reserve Board in 2011 issued

regulations that govern the activities of Kentucky First and First Federal MHC and the regulations were implemented in the fourth

quarter of 2011.

Under Section 239.8(d) of the Federal Reserve Board’s Regulation MM governing dividend waivers, a mutual

holding company may waive its right to dividends on shares of its subsidiary if the mutual holding company gives written notice

of the waiver to the Federal Reserve Board and the Federal Reserve Board does not object.

For a company such as First Federal

MHC that waived dividends prior to December 1, 2009, the Federal Reserve Board may not object to a dividend waiver if such waiver

would not be detrimental to the safety and soundness of the savings association subsidiary and the board of directors of the mutual

holding company expressly determines that such dividend waiver is consistent with the board’s fiduciary duties to the members

of the mutual holding company.

To address concerns with respect to the

conflict of interest created by dividend waivers, Regulation MM requires the board of directors of the mutual holding company

to adopt a resolution that describes the conflict of interest that exists because of a director’s ownership of stock in

the subsidiary declaring the dividends and any actions the mutual holding company board have taken to eliminate the conflict of

interest, such as the directors’

waiving their right to receive dividends.

Also, the resolution must contain an affirmation

that a majority of the mutual members eligible to vote have, within the 12 months prior to the declaration date of the dividend,

voted to approve the waiver of dividends.

First Federal MHC has received Federal

Reserve Board approval to waive quarterly dividends totaling $0.40 per share annually beginning with the dividend paid on September

28, 2012 and continuing through the dividend payable in the third quarter of 2021.

It is expected that First Federal MHC will

continue to waive future dividends, except to the extent dividends are needed to fund First Federal MHC’s continuing operations,

subject to the ability of First Federal MHC to obtain regulatory approval of its requests to waive dividends and to its ability

to obtain member approval of dividend waivers.

We cannot predict whether members will

continue to approve annual dividend waiver requests or whether the Federal Reserve Board will grant future dividend waiver requests

and, if granted, there can be no assurance as to the conditions, if any, the Federal Reserve Board will place on future dividend

waiver requests by grandfathered mutual holding companies such as First Federal MHC.

If First Federal MHC is unable to waive the

receipt of dividends, our ability to pay dividends to our stockholders may be substantially impaired and the amounts of any such

dividends may be significantly reduced.

We are subject to certain risks

in connection with our use of technology.

Our security measures may not be sufficient

to mitigate the risk of a cyber attack.

Communications and information systems are essential to the conduct of our business,

as we use such systems to manage our customer relationships, our general ledger and virtually all other aspects of our business.

Our operations rely on the secure processing, storage, and transmission of confidential and other information in our computer

systems and networks.

Although we take protective measures and endeavor to modify them as circumstances warrant, the security

of our computer systems, software, and networks may be vulnerable to breaches, unauthorized access, misuse, computer viruses,

are subject to certain risks in connection with our use of technology.

security measures may not be sufficient to mitigate the risk of a cyber attack.

Communications and information systems are essential

to the conduct of our business, as we use such systems to manage our customer relationships, our general ledger and virtually all other

aspects of our business.

Our operations rely on the secure processing, storage, and transmission of confidential and other information

in our computer systems and networks.

Although we take protective measures and endeavor to modify them as circumstances warrant, the

security of our computer systems, software, and networks may be vulnerable to breaches, unauthorized access, misuse, computer viruses,

or other malicious code and cyber attacks that could have a security impact.

If one or more of these events occur, this could

jeopardize our or our customers’

confidential and other information processed and stored in, and transmitted through, our

computer systems and networks, or otherwise cause interruptions or malfunctions in our operations or the operations of our customers

or counterparties.

We may be required to expend significant additional resources to modify our protective measures or to investigate

and remediate vulnerabilities or other exposures, and we may be subject to litigation and financial losses that are either not

insured against or not fully covered through any insurance maintained by us.

If one or more of these events occur, this could jeopardize

our or our customers’ confidential and other information processed and stored in, and transmitted through, our computer systems

and networks, or otherwise cause interruptions or malfunctions in our operations or the operations of our customers or counterparties.

We may be required to expend significant additional resources to modify our protective measures or to investigate and remediate vulnerabilities

or other exposures, and we may be subject to litigation and financial losses that are either not insured against or not fully covered

through any insurance maintained by us.

We could also suffer significant reputational damage.

Security breaches in our Internet banking

activities could further expose us to possible liability and damage our reputation.

Any compromise of our security also could

deter customers from using our Internet banking services that involve the transmission of confidential information.

standard Internet security systems to provide the security and authentication necessary to effect secure transmission of data.

breaches in our Internet banking activities could further expose us to possible liability and damage our reputation.

Any compromise of

our security also could deter customers from using our Internet banking services that involve the transmission of confidential information.

We rely on standard Internet security systems to provide the security and authentication necessary to effect secure transmission of data.

These precautions may not protect our systems from compromises or breaches of our security measures, which could result in significant

legal liability and significant damage to our reputation and our business.

Our security measures may not protect

us from systems failures or interruptions.

While we have established policies and procedures to prevent or limit the impact

of systems failures and interruptions, there can be no assurance that such events will not occur or that they will be adequately

addressed if they do.

In addition, we outsource certain aspects of our data processing and other operational functions to certain

third-party providers.

If our third-party providers encounter difficulties, or if we have difficulty in communicating with them,

our ability to adequately process and account for transactions could be affected, and our business operations could be adversely

Threats to information security also exist in the processing of customer information through various other vendors and

their personnel.

The occurrence of any failures or interruptions

may require us to identify alternative sources of such services, and we cannot assure you that we could negotiate terms that are

as favorable to us, or could obtain services with similar functionality as found in our existing systems without the need to expend

substantial resources, if at all.

Further, the occurrence of any systems failure or interruption could damage our reputation and

result in a loss of customers and business, could subject us to additional regulatory scrutiny, or could expose us to legal liability.

security measures may not protect us from systems failures or interruptions.

we have established policies and procedures to prevent or limit the impact of systems failures and interruptions, there can be no assurance

that such events will not occur or that they will be adequately addressed if they do.

In addition, we outsource certain aspects of our

data processing and other operational functions to certain third-party providers.

If our third-party providers encounter difficulties,

or if we have difficulty in communicating with them, our ability to adequately process and account for transactions could be affected,

and our business operations could be adversely impacted.

Threats to information security also exist in the processing of customer information

through various other vendors and their personnel.

occurrence of any failures or interruptions may require us to identify alternative sources of such services, and we cannot assure you

that we could negotiate terms that are as favorable to us, or could obtain services with similar functionality as found in our existing

systems without the need to expend substantial resources, if at all.

Further, the occurrence of any systems failure or interruption could

damage our reputation and result in a loss of customers and business, could subject us to additional regulatory scrutiny, or could expose

us to legal liability.

Any of these occurrences could have a material adverse effect on our financial condition and results of operations.

We expect that the implementation

of a new accounting standard could require us to increase our allowance for loan losses and may have a material adverse effect

on our financial condition and results of operations.

The Financial Accounting Standards Board

(“FASB”) has adopted a new accounting standard that will be effective for the Kentucky First, First Federal of Hazard

and First Federal of Kentucky for our fiscal year beginning July 1, 2023.

This standard, referred to as Current Expected Credit

Loss, or CECL, will require financial institutions to determine periodic estimates of lifetime expected credit losses on loans,

and provide for the expected credit losses as allowances for loan losses.

This will change the current method of providing allowances

for loan losses that are probable, which we expect could require us to increase our allowance for loan losses, and will likely

greatly increase the data we would need to collect and review to determine the appropriate level of the allowance for loan losses.

Any increase in our allowance for loan losses, or expenses incurred to determine the appropriate level of the allowance for loan

losses, may have a material adverse effect on our financial condition and results of operations.

If we are required to impair our

goodwill, intangibles, or other long lived assets, our financial condition and results of operations would be adversely affected.

Pursuant to Accounting Standards Codification

("ASC") 350, Intangibles - Goodwill and Other and ASC 360, Property, Plant and Equipment, we are required to perform

an annual impairment review of goodwill, intangibles and other long lived assets which could result in an impairment charge if

it is determined that the carrying value of the assets are in excess of the fair value.

We perform the impairment test annually

during our fourth fiscal quarter.

Goodwill, intangibles and other long lived assets are also tested more frequently if changes

in circumstances or the occurrence of events indicates that a potential impairment exists.

must keep pace with technological change to remain competitive.

products and services have become increasingly technology-driven.

Our ability to meet the needs of our customers competitively, and in

a cost-efficient manner, is dependent on the ability to keep pace with technological advances and to invest in new technology as it becomes

available, as well as related essential personnel.

In addition, technology has lowered barriers to entry into the financial services

market and made it possible for financial technology companies and other non-bank entities to offer financial products and services traditionally

provided by banks.

The ability to keep pace with technological change is important, and the failure to do so, due to cost, proficiency

or otherwise, could have a material adverse impact on our business and therefore on our financial condition and results of operations.

we are required to impair our goodwill, intangibles, or other long lived assets, our financial condition and results of operations would

be adversely affected.

to Accounting Standards Codification (“ASC”) 350, Intangibles - Goodwill and Other and ASC 360, Property, Plant and Equipment,

we are required to perform an annual impairment review of goodwill, intangibles and other long lived assets which could result in an

impairment charge if it is determined that the carrying value of the assets are in excess of the fair value.

We perform the impairment

test annually during our fourth fiscal quarter.

Goodwill, intangibles and other long lived assets are also tested more frequently if

changes in circumstances or the occurrence of events indicates that a potential impairment exists.

When changes in circumstances, such

as changes in the variables associated with the judgments, assumptions and estimates made in assessing the appropriate fair value

indicate the carrying amount of certain assets may not be recoverable, the assets are evaluated for impairment.

If actual operating

results differ from these assumptions, it may result in an asset impairment.

As of June 30, 2020, management early adopted ASU

2017-04, Intangibles-Goodwill and Other (Topic 350):

Simplifying the Test for Goodwill Impairment, which simplifies the

required method for estimating the fair value of the Company.

During its most recent evaluation, management identified the existence

of and recorded a $13.6 million impairment charge.

Future write-downs of intangibles and other long lived assets could affect

certain of the financial covenants under our debt agreements, could restrict our financial flexibility, and would impact our results

of operations.

The ongoing COVID-19 pandemic and

measures intended to prevent its spread could have a material adverse effect on our business, results of operations and financial

condition, and such effects will depend on future developments, which are highly uncertain and are difficult to predict.

Global health concerns relating to the

COVID-19 outbreak and related government actions taken to reduce the spread of the virus have been weighing on the macroeconomic

environment, and the outbreak has significantly increased economic uncertainty and reduced economic activity.

The outbreak has

resulted in authorities implementing numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines,

shelter in place or stay-at-home orders and business limitations and shutdowns.

Such measures have significantly contributed to

rising unemployment and negatively impacted consumer and business spending.

Local jurisdictions have subsequently lifted stay-at-home

orders and moved to phased reopening of businesses, although capacity restrictions and health and safety recommendations that

encourage continued physical distancing and teleworking have limited the ability of businesses to return to pre-pandemic levels

The United States government has taken steps to attempt to mitigate some of the more severe anticipated economic

effects of the virus, including the passage of the CARES Act, but there can be no assurance that such steps will be effective

or achieve their desired results in a timely fashion.

The outbreak has adversely impacted and

is likely to further adversely impact our workforce and operations and the operations of our borrowers, customers and business

In particular, we may experience financial losses due to a number of operational factors impacting us or our borrowers,

customers or business partners, including but not limited to:

for our products and services may decline, making it difficult to grow assets and income;

losses resulting from financial stress being experienced by our borrowers as a result

of the outbreak and related governmental actions, particularly in the hospitality, energy,

retail and restaurant industries, but across other industries as well;

the economy is unable to substantially reopen, and high levels of unemployment continue

for an extended period of time, loan delinquencies, problem assets, and foreclosures

may increase, resulting in increased charge-offs and reduced income;

for loans, especially real estate, may decline in value, which could cause loan losses

allowance for loan losses may have to be increased if borrowers experience financial

difficulties beyond forbearance periods, which will adversely affect our net income;

net worth and liquidity of loan guarantors may decline, impairing their ability to honor

commitments to us;

the result of the decline in the Federal Reserve Board’s target federal funds rate,

the yield on our assets may decline to a greater extent than the decline in our cost

of interest-bearing liabilities, reducing our net interest margin and spread and reducing

material decrease in net income or a net loss over several quarters could result in a

decrease in the rate of our quarterly cash dividend;

● Operational

failures due to changes in our normal business practices necessitated by the outbreak

and related governmental actions.

cyber and payment fraud risk, as cybercriminals attempt to profit from the disruption,

given increased online and remote activity;

prolonged weakness in economic conditions resulting in a reduction of future projected

earnings could result in our recording a valuation allowance against our current outstanding

deferred tax assets;

rely on third party vendors for certain services and the unavailability of a critical

service due to the COVID-19 outbreak could have an adverse effect on us;

Deposit Insurance Corporation premiums may increase if the agency experiences additional

resolution costs.

The pandemic has introduced increasing

uncertainty around the local and national economy.

Regulatory treatment of loan deferrals has been changed to encourage loan deferrals.

Although the deferrals may lessen credit losses in the long run, they make our credit metrics less transparent, timely and useful.

The increased volume of loan related work including processing deferrals, processing PPP loan requests and changing regulations

increases inherent credit risks, and loans with deferred payments are more likely to default in the future.

The Company believes

there could be potential stresses on liquidity management as a direct result of the COVID-19 pandemic.

As customers manage their

own liquidity stress, we could experience an increase in the utilization of existing lines of credit.

The spread of COVID-19 has caused us to

modify our business practices (including restricting employee travel, and developing work from home and social distancing plans

for our employees), and we may take further actions as may be required by government authorities or as we determine are in the

best interests of our employees, customers and business partners.

There is no certainty that such measures will be sufficient

to mitigate the risks posed by the virus or will otherwise be satisfactory to government authorities.

The extent to which the coronavirus outbreak

impacts our business, results of operations and financial condition will depend on future developments, which are highly uncertain

and are difficult to predict, including, but not limited to, the duration and spread of the outbreak, its severity, the actions

to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume.

Even after the COVID-19 outbreak has subsided, we may continue to experience materially adverse impacts to our business as a result

of the virus’s global economic impact, including the availability of credit, adverse impacts on our liquidity and any recession

that has occurred or may occur in the future.

There are no comparable recent events

that provide guidance as to the effect the spread of COVID-19 as a global pandemic may have, and, as a result, the ultimate impact

of the outbreak is highly uncertain and subject to change.

We do not yet know the full extent of the impacts on our business,

our operations or the global economy as a whole.

as changes in the variables associated with the judgments, assumptions and estimates made in assessing the appropriate fair value indicate

the carrying amount of certain assets may not be recoverable, the assets are evaluated for impairment.

If actual operating results differ

from these assumptions, it may result in an asset impairment.

As of June 30, 2020, management early adopted ASU 2017-04, Intangibles-Goodwill

and Other (Topic 350):

Simplifying the Test for Goodwill Impairment, which simplifies the required method for estimating the fair

value of the Company.

Future write-downs of intangibles and other long lived assets could affect certain of the financial covenants under

our debt agreements, could restrict our financial flexibility, and would impact our results of operations.

Related to Our Holding Company Structure

Federal MHC owns a majority of our common stock and is able to exercise voting control over most matters put to a vote of stockholders,

including preventing sale or merger transactions you may like or a second-step conversion by First Federal MHC.

Federal MHC owns a majority of our common stock and, through its Board of Directors, is able to exercise voting control over most matters

put to a vote of stockholders.

As a federally chartered mutual holding company, the board of directors of First Federal MHC must ensure

that the interests of depositors of First Federal of Hazard are represented and considered in matters put to a vote of stockholders of

Kentucky First.

Therefore, the votes cast by First Federal MHC may not be in your personal best interests as a stockholder.

First Federal MHC may exercise its voting control to prevent a sale or merger transaction in which stockholders could receive a premium

for their shares, prevent a second-step conversion transaction by First Federal MHC or defeat a stockholder nominee for election to the

Board of Directors of Kentucky First.

However, implementation of a stock-based incentive plan will require approval of Kentucky First’s

stockholders other than First Federal MHC.

Federal Reserve Board regulations would likely prevent an acquisition of Kentucky First other

than by another mutual holding company or a mutual institution.

ability to pay dividends is subject to the ability of First Federal of Hazard and First Federal of Kentucky to make capital distributions

to Kentucky First and the waiver of dividends by First Federal MHC.

long-term ability to pay dividends to our stockholders is based primarily upon the ability of the Banks to make capital distributions

to Kentucky First, and also on the availability of cash at the holding company level in the event earnings are not sufficient to pay

dividends according to the cash dividend payout policy.

Under Office of the Comptroller of the Currency safe harbor regulations, the

Banks may each distribute to Kentucky First capital not exceeding net retained income for the current calendar year and the prior two

calendar years.

First Federal MHC owns a majority of Kentucky First’s outstanding stock.

First Federal MHC has historically waived

its right to dividends on the Kentucky First common shares it owns, in which case the amount of dividends paid to public stockholders

is significantly higher than it would be if First Federal MHC accepted dividends.

First Federal MHC is not required to waive dividends,

but Kentucky First expects this practice to continue, subject to member and regulatory approval annually.

First Federal MHC is required

to obtain a waiver from the Federal Reserve Board allowing it to waive its right to dividends.

Federal Reserve Board in 2011 issued regulations that govern the activities of Kentucky First and First Federal MHC and the regulations

were implemented in the fourth quarter of 2011.

Under Section 239.8(d) of the Federal Reserve Board’s Regulation MM governing dividend

waivers, a mutual holding company may waive its right to dividends on shares of its subsidiary if the mutual holding company gives written

notice of the waiver to the Federal Reserve Board and the Federal Reserve Board does not object.

For a company such as First Federal

MHC that waived dividends prior to December 1, 2009, the Federal Reserve Board may not object to a dividend waiver if such waiver would

not be detrimental to the safety and soundness of the savings association subsidiary and the board of directors of the mutual holding

company expressly determines that such dividend waiver is consistent with the board’s fiduciary duties to the members of the mutual

holding company.

address concerns with respect to the conflict of interest created by dividend waivers, Regulation MM requires the board of directors

of the mutual holding company to adopt a resolution that describes the conflict of interest that exists because of a director’s

ownership of stock in the subsidiary declaring the dividends and any actions the mutual holding company board have taken to eliminate

the conflict of interest, such as the directors’ waiving their right to receive dividends.

Also, the resolution must contain an

affirmation that a majority of the mutual members eligible to vote have, within the 12 months prior to the declaration date of the dividend,

voted to approve the waiver of dividends.

Federal MHC has received Federal Reserve Board approval to waive quarterly dividends totaling $0.40 per share annually beginning with

the dividend paid on September 28, 2012 and continuing through the dividend payable in the third quarter of 2022.

It is expected that

First Federal MHC will continue to waive future dividends, except to the extent dividends are needed to fund First Federal MHC’s

continuing operations, subject to the ability of First Federal MHC to obtain regulatory approval of its requests to waive dividends and

to its ability to obtain member approval of dividend waivers.

cannot predict whether members will continue to approve annual dividend waiver requests or whether the Federal Reserve Board will grant

future dividend waiver requests and, if granted, there can be no assurance as to the conditions, if any, the Federal Reserve Board will

place on future dividend waiver requests by grandfathered mutual holding companies such as First Federal MHC.

If First Federal MHC is

unable to waive the receipt of dividends, our ability to pay dividends to our stockholders may be substantially impaired and the amounts

of any such dividends may be significantly reduced.

Unresolved Staff Comments .

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors