What changed in this filing

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Item 1. Business

2023-09-28 compared with 2022-09-28 · 129 added, 114 removed, 967 unchanged (20% of the section changed)

8 unchanged sentences

and uncertainties that could cause or contribute to such material differences include, but are not limited to, general economic conditions,

inflation and its impacts, 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), the impacts

related to or resulting from Russia’s military action in Ukraine, including the broader impacts to financial markets, and the other

matters mentioned in Item 1A of this Annual Report on Form 10-K.

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.

Accordingly, actual results may differ from those expressed in the forward-looking statements,

and the making of such statements should not be regarded as a representation by the Company or any other person that results expressed

therein will be achieved.

prices for real estate in the Company’s market areas, interest rate environment, competitive conditions in the financial services

changes in level of inflation;

changes in the demand for loans, deposits and other financial services that we provide;

the possibility

that future credit losses may be higher than currently expected;

the impact of the interest rate environment on our business, financial

condition and results of operations;

competitive pressures among financial services companies;

the ability to attract, develop and retain

qualified employees;

the ability to pay future dividends at currently expected rates;

our ability to maintain the security of our data

processing and information technology systems;

the outcome of pending or threatened litigation, or of matters before regulatory agencies;

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), the impacts related to or resulting

from Russia’s military action in Ukraine, including the broader impacts to financial markets, and the other matters mentioned in

Item 1A of this Annual Report on Form 10-K.

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.

Accordingly, actual results may differ from those expressed in the forward-looking statements, and the making of such statements should

not be regarded as a representation by the Company or any other person that results expressed therein will be achieved.

References in this Annual Report on Form 10-K

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However, as a regional economic center, Hazard tends to draw consumers and workers who commute from surrounding counties.

in the market area, particularly in Perry County, consists primarily of education and health services (26.0%), the trade, transportation

and utilities industry (20.3%), professional and business services (7.8%), and financial activities (2.8%).

During the last five years,

the unemployment rate (not seasonally adjusted) has been higher than most regions, and in July 2022, was 5.4%, compared to 3.8% in Kentucky

and 3.7% in the United States.

in the market area, particularly in Perry County, consists service sector (50.4%), retail trade (23.6%), public administration (7.0%),

and finance, insurance and real estate (6.8%).

During the last five years, the unemployment rate (not seasonally adjusted) has been higher

than most regions, and in July 2023, was 6.6%, compared to 3.8% in Kentucky and 3.8% in the United States.

First Federal of Kentucky’s primary lending

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52,000, of which approximately 27,000 live within the city of Frankfort, which serves as the capital of Kentucky.

The primary employer

in the area is public administration, which employs about 40.7% of the workforce followed by the education and health services sector

(9.1%), followed by the retail (7.4%), and other services (6.1%.).

The services sector

employs about 33.4% of the workforce followed by public administration (31.0%), followed by the retail (11.4%), and construction (7.8%.).

The unemployment rate was 4.1% for July 2023.

The median household

income in Franklin County is $60,789.

The median household income in Franklin County is $64,016.

Boyle County has a population of approximately

The sales sector, which employs about 12.7% of the work force, while office and administrative support and production workers

represent the next largest job counts with approximately 12.6% and 8.3% of the workforce, respectively.

Centre College is one of the larger

employers in the community.

The unemployment rate was 3.9% in July 2022, while the median household income in Boyle County is $51,765.

The services sector employs about 43.6% of the work force, while retail trade represents the next largest job counts with approximately

18.6% of the workforce.

The transportation and communications sector and the manufacturing sector represent approximately 10.8% and 10.6%

of the workforces, respectively.

Centre College is one of the larger employers in the community.

The unemployment rate was 5.1% in July

2023, while the median household income in Boyle County is $59,250.

Lending Activities

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on site inspections by qualified bank staff.

Construction financing is generally considered

to involve a higher degree of risk of loss than long-term financing on improved, occupied real estate.

Risk of loss on a construction

loan depends largely upon the accuracy of the initial estimate of the property’s value at completion of construction or development

and the estimated cost (including interest) of construction.

During the construction phase, a number of factors could result in delays

and cost overruns.

If the estimate of construction costs proves to be inaccurate, we may be required to advance funds beyond the amount

originally committed to permit completion of the development.

If the estimate of value proves to be inaccurate, we may be confronted,

at or before the maturity of the loan, with a project having a value which is insufficient to assure full repayment.

As a result of the

foregoing, construction lending often involves the disbursement of substantial funds with repayment dependent, in part, on the success

of the ultimate project rather than the ability of the borrower or guarantor to repay principal and interest.

If we are forced to foreclose

on a project before or at completion due to a default, there can be no assurance that we will be able to recover the unpaid balance and

accrued interest on the loan, as well as related foreclosure and holding costs.

Construction financing is generally considered to involve a higher

degree of risk of loss than long-term financing on improved, occupied real estate.

Risk of loss on a construction loan depends largely

upon the accuracy of the initial estimate of the property’s value at completion of construction or development and the estimated

cost (including interest) of construction.

During the construction phase, a number of factors could result in delays and cost overruns.

If the estimate of construction costs proves to be inaccurate, we may be required to advance funds beyond the amount originally committed

to permit completion of the development.

If the estimate of value proves to be inaccurate, we may be confronted, at or before the maturity

of the loan, with a project having a value which is insufficient to assure full repayment.

As a result of the foregoing, construction

lending often involves the disbursement of substantial funds with repayment dependent, in part, on the success of the ultimate project

rather than the ability of the borrower or guarantor to repay principal and interest.

If we are forced to foreclose on a project before

or at completion due to a default, there can be no assurance that we will be able to recover the unpaid balance and accrued interest on

the loan, as well as related foreclosure and holding costs.

Multi-Family Loans .

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accounts (“IRAs”).

We do not utilize brokered funds.

Deposit account terms vary according to the minimum balance required,

the time periods the funds must remain on deposit and the interest rate, among other factors.

In determining the terms of our deposit

accounts, we consider the rates offered by our competition, profitability to us, asset liability management and customer preferences and

We review our deposit mix and pricing on an ongoing basis as needed .

We began utilizing brokered funds in June 2023 and had $21.0 million in such deposits at June 30, 2023.

Deposit account terms vary according to the minimum balance required, the time periods the funds must remain on deposit and the interest

rate, among other factors.

In determining the terms of our deposit accounts, we consider the rates offered by our competition, profitability

to us, asset liability management and customer preferences and concerns.

We review our deposit mix and pricing on an ongoing basis as

First Federal of Hazard

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used to represent overall financial condition.

If adequately capitalized, regulatory approval is required to accept broker deposits.

OCC is required to take certain supervisory actions against undercapitalized federal savings associations, the severity of which depends

upon the association’s degree of undercapitalization.

In addition, numerous mandatory supervisory actions become immediately applicable

to an undercapitalized association, including, but not limited to, increased monitoring by regulators and restrictions on growth, capital

distributions and expansion.

The OCC could also take any one of a number of discretionary supervisory actions, including the issuance

of a capital directive and the replacement of senior executive officers and directors.

Significantly and undercapitalized associations

are subject to additional mandatory and discretionary measures.

Under the regulations, an institution is deemed to be “well capitalized” if

it has a total risk-based capital ratio of 10.0% or greater, a Tier 1 risk-based capital ratio of 8.0% or greater, a leverage ratio of

5.0% or greater and a common equity Tier 1 ratio of 6.5% or greater.

An institution is “adequately capitalized” if it has

a total risk-based capital ratio of 8.0% or greater, a Tier 1 risk-based capital ratio of 6.0% or greater, a leverage ratio of 4.0% or

greater and a common equity Tier 1 ratio of 4.5% or greater.

An institution is “undercapitalized” if it has a total risk-based

capital ratio of less than 8.0%, a Tier 1 risk-based capital ratio of less than 6.0%, a leverage ratio of less than 4.0% or a common equity

Tier 1 ratio of less than 4.5%.

An institution is deemed to be “significantly undercapitalized” if it has a total risk-based

capital ratio of less than 6.0%, a Tier 1 risk-based capital ratio of less than 4.0%, a leverage ratio of less than 3.0% or a common equity

Tier 1 ratio of less than 3.0%.

An institution is considered to be “critically undercapitalized” if it has a ratio of tangible

equity (as defined in the regulations) to total assets that is equal to or less than 2.0%.

If less than adequately capitalized, regulatory

approval is required to accept broker deposits.

The OCC is required to take certain supervisory actions against undercapitalized federal

savings associations, the severity of which depends upon the association’s degree of undercapitalization.

In addition, numerous

mandatory supervisory actions become immediately applicable to an undercapitalized association, including, but not limited to, increased

monitoring by regulators and restrictions on growth, capital distributions and expansion.

The OCC could also take any one of a number

of discretionary supervisory actions, including the issuance of a capital directive and the replacement of senior executive officers and

Significantly and undercapitalized associations are subject to additional mandatory and discretionary measures.

Loans to One Borrower.

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An additional amount may be lent, equal to 10% of unimpaired capital and surplus,

if secured by specified readily-marketable collateral.

if secured by specified readily-marketable collateral, which generally does not include real estate.

Standards for Safety and Soundness.

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the standard.

If an institution fails to meet these standards, the OCC may require the institution to implement an acceptable compliance

Failure to implement such a plan can result in further enforcement action, including the issuance of a cease-and-desist order or

the imposition of civil money penalties.

Limitation on Capital Distributions.

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Act ratings in the two top categories), the total capital distributions for the calendar year exceed net income for that year plus the

amount of retained net income for the preceding two years, Federal savings association is directly or indirectly controlled by a mutual

amount of retained net income for the preceding two years, the federal savings association is directly or indirectly controlled by a mutual

savings and loan holding company or the distribution would otherwise be contrary to a statute, regulation or agreement with the.

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subject to various regulatory sanctions, including financial penalties.

Anti-Money Laundering and OFAC.

federal law, financial institutions must maintain anti-money laundering programs that include established internal policies, procedures,

and controls.

Financial institutions are also prohibited from entering into specified financial transactions and account relationships

and must meet enhanced standards for due diligence and customer identification.

Financial institutions must take reasonable steps to conduct

enhanced scrutiny of account relationships to guard against money laundering and to report any suspicious transactions.

Law enforcement

authorities have been granted increased access to financial information maintained by financial institutions.

Bank regulators routinely

examine institutions for compliance with these obligations and they consider an institution’s compliance in connection with the regulatory

review of applications, including applications for banking mergers and acquisitions.

Department of the Treasury’s Office of Foreign

Assets Control, or “OFAC,” is responsible for helping to insure that U.S.

entities do not engage in transactions with certain

prohibited parties, as defined by various Executive Orders and Acts of Congress.

OFAC publishes lists of persons, organizations, and countries

suspected of aiding, harboring or engaging in terrorist acts, known as Specially Designated Nationals and Blocked Persons.

finds a name on any transaction, account or wire transfer that is on an OFAC list, the Bank must freeze or block such account or transaction,

file a suspicious activity report and notify the appropriate authorities.

Treasury Department’s Financial Crises Enforcement

Network rules include customer due diligence requirements for banks, including a requirement to identify and verify the identity of beneficial

owners of customers that are legal entities, subject to certain exclusions and exemptions.

Laundering and OFAC.

Under federal law, financial institutions must maintain anti-money laundering programs that include

established internal policies, procedures, and controls.

Financial institutions are also prohibited from entering into specified financial

transactions and account relationships and must meet enhanced standards for due diligence and customer identification.

Financial institutions

must take reasonable steps to conduct enhanced scrutiny of account relationships to guard against money laundering and to report any suspicious

transactions.

Law enforcement authorities have been granted increased access to financial information maintained by financial institutions.

Bank regulators routinely examine institutions for compliance with these obligations and they consider an institution’s compliance

in connection with the regulatory review of applications, including applications for banking mergers and acquisitions.

of the Treasury’s Office of Foreign Assets Control, or “OFAC,” is responsible for helping to insure that U.S.

do not engage in transactions with certain prohibited parties, as defined by various Executive Orders and Acts of Congress.

OFAC publishes

lists of persons, organizations, and countries suspected of aiding, harboring or engaging in terrorist acts, known as Specially Designated

Nationals and Blocked Persons.

If the Bank finds a name on any transaction, account or wire transfer that is on an OFAC list, the Bank

must freeze or block such account or transaction, file a suspicious activity report and notify the appropriate authorities.

Department’s Financial Crises Enforcement Network rules include customer due diligence requirements for banks, including a requirement

to identify and verify the identity of beneficial owners of customers that are legal entities, subject to certain exclusions and exemptions.

Against Tying Arrangements .

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laws applicable to credit transactions, such as the:

● Truth-In-Lending Act, governing disclosures of credit terms

to consumer borrowers;

● Home Mortgage Disclosure Act, requiring financial institutions

to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation

to help meet the housing needs of the community it serves;

● Equal Credit Opportunity Act, prohibiting discrimination

on the basis of race, creed or other prohibited factors in extending credit;

● Fair Credit Reporting Act, governing the use and provision

of information to credit reporting agencies;

● Fair Debt Collection Act, governing the manner in which consumer

debts may be collected by collection agencies;

● Truth in Savings Act, prescribing disclosure and advertising

requirements with respect to deposit accounts;

● Rules and regulations of the various federal agencies charged

with the responsibility of implementing such federal laws.

● Truth-In-Lending

Act, governing disclosures of credit terms to consumer borrowers;

Mortgage Disclosure Act, requiring financial institutions to provide information to enable the public and public officials to determine

whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves;

Credit Opportunity Act, prohibiting discrimination on the basis of race, creed or other prohibited factors in extending credit;

Credit Reporting Act, governing the use and provision of information to credit reporting agencies;

Debt Collection Act, governing the manner in which consumer debts may be collected by collection agencies;

in Savings Act, prescribing disclosure and advertising requirements with respect to deposit accounts;

and regulations of the various federal agencies charged with the responsibility of implementing such federal laws.

The operations of First Federal of Hazard and

First Federal of Kentucky also are subject to the:

● Right to Financial Privacy Act, which imposes a duty to maintain

confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records;

● Electronic Funds Transfer Act and Regulation E promulgated

thereunder, which govern automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising

from the use of automated teller machines and other electronic banking services;

● Check Clearing for the 21st Century Act (also known as “Check

21”), which gives “substitute checks,” such as digital check images and copies made from that image, the same legal

standing as the original paper check;

● The USA PATRIOT Act, which requires savings associations

to, among other things, establish broadened anti-money laundering compliance programs, and due diligence policies and controls to ensure

the detection and reporting of money laundering.

Such required compliance programs are intended to supplement existing compliance requirements

that also apply to financial institutions under the Bank Secrecy Act and the Office of Foreign Assets Control regulations.

to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for

complying with administrative subpoenas of financial records;

Funds Transfer Act and Regulation E promulgated thereunder, which govern automatic deposits to and withdrawals from deposit accounts

and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services;

Clearing for the 21st Century Act (also known as “Check 21”), which gives “substitute checks,” such as digital

check images and copies made from that image, the same legal standing as the original paper check;

USA PATRIOT Act, which requires savings associations to, among other things, establish broadened anti-money laundering compliance programs,

and due diligence policies and controls to ensure the detection and reporting of money laundering.

Such required compliance programs

are intended to supplement existing compliance requirements that also apply to financial institutions under the Bank Secrecy Act and

the Office of Foreign Assets Control regulations.

Holding Company Regulation

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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 1. Business