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Item 1A. Risk Factors

2023-11-14 compared with 2023-05-15 · 69 added, 66 removed, 0 unchanged (100% of the section changed)

In addition to the other information set forth

in this report, you should carefully consider the risk factors disclosed in Part I, “Item 1A- Risk Factors” in the Form 10-K

for the year ended June 30, 2022 that the Company filed with the SEC on September 28, 2022.

The most significant risk factors affecting our

business include the factors discussed in our Annual Report on Form 10-K for the year ended June 30, 2022 under the Item 1A, “Risk

Factors” and the following additional factors:

Financial challenges at other banking institutions

could lead to depositor concerns that spread within the banking industry causing disruptive and destabilizing deposit outflows.

In March 2023, Silicon Valley Bank and Signature

Bank experienced large deposit outflows coupled with insufficient liquidity to meet withdrawal demands, resulting in the institutions

being placed into FDIC receivership.

In May 2023, First Republic Bank was also placed into FDIC receivership.

In the aftermath of these

events, there has been substantial market disruption and concerns that diminished depositor confidence could spread across the banking

industry, leading to deposit outflows that could destabilize other institutions.

To strengthen public confidence in the banking system,

the FDIC took action to protect funds held in uninsured deposit accounts at Silicon Valley Bank, Signature Bank and First Republic Bank.

However, the FDIC has not committed to protecting uninsured deposits in other institutions that experience outsized withdrawal demands.

To further bolster the banking system, the Federal Reserve Board created a new Bank Term Funding Program to provide an additional source

of liquidity.

At March 31, 2023, we had $20.9 million in available liquidity, including $8.1 million in cash and cash equivalents.

uninsured deposits are estimated to be approximately $27.8 million or 13.2% of total deposits.

At March 31, 2023, we had off-balance sheet

liquidity sources totaling $80.7 million, including $59.7 million in additional borrowing capacity at the Federal Home Loan Bank of Cincinnati.

Notwithstanding our significant liquidity, large deposit outflows could adversely affect our financial condition and results of operations

and could result in the closure of the Bank.

Furthermore, the recent bank failures may result in strengthening of capital and liquidity

rules which, if the revised rules apply to us, could adversely affect our financial condition and results of operations.

Insufficient liquidity or liquidity related

concerns could impair our ability to fund operations, pay dividends on outstanding shares of stock, and jeopardize our financial condition,

growth and prospects.

We require sufficient liquidity to fund loan commitments,

satisfy depositor withdrawal requests, make payments on our debt obligations as they become due, and meet other cash commitments.

risk is the potential that we will be unable to meet our obligations as they become due because of an inability to liquidate assets or

obtain adequate funding at a reasonable cost, in a timely manner and without adverse conditions or consequences.

Our sources of liquidity

consist primarily of cash, assets readily convertible to cash (such as investment securities), increases in deposits, advances, as needed,

from the FHLB, borrowings, as needed, from the Federal Reserve Bank of Cleveland and other borrowings.

Our access to funding sources in

amounts adequate to finance our activities or on acceptable terms could be impaired by factors that affect our organization specifically

or the financial services industry or economy in general.

Any substantial, unexpected, and/or prolonged change in the level or cost of

liquidity, or any liquidity related requirements imposed by our regulators, could impair our ability to fund operations, pay dividends

on outstanding shares of stock, enact stock repurchases, and meet our obligations as they become due and could have a material adverse

effect on our business, financial condition and results of operations.

These risk factors could materially affect our

business, financial condition or future results.

The risks described are not the only risks that the Company face.

Additional risks and

uncertainties not currently known or that the Company currently deem to be immaterial also may materially adversely affect its business,

financial condition and/or operating results.

Our FDIC deposit insurance premiums and

assessments may increase, which would reduce our profitability.

On March 12, 2023, the Department of the Treasury,

the Federal Reserve and the FDIC issued a joint statement relating to the resolution of Silicon Valley Bank and Signature Bank that stated

that losses to support uninsured deposits of those banks would be recovered via a special assessment on banks.

On May 11, 2023 the FDIC

Board of Directors approved a notice of proposed rulemaking, which would implement a special assessment to recover the cost associated

with protecting uninsured depositors following the closures of Silicon Valley Bank and Signature Bank.

In general, large banks with large

amounts of uninsured deposits benefitted most from the protection of uninsured depositors.

Banking organizations with total assets over

$50 billion would pay more than 95 percent of the special assessment and banking organizations with total assets under $5 billion would

not be subject to the special assessment.

Under the current provisions of this notice of proposed rulemaking, we believe that we would

not be impacted by the special assessment associated with the most recent banking organization closures.

Please see “Item 1A.

Risk Factors”

of the Company’s Annual Report on Form 10-K for the year ended June 30, 2023 for information regarding risk factors that could materially

affect the Company’s business, financial condition, or future results of operations.

Other than as set forth below, there have been

changes with regard to the risk factors disclosed in “Item 1A.

Risk Factors” of the Company’s Annual Report on Form

10-K for the year ended December June 30, 2023.

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 Federal and the

waiver of dividends by First Federal MHC.

On October 13, 2023, we announced that future dividends will be reduced primarily due to the

recent decline in earnings of the Banks, and that the Board currently expects that if quarterly dividends will continue in 2024, they

will be limited to no more than $0.05 five cents per share.

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 Federal, 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.

On October 13, 2023, the Company

announced that future dividends will be reduced primarily due to the recent decline in earnings of the Banks.

We expect the Board to carefully

evaluate whether a dividend may be paid to shareholders in future periods and, if so, at what level.

The Board currently expects that

if quarterly dividends will continue in 2024, they will be limited to no more than $0.05 five cents per share.

Our ability to pay future

dividends will be dependent on our ability to successfully execute our strategy to increase earnings and core deposits, to reduce reliance

on higher cost funding sources and shift more of our loan portfolio towards higher-earning loans, and on the receipt of required regulatory

approval or non-objection for the payment of dividends from the Banks to the Company or from the Company to shareholders.

First Federal MHC owns a majority of Kentucky

First Federal’s outstanding stock.

First Federal MHC has historically waived its right to dividends on the Kentucky First common

shares it owns and, without the waiver of such dividends, 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, to the extent Kentucky First continues to pay dividends

in future periods.

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 Federal and First Federal MHC and the regulations were implemented in the fourth quarter

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.

Kentucky First Federal

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 2024.

It is expected that First Federal MHC will continue to waive future

dividends, to the extent Kentucky First continues to pay dividends in future periods, 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.

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-Q

Item 1A. Risk Factors