Kentucky First Federal Bancorp 10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2024 OR ☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT For the transition period from ____________ to _______________ Commission File Number: 0-51176 KENTUCKY FIRST FEDERAL BANCORP (Exact name of registrant as specified in its charter) United States of America 61-1484858 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 655 Main Street , Hazard , Kentucky 41702 (Address of principal executive offices)(Zip Code) (502) 223-1638 (Registrant’s telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of each class Trading symbol(s) Name of each exchange on which registered Common Stock, $0.01 par value per share KFFB The NASDAQ Stock Market LLC Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days: Yes ☒ No ☐ Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ☐ Accelerated filer ☐ Non-Accelerated filer ☒ Smaller Reporting Company ☒ Emerging Growth Company ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒ Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: At May 12, 2024, the latest practicable date, the Corporation had 8,098,715 shares of $.01 par value common stock outstanding. INDEX Page PART I FINANCIAL INFORMATION 1 ITEM 1 FINANCIAL STATEMENTS 1 Condensed Consolidated Balance Sheets 1 Condensed Consolidated Statements of Operations 2 Condensed Consolidated Statements of Comprehensive Income 3 Consolidated Statements of Changes in Shareholders’ Equity 4 Condensed Consolidated Statements of Cash Flows 6 Notes to Condensed Consolidated Financial Statements 8 ITEM 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations 29 ITEM 3 Quantitative and Qualitative Disclosures About Market Risk 37 ITEM 4 Controls and Procedures 37 PART II OTHER INFORMATION 38 SIGNATURES 40 i PART I-FINANCIAL INFORMATION ITEM 1: Financial Statements Kentucky First Federal Bancorp CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands, except share data) March 31, June 30, 2024 2023 ASSETS Cash and due from financial institutions $ 1,906 $ 2,284 Fed funds sold 693 665 Interest-bearing demand deposits 12,824 5,218 Cash and cash equivalents 15,423 8,167 Securities available-for-sale 10,225 12,080 Securities held-to-maturity, at amortized cost- approximate fair value of $ 210 and $ 259 at March 31, 2024 and June 30, 2023, respectively 223 274 Loans, net of allowance for credit loss of $ 2,106 and $ 1,634 at March 31, 2024 and June 30, 2023, respectively 1 328,134 313,807 Real estate owned, net 10 70 Premises and equipment, net 4,317 4,435 Federal Home Loan Bank stock, at cost 4,528 4,623 Accrued interest receivable 1,226 902 Bank-owned life insurance 2,894 2,831 Goodwill 947 947 Prepaid federal income taxes 239 144 Prepaid expenses and other assets 934 742 Total assets $ 369,100 $ 349,022 LIABILITIES AND SHAREHOLDERS’ EQUITY Deposits $ 246,104 $ 226,309 Federal Home Loan Bank advances 72,348 70,087 Advances by borrowers for taxes and insurance 643 793 Accrued interest payable 150 70 Deferred income taxes 156 513 Other liabilities 685 539 Total liabilities 320,086 298,311 Commitments and contingencies – – Shareholders’ equity Preferred stock, 500,000 shares authorized, $ .01 par value; no shares issued and outstanding – – Common stock, 20,000,000 shares authorized, $ .01 par value; 8,596,064 shares issued 86 86 Additional paid-in capital 34,891 34,891 Retained earnings 18,402 20,130 Unearned employee stock ownership plan (ESOP) – – Treasury shares at cost, 509,349 common shares at March 31, 2024 and June 30, 2023, respectively ( 3,969 ) ( 3,969 ) Accumulated other comprehensive loss ( 396 ) ( 427 ) Total shareholders’ equity 49,014 50,711 Total liabilities and shareholders’ equity $ 369,100 $ 349,022 1 Beginning July 1, 2023 the ACL was estimated based on current expected credit loss methodology. Prior to July 1, 2023, the estimate was based on the incurred loss methodology. See additional discussion in Note 1, Basis of Presentation. See accompanying notes to condensed consolidated financial statements. 1 Kentucky First Federal Bancorp CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (Dollars in thousands, except per share data) Nine months ended March 31, Three months ended March 31, 2024 2023 2024 2023 Interest income Loans, including fees $ 10,927 $ 8,522 $ 3,841 $ 2,983 Mortgage-backed securities 288 345 97 116 Interest-bearing deposits and other 619 359 235 111 Total interest income 11,834 9,226 4,173 3,210 Interest expense Interest-bearing demand deposits 23 29 7 9 Savings 165 235 53 62 Certificates of Deposit 4,122 844 1,526 383 Deposits 4,310 1,108 1,586 454 Borrowings 2,432 1,193 822 711 Total interest expense 6,742 2,301 2,408 1,165 Net interest income 5,092 6,925 1,765 2,045 Provision for (recovery of) credit losses ( 13 ) 113 ( 28 ) – Net interest income after provision for credit losses 5,105 6,812 1,793 2,045 Non-interest income Earnings on bank-owned life insurance 63 60 21 20 Net gain on sales of loans 14 6 8 – Net gain on sales of real estate owned 4 – -- – Net gain on sale of property and equipment held for sale -- 10 -- – Other 118 160 49 49 Total non-interest income 199 236 78 69 Non-interest expense Employee compensation and benefits 3,761 3,697 1,246 1,243 Data processing 395 330 115 100 Occupancy and equipment 442 469 153 156 FDIC insurance premiums 164 63 57 22 Voice and data communications 93 93 35 32 Advertising 124 110 36 31 Outside service fees 284 181 72 77 Auditing and accounting 258 212 86 36 Regulatory assessments 49 67 17 17 Foreclosure and real estate owned expenses (net) 64 77 21 32 Franchise and other taxes 80 107 28 29 Other 433 468 150 141 Total non-interest expense 6,147 5,874 2,016 1,916 Income (loss) before income taxes ( 843 ) 1,174 ( 145 ) 198 Income tax expense (benefit) ( 200 ) 283 ( 38 ) 54 NET INCOME (LOSS) $ ( 643 ) $ 891 $ ( 107 ) $ 144 EARNINGS PER SHARE Basic and diluted $ ( 0.08 ) $ 0.11 $ ( 0.01 ) $ 0.02 DIVIDENDS PER SHARE $ 0.20 $ 0.30 $ -- $ 0.10 See accompanying notes to condensed consolidated financial statements. 2 Kentucky First Federal Bancorp CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) (In thousands) Nine months ended March 31, Three months ended March 31, 2024 2023 2024 2023 Net income (loss) $ ( 643 ) $ 891 $ ( 107 ) $ 144 Other comprehensive gains (losses), net of tax: Unrealized holding gains (losses) on securities designated as available-for-sale, net of taxes of $ 11 , $( 119 ), $( 21 ) and $( 6 ) during the respective periods 31 ( 361 ) ( 62 ) ( 18 ) Comprehensive income (loss) $ ( 612 ) $ 530 $ ( 169 ) $ 126 See accompanying notes to condensed consolidated financial statements. 3 Kentucky First Federal Bancorp CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY For the nine months ended (Unaudited) (Dollar amounts in thousands, except per share data) March 31, 2024 Common stock Additional paid-in capital Retained earnings Treasury shares Accumulated other comprehensive income (loss) Total Balance at June 30, 2023 $ 86 $ 34,891 $ 20,130 $ ( 3,969 ) $ ( 427 ) $ 50,711 Cumulative impact of adoption of ASC 326 – – ( 414 ) – – ( 414 ) Balance at July 1, 2023 86 34,891 19,716 ( 3,969 ) ( 427 ) 50,297 Net loss – – ( 643 ) – – ( 643 ) Other comprehensive income – – – – 31 31 Cash dividends of $ 0.20 per common share – – ( 671 ) – – ( 671 ) Balance at March 31, 2024 $ 86 $ 34,891 $ 18,402 $ ( 3,969 ) $ ( 396 ) $ 49,014 March 31, 2023 Common stock Additional paid-in capital Retained earnings Unearned employee stock ownership plan (ESOP) Treasury shares Accumulated other comprehensive loss Total Balance at June 30, 2022 $ 86 $ 34,892 $ 20,560 $ ( 5 ) $ ( 3,508 ) $ – $ 52,025 Net income – – 891 – – – 891 Allocation of ESOP shares – ( 1 ) – 5 – – 4 Acquisition of shares for Treasury – – – – ( 394 ) – ( 394 ) Other comprehensive loss ( 361 ) ( 361 ) Cash dividends of $ 0.30 per common share – – ( 1,026 ) – – – ( 1,026 ) Balance at March 31, 2023 $ 86 $ 34,891 $ 20,425 $ - $ ( 3,902 ) $ ( 361 ) $ 51,139 See accompanying notes to condensed consolidated financial statements. 4 Kentucky First Federal Bancorp CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY For the three months ended (Unaudited) (Dollar amounts in thousands, except per share data) March 31, 2024 Common stock Additional paid-in capital Retained earnings Treasury shares Accumulated other comprehensive loss Total Balance at December 31, 2023 $ 86 $ 34,891 $ 18,509 $ ( 3,969 ) $ ( 334 ) $ 49,183 Net income – – ( 107 ) – – ( 107 ) Other comprehensive loss ( 62 ) ( 62 ) Balance at March 31, 2024 $ 86 $ 34,891 $ 18,402 $ ( 3,969 ) $ ( 396 ) $ 49,014 March 31, 2023 Common stock Additional paid-in capital Retained earnings Treasury shares Accumulated other comprehensive loss Total Balance at December 31, 2022 $ 86 $ 34,892 $ 20,622 $ ( 3,616 ) $ ( 343 ) $ 51,641 Net income – – 144 – – 144 Allocation of ESOP shares – ( 1 ) – – ( 1 ) Acquisition of shares for Treasury – – – ( 286 ) ( 286 ) Other comprehensive loss ( 18 ) ( 18 ) Cash dividends of $ 0.10 per common share – – ( 341 ) – – ( 341 ) Balance at March 31, 2023 $ 86 $ 34,891 $ 20,425 $ ( 3,902 ) $ ( 361 ) $ 51,139 See accompanying notes to condensed consolidated financial statements. 5 Kentucky First Federal Bancorp CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands) Nine months ended March 31, 2024 2023 Cash flows from operating activities: Net income (loss) $ ( 643 ) $ 891 Adjustments to reconcile net income to net cash provided by operating activities Depreciation 178 195 Accretion of purchased loan credit discount ( 30 ) ( 34 ) Amortization of deferred loan origination costs (fees) 2 ( 19 ) Amortization of premiums on investment securities ( 18 ) ( 22 ) Net gain on sale of loans ( 14 ) ( 6 ) Net loss (gain) on sale of real estate owned ( 8 ) – Net gain on sale of property & equipment – ( 10 ) ESOP compensation expense – 4 Earnings on bank-owned life insurance ( 63 ) ( 60 ) Provision for (recovery of) credit losses ( 13 ) 113 Origination of loans held for sale ( 512 ) ( 157 ) Proceeds from loans held for sale 526 315 Deferred income tax ( 231 ) – Increase (decrease) in cash, due to changes in: Accrued interest receivable ( 324 ) ( 238 ) Prepaid expenses and other assets ( 287 ) ( 38 ) Accrued interest payable 80 36 Other liabilities 89 – Income taxes – 32 Net cash provided by (used in) operating activities ( 1,268 ) 1,002 Cash flows from investing activities: Purchase of investments available for sale – ( 4,974 ) Purchase of FHLB stock ( 1,310 ) ( 251 ) Maturities of time deposits in other financial institutions – – Securities maturities, prepayments and calls: Held to maturity 47 46 Available for sale 1,918 2,133 Proceeds from redemption of FHLB stock 1,405 2,061 Loans originated for investment, net of principal collected ( 14,780 ) ( 32,497 ) Proceeds from sale of property and equipment held for sale – 180 Proceeds from REO 68 – Proceeds from sale of real estate owned – – Additions to premises and equipment, net ( 60 ) ( 122 ) Net cash provided by (used in) investing activities ( 12,712 ) ( 33,424 ) Cash flows from financing activities: Net increase (decrease) in deposits 19,796 ( 30,466 ) Payments by borrowers for taxes and insurance, net ( 150 ) ( 263 ) Proceeds from Federal Home Loan Bank advances 70,003 119,750 Repayments on Federal Home Loan Bank advances ( 67,742 ) ( 72,917 ) Treasury stock purchased – ( 394 ) Dividends paid on common stock ( 671 ) ( 1,026 ) Net cash provided by (used in) financing activities 21,236 14,684 Net increase (decrease) in cash and cash equivalents 7,256 ( 17,738 ) Beginning cash and cash equivalents 8,167 25,823 Ending cash and cash equivalents $ 15,423 $ 8,085 See accompanying notes to condensed consolidated financial statements. 6 Kentucky First Federal Bancorp CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (Unaudited) (In thousands) Nine months ended March 31, 2024 2023 Supplemental disclosure of cash flow information: Cash paid during the period for: Income taxes $ 125 $ 250 Interest on deposits and borrowings $ 6,662 $ 2,265 Transfers of loans to real estate owned, net $ – $ 60 See accompanying notes to condensed consolidated financial statements. 7 Kentucky First Federal Bancorp NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS March 31, 2024 (unaudited) The Kentucky First Federal Bancorp (“Kentucky First” or the “Company”) was incorporated under federal law in March 2005 and is the mid-tier holding company for First Federal Savings and Loan Association of Hazard, Hazard, Kentucky (“First Federal of Hazard”) and Frankfort First Bancorp, Inc. (“Frankfort First”). Frankfort First is the holding company for First Federal Savings Bank of Kentucky, Frankfort, Kentucky (“First Federal of Kentucky”). First Federal of Hazard and First Federal of Kentucky (hereinafter collectively the “Banks”) are Kentucky First’s primary operations, which consist of operating the Banks as two independent, community-oriented savings institutions. In December 2012, the Company acquired CKF Bancorp, Inc., a savings and loan holding company which operated three banking locations in Boyle and Garrard Counties in Kentucky. In accounting for the transaction, the assets and liabilities of CKF Bancorp were recorded on the books of First Federal of Kentucky in accordance with accounting standard ASC 805, Business Combinations. Note 1. Basis of Presentation The accompanying unaudited condensed consolidated financial statements, which represent the condensed consolidated balance sheets and results of operations of the Company, were prepared in accordance with the instructions for Form 10-Q and, therefore, do not include information or footnotes necessary for a complete presentation of financial position, results of operations and cash flows in conformity with U.S. generally accepted accounting principles. However, in the opinion of management, all adjustments (consisting of only normal recurring adjustments) which are necessary for a fair presentation of the condensed consolidated financial statements have been included. The results of operations for the nine-month period ended March 31, 2024, are not necessarily indicative of the results which may be expected for an entire fiscal year. The condensed consolidated balance sheet as of June 30, 2023, has been derived from the audited consolidated balance sheet as of that date. Certain information and note disclosures normally included in the Company’s annual financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Form 10-K annual report for 2023 filed with the Securities and Exchange Commission. Principles of Consolidation - The consolidated financial statements include the accounts of the Company, Frankfort First, and its wholly-owned banking subsidiaries, First Federal of Hazard and First Federal of Kentucky (collectively hereinafter “the Banks”). All intercompany transactions and balances have been eliminated in consolidation. Critical Accounting Policies and Estimates Investments – Management determines the classification of debt securities at purchase as held-to-maturity, trading, or available-for-sale. Held-to-maturity securities are those we have both the intent and ability to hold to maturity and are reported at amortized cost. Securities that are not considered held-to-maturity are considered either trading or available-for-sale securities in accordance with Financial Accounting Standards Board Accounting Standards Codification (“ASC”) 320, Investments – Debt Securities, and are reported at fair value in the statement of financial position. We have no trading securities. The adjustment to fair value for available-for-sale securities for unrealized gains and losses is included as a separate component of shareholders’ equity, net of tax. Loans – Loans for which we have the ability and intent to hold until maturity and/or payoff are reported at the carrying value of the unpaid principal reduced by unearned interest, an allowance for credit losses and unamortized deferred fees and costs and premiums. Interest income is accrued on a level yield basis. In circumstances where management believes that collection of interest income is uncollectible on specific loans, after considering economic and business conditions, collateral value and collection efforts, interest accrual is discontinued. Interest income may be recognized on the cash basis when received unless a determination has been made by management to apply all of the payment against principal. 8 Kentucky First Federal Bancorp NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) March 31, 2024 (unaudited) Note 1. Basis of Presentation (continued) Critical Accounting Policies and Estimates (continued) Allowance for Credit Losses – We account for the allowance for credit losses under ASC 326, Measurement of Credit Losses on Financial Instruments, which is commonly known as CECL. We measure expected credit losses of financial assets on a weighted average remaining maturity (WARM) basis. We maintain an allowance for credit losses (“ACL”) at a level that is appropriate to cover estimated credit losses on individually evaluated loans, as well as estimated credit losses inherent in the estimated life of the loan portfolio. Credit losses are charged to and recoveries are credited to the ACL. Loans with similar risk characteristics are evaluated on a collective basis within homogeneous loan pools under ASC 326. Our homogeneous loan pools are primarily determined by loan purpose and collateral type. Pools include residential real estate (composed of one-to four-family, multi-family, and construction), land, farm, nonresidential real estate, commercial and industrial, and consumer loans (composed of Loans on deposit, home equity, automobile, and unsecured). Credits that are nonaccrual status are subject to individual evaluation. Historical loss rates for loans are adjusted for significant factors that, in management’s judgment, reflect the impact of any current conditions on loss recognition. Qualitative factors used to derive our ACL include delinquency trends, current economic conditions and trends, strength of supervision and administration of the loan portfolio, levels of underperforming loans, trends in loan losses and underwriting exceptions. Reasonable and supportable economic forecasts that may offset collectibility are also included as factors in our ACL model. Management continually reevaluates the other subjective factors included in its ACL analysis. Income Taxes – Income tax expense is based on the taxes due on the consolidated tax return plus deferred taxes on the expected future tax benefits and consequences of temporary differences between carrying amounts and tax bases of assets and liabilities, using enacted tax rates. New Accounting Standards FASB ASC 326 - In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This standard requires credit losses on most financial assets and certain other instruments to be measured using an expected loss model, which is referred to as the current expected credit loss (CECL) model. Under this model entities estimate credit losses over the entire contractual term of the instrument (considering estimated prepayments, but not expected extensions or modifications) from the date of initial recognition of that instrument. The ASU replaces the current accounting model for purchased credit impaired and debt securities. The allowance for credit losses for purchased financial assets with a more-than-insignificant amount of credit deterioration since origination (referred to as “PCD assets”), should be determined in a similar manner to other financial assets measured on an amortized cost basis. However, upon initial recognition, the allowance for credit losses is added to the purchase price to determine the initial amortized cost basis. The subsequent accounting for PCD financial assets is the same expected loss model described herein. 9 Kentucky First Federal Bancorp NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) March 31, 2024 (unaudited) Note 1. Basis of Presentation (continued) New Accounting Standards (continued) The Company will now use forward-looking information to enhance its credit loss estimates. The amendment requires enhanced disclosures to aid investors and other users of financial statements to better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of our portfolio. The largest impact to the Company was on its allowance for loan and lease losses, although the ASU also amends the accounting for credit losses on available-for-sale debt securities, held-to-maturity securities, and purchased financial assets with credit deterioration. The standard was effective for public companies for annual periods and interim periods within those annual periods beginning after December 15, 2019. However, the FASB delayed the implementation of the ASU for smaller reporting companies until years beginning after December 15, 2022, or in the Company’s case the fiscal year beginning July 1, 2023. ASU 2016-13 was applied through a cumulative effect adjustment to retained earnings (modified-retrospective approach). In addition, ASC 326 made changes to the accounting for available-for-sale (“AFS”) debt securities. One such change requires credit losses to be presented as an allowance rather than as a write-down on AFS securities. Management does not intend to sell or believes that it is more likely than not that they will be required to sell. We adopted ASC 326 effective July 1, 2023, using the modified retrospective method for all financial assets measured at amortized cost and off-balance sheet (“OBS”) credit exposures. Results for reporting periods beginning after July 1, 2023 are presented under ASC 326, while prior period amounts continue to be reported in accordance with previously applicable GAAP. Upon adoption of the ASU we recorded an increase in the allowance for credit loss (“ACL”) for loans which represented a $ 497,000 increase from the Allowance for Loan Losses (“ALLL”) at June 30, 2023. This transaction further resulted in an increase of $ 54,000 to the ACL for unfunded commitments, a decrease of $ 414,000 to retained earnings and a deferred tax asset of $ 137,000 . The following table illustrates the impact of ASC 326 at July 1, 2023: As Reported Pre-ASC Impact of Under 326 ASC 326 (Dollars in thousands) ASC 326 Adoption Adoption Assets: Loans Residential real estate: One- to four-family $ 1,597 $ 857 $ 740 Multi-family 133 278 ( 145 ) Construction 138 41 97 Land 15 1 14 Farm 6 4 2 Nonresidential real estate 184 405 ( 221 ) Commercial and industrial 5 23 ( 18 ) Consumer and other: Loans on deposits - 1 ( 1 ) Home equity 51 23 28 Automobile 1 - 1 Unsecured 1 1 - Allowance for credit losses on loans $ 2,131 1,634 497 Liabilities: Allowance for credit losses on unfunded credit exposures $ 54 - 54 10 Kentucky First Federal Bancorp NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) March 31, 2024 (unaudited) Note 1. Basis of Presentation (continued) New Accounting Standards (continued) ASU 2019-05, Financial Instruments-Credit Losses, Targeted Transition Relief, allows entities to irrevocably elect, upon adoption of ASU 2016-13, the fair value option on financial instruments that (1) were previously recorded at amortized cost and (2) are within the scope of ASC 326-20, if the instruments are eligible for the fair value option under ASC 825-10. The fair value option election does not apply to held-to-maturity debt securities. Entities are required to make this election on an instrument-by-instrument basis. ASU 2019-05 has the same effective date as ASU 2016-13. We adopted ASU 2019-05 on July 1, 2023, and did not elect the fair value option on any financial instruments. ASU No. 2022-02, Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures, eliminates the accounting guidance for troubled debt restructurings (“TDRs”) by creditors in Subtopic 310-40, Receivables-Troubled Debt Restructurings by Creditors, for entities that have adopted the current expected credit loss model introduced by ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2022-02 also requires disclosure by public business entities of current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20, Financial Instruments-Credit Losses-Measured at Amortized Cost. The Company adopted the standard on July 1, 2023. Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material impact on the Company’s financial position, results of operations or cash flows. Note 2. Earnings Per Share Diluted earnings per share is computed taking into consideration common shares outstanding and dilutive potential common shares to be issued or released under the Company’s share-based compensation plans. The factors used in the basic and diluted earnings per share computations follow: Nine months ended March 31, Three months ended March 31, 2024 2023 2024 2023 Net income (loss) allocated to common shareholders, basic and diluted $ ( 643,000 ) $ 891,000 $ ( 107,000 ) $ 144,000 EARNINGS PER SHARE $ ( 0.08 ) $ 0.11 $ ( 0.01 ) $ 0.02 Weighted average common shares outstanding, basic and diluted 8,098,715 8,144,767 8,098,715 8,129,006 There were no stock option shares outstanding for the nine- or three-month periods ended March 31, 2024 and 2023. 11 Kentucky First Federal Bancorp NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) March 31, 2024 (unaudited) Note 3. Investment Securities The following table summarizes the amortized cost and fair value of securities available-for-sale and securities held-to-maturity at March 31, 2024 and June 30, 2023, the corresponding amounts of gross unrealized gains recognized in accumulated other comprehensive income and gross unrecognized gains and losses: March 31, 2024 (in thousands) Amortized cost Gross unrealized gains Gross unrealized losses Estimated fair value Available-for-sale Securities Agency mortgage-backed: residential $ 10,752 $ – $ 527 $ 10,225 Held-to-maturity Securities Agency mortgage-backed: residential $ 223 $ – $ 13 $ 210 June 30, 2023 (in thousands) Amortized cost Gross unrealized gains Gross unrealized losses Estimated fair value Available-for-sale Securities Agency mortgage-backed: residential $ 12,649 $ – $ 569 $ 12,080 Held-to-maturity Securities Agency mortgage-backed: residential $ 274 $ – $ 15 $ 259 At March 31, 2024 and June 30, 2023 the Company’s debt securities consisted of mortgage-backed securities, which do not have a single maturity date. Actual maturities may differ from contractual maturities, because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Our pledged securities totaled $ 0 and $ 5.9 million at March 31, 2024 and June 30, 2023, respectively. In addition, at March 31, 2024 and June 30, 2023, our pledged assets included overnight deposits of $ 0 and $ 1.5 million, respectively. The Banks began utilizing FHLB letters of credit to secure public deposits in the recently ended quarter. We evaluated securities in unrealized loss positions for evidence of credit loss, considering duration, severity, financial condition of the issuer, our intention to sell or requirement to sell. Those securities were agency mortgage-backed securities, which carry a very limited amount of risk. Also, we have no intention to sell nor feel that we will be compelled to sell such securities before maturity. Based on our evaluation, no reserve for credit loss was considered necessary. Debt securities in an unrealized loss position as a percent of total debt securities were 100 % and 100 % at March 31, 2024 and June 30, 2023, respectively. The following table provides the amortized cost, gross unrealized losses, fair value, and length of time the individual securities have been in a continuous unrealized loss position as of March 31, 2024. 12 Kentucky First Federal Bancorp NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) March 31, 2024 (unaudited) Note 3. Investment Securities (continued) As of March 31, 2024: Available-for-Sale (in thousands) Amortized Cost Gross Unrealized Losses Fair Value Less Than 12 Months Mortgage-backed securities $ – – – 12 Months or More Mortgage-backed securities 10,752 527 10,225 Total temporarily impaired AFS securities $ 10,752 527 10,225 Held to Maturity (in thousands) Amortized Cost Gross Unrealized Losses Fair Value Less Than 12 Months Mortgage-backed securities $ – $ – $ – 12 Months or More Mortgage-backed securities 223 13 210 Total temporarily impaired HTM securities $ 223 13 210 As of June 30, 2023: Available-for-Sale (in thousands) Amortized Cost Gross Unrealized Losses Fair Value Less Than 12 Months Mortgage-backed securities $ 12,649 $ 569 $ 12,080 12 Months or More Mortgage-backed securities - - - Total temporarily impaired AFS securities $ 12,649 $ 569 $ 12,080 . Held to Maturity (in thousands) Amortized Cost Gross Unrealized Losses Fair Value Less Than 12 Months Agency mortgage-backed securities $ - $ - $ - 12 Months or More Agency mortgage-backed securities 274 15 259 Total temporarily impaired HTM securities $ 274 $ 15 $ 259 13 Kentucky First Federal Bancorp NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) March 31, 2024 (unaudited) Note 4. Loans receivable Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal amount outstanding, adjusted for deferred loan origination costs, net, discounts on purchased loans, and the allowance for credit losses. Interest income is accrued on the unpaid principal balance unless the collectability of the loan is in doubt. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using the level-yield method without anticipating prepayments. Interest income on one- to four-family residential loans is generally discontinued at the time a loan is 180 days delinquent and on other loans at the time a loan is 90 days delinquent. All other loans are moved to non-accrual status in accordance with the Company’s policy, typically 90 days after the loan becomes delinquent. Past due status is based on the contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of principal or interest is considered doubtful. Nonaccrual loans and loans past due 90 days still on accrual include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans. The composition of the loan portfolio was as follows: March 31, June 30, (in thousands) 2024 2023 Residential real estate One- to four-family $ 254,789 $ 240,076 Multi-family 15,755 19,067 Construction 14,239 12,294 Land 1,069 470 Farm 1,313 1,346 Nonresidential real estate 30,329 30,217 Commercial nonmortgage 867 1,184 Consumer and other: Loans on deposits 795 855 Home equity 10,326 9,217 Automobile 122 104 Unsecured 636 611 330,240 315,441 Allowance for credit losses ( 2,106 ) ( 1,634 ) $ 328,134 $ 313,807 The amounts above include net deferred loan costs of $ 312,000 and $ 330,000 as of March 31, 2024 and June 30, 2023, respectively. The allowance for credit losses is a valuation allowance that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected for the loans. Loan losses are charged off against the allowance when management believes the uncollectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. Management estimates the allowance balance required using relevant available information, from internal and external sources, relating to past events, current conditions and reasonable and supportable forecasts. Historical credit loss experience, derived from the Company’s data, provides the basis for estimation of expected credit losses, although management also compares the Company’s data with peer group data. Adjustments to historical loss information may be made for differences in: lending policy, procedures and practice; economic conditions; the nature and volume of the loan portfolio; volume delinquent and problem loans; the current and anticipated economic conditions in the primary lending area; and other external factors. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged off. Loans that do not share risk characteristics are evaluated on an individual basis. Loans evaluated individually are not included in the pool evaluation. When management determines that foreclosure is probable or when the borrower is experiencing financial difficulty at the reporting date and repayment is expected to be provided substantially through the sale of the collateral, the expected credit losses are based on the fair value of the collateral at the reporting date, less any discounts and selling costs. Management monitors loan performance on a monthly basis and performs a quarterly evaluation of the adequacy of the ACL. The Banks begin enhanced monitoring of all loans rated 5-Watch or worse and obtain a new appraisal or asset valuation for most loans placed on nonaccrual status. New appraisals are usually not obtained on loans with outstanding principal amounts of $ 50,000 or less. Management, at its discretion, may determine that additional adjustments to the appraisal or valuation are required. Valuation adjustments will be made as necessary based on factors, including, but not limited to: the economy, deferred maintenance, industry, type of collateral, age of the appraisal, etc., and the knowledge Management has about a particular situation. In addition, the cost to sell or liquidate the collateral is also estimated and deducted from the valuation in order to determine the net realizable value to the Banks. When determining the ACL, certain factors involved in the evaluation are inherently subjective and require material estimates that may be susceptible to significant change, including the amounts and timing of future cash flows. Management monitors the adequacy of the ACL on an ongoing basis and reports its adequacy quarterly to the Board of Directors. Management believes the ACL at March 31, 2024 is adequate. 14 Kentucky First Federal Bancorp NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) March 31, 2024 (unaudited) Note 4. Loans receivable (continued) Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments, when appropriate. The contractual term excludes expected extensions, renewals, and modifications unless either of the following applies: management has a reasonable expectation at the reporting date that a modification will be executed with an individual borrower or the extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancellable by the Banks. The Banks categorize loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, and current economic trends, among other factors. Management utilizes a risk rating scale ranging from 1-Highest Pass to 9-Loss to evaluate loan quality. Consumer purpose loans are identified as either performing or nonperforming based on the payment status of the loans. Nonperforming consumer loans are loans that are nonaccrual or 90 days or more past due and still accruing. Our portfolio segments include residential real estate, nonresidential real estate, farm, land, commercial and industrial, and consumer and other loans. Risk factors associated with our portfolio segments are as follows: Residential Real Estate Our primary lending activity is the origination of mortgage loans, which enable a borrower to purchase or refinance existing homes in the Banks’ respective market areas. We further classify our residential real estate loans as one- to four-family (owner-occupied vs nonowner-occupied), multi-family or construction. We believe that our first mortgage position on loans secured by residential real estate presents lower risk than our other loans, with the exception of loans secured by deposits. We offer a mix of adjustable-rate and fixed-rate mortgage loans with terms up to 30 years for owner-occupied properties. For these properties a borrower may be able to borrow up to 97 % of the value with private mortgage insurance. Alternatively, the borrower may be able to borrow up to 90 % of the value through other programs offered by the bank. We offer loans on one- to four-family rental properties at a maximum of 80 % loan-to-value (“LTV”) ratio and we generally charge a slightly higher interest rate on such loans. We also originate loans to individuals to finance the construction of residential dwellings for personal use or for use as rental property. We lend to builders for construction of speculative or custom residential properties for resale. Construction loans are generally less than one year in length, do not exceed 80 % of the appraised value, and provide for the payment of interest only during the construction phase. Funds are disbursed as progress is made toward completion of the construction. Multi-family Loans We offer mortgage loans secured by residential multi-family (five or more units). Generally, these loans are originated for 25 years or less and do not exceed 80 % of the appraised value. Loans secured by multi-family generally have larger balances and involve a greater degree of risk than one- to four-family residential mortgage loans. These loans depend on the borrower’s creditworthiness and the feasibility and cash flow potential of the project. Payments on loans secured by income properties often depend on successful operation and management of the properties. As a result, repayment on such loans may be subject to a greater extent to adverse conditions in the real estate market or economy than owner-occupied residential loans. 15 Kentucky First Federal Bancorp NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) March 31, 2024 (unaudited) Note 4. Loans receivable (continued) Nonresidential Loans We offer mortgage loans secured by nonresidential real estate comprised generally of commercial office buildings, churches and properties used for other purposes. Generally, these loans are originated for 25 years or less and do not exceed 80 % of the appraised value. As with multi-family loans, commercial real estate loans generally have larger balances and involve a greater degree of risk than one- to four-family residential mortgage loans and these loans depend on the borrower’s creditworthiness, as well as the feasibility and cash flow potential of the project. Payments on loans secured by nonresidential properties often depend on successful operation and management of the properties. As a result, repayment on such loans may be subject to a greater extent to adverse conditions in the real estate market or economy than owner-occupied residential loans. Consumer lending Our consumer loans include home equity lines of credit, loans secured by savings deposits, automobile loans, and unsecured loans. Home equity loans are generally second mortgage loans subordinate only to first mortgages also held by the bank and do not exceed 80 % of the estimated value of the property. We do offer home equity loans up to 90 % of the estimated value to qualified borrowers and these loans carry a premium interest rate. Loans secured by savings are originated up to 90 % of the depositor’s savings account balance and bear interest at a rate higher than the rate paid on the deposit account. Because the deposit account must be pledged as collateral to secure the loan, the inherent risk of this type of loan is minimal. Loans secured by automobiles are made directly to consumers (there are no relationships with dealers) and are based on the value of the vehicle and the borrower’s creditworthiness. Vehicle loans present a higher level of risk because of the natural decline in the value of the property as well as its mobility. Unsecured loans are based entirely on the borrower’s creditworthiness and present the highest level of risk to the bank. Impaired loans The Banks choose the most appropriate method for accounting for impaired loans. For secured loans, which make up the vast majority of the loans in the Banks’ portfolio, this method involves determining the fair value of the collateral, reduced by estimated selling costs. Where appropriate, the Banks would account for impaired loans by determining the present value of expected future cash flows discounted at the loan’s effective interest rate. A loan is considered impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. Although most of our loans are secured by collateral, we rely heavily on the capacity of our borrowers to generate sufficient cash flow to service their debt. As a result, our loans do not become collateral-dependent until there is deterioration in the borrower’s cash flow and financial condition, which makes it necessary for us to look to the collateral for our sole source of repayment. Collateral-dependent loans which are more than ninety days delinquent are considered to constitute more than a minimum delay in repayment and are evaluated for impairment under the policy at that time. We utilize updated independent appraisals to determine fair value for collateral-dependent loans, adjusted for estimated selling costs, in determining our specific reserve. In some situations, management does not secure an updated independent appraisal. These situations may involve small loan amounts or loans that, in management’s opinion, have an abnormally low loan-to-value ratio. With respect to the Banks’ investment in troubled debt restructurings, multi-family and nonresidential loans, and the evaluation of impairment thereof, such loans are nonhomogenous and, as such, may be deemed to be collateral-dependent when they become more than 90 days delinquent. We obtain updated independent appraisals in these situations or when we suspect that the previous appraisal may no longer be reflective of the property’s current fair value. This process varies from loan to loan, borrower to borrower, and also varies based on the nature of the collateral. 16 Kentucky First Federal Bancorp NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) March 31, 2024 (unaudited) Note 4. Loans receivable (continued) The following table presents the activity in the ACL by portfolio segment for the nine months ended March 31, 2024, after restatement of beginning balance for adoption of ASC 326: March 31, 2024: (in thousands) Pre-ASC 326 Adoption Impact of ASC 326 Adoption As Reported Under ASC 326 Provision for (recovery of) credit losses on loans Loans charged off Recoveries Credit Losses for Unfunded Liabilities Ending balance Residential real estate One- to four-family $ 857 $ 740 $ 1,597 $ 58 $ ( 9 ) $ - $ - $ 1,646 Multi-family 278 ( 145 ) 133 ( 33 ) - - - 100 Construction 41 97 138 ( 33 ) - - ( 1 ) 104 Land 1 14 15 7 - - - 22 Farm 4 2 6 ( 1 ) - - - 5 Nonresidential real estate 405 ( 221 ) 184 ( 13 ) - - - 171 Commercial and industrial 23 ( 18 ) 5 - - - - 5 Consumer and other Loans on deposits 1 ( 1 ) - - - - - - Home equity 23 28 51 2 - - ( 2 ) 51 Automobile - 1 1 ( 1 ) - - - - Unsecured 1 - 1 1 - - - 2 $ 1,634 $ 497 $ 2,131 $ ( 13 ) $ ( 9 ) $ - $ ( 3 ) $ 2,106 For the nine months ended March 31, 2024, the provision for (recovery of) credit losses totaled $( 16,000 ) including $ 13,000 of recovery on credit losses on loans and $ 3,000 recovery on credit losses on unfunded commitments. At March 31, 2024, the allowance for credit losses on unfunded commitments totaled $ 57,000 . The following table presents the activity in the ALLL by portfolio segment for the nine months ended March 31, 2023: (in thousands) Beginning balance Provision (credit) for loan losses Loans charged off Recoveries Ending balance Residential real estate: One-to four-family $ 800 $ 44 $ ( 22 ) $ 13 $ 835 Multi-family 231 96 – – 327 Construction 4 29 – – 33 Land 3 ( 2 ) – – 1 Farm 5 – – – 5 Nonresidential real estate 461 ( 53 ) – – 408 Commercial nonmortgage 2 – – – 2 Consumer and other: Loans on deposits 1 – – – 1 Home equity 21 – – – 21 Automobile – – – – – Unsecured 1 ( 1 ) – – – Totals $ 1,529 $ 113 $ ( 22 ) $ 13 $ 1,633 17 Kentucky First Federal Bancorp NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) March 31, 2023 (unaudited) Note 4. Loans receivable (continued) The following table presents the activity in the allowance for credit losses by portfolio segment for the three months ended March 31, 2024: (in thousands) Beginning balance Provision for (recovery of) credit losses on loans Loans charged off Recoveries Credit Losses for Unfunded Liabilities Ending balance Residential real estate: One- to four-family $ 1,587 $ 59 $ – $ – $ - $ 1,646 Multi-family 130 ( 30 ) – – - 100 Construction 124 ( 22 ) – – 2 104 Land 22 - – – - 22 Farm 5 – – – - 5 Nonresidential real estate 198 ( 27 ) – – - 171 Commercial nonmortgage 6 ( 1 ) – – - 5 Consumer and other: - Loans on deposits – – – – - – Home equity 59 ( 8 ) – – - 51 Automobile – – – – - – Unsecured 1 1 – – - 2 Totals $ 2,132 $ ( 28 ) $ – $ – $ 2 $ 2,106 The following table presents the activity in the allowance for loan losses by portfolio segment for the three months ended March 31, 2023: (in thousands) Beginning balance Provision (credit) for loan losses Loans charged off Recoveries Ending balance Residential real estate: One- to four-family $ 778 $ 79 $ ( 22 ) $ – $ 835 Multi-family 363 ( 36 ) – – 327 Construction 26 7 – – 33 Land 1 – – – 1 Farm 5 – – – 5 Nonresidential real estate 457 ( 49 ) – – 408 Commercial nonmortgage 2 – – – 2 Consumer and other: Loans on deposits 1 – – – 1 Home equity 21 – – – 21 Automobile – – – – – Unsecured 1 ( 1 ) – – – Totals $ 1,655 $ – $ ( 22 ) $ – $ 1,633 18 Kentucky First Federal Bancorp NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) March 31, 2024 (unaudited) Note 4. Loans receivable (continued) The following table presents the amortized cost basis of collateral-dependent loans by portfolio class as of March 31, 2024. The recorded investment in loans excludes accrued interest receivable due to immateriality. March 31, 2024: (in thousands) Amortized Cost Basis Ending allowance on collateral- dependent loans Loans individually evaluated for impairment: Residential real estate: One- to four-family $ 2,882 $ – Nonresidential real estate 1,950 – Commercial and industrial – – $ 4,832 – Real estate stands as collateral for loans individually evaluated for impairment. The following tables present the balance in the ALLL and the recorded investment in loans by portfolio class and based on impairment method as of March 31, 2024. March 31, 2024: (in thousands) Loans individually evaluated Loans acquired with deteriorated credit quality* Ending loans balance Ending allowance attributed to loans Loans individually evaluated for impairment: Residential real estate One- to four-family $ 2,882 $ 178 $ 3,060 $ - Nonresidential real estate 1,950 - 1,950 - 4,832 178 5,010 - Loans collectively evaluated for impairment: Residential real estate One- to four-family $ 251,729 $ 1,646 Multi-family 15,755 100 Construction 14,239 104 Land 1,069 22 Farm 1,313 5 Nonresidential real estate 28,379 171 Commercial and industrial 867 5 Consumer and other Loans on deposits 795 - Home equity 10,326 51 Automobile 122 - Unsecured 636 2 325,230 2,106 $ 330,240 $ 2,106 * These loans were evaluated at acquisition date at their estimated fair value and there has been no subsequent deterioration since acquisition. 19 Kentucky First Federal Bancorp NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) March 31, 2024 (unaudited) Note 4. Loans receivable (continued) The following tables present the balance in the allowance for loan losses and the recorded investment in loans by portfolio class and based on impairment method as of June 30, 2023. June 30, 2023: (in thousands) Loans individually evaluated Loans acquired with deteriorated credit quality* Ending loans balance Ending allowance attributed to loans Loans individually evaluated for impairment: Residential real estate One- to four-family $ 2,833 $ 196 $ 3,029 $ - Nonresidential real estate 1,717 - 1,717 - Home Equity 267 - 267 - 4,817 196 5,013 - Loans collectively evaluated for impairment: Residential real estate One- to four-family $ 237,047 $ 857 Multi-family 19,067 278 Construction 12,294 41 Land 470 1 Farm 1,346 4 Nonresidential real estate 28,500 405 Commercial and industrial 1,184 23 Consumer and other Loans on deposits 855 1 Home equity 8,950 23 Automobile 104 - Unsecured 611 1 310,428 1,634 $ 315,441 $ 1,634 * These loans were evaluated at acquisition date at their estimated fair value and there has been no subsequent deterioration since acquisition. 20 Kentucky First Federal Bancorp NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) March 31, 2024 (unaudited) Note 4. Loans receivable (continued) The following table presents interest income on loans individually evaluated for impairment by class of loans for the nine months ended March 31: (in thousands) Average Recorded Investment Interest Income Recognized Cash Basis Income Recognized Average Recorded Investment Interest Income Recognized Cash Basis Income Recognized 2024 2023 With no related allowance recorded: One- to four-family $ 3,058 $ 55 $ 55 $ 3,227 $ 147 $ 147 Multi-family -- – – 561 15 15 Farm -- – – 270 – – Nonresidential real estate 1,882 51 51 1,055 41 41 Consumer 89 – – 46 6 6 Purchased credit-impaired loans 191 7 7 383 17 17 5,220 113 113 5,542 226 226 With an allowance recorded: One- to four-family – – – – – – $ 5,220 $ 113 $ 113 $ 5,542 $ 226 $ 226 The following table presents interest income on loans individually evaluated for impairment by class of loans for the three months ended March 31: (in thousands) Average Recorded Investment Interest Income Recognized Cash Basis Income Recognized Average Recorded Investment Interest Income Recognized Cash Basis Income Recognized 2024 2023 With no related allowance recorded: Residential real estate: One- to four-family $ 3,073 $ 11 $ 11 $ 3,240 $ 66 $ 66 Multi-family – – – 555 5 5 Farm – – – 265 – – Nonresidential real estate 1,965 2 2 1,047 12 12 Consumer – – – – – – Purchased credit-impaired loans 182 6 6 371 6 6 5,220 19 19 5,478 89 89 With an allowance recorded: One- to four-family – – – – – – $ 5,220 $ 19 $ 19 $ 5,478 $ 89 $ 89 21 Kentucky First Federal Bancorp NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) March 31, 2024 (unaudited) Note 4. Loans receivable (continued) The following table presents the recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans as of March 31, 2024 and June 30, 2023: March 31, 2024 June 30, 2023 (in thousands) Nonaccrual Loans Past Due Over 90 Days Still Accruing Nonaccrual Loans Past Due Over 90 Days Still Accruing Residential real estate: One- to four-family residential real estate $ 3,149 $ 373 $ 3,029 $ 365 Nonresidential real estate and land 1,670 – 1,717 28 Consumer – 35 267 0 $ 4,819 $ 408 $ 5,013 $ 393 One- to four-family loans in process of foreclosure totaled $ 1.2 million and $ 766,000 at March 31, 2024 and June 30, 2023, respectively. Troubled Debt Restructurings: Prior to the adoption of ASC 326 a Troubled Debt Restructuring (“TDR”) was the situation where the Bank granted a concession to the borrower that the Banks would not otherwise have considered due to the borrower’s financial difficulties. All TDRs are considered “impaired.” At June 30, 2023, the Company had $ 1.4 million of loans classified as TDRs. During the nine months ended March 31, 2024 there were no loans modified to borrowers experiencing financial difficulty. The following table presents the aging of the principal balance outstanding in past due loans as of March 31, 2024, by class of loans: (in thousands) 30-89 Days Past Due 90 Days or Greater Past Due Total Past Due Loans Not Past Due Total Residential real estate: One-to four-family $ 4,264 $ 1,684 $ 5,948 $ 248,841 $ 254,789 Multi-family – – – 15,755 15,755 Construction 231 – 231 14,008 14,239 Land – – – 1,069 1,069 Farm – – – 1,313 1,313 Nonresidential real estate 809 – 809 29,520 30,329 Commercial non-mortgage – – – 867 867 Consumer and other: Loans on deposits – – – 795 795 Home equity 153 35 188 10,138 10,326 Automobile – – – 122 122 Unsecured -- – – 636 636 Total $ 5,457 $ 1,719 $ 7,176 $ 323,064 $ 330,240 22 Kentucky First Federal Bancorp NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) March 31, 2024 (unaudited) Note 4. Loans receivable (continued) The following tables present the aging of the principal balance outstanding in past due loans as of June 30, 2023, by class of loans: June 30, 2023: (in thousands) 30-89 Days Past Due Greater than 90 Days Past Due Total Past Due Loans Not Past Due Total Residential real estate One- to four-family $ 3,415 $ 1,514 $ 4,929 $ 235,147 $ 240,076 Multi-family - - - 19,067 19,067 Construction - - - 12,294 12,294 Land - - - 470 470 Farm - - - 1,346 1,346 Nonresidential real estate 662 - 662 29,555 30,217 Commercial and industrial - 28 28 1,156 1,184 Consumer and other Loans on deposits - - - 855 855 Home equity 168 267 435 8,782 9,217 Automobile - - - 104 104 Unsecured 17 - 17 594 611 $ 4,262 $ 1,809 $ 6,071 $ 309,370 $ 315,441 Credit Quality Indicators: The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis is performed on an annual basis. The Company uses the following definitions for risk ratings: Special Mention. Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date. Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. 23 Kentucky First Federal Bancorp NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) March 31, 2024 (unaudited) Note 4. Loans receivable (continued) Loans not meeting the criteria above that are analyzed individually as part of the above-described process are considered to be pass rated loans. Loans listed that are not rated are included in groups of homogeneous loans and are evaluated for credit quality based on performing status. See the aging of past due loan table above. As of March 31, 2024, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows: Revolving (in thousands) Term Loans Amortized Cost by Origination Fiscal Year Loans Amortized As of March 31, 2024 2024 2023 2022 2021 2020 Prior Cost Basis Total Residential real estate: One- to four-family Risk Rating: Pass $ 24,346 $ 50,368 $ 48,136 $ 43,911 $ 27,424 $ 55,244 $ - $ 249,429 Special mention - - - - - 138 - 138 Substandard - - -- 82 17 5,123 - 5,222 Doubtful - - - - - - - - Total $ 24,346 $ 50,368 $ 48,136 $ 43,933 $ 27,411 $ 60,505 $ - $ 254,789 Current period gross charge offs $ - $ - $ - $ - $ - $ 9 $ - $ 9 Multi-family Risk Rating: Pass $ 200 $ - $ 6,132 $ 5,948 $ 1,248 $ 2,227 $ - $ 15,755 Special mention - - - - - - - - Substandard - - - - - - - - Doubtful - - - - - - - - Total $ 200 $ - $ 6,132 $ 5,948 $ 1,248 $ 2,227 $ - $ 15,755 Current period gross charge offs $ - $ - $ - $ - $ - $ - $ - $ - Construction Risk Rating: Pass $ 5,660 $ 8,483 $ 23 $ - $ - $ 73 $ - $ 14,239 Special mention - - - - - - - - Substandard - - - - - - - - Doubtful - - - - - - - - Total $ 5,660 $ 8,483 $ 23 $ - $ - $ 73 $ - $ 14,239 Current period gross charge offs $ - $ - $ - $ - $ - $ - $ - $ - Land Risk Rating: Pass $ 508 $ 283 $ 215 $ - $ - $ 63 $ - $ 1,069 Special mention - - - - - - - - Substandard - - - - - - - - Doubtful - - - - - - - - Total $ 508 $ 283 $ 215 $ - $ - $ 63 $ - $ 1,069 Current period gross charge offs $ - $ - $ - $ - $ - $ - $ - $ - Farm Risk Rating: Pass $ 212 $ - $ 248 $ - $ 26 $ 827 $ - $ 1,313 Special mention - - - - - - - - Substandard - - - - - - - - Doubtful - - - - - - - - Total $ 212 $ - $ 248 $ - $ 26 $ 827 $ - $ 1,313 Current period gross charge offs $ - $ - $ - $ - $ - $ - $ - $ - Nonresidential real estate Risk Rating: Pass $ 2,564 $ 2,346 $ 3,165 $ 3,437 $ 5,795 $ 10,400 $ - $ 27,707 Special mention - - - - - 672 - 672 Substandard - 1,017 - - - 933 - 1,950 Doubtful - - - - - - - - Total $ 2,564 $ 3,363 $ 3,165 $ 3,437 $ 5,795 $ 12,005 $ - $ 30,329 Current period gross charge offs $ - $ - $ - $ - $ - $ - $ - $ - Commercial and industrial Risk Rating: Pass $ 328 $ - $ 398 $ 4 $ - $ 137 $ - $ 867 Special mention - - - - - - - - Substandard - - - - - - - - Doubtful - - - - - - - - Total $ 328 $ - $ 398 $ 4 $ - $ 137 $ - $ 867 Current period gross charge offs $ - $ - $ - $ - $ - $ - $ - $ - Share Loans Risk Rating: Pass $ 94 $ 95 $ - $ 17 $ 177 $ 412 $ - $ 795 Special mention - - - - - - - - Substandard - - - - - - - - Doubtful - - - - - - - - Total $ 94 $ 95 $ - $ 17 $ 177 $ 412 $ - $ 795 Current period gross charge offs $ - $ - $ - $ - $ - $ - $ - $ - Home Equity Risk Rating: Pass $ - $ - $ - $ - $ - $ - $ 9,904 $ 9,904 Special mention - - - - - - - - Substandard - - - - - - 422 422 Doubtful - - - - - - - - Total $ - $ - $ - $ - $ - $ - $ 10,326 $ 10,326 Current period gross charge offs $ - $ - $ - $ - $ - $ - $ - $ - Auto Risk Rating: Pass $ 69 $ 10 $ 37 $ 3 $ 2 $ 1 $ - $ 122 Special mention - - - - - - - - Substandard - - - - - - - - Doubtful - - - - - - - - Total $ 69 $ 10 $ 37 $ 3 $ 2 $ 1 $ - $ 122 Current period gross charge offs $ - $ - $ - $ - $ - $ - $ - $ - Unsecured Risk Rating: Pass $ 282 $ 120 $ 32 $ 174 $ 23 $ 5 $ - $ 636 Special mention - - - - - - - - Substandard - - - - - - - - Doubtful - - - - - - - - Total $ 282 $ 120 $ 32 $ 174 $ 23 $ 5 $ - $ 636 Current period gross charge offs $ - $ - $ - $ - $ - $ - $ - $ - 24 Kentucky First Federal Bancorp NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) March 31, 2024 (unaudited) Note 4. Loans receivable (continued) At March 31, 2024, the risk category of loans by class of loans was as follows: (in thousands) Pass Special Mention Substandard Doubtful Residential real estate: One- to four-family $ 249,429 $ 138 $ 5,222 $ - Multi-family 15,755 - - - Construction 14,239 - - - Land 1,069 - - - Farm 1,313 - - - Nonresidential real estate 27,707 672 1,950 - Commercial nonmortgage 867 - - - Consumer: Loans on deposits 795 - - - Home equity 9,904 - 422 - Automobile 122 - - - Unsecured 636 - - - $ 321,836 $ 810 $ 7,594 $ - At June 30, 2023, the risk category of loans by class of loans was as follows: (in thousands) Pass Special Mention Substandard Doubtful Residential real estate One- to four-family $ 234,765 $ 170 $ 5,141 $ - Multi-family 19,067 - - - Construction 12,294 - - - Land 470 - - - Farm 1,346 - - - Nonresidential real estate 27,816 684 1,013 - Commercial and industrial 1,184 - - - Consumer and other Loans on deposits 855 - - - Home equity 8,879 - 338 - Automobile 104 - - - Unsecured 611 - - - $ 307,391 $ 854 $ 6,492 $ - Purchased Credit Impaired Loans: The Company purchased loans during fiscal year 2013 for which there was, at acquisition, evidence of deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected. The carrying amount of those loans, net of a purchase credit discount of $ 88,000 and $ 88,000 at March 31, 2024 and June 30, 2023, respectively, is as follows: (in thousands) March 31, 2024 June 30, 2023 One- to four-family residential real estate $ 178 $ 196 Accretable yield, or income expected to be collected, is as follows: (in thousands) Nine months ended March 31, 2024 Twelve months ended June 30, 2023 Balance at beginning of period $ 294 $ 339 Accretion of income ( 30 ) ( 45 ) Balance at end of period $ 264 $ 294 For those purchased loans disclosed above, the Company made no increase in allowance for loan losses for the year ended June 30, 2023, nor for the nine-month period ended March 31, 2024. Neither were any allowance for loan losses reversed during those periods. 25 Kentucky First Federal Bancorp NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) March 31, 2024 (unaudited) Note 5. Disclosures About Fair Value of Assets and Liabilities ASC topic 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants (exit price) at the measurement date. ASC topic 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes six levels of inputs that may be used to measure fair value: Level 1 – Quoted prices in active markets for identical assets or liabilities. Level 2 – Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in active markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Following is a description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy. Securities Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics. Level 2 securities include agency mortgage-backed securities and agency bonds. Financial assets measured at fair value on a recurring basis are summarized below: Fair Value Measurements Using (in thousands) Fair Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) March 31, 2024 Agency mortgage-backed: residential $ 10,225 $ – $ 10,225 $ – June 30, 2023 Agency mortgage-backed: residential $ 12,080 $ – $ 12,080 $ – There were no assets or liabilities which were measured at fair value on a nonrecurring basis at March 31, 2024, and June 30, 2023. The following is a disclosure of the fair value of financial instruments, both assets and liabilities, whether or not recognized in the consolidated balance sheet, for which it is practicable to estimate that value. For financial instruments where quoted market prices are not available, fair values are based on estimates using present value and other valuation methods. The methods used are greatly affected by the assumptions applied, including the discount rate and estimates of future cash flows. Therefore, the fair values presented may not represent amounts that could be realized in an exchange for certain financial instruments. 26 Kentucky First Federal Bancorp NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) March 31, 2024 (unaudited) Note 5. Disclosures About Fair Value of Assets and Liabilities (continued) Based on the foregoing methods and assumptions, the carrying value and fair value of the Company’s financial instruments at March 31, 2024 and June 30, 2023 are as follows: Fair Value Measurements at Carrying March 31, 2024 Using (in thousands) Value Level 1 Level 2 Level 3 Total Financial assets Cash and cash equivalents $ 15,423 $ 15,423 $ 15,423 Available-for-sale securities 10,225 $ 10,225 10,225 Held-to-maturity securities 223 210 210 Loans receivable, net 328,134 315,358 315,358 Federal Home Loan Bank stock 4,528 n/a Accrued interest receivable 1,226 1,226 1,226 Financial liabilities Deposits $ 246,104 $ 82,126 $ 163,597 245,723 Federal Home Loan Bank advances 72,348 72,327 72,327 Advances by borrowers for taxes and insurance 643 643 643 Accrued interest payable 150 150 150 Fair Value Measurements at Carrying June 30, 2023 Using (in thousands) Value Level 1 Level 2 Level 3 Total Financial assets Cash and cash equivalents $ 8,167 $ 8,167 $ 8,167 Available-for-sale securities 12,080 $ 12,080 12,080 Held-to-maturity securities 274 259 259 Loans receivable - net 313,807 $ 293,530 293,530 Federal Home Loan Bank stock 4,623 n/a Accrued interest receivable 902 902 902 Financial liabilities Deposits $ 226,309 $ 88,994 $ 136,577 $ 225,571 Federal Home Loan Bank advances 70,087 69,863 69,863 Advances by borrowers for taxes and insurance 793 793 793 Accrued interest payable 70 70 70 27 Kentucky First Federal Bancorp NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) March 31, 2024 (unaudited) Note 6. Other Comprehensive Income (Loss) The Company’s other comprehensive loss is comprised solely of unrealized gains and losses on available-for-sale securities. The following is a summary of the accumulated other comprehensive loss balances, net of tax: (in thousands) Nine months ended March 31, 2024 Three months ended March 31, 2024 Balance at beginning of period $ ( 427 ) $ ( 334 ) Current period change 31 ( 62 ) Balance at end of period $ ( 396 ) $ ( 396 ) Other comprehensive income (loss) components and related tax effects for the periods indicated were as follows: Nine months ended Three months ended March 31, March 31, (in thousands) 2024 2023 2024 2023 Unrealized holding gains (losses) on available-for-sale securities $ 42 $ ( 480 ) $ ( 83 ) $ ( 24 ) Tax effect ( 11 ) 119 21 6 $ 31 $ ( 361 ) $ ( 62 ) $ ( 18 ) 28 Kentucky First Federal Bancorp ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forward-Looking Statements Certain statements contained in this report, as well as other periodic reports filed with the Securities and Exchange Commission, that are not historical facts are considered “forward-looking statements” under the Private Securities Litigation Reform Act of 1995, that are subject to certain risks and uncertainties. These forward-looking statements may be identified by the use of words such as “believe,” “expect,” “anticipate,” “plan,” “estimate,” “intend” and “potential,” or words of similar meaning, or future or conditional verbs such as “should,” “could,” or “may.” Forward-looking statements include statements of our goals, intentions and expectations; statements regarding our business plans, prospects, growth and operating strategies; statements regarding the quality of our loan and investment portfolios; and estimates of our risks and future costs and benefits. Kentucky First Federal Bancorp’s actual results, performance or achievements may materially differ from those expressed or implied in the forward-looking statements. Risks and uncertainties that could cause or contribute to such material differences include, but are not limited to, general economic conditions; prices for real estate in the Company’s market areas; the interest rate environment and the impact of the interest rate environment on our business, financial condition and results of operations; our ability to successfully execute our strategy to increase earnings, increase core deposits, reduce reliance on higher cost funding sources and shift more of our loan portfolio towards higher-earning loans; our ability to pay future dividends and if so at what level; our ability to receive any required regulatory approval or non-objection for the payment of dividends from First Federal Savings and Loan Association of Hazard and First Federal Savings Bank of Kentucky to the Company or from the Company to shareholders; competitive conditions in the financial services industry; changes in the 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; competitive pressures among financial services companies; the ability to attract, develop and retain qualified employees; 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, and the other matters mentioned in Item 1A of the Company’s Annual Report on Form 10-K for the year ended June 30, 2023 and in the Company’s Quarterly Report on Form 10-Q for the period ended December 31, 2023 and for the period ended September 30, 2023. 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. Asset/Liability Management Management and the boards of the subsidiary Banks are responsible for the asset/liability management issues that affect the individual Banks. Either Bank may work with its sister Bank to mitigate potential asset/liability risks to the Banks and to the Company as a whole. Management utilizes a third-party to perform interest rate risk (“IRR”) calculations for each of the Banks. Management monitors and considers methods of managing the rate sensitivity and repricing characteristics of each of the Bank’s balance sheet components to maintain acceptable levels of change in the economic value of equity (“EVE”) as well as evaluating the impact on earnings in the event of changes in prevailing market interest rates. Interest rate sensitivity analysis is used to measure our interest rate risk by computing estimated changes in EVE that are a result of changes in the net present value of its cash flows from assets, liabilities, and off-balance sheet items. These changes in cash flow are estimated based on hypothetical instantaneous and permanent increases and decreases in market interest rates. In March 2022 the Federal Open Market Committee (“FOMC”) of the Federal Reserve Bank began raising the target range for the fed funds rate of interest and since that time has raised the short-term interest rate by 500 basis points. At March 31, 2024, we believe our risk associated with rising interest rates was moderate. Our IRR model indicated that at December 31, 2023, our EVE was approximately 16.4%, despite the historic interest rate increases during the previous twelve months. Although general market participants believe that the FOMC will now pause interest rate increases for a period of time, our December 31, 2023 EVE is anticipated to be approximately 14.7% and 10.6% under sudden and sustained increase in prevailing market interest rates of 100 basis points and 200 basis points, respectively. Computations or prospective effects of hypothetical interest rate changes are based on numerous assumptions, including relative levels of market interest rates, loan prepayments, and deposit run-offs. These computations should not be relied upon as indicative of actual results. Further, the computations do not contemplate any actions the Banks may undertake in response to changes in interest rates. Certain shortcomings are inherent in this method of computing EVE. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in differing degrees to changes in market interest rates. The interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates. 29 Kentucky First Federal Bancorp MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Average Balance Sheets The following table represents the average balance sheets for the nine-month periods ended March 31, 2024 and 2023, along with the related calculations of tax-equivalent net interest income, net interest margin and net interest spread for the related periods. Nine Months Ended March 31, 2024 2023 Average Balance Interest And Dividends Yield/ Cost Average Balance Interest And Dividends Yield/ Cost (Dollars in thousands) Interest-earning assets: Loans 1 $ 323,370 $ 10,927 4.51 % $ 294,651 $ 8,522 3.86 % Mortgage-backed securities 11,300 288 3.40 13,787 345 3.34 Other interest-earning assets 14,817 619 5.57 13,241 359 3.61 Total interest-earning assets 349,487 11,834 4.51 321,679 9,226 3.82 Less: Allowance for credit losses (1,925 ) (1,611 ) Non-interest-earning assets 12,452 12,026 Total assets $ 360,014 $ 332,094 Interest-bearing liabilities: Demand deposits $ 17,159 $ 23 0.18 % $ 20,415 $ 29 0.19 % Savings 54,154 165 0.41 70,844 235 0.44 Certificates of deposit 156,984 4,122 3.50 115,822 844 0.97 Total interest-bearing deposits 228,297 4,310 2.52 207,081 1,108 0.71 Borrowings 65,645 2,432 4.94 58,348 1,193 2.73 Total interest-bearing liabilities 293,942 6,742 3.06 265,429 2,301 1.16 Noninterest-bearing demand deposits 14,738 13,588 Noninterest-bearing liabilities 1,732 1,467 Total liabilities 310,412 280,484 Shareholders’ equity 49,602 51,610 Total liabilities and shareholders’ equity $ 360,014 $ 332,094 Net interest spread $ 5,092 1.46 % $ 6,925 2.66 % Net interest margin 1.94 % 2.87 % Average interest-earning assets to average interest-bearing liabilities 118.90 % 120.19 % 1 Includes loan fees, immaterial in amount, in both interest income and the calculation of yield on loans. Also includes loans on nonaccrual status. 30 Kentucky First Federal Bancorp MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Average Balance Sheets The following table represents the average balance sheets for the three-month periods ended March 31, 2024 and 2023, along with the related calculations of tax-equivalent net interest income, net interest margin and net interest spread for the related periods. Three Months Ended March 31, 2024 2023 Average Balance Interest And Dividends Yield/ Cost Average Balance Interest And Dividends Yield/ Cost (Dollars in thousands) Interest-earning assets: Loans 1 $ 328,385 $ 3,841 4.68 % $ 304,014 $ 2,983 3.93 % Mortgage-backed securities 10,787 97 3.60 13,498 116 3.44 Other interest-earning assets 17,936 235 5.24 9,562 111 4.64 Total interest-earning assets 357,108 4,173 4.67 327,074 3,210 3.93 Less: Allowance for credit losses (2,130 ) (1,665 ) Non-interest-earning assets 12,611 12,309 Total assets $ 367,589 $ 337,718 Interest-bearing liabilities: Demand deposits $ 16,197 $ 7 0.17 % $ 19,370 $ 9 0.19 % Savings 51,366 53 0.41 63,810 62 0.39 Certificates of deposit 161,144 1,526 3.79 112,683 383 1.36 Total interest-bearing deposits 228,707 1,586 2.77 195,863 454 0.93 Borrowings 72,821 822 4.52 76,888 711 3.70 Total interest-bearing liabilities 301,528 2,408 3.19 272,751 1,165 1.71 Noninterest-bearing demand deposits 15,659 12,418 Noninterest-bearing liabilities 1,365 1,109 Total liabilities 318,552 286,278 Shareholders’ equity 49,037 51,440 Total liabilities and shareholders’ equity $ 367,589 $ 337,718 Net interest spread $ 1,765 1.48 % $ 2,045 2.22 % Net interest margin 1.98 % 2.50 % Average interest-earning assets to average interest-bearing liabilities 118.43 % 119.92 % 1 Includes loan fees, immaterial in amount, in both interest income and the calculation of yield on loans. Also includes loans on nonaccrual status. 31 Kentucky First Federal Bancorp MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Discussion of Financial Condition Changes from June 30, 2023 to March 31, 2024 Financial Position and Results of Operations At March 31, 2024 the Company and the Banks were considered well-capitalized with capital ratios in excess of regulatory requirements. However, an extended economic recession could adversely impact the Company’s and the Banks’ capital position and regulatory capital ratios due to a potential increase in credit losses. Assets: At March 31, 2024, the Company’s assets totaled $369.1 million, an increase of $20.1 million, or 5.8%, from total assets at June 30, 2023. This increase was attributed primarily to increases in loans, net, primarily in adjustable rate residential mortgage loans Cash and cash equivalents: Cash and cash equivalents increased $7.2 million or 88.8% to $15.4 million at March 31, 2024. Most of the Company’s cash and cash equivalents are held in interest-bearing demand deposits. Investment securities: At March 31, 2024, our securities portfolio, which consisted of mortgage-backed securities, decreased $1.9 million or 15.4% and totaled $10.4 million, compared to June 30, 2023. Loans : Loans, net increased $14.3 million or 4.6% and totaled $328.1 million at March 31, 2024. Management continues to look for high-quality loans to add to its portfolio and will continue to emphasize loan originations to the extent that it is profitable, prudent and consistent with our interest rate risk strategies. Non-Performing and Classified Loans: At March 31, 2024, the Company had non-performing loans (loans 90 or more days past due or on nonaccrual status) of approximately $5.2 million, or 1.6% of total loans (including acquired loans), compared to $5.4 million or 1.7%, of total loans at June 30, 2023. The Company’s ACL totaled $2.1 million at March 31, 2024 and the Company’s allowance for loan loss totaled $1.6 million at June 30, 2023. The ACL at March 31, 2024, represented 40.4% of nonperforming loans and 0.6% of total loans, while at June 30, 2023, ALLL represented 34.8% of nonperforming loans and 0.5% of total loans. The Company had $7.6 million in assets classified as substandard for regulatory purposes at March 31, 2024, and real estate owned (“REO”) of $10,000. Classified loans as a percentage of total loans (including loans acquired) was 2.4% and 2.3% at March 31, 2024 and June 30, 2023, respectively. Of substandard loans, 100.0% were secured by real estate on which the Banks have priority lien position. The table below shows the aggregate amounts of our assets classified for regulatory purposes at the dates indicated: (dollars in thousands) March 31, 2024 June 30, 2023 Substandard assets $ 7,594 $ 7,266 Doubtful assets – – Loss assets – – Total classified assets $ 7,594 $ 7,266 At March 31, 2024, the Company’s real estate acquired through foreclosure represented 0.1% of substandard assets compared to 0.1% at June 30, 2023. During the period presented the Company made no loans to facilitate the purchase of its other real estate owned by qualified buyers. Loans to facilitate the sale of other real estate owned, which were included in substandard loans, totaled $0 and $0 at March 31, 2024 and June 30, 2023, respectively. 32 Kentucky First Federal Bancorp MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Discussion of Financial Condition Changes from June 30, 2023 to March 31, 2024 (continued) The following table presents the aggregate carrying value of REO at the dates indicated: March 31, 2024 June 30, 2023 Number of Properties Net Carrying Value Number of Properties Net Carrying Value One- to four-family 1 $ 10 2 $ 70 Total REO 1 $ 10 2 $ 70 At March 31, 2024 and June 30, 2023, the Company had $810,000 and $854,000 of loans classified as special mention, respectively. This category includes assets which do not currently expose us to a sufficient degree of risk to warrant classification, but does possess credit deficiencies or potential weaknesses deserving our close attention. Liabilities: Total liabilities increased $21.8 million, or 7.3% to $320.1 million at March 31, 2024, as deposits increased $19.8 million or 8.7% to $246.1 million and advances increased $2.3 million or 3.2% to $72.3 million. Certificates of deposit increased $26.7 million or 19.4% and totaled $164.0 million at March 31, 2024, which included $43.9 million of brokered deposits, an increase of $22.9 million or 108.8%. Demand deposit accounts increased $1.6 million or 5.1% and totaled $33.0 million at quarter end. Savings accounts decreased $8.5 million or 14.7% and totaled $49.1 million at the end of the current period. The cost of liabilities has been increasing rapidly due to higher costs of both wholesale and retail funding. Continued increases in liability costs, especially for wholesale funds, will primarily be driven by future increases in market rates by the Federal Reserve. It is believed that we are near the peak of this rate cycle which, if so, will likely slow the increasing costs of our liabilities. Shareholders’ Equity: At March 31, 2024, the Company’s shareholders’ equity totaled $49.0 million, a decrease of $1.7 million or 3.3% from the June 30, 2023 total. The decrease in shareholders’ equity was primarily associated with adoption of the CECL accounting standard which resulted in a $414,000 net loss for the period and dividends paid on common stock. The Company paid dividends of $671,000 and had net loss of $643,000 for the nine-month period just ended. On July 6, 2023, the members of First Federal MHC again approved a dividend waiver on annual dividends of up to $0.40 per share of Kentucky First Federal Bancorp common stock. The Board of Directors of First Federal MHC applied for approval of another waiver. The Federal Reserve Bank of Cleveland has notified the Company that it did not object to the waiver of dividends paid by the Company to First Federal MHC, and, as a result, First Federal MHC was permitted to waive the receipt of dividends for quarterly dividends up to $0.10 per common share through the third calendar quarter of 2024. However, on October 13, 2023, the Company announced that future dividends will be reduced primarily due to the recent decline in earnings of the Banks. After careful consideration, on January 16, 2024, the board determined that it would be prudent to suspend the payment of dividends completely until such time as earnings and liquidity improve. Our ability to pay future dividends and if so at what level will also be dependent on our ability to successfully execute our strategy to increase earnings and core deposits, reduce reliance on higher cost funding sources and shift more of our loan portfolio towards higher-earning loans, and 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. Nevertheless, management continues to believe that a strong dividend is consistent with the Company’s long-term capital management strategy. See “Risk Factors” in Part II, Item 1A, of the Company’s Annual Report on Form 10-K for the year ended June 30, 2023 for additional discussion regarding dividends. 33 Kentucky First Federal Bancorp MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Comparison of Operating Results for the Nine-month Periods Ended March 31, 2024 and 2023 General Net income totaled $(643,000) or $(0.08) diluted earnings per share for the nine-months ended March 31, 2024, a decrease of $1.5 million or 172.2% from net income of $891,000 or $0.11 diluted earnings per share for the same period in 2023. The decrease in net earnings for the nine months ended March 31, 2024 was primarily attributable to lower net interest income, and higher non-interest expense, which were partially offset by lower income taxes and lower provision for credit losses. Net Interest Income Net interest income decreased $1.8 million or 26.5% to $5.1 million due primarily to interest expense increasing more than interest income increased period to period. Interest expense increased $4.4 million or 193.0%, while interest income increased $2.6 million or 28.3% to $11.8 million for the nine months ended March 31, 2024. During the unprecedented interest rate increases experienced in the market since March 2022, our funding sources have repriced more quickly than our assets have repriced, which has had a negative impact on net interest income. The average rate earned on interest-earning assets increased 69 basis points to 4.52% and was the primary reason for the increase in interest income. The increase in interest income was due primarily to an increase of $2.4 million or 28.2% in interest income from loans, which totaled $10.9 million for the period. The increase in interest income from loans period-to-period was due to increases in both the average balance of loans and the average rate earned on those loans. The average balance of loans increased $28.7 million or 9.8% to $323.4 million for the nine months ended March 31, 2024, while the average rate increased 65 basis points to 4.51%. The average balance of interest-bearing liabilities increased $28.5 million or 10.7% to $293.9 million for the nine months just ended, and the average rate paid increased 190 basis points to 3.06%. The cost of liabilities increased rapidly due to higher costs of both wholesale and retail funding. Continued increases in liability costs, especially for wholesale funds, will primarily be driven by future increases in market rates by the Federal Reserve. It is widely believed that we are near the peak of this rate cycle which, if so, will likely slow the increasing costs of our liabilities. Net interest spread decreased from 2.66% for the prior year quarterly period to 1.46% for the nine-month period ended March 31, 2024. Provision for (Recovery of) Credit Losses Management determined that a $13,000 recovery of credit losses was prudent in light of the strengthening loan portfolio overall during the recently ended nine-month period. Impaired loans are now being individually evaluated for specific loss allocation and are therefore excluded from the homogeneous pooled loss analysis. The result is a more targeted representation of currently expected credit losses on loans. 34 Kentucky First Federal Bancorp MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Comparison of Operating Results for the Nine-month Periods Ended March 31, 2024 and 2023 (continued) Non-interest Income Non-interest income decreased $37,000 or 15.7% to $199,000 for the nine months ended March 31, 2024, compared to the prior year period, primarily because of a decrease in other non-interest income, which is comprised of various items including bank-related fees and services. Non-interest Expense Non-interest expense increased $273,000 or 4.6% to $6.1 million for the nine months ended March 31, 2024, primarily due to higher outside service fee, FDIC insurance premiums, as well as higher employee compensation and benefits. Outside service fee expense increased $103,000 or 56.9% and totaled $284,000 due to additional professional expenses and costs associated with them. FDIC insurance premiums expense increased $101,000 or 160.3% and totaled $164,000 due to the FDIC increasing premiums throughout the industry in their effort to get the Deposit Insurance Fund closer to the statutory minimum of 1.35%. The ratio dipped after the recent bank failures of Silicon Valley Bank and Signature Bank. Employee compensation and benefits expense increased $64,000 or 1.7% and totaled $3.8 million for the nine months just ended due to additional salary expense. Income Tax Expense (Benefit) Income tax expense decreased $483,000 or 170.7% to an income tax benefit of $200,000 for the nine months ended March 31, 2024, compared to the prior year period due to decreased earnings. The effective tax rates for the nine-month periods ended March 31, 2024 and 2023, were 23.7% and 24.1%, respectively. Comparison of Operating Results for the Three-month Periods Ended March 31, 2024 and 2023 General Net loss totaled $107,000 or ($0.01) diluted earnings per share for the three months ended March 31, 2024, a decrease of $251,000 or 174.3% from net income of $144,000 or $0.02 diluted earnings per share for the same period in 2023. The decrease in net earnings for the quarter ended March 31, 2024, was primarily attributable to lower net interest income, and higher non-interest expense, which were partially offset by lower income taxes. 35 Kentucky First Federal Bancorp MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Net Interest Income Net interest income decreased $280,000 or 13.7% to $1.8 million due primarily to interest expense increasing more than interest income increased period to period. Interest expense increased $1.2 million or 106.7%, while interest income increased $963,000 or 30.0% to $4.2 million for the recently-ended quarter. During the unprecedented interest rate increases seen in the market since March 2022, our funding sources have repriced more quickly than our assets have repriced, which has had a negative impact on net interest income. The average rate earned on interest-earning assets increased 75 basis points to 4.67% and was the primary reason for the increase in interest income, although average interest-earning assets also increased $30.0 million or 9.2% to $357.1 million for the recently-ended quarterly period. The increase in interest income was due primarily to an increase of $858,000 or 28.8% in interest income from loans, which totaled $3.8 million for the period. The increase in interest income from loans period-to-period was due to increases in both the average balance of loans and the average rate earned on those loans. The average balance of loans increased $24.4 million or 8.0% to $328.4 million for the three months ended March 31, 2024, while the average rate increased 75 basis points to 4.68%. The average balance of interest-bearing liabilities increased $28.8 million or 10.6% to $301.5 million for the quarter just ended, and the average rate paid increased 149 basis points to 3.19%. The cost of liabilities increased rapidly due to higher costs of both wholesale and retail funding. Continued increases in liability costs, especially for wholesale funds, will primarily be driven by future increases in market rates by the Federal Reserve. It is widely believed that we are near the peak of this rate cycle which, if so, will likely slow the increasing costs of our liabilities. Net interest spread decreased from 2.22% for the prior year quarterly period to 1.48% for the three-month period ended March 31, 2024. Provision for (Recovery of) Credit Losses Management determined that a $28,000 recovery of credit losses was prudent in light of the strengthening loan portfolio overall during the recently ended three-month period. Impaired loans are now being individually evaluated for specific loss allocation and are therefore excluded from the homogeneous pooled loss analysis. The result is a more targeted representation of currently expected credit losses on loans. Comparison of Operating Results for the Three-month Periods Ended March 31, 2024 and 2023 (continued) Non-interest Income Non-interest income increased $9,000 or 13.0% to $78,000 for the recently ended quarter primarily due to net gain on sales of loans, which increased from $0 to $8,000 for the three months ended March 31, 2024. Non-interest Expense Non-interest expense increased $100,000 or 5.2% and totaled $2.0 million for the three months ended March 31, 2024, primarily due to increased auditing and accounting expense, FDIC insurance premiums and other various bank expenses. Income Tax Expense (Benefit) Income taxes decreased $92,000 or 170.4% from an expense of $58,000 for the three months ended March 31, 2023, to a benefit of $38,000 for the recently ended period. The effective tax rates for the three-month periods ended March 31, 2024 and 2023, were 26.2% and 27.3%, respectively. 36 Kentucky First Federal Bancorp ITEM 3: Quantitative and Qualitative Disclosures About Market Risk This item is not applicable as the Company is a smaller reporting company. ITEM 4: Controls and Procedures The Company’s Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined under Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report, and have concluded that the Company’s disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the Securities and Exchange Commission (the “SEC”) (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Based upon their evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have also concluded that there were no significant changes during the quarter ended March 31, 2024 in the Company’s internal control over financial reporting or in other factors that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. 37 Kentucky First Federal Bancorp PART II-OTHER INFORMATION ITEM 1. Legal Proceedings None. ITEM 1A. Risk Factors Please see “Item 1A. Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended June 30, 2023 and in the Company’s Quarterly Report on Form 10-Q for the period ended December 31, 2023 and for the period ended September 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 mentioned above, there have been no 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 June 30, 2023. ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds (c) The following table sets forth information regarding Company’s repurchases of its common stock during the quarter ended March 31, 2024. Period Total # of shares purchased Average price paid per share (including commissions) Total # of shares purchased as part of publicly announced plans or programs Maximum # of shares that may yet be purchased under the plans or programs January 1-31, 2024 – $ – – – February 1-28, 2024 – $ – – – March 1-31, 2024 – $ – – – (1) On May 18, 2023, the Company announced that it had substantially completed its program to repurchase up to 150,000 shares of its Common Stock, which was initiated on February 3, 2021. ITEM 3. Defaults Upon Senior Securities Not applicable. ITEM 4. Mine Safety Disclosures. Not applicable. ITEM 5. Other Information During the fiscal quarter ended March 31, 2024, none of our directors or officers informed us of the adoption or termination of a “Rule 10b5-1 trading arrangement or “non-Rule 10b5-1 trading arrangement,” as those terms are defined in Item 408 of Regulation S-K. 38 Kentucky First Federal Bancorp ITEM 6. Exhibits 3.1 1 Charter of Kentucky First Federal Bancorp 3.2 2 Bylaws of Kentucky First Federal Bancorp, as amended and restated 3.3 3 Amendment No. 1 to the Bylaws of Kentucky First Federal Bancorp 3.4 4 Amendment No. 2 to the Bylaws of Kentucky First Federal Bancorp 3.4 5 Amendment No. 3 to the Bylaws of Kentucky First Federal Bancorp 4.1 1 Specimen Stock Certificate of Kentucky First Federal Bancorp 31.1 CEO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 CFO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1 CEO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2 CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 101.0 The following materials from Kentucky First Federal Bancorp’s Quarterly Report On Form 10-Q for the quarter ended March 31, 2024 formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Balance Sheets; (ii) the Consolidated Statements of Operations; (iii) the Condensed Consolidated Statements of Comprehensive Income; (iv) the Consolidated Statements of Changes in Shareholders’ Equity; (v) the Condensed Consolidated Statements of Cash Flows: and (vi) the related Notes. 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). (1) Incorporated herein by reference to the Company’s Registration Statement on Form S-1 (File No. 333-119041). (2) Incorporated herein by reference to the Company’s Annual Report on Form 10-K for the Year Ended June 30, 2012 (File No. 0-51176). (3) Incorporated herein by reference to the Company’s Current Report on Form 8-K filed August 25, 2017 (File No. 0-51176). (4) Incorporated herein by reference to the Company’s Current Report on Form 8-K filed September 28, 2020 (File No. 0-51176). (5) Incorporated herein by reference to the Company’s Current Report on Form 8-K filed February 2, 2022 (File No. 51176). 39 Kentucky First Federal Bancorp SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. KENTUCKY FIRST FEDERAL BANCORP Date: May 15, 2024 By: /s/ Don D. Jennings Don D. Jennings Chief Executive Officer Date: May 15, 2024 By: /s/ Tyler W. Eades Tyler W. Eades Vice President and Chief Financial Officer 40