What changed in this filing

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Item 1A. Risk Factors

2024-10-03 compared with 2023-09-28 · 331 added, 271 removed, 225 unchanged (73% of the section changed)

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and asset values .

In response to the COVID-19 virus pandemic, the

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

interest rate environment remained in effect until March 2022.

However, in light of elevated inflation and a strong labor market, the

FOMC commenced increasing the target range for the federal funds rate.

Since maintaining a federal funds rate target in the range of 0%

to 0.25% from March 2020 through 2021, the Federal Reserve Board made multiple rate increases during 2022 and 2023 increasing the target

federal funds rate to a range of 5.00% to 5.25% as of June 2023, and subsequently to a range of 5.25% to 5.50% as of August 2023.

future direction and levels of interest rates remain uncertain.

The increase in interest rates has caused our

net interest income to decline.

Net income decreased $657,000 or 41.3% compared to the fiscal year ended June 30, 2022 primarily due to

decreased net interest income, decreased non-interest income, increased provision for loan losses, and increased non-interest expenses,

which were somewhat offset by decreased income taxes.

Net interest income decreased $304,000 or 3.3% and totaled $8.9 million for the

year just ended, as interest income increased $1.8 million or 16.9% to $12.8 million and interest expense increased $2.1 million or 122.5%

to $3.9 million.

Our funding sources repriced more quickly during the interest rate increases than our assets.

Consequently, the increase

in our interest expense was attributed primarily to higher average rates paid on both deposits and FHLB advances, while the increase in

our interest income was a combination of both higher average balances and higher rates earned on those assets.

If interest rates continue

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

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

such as loans and investments.

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

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

Beginning in March, 2022, the Federal Reserve

Board’s Open Market Committee (“FOMC”) started raising interest rates to combat elevated inflation and a strong labor

Rates continued to increase through August 2023.

The increase in interest rates has caused our net interest income to

Net interest income decreased $1.8 million or 20.3% compared to the fiscal year ended June 30, 2023 primarily due to an increase

in interest expense of $5.4 million or 137.9%, offset somewhat by an increase in interest income $3.5 million or 27.6%.

Our funding sources

repriced more quickly during the interest rate increases than our assets.

Consequently, the increase in our interest expense was attributed

primarily to higher average rates paid on both deposits and FHLB advances, while the increase in our interest income was a combination

of both higher average balances and higher rates earned on those assets.

In September 2024, the FOMC decided to lower the target range

for the federal funds rate by 50 basis points to 4 3/4 to 5 percent.

Nevertheless, if interest rates rise in the future, our

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

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

and investments.

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

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

While we believe that modest interest

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

Changes in interest rates also affect the value

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

Generally, the value of fixed-rate securities fluctuates inversely

with changes in interest rates.

Changes in interest rates also affect the value of our interest-earning

assets, and in particular our securities portfolio.

Generally, the value of fixed-rate securities fluctuates inversely with changes in

interest rates.

Unrealized gains and losses on securities available for sale are reported as separate components of equity.

Decreases in the fair value of securities available for sale resulting from increases in interest rates therefore could have an adverse

effect on stockholders’ equity.

in the fair value of securities available for sale resulting from increases in interest rates therefore could have an adverse effect on

stockholders’ equity.

At June 30, 2024, this decrease in fair value of the securities, otherwise known as Accumulated other comprehensive

loss totaled $336,000 or 3.4% of our securities portfolio.

Rising interest rates may adversely affect

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Inflationary pressures are currently expected to remain elevated throughout 2024.

Inflation could

lead to increased costs to our customers, making it more difficult for them to repay their loans or other obligations.

High interest rates

may be needed to tame persistent inflationary price pressures, which could also push down asset prices and weaken economic activity.

deterioration in economic conditions in the United States and our markets could result in an increase in loan delinquencies and non-performing

could lead to increased costs to our customers, making it more difficult for them to repay their loans or other obligations.

High interest

rates may be needed to tame persistent inflationary price pressures, which could also push down asset prices and weaken economic activity.

A deterioration in economic conditions in the United States and our markets could result in an increase in loan delinquencies and non-performing

assets, decreases in loan collateral values and a decrease in demand for our products and services, all of which, in turn, would adversely

affect our business, financial condition and results of operations.

If our allowance for loan losses is not

If our allowance for credit losses is not

sufficient to cover actual loan losses, our results of operations would be negatively affected.

In determining the amount of the allowance for

loan losses, we analyze our loss and delinquency experience by loan categories and we consider the effect of existing economic conditions.

credit loss, we analyze our loss and delinquency experience by loan categories and we consider the effect of existing economic conditions.

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

of our borrowers and the value of the real estate and other assets serving as collateral for the repayment of many of our loans.

actual results are different from our estimates, or our analyses are incorrect, our allowance for loan losses may not be sufficient to

actual results are different from our estimates, or our analyses are incorrect, our allowance for credit loss may not be sufficient to

cover losses inherent in our loan portfolio, which would require additions to our allowance and would decrease our net income.

on loan growth and on increasing our portfolio, as well as any future credit deterioration, will require us to increase our allowance

further in the future.

In addition, our banking regulators periodically review our allowance for loan losses and could require us to increase

our provision for loan losses.

Any increase in our allowance for loan losses or loan charge-offs as required by regulatory authorities

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

on loan growth or shifting the types of loans the banks make, as well as any future credit deterioration, could require us to increase

our allowance further in the future.

In addition, our banking regulators periodically review our allowance for loan losses and could

require us to increase our provision for loan losses.

Any increase in our allowance for credit loss or loan charge-offs as required by

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

A large percentage of our loans are collateralized

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

Approximately 96.3% of our loan portfolio at June

30, 2023 was comprised of loans collateralized by real estate.

Disruptions in the real estate market could significantly impair the value

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

The real estate collateral in each case provides an alternate

source of repayment in the event of default by the borrower and may deteriorate in value during the time the credit is extended.

estate values decline, it will become more likely that we would be required to increase our allowance for loan losses.

If during a period

of reduced real estate values, we are required to liquidate the collateral securing a loan to satisfy the debt or to increase our allowance

for loan losses, it could materially reduce our profitability and adversely affect our financial condition.

Approximately 96.1% of our loan portfolio at June 30, 2024 was comprised

of loans collateralized by real estate.

Disruptions in the real estate market could significantly impair the value of our collateral and

our ability to sell the collateral upon foreclosure.

The real estate collateral in each case provides an alternate source of repayment

in the event of default by the borrower and may deteriorate in value during the time the credit is extended.

If real estate values decline,

it will become more likely that we would be required to increase our allowance for loan losses.

If during a period of reduced real estate

values, we are required to liquidate the collateral securing a loan to satisfy the debt or to increase our allowance for credit losses,

it could materially reduce our profitability and adversely affect our financial condition.

Our concentration of residential mortgage

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loss levels difficult to predict.

A decline in residential real estate values as a result of a downturn in the local housing markets or

in the markets in neighboring states in which we originate residential mortgage loans could reduce the value of the real estate collateral

A decline in residential real estate values as a result of a downturn in the local housing markets

or in the markets in neighboring states in which we originate residential mortgage loans could reduce the value of the real estate collateral

securing these types of loans.

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of our mortgage servicing rights can be volatile.

We plan to continue to sell our longer-term, conforming

and non-conforming fixed-rate loans that we originate to generate noninterest income.

We also earn revenue from fees we receive for servicing

mortgage loans.

Changes in interest rates may impact our mortgage banking revenues, which could negatively impact our noninterest income.

When rates rise, the demand for mortgage loans usually tends to fall, reducing loan origination volume and the related amount of gains

on the sales of loans.

Under the same conditions, net revenue from our mortgage servicing activities can increase due to slower prepayments,

which reduces our amortization expense for mortgage servicing rights.

When rates fall, mortgage originations usually tend to increase

and the value of our mortgage servicing rights usually tends to decline, also with some offsetting revenue effect.

During the fiscal year

ended June 30, 2023, non-interest income decreased $213,000 or 41.4% and totaled $302,000, primarily due to decreased gains on loan sales.

We plan to continue to sell our longer-term,

conforming and non-conforming fixed-rate loans that we originate to generate noninterest income.

We also earn revenue from fees we receive

for servicing mortgage loans.

Changes in interest rates may impact our mortgage banking revenues, which could negatively impact our noninterest

When rates rise, the demand for mortgage loans usually tends to fall, reducing loan origination volume and the related amount

of gains on the sales of loans.

Under the same conditions, net revenue from our mortgage servicing activities can increase due to slower

prepayments, which reduces our amortization expense for mortgage servicing rights.

When rates fall, mortgage originations usually tend

to increase and the value of our mortgage servicing rights usually tends to decline, also with some offsetting revenue effect.

the fiscal year ended June 30, 2024, non-interest income decreased $51,000 or 16.9% and totaled $251,000, primarily due to decreased

participation and service fee income.

In addition, our results of operations are affected

by the amount of noninterest expenses associated with mortgage banking activities, such as salaries and employee benefits (including commissions),

occupancy, equipment and data processing expense, and other operating costs.

During periods of reduced loan demand, our results of operations

may be adversely affected to the extent that we are unable to reduce expenses commensurate with the decline in mortgage loan origination

by the amount of noninterest expenses associated with mortgage banking activities, such as salaries and employee benefits (including

commissions), occupancy, equipment and data processing expense, and other operating costs.

During periods of reduced loan demand, our

results of operations may be adversely affected to the extent that we are unable to reduce expenses commensurate with the decline in

mortgage loan origination activity.

Liquidity Risk

Financial challenges at other banking institutions could lead

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

In March 2023, Silicon Valley Bank and Signature Bank experienced large

deposit outflows coupled with insufficient liquidity to meet withdrawal demands, resulting in the institutions being placed into FDIC

receivership.

Financial challenges at other banking institutions

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

In March 2023, Silicon Valley Bank and Signature

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

being placed into FDIC receivership.

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

In the aftermath of these events, there has been

substantial market disruption and concerns that diminished depositor confidence could spread across the banking industry, leading to deposit

outflows that could destabilize other institutions.

To strengthen public confidence in the banking system, the FDIC took action to protect

funds held in uninsured deposit accounts at Silicon Valley Bank, Signature Bank and First Republic Bank.

However, the FDIC has not committed

to protecting uninsured deposits in other institutions that experience outsized withdrawal demands.

To further bolster the banking system,

the Federal Reserve Board created a new Bank Term Funding Program to provide an additional source of liquidity.

At June 30, 2023, we had

$20.2 million in available liquidity, including $8.2 million in cash and cash equivalents.

Our uninsured deposits are estimated to be

approximately $13.8 million or 6.10% of total deposits.

At June 30, 2023, we had off-balance sheet liquidity sources totaling $89.3 million,

including $87.3 million in additional borrowing capacity at the Federal Home Loan Bank of Cincinnati.

Notwithstanding our significant

liquidity, large deposit outflows could adversely affect our financial condition and results of operations and could result in the closure

of the Banks.

Furthermore, the recent bank failures may result in strengthening of capital and liquidity rules which, if the revised rules

apply to us, could adversely affect our financial condition and results of operations.

In the aftermath of these

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

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

To strengthen public confidence in the banking system,

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

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

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

of liquidity.

At June 30, 2024, we had $27.9 million in available liquidity, including $18.3 million in cash and cash equivalents.

uninsured deposits are estimated to be approximately $17.5 million or 6.83% of total deposits.

At June 30, 2024, we had off-balance sheet

liquidity sources totaling $89.3 million, including $71.4 million in additional borrowing capacity at the Federal Home Loan Bank of Cincinnati.

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

and could result in the closure of the Banks.

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

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

Insufficient liquidity or liquidity related

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growth and prospects.

We require sufficient liquidity to fund loan commitments,

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

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

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

Our sources of liquidity

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

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

Our access to funding sources in

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

or the financial services industry or economy in general.

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

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

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

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

require sufficient liquidity to fund loan commitments, satisfy depositor withdrawal requests, make payments on our debt obligations as

they become due, and meet other cash commitments.

Liquidity risk is the potential that we will be unable to meet our obligations as they

become due because of an inability to liquidate assets or obtain adequate funding at a reasonable cost, in a timely manner and without

adverse conditions or consequences.

Our sources of liquidity consist primarily of cash, assets readily convertible to cash (such as investment

securities), increases in deposits, advances, as needed, from the FHLB, borrowings, as needed, from the Federal Reserve Bank of Cleveland

and other borrowings.

Our access to funding sources in amounts adequate to finance our activities or on acceptable terms could be impaired

by factors that affect our organization specifically or the financial services industry or economy in general.

Any substantial, unexpected,

and/or prolonged change in the level or cost of liquidity, or any liquidity related requirements imposed by our regulators, could impair

our ability to fund operations, pay dividends on outstanding shares of stock, enact stock repurchases, and meet our obligations as they

become due and could have a material adverse effect on our business, financial condition and results of operations.

On January 16, 2024, the Company announced

the suspension of quarterly dividends indefinitely.

The suspension of our quarterly cash dividend could have an adverse impact on the

market price of our common stock.

Holders of our common stock are only entitled

to receive such dividends as our Board of Directors may declare out of funds available for such payments under applicable law and regulatory

Although we have historically declared cash dividends on our common stock, we are not required to do so, and on January 16,

2024, the Company announced the suspension of quarterly dividends indefinitely.

We cannot predict when or whether the Company will be

able to pay future common stock dividends and if so, the amount of any such common stock dividends.

The suspension of our common stock

dividend could adversely affect the market price of our common stock.

Risks Related to Our Business and Industry

We expect that the implementation of a new

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

condition and results of operations.

The Financial Accounting Standards Board (“FASB”)

has adopted a new accounting standard that will be effective for the Kentucky First, First Federal of Hazard and First Federal of Kentucky

for our fiscal year beginning July 1, 2023.

This standard, referred to as Current Expected Credit Loss, or CECL, will require financial

institutions to determine periodic estimates of lifetime expected credit losses on loans, and provide for the expected credit losses as

allowances for loan losses.

This will change the current method of providing allowances for loan losses that are probable, which we expect

could require us to increase our allowance for loan losses, and will likely greatly increase the data we would need to collect and review

to determine the appropriate level of the allowance for loan losses.

Any increase in our allowance for loan losses, or expenses incurred

to determine the appropriate level of the allowance for loan losses, may have a material adverse effect on our financial condition and

results of operations.

Our FDIC deposit insurance premiums and

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

Price competition for loans and deposits might

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

Some of the institutions with

which we compete have substantially greater resources than we have and may offer services that we do not provide.

Price competition for loans and deposits

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

Some of the institutions

with which we compete have substantially greater resources than we have and may offer services that we do not provide.

We expect competition

to increase in the future as a result of legislative, regulatory and technological changes and the continuing trend of consolidation in

the financial services industry.

to increase in the future as a result of legislative, regulatory and technological changes and the continuing trend of consolidation

in the financial services industry.

Our profitability will depend upon our continued ability to compete successfully in our market areas.

Risks Related to Laws and Regulations

We are required to comply with the terms

of a formal written agreement and IMCRs issued by the OCC, and lack of compliance could result in monetary penalties and /or additional

regulatory actions.

On August 13, 2024, First Federal of Kentucky

entered into a formal written agreement (the “Agreement”) with the OCC, which became effective as of the same date.

of the Agreement, pursuant to 12 C.F.R.

§ 5.51(c)(7)(ii), First Federal of Kentucky is in “troubled condition,” and is

not an “eligible savings association” for purposes of 12 C.F.R.

§ 5.3, unless otherwise informed in writing by the OCC.

In addition to the formal written Agreement, the OCC has also imposed individual minimum capital requirements (“IMCRs”) on

First Federal of Kentucky.

The IMCRs require First Federal of Kentucky to maintain a common equity tier 1 capital ratio of at least 9.0%,

a tier 1 capital ratio of at least 11.0%, a total capital ratio of at least 12.0%, and a leverage ratio of at least 9.0%.

2024, First Federal of Kentucky exceeded the requirements of the IMCRs as its common equity tier 1 capital ratio was 16.25%, its tier

1 capital ratio was 16.25%, its total capital ratio was 16.25%, and its leverage ratio was 10.24%.

Under the terms of the Agreement, First Federal

of Kentucky is required to take the following actions within the time frames specified in the Agreement:

● create a compliance committee composed of at

least three of First Federal of Kentucky’s directors to monitor and oversee First Federal of Kentucky’s compliance with the

provisions of the Agreement and submit quarterly evaluation reports to First Federal of Kentucky’s board of directors regarding

actions First Federal of Kentucky has taken to comply with the Agreement and the results and status of such actions;

● submit to the OCC, adopt and implement an acceptable

revised written three-year strategic plan establishing objectives for First Federal of Kentucky’s overall risk profile, balance

sheet mix, funding structure, interest rate risk, liquidity and capital adequacy, earnings performance, and asset and core deposit growth,

together with strategies to achieve those objectives;

● submit to the OCC, adopt and implement an acceptable

revised written succession plan for First Federal of Kentucky that is designed to promote adequate staffing and continuity of capable

● adopt a revised written liquidity risk management

program for First Federal of Kentucky that provides for the identification, measurement, monitoring, and control of First Federal of Kentucky’s

liquidity risk exposure, and that emphasizes the importance of cash flow projections, diversified funding sources, a cushion of highly

liquid assets, robust liquidity stress testing scenario analyses, and a formal, well-developed contingency funding plan as primary tools

for measuring and managing liquidity risk;

● adopt a revised written interest rate risk program

that includes risk management systems to identify, measure, monitor, and control interest rate risk.

The Agreement requires First Federal of Kentucky’s

Board to (i) ensure that First Federal of Kentucky timely adopts and implements all corrective actions required by the Agreement and (ii)

verify that First Federal of Kentucky adheres to the corrective actions and that they are effective in addressing First Federal of Kentucky’s

deficiencies that resulted in the Agreement.

The Agreement will remain in effect until it is

amended by First Federal of Kentucky and the OCC, or the OCC modifies, waives or terminates the Agreement.

While First Federal of Kentucky

is subject to the Agreement, we expect that the Board and management will be required to focus considerable time and attention on taking

corrective actions to comply with its terms.

First Federal of Kentucky’s Board and management

are committed to fully addressing the provisions of the Agreement within the required time frames.

The OCC may determine, however, in

its sole discretion that the issues raised by the Agreement have not been addressed satisfactorily, or that any current or past actions,

violations or deficiencies could be the subject of further regulatory enforcement actions.

If the OCC were to determine that First Federal

of Kentucky was not in compliance with the Agreement, it would have available various remedies, including among others, the power to enjoin

“unsafe or unsound” practices, to require affirmative action to correct any conditions resulting from any violation or practice,

to direct an increase in capital, to restrict the growth of First Federal of Kentucky, to remove officers and/or directors, to assess

civil monetary penalties, and to impose limitations on our business at First Federal of Kentucky, any of which could negatively affect

our ability to implement our business plan and pay dividends on or our common stock, and may negatively affect the value of our common

stock as well as our financial condition and results of operations.

Changes in laws and regulations and the

cost of regulatory compliance with new laws and regulations may adversely affect our operations and/or increase our costs of operations.

The Banks are subject to extensive regulation,

supervision and examination by the OCC.

The Company is subject to extensive regulation, supervision and examination by the Federal Reserve

Such regulation and supervision govern the activities in which an institution and its holding company may engage and is intended

primarily for the protection of the federal deposit insurance fund and the depositors of the Banks rather than the protection of the Company’s

stockholders.

Regulatory authorities have extensive discretion in their supervisory and enforcement activities, including the imposition

of restrictions on our operations, the classification of our assets and determination of the adequacy of the level of our allowance for

These regulations, along with existing tax, accounting, securities, insurance and monetary laws, rules, standards, policies,

and interpretations, control the methods by which financial institutions conduct business, implement strategic initiatives and tax compliance,

and govern financial reporting and disclosures.

Any change in such regulation and oversight, whether in the form of regulatory policy,

regulations, legislation or supervisory action, may have a material impact on our operations.

Further, changes in accounting standards

can be both difficult to predict and involve judgment and discretion in their interpretation by us and our independent accounting firm.

These changes could materially impact, potentially even retroactively, how we report our financial condition and results of operations.

The Banks are subject to extensive regulation, supervision and examination

The Company is subject to extensive regulation, supervision and examination by the Federal Reserve Board.

Such regulation

and supervision govern the activities in which an institution and its holding company may engage and is intended primarily for the protection

of the federal deposit insurance fund and the depositors of the Banks rather than the protection of the Company’s stockholders.

Regulatory authorities have extensive discretion in their supervisory and enforcement activities, including the imposition of restrictions

on our operations, the classification of our assets and determination of the adequacy of the level of our allowance for credit losses.

These regulations, along with existing tax, accounting, securities, insurance and monetary laws, rules, standards, policies, and interpretations,

control the methods by which financial institutions conduct business, implement strategic initiatives and tax compliance, and govern financial

reporting and disclosures.

Any change in such regulation and oversight, whether in the form of regulatory policy, regulations, legislation

or supervisory action, may have a material impact on our operations.

Further, changes in accounting standards can be both difficult to

predict and involve judgment and discretion in their interpretation by us and our independent accounting firm.

These changes could materially

impact, potentially even retroactively, how we report our financial condition and results of operations.

Non-compliance with the USA PATRIOT Act,

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verifying the identity of customers seeking to open new financial accounts.

Failure to comply with these regulations could result in fines

or sanctions, including restrictions on pursuing any acquisitions or establishing or acquiring new branches.

Failure to comply with these regulations could result in

fines or sanctions, including restrictions on pursuing any acquisitions or establishing or acquiring new branches.

The policies and procedures

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condition and results of operations cannot be predicted.

We may be adversely affected by recent changes

We may be adversely affected by recent

changes in U.S.

tax laws and regulations.

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Included in this legislation were:

(i) a lower limit on the deductibility of

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

a limitation on the deductibility of business interest expense and (iv) a limitation on the deductibility of property taxes and state

and local income taxes.

(i) a lower limit on the deductibility

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

(iii) a limitation on the deductibility of business interest expense and (iv) a limitation on the deductibility of property taxes and

state and local income taxes.

The recent changes in the tax laws may have an

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make it harder for borrowers to make their loan payments.

If home ownership becomes less attractive, demand for mortgage loans could decrease.

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

ownership, which could require an increase in our provision for loan losses, which would reduce our profitability and could materially

If home ownership becomes less attractive, demand for mortgage loans could

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

of home ownership, which could require an increase in our provision for loan losses, which would reduce our profitability and could materially

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

We may be subject to more stringent

capital requirements which could result in lower returns on equity, require the raising of additional capital, and limit our ability to

pay dividends or repurchase shares of our common stock.

capital requirements which could result in lower returns on equity, require the raising of additional capital, and limit our ability

to pay dividends or repurchase shares of our common stock.

Federal regulations establish minimum capital

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

See Note K-Stockholders’

As previously

discussed, in August 2024, First Federal of Kentucky entered into an Agreement with the OCC.

The OCC has also imposed IMCRs which require

First Federal of Kentucky to achieve and maintain capital levels in excess of the minimum capital standards required under OCC’s

Prompt Corrective Action framework.

Under the IMCRs, First Federal of Kentucky must achieve and maintain a common equity tier 1 capital

ratio of at least 9.0%, a tier 1 capital ratio of at least 11.0%, a total capital ratio of at least 12.0%, and a leverage ratio of at

At June 30, 2024, First Federal of Kentucky exceeded the requirements of the IMCRs as its common equity tier 1 capital ratio

was 16.25%, its tier 1 capital ratio was 16.25%, its total capital ratio was 16.25%, and its leverage ratio was 10.24% See Note K-Stockholders’

Equity and Regulatory Capital of Notes to Consolidated Financial Statements.

The application of more stringent capital requirements

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

actions constraining us from paying dividends or repurchasing shares if we were unable to comply with such requirements.

See “Regulation

and Supervision—Regulation of Federal Savings Associations—Capital Requirements.”

The Federal Reserve Board may require us to commit capital

resources to support the Banks.

Federal law requires that a holding company act as a source of financial

and managerial strength to its subsidiary banks and to commit resources to support such subsidiary banks.

Under the “source of strength”

doctrine, the Federal Reserve Board may require a holding company to make capital injections into a troubled subsidiary bank and may

charge the holding company with engaging in unsafe and unsound practices for failure to commit resources to a subsidiary bank.

injection may be required at times when the holding company may not have the resources to provide it and therefore may be required to

borrow the funds or raise capital.

Thus, any borrowing or funds needed to raise capital required to make a capital injection may be more

expensive or difficult to obtain and could have an adverse effect on our business, financial condition and results of operations.

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

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

to comply with such requirements.

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

Requirements.”

The Federal Reserve Board may require us to commit capital resources

to support the Banks.

Federal law requires that a holding company act

as a source of financial and managerial strength to its subsidiary banks and to commit resources to support such subsidiary banks.

the “source of strength” doctrine, the Federal Reserve Board may require a holding company to make capital injections into

a troubled subsidiary bank and may charge the holding company with engaging in unsafe and unsound practices for failure to commit resources

to a subsidiary bank.

A capital injection may be required at times when the holding company may not have the resources to provide it

and therefore may be required to borrow the funds or raise capital.

Thus, any borrowing or funds needed to raise capital required to

make a capital injection may be more expensive or difficult to obtain and could have an adverse effect on our business, financial condition

and results of operations.

Risks Related to Accounting Matters

Changes in management’s estimates and assumptions may have

a material impact on our consolidated financial statements and our financial condition or operating results.

In preparing the periodic reports and consolidated financial statements

we file under the Securities Exchange Act of 1934, as amended, our management is and will be required under applicable rules and regulations

to make estimates and assumptions as of a specified date.

These estimates and assumptions are based on management’s best estimates

and experience as of that date and are subject to substantial risk and uncertainty.

Materially different results may occur as circumstances

change and additional information becomes known.

Areas requiring significant estimates and assumptions by management include our evaluation

of the adequacy of our allowance for loan losses, the valuation of mortgage servicing rights, and the fair value of financial instruments.

Changes in management’s estimates and assumptions may

have a material impact on our consolidated financial statements and our financial condition or operating results.

In preparing the periodic reports and consolidated

financial statements we file under the Securities Exchange Act of 1934, as amended, our management is and will be required under applicable

rules and regulations to make estimates and assumptions as of a specified date.

These estimates and assumptions are based on management’s

best estimates and experience as of that date and are subject to substantial risk and uncertainty.

Materially different results may occur

as circumstances change and additional information becomes known.

Areas requiring significant estimates and assumptions by management

include our evaluation of the adequacy of our allowance for loan losses, the valuation of mortgage servicing rights, and the fair value

of financial instruments.

Changes in accounting standards could affect reported earnings.

The bodies responsible for establishing accounting standards, including

the Financial Accounting Standards Board, the Securities and Exchange Commission and other regulatory bodies, periodically change the

financial accounting and reporting guidance that governs the preparation of our financial statements.

These changes can be hard to predict

and can materially impact how we record and report our consolidated financial condition and results of operations.

In some cases, we could

be required to apply new or revised guidance retroactively.

If we are required to impair our goodwill, intangibles, or other

long-lived assets, our financial condition and results of operations would be adversely affected.

Pursuant to Accounting Standards Codification (“ASC”) 350,

Intangibles - Goodwill and Other and ASC 360, Property, Plant and Equipment, we are required to perform an annual impairment review of

goodwill, intangibles and other long-lived assets which could result in an impairment charge if it is determined that the carrying value

of the assets are in excess of the fair value.

We perform the impairment test annually during our fourth fiscal quarter.

Goodwill, intangibles

and other long-lived assets are also tested more frequently if changes in circumstances or the occurrence of events indicates that a potential

impairment exists.

When changes in circumstances, such as changes in the variables associated with the judgments, assumptions and estimates

made in assessing the appropriate fair value indicate the carrying amount of certain assets may not be recoverable, the assets are evaluated

for impairment.

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

As of June 30, 2020,

management early adopted ASU 2017-04, Intangibles-Goodwill and Other (Topic 350):

Simplifying the Test for Goodwill Impairment, which

simplifies the required method for estimating the fair value of the Company.

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

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

our results of operations.

The bodies responsible for establishing accounting

standards, including the Financial Accounting Standards Board, the Securities and Exchange Commission and other regulatory bodies, periodically

change the financial accounting and reporting guidance that governs the preparation of our financial statements.

These changes can be

hard to predict and can materially impact how we record and report our consolidated financial condition and results of operations.

some cases, we could be required to apply new or revised guidance retroactively.

If we are required to impair our goodwill,

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

Pursuant to Accounting Standards Codification

(“ASC”) 350, Intangibles - Goodwill and Other and ASC 360, Property, Plant and Equipment, we are required to perform an annual

impairment review of goodwill, intangibles and other long-lived assets which could result in an impairment charge if it is determined

that the carrying value of the assets are in excess of the fair value.

We perform the impairment test annually during our fourth fiscal

Goodwill, intangibles and other long-lived assets are also tested more frequently if changes in circumstances or the occurrence

of events indicates that a potential impairment exists.

When changes in circumstances, such as changes in the variables associated with

the judgments, assumptions and estimates made in assessing the appropriate fair value indicate the carrying amount of certain assets

may not be recoverable, the assets are evaluated for impairment.

If actual operating results differ from these assumptions, it may result

in an asset impairment.

As of June 30, 2020, management early adopted ASU 2017-04, Intangibles-Goodwill and Other (Topic 350):

the Test for Goodwill Impairment, which simplifies the required method for estimating the fair value of the Company.

Future write-downs

of intangibles and other long-lived assets could affect certain of the financial covenants under our debt agreements, could restrict

our financial flexibility, and would impact our results of operations.

In the period ended June 30, 2024, the Company recorded a goodwill

impairment charge, which had no tax impact, of $947,000, which represents 100.0% of goodwill previously reported.

Risks Related to Operational Matters

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

We rely on standard Internet security systems

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

These precautions may not protect our systems

from compromises or breaches of our security measures, which could result in significant legal liability and significant damage to our

reputation and our business.

We rely on standard Internet security

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

These precautions may not protect

our systems from compromises or breaches of our security measures, which could result in significant legal liability and significant

damage to our reputation and our business.

Our security measures may not protect us

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they will be adequately addressed if they do.

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

to certain third-party providers.

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

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

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

functions to certain third-party providers.

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

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

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

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technology-driven.

Our ability to meet the needs of our customers competitively, and in a cost-efficient manner, is dependent on the ability

to keep pace with technological advances and to invest in new technology as it becomes available, as well as related essential personnel.

In addition, technology has lowered barriers to entry into the financial services market and made it possible for financial technology

companies and other non-bank entities to offer financial products and services traditionally provided by banks.

The ability to keep pace

with technological change is important, and the failure to do so, due to cost, proficiency or otherwise, could have a material adverse

impact on our business and therefore on our financial condition and results of operations.

Our ability to meet the needs of our customers competitively, and in a cost-efficient manner, is dependent on the

ability to keep pace with technological advances and to invest in new technology as it becomes available, as well as related essential

In addition, technology has lowered barriers to entry into the financial services market and made it possible for financial

technology companies and other non-bank entities to offer financial products and services traditionally provided by banks.

to keep pace with technological change is important, and the failure to do so, due to cost, proficiency or otherwise, could have a material

adverse impact on our business and therefore on our financial condition and results of operations.

Risks Related to Our Holding Company Structure

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

First Federal MHC owns a majority of our common

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

As a federally

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

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

Therefore, the votes cast by First

Federal MHC may not be in your personal best interests as a stockholder.

For example, First Federal MHC may exercise its voting control

to prevent a sale or merger transaction in which stockholders could receive a premium for their shares, prevent a second-step conversion

transaction by First Federal MHC or defeat a stockholder nominee for election to the Board of Directors of Kentucky First Federal.

implementation of a stock-based incentive plan will require approval of Kentucky First Federal’s stockholders other than First Federal

Federal Reserve Board regulations would likely prevent an acquisition of Kentucky First other than by another mutual holding company

or a mutual institution.

Our ability to pay dividends is subject

First Federal MHC owns a majority of our common stock and, through

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

As a federally chartered mutual

holding company, the board of directors of First Federal MHC must ensure that the interests of depositors of First Federal of Hazard are

represented and considered in matters put to a vote of stockholders of Kentucky First.

Therefore, the votes cast by First Federal MHC

may not be in your personal best interests as a stockholder.

For example, First Federal MHC may exercise its voting control to prevent

a sale or merger transaction in which stockholders could receive a premium for their shares, prevent a second-step conversion transaction

by First Federal MHC or defeat a stockholder nominee for election to the Board of Directors of Kentucky First Federal.

However, implementation

of a stock-based incentive plan will require approval of Kentucky First Federal’s stockholders other than First Federal MHC.

Reserve Board regulations would likely prevent an acquisition of Kentucky First other than by another mutual holding company or a mutual

Our ability to pay future dividends is subject

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

waiver of dividends by First Federal MHC.

On January 16, 2024, we announced that the Board had determined to suspend the payment of dividends

indefinitely.

Our long-term ability to pay dividends to our

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

First Federal MHC owns a majority

of Kentucky First Federal’s outstanding stock.

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

First common shares it owns, in which case the amount of dividends paid to public stockholders is significantly higher than it would be

if First Federal MHC accepted dividends.

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

to continue, subject to member and regulatory approval annually.

First Federal MHC is required to obtain a waiver from the Federal Reserve

Board allowing it to waive its right to dividends.

First Federal MHC owns a majority of Kentucky

First Federal’s outstanding stock.

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

shares it owns and, without the waiver of such dividends, the amount of dividends paid to public stockholders is significantly higher

than it would be if First Federal MHC accepted dividends.

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

this practice to continue, subject to member and regulatory approval annually, to the extent Kentucky First continues to pay dividends

in future periods.

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

The Federal Reserve Board in 2011 issued regulations

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First Federal MHC has received Federal Reserve

Board approval to waive quarterly dividends totaling $0.40 per share annually beginning with the dividend paid on September 28, 2012 and

continuing through the dividend payable in the third quarter of 2024.

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

dividends, except to the extent dividends are needed to fund First Federal MHC’s continuing operations, subject to the ability of

First Federal MHC to obtain regulatory approval of its requests to waive dividends and to its ability to obtain member approval of dividend

We cannot predict whether members will continue

to approve annual dividend waiver requests or whether the Federal Reserve Board will grant future dividend waiver requests and, if granted,

there can be no assurance as to the conditions, if any, the Federal Reserve Board will place on future dividend waiver requests by grandfathered

mutual holding companies such as First Federal MHC.

If First Federal MHC is unable to waive the receipt of dividends, our ability to pay

dividends to our stockholders may be substantially impaired and the amounts of any such dividends may be significantly reduced.

Unresolved Staff Comments .

Board approval to waive quarterly dividends totaling $0.40 per share annually beginning with the dividend paid on September 28, 2012

and continuing through the dividend payable in the third quarter of 2024.

It is expected that First Federal MHC will continue to waive

future dividends, to the extent Kentucky First continues to pay dividends in future periods, except to the extent dividends are needed

to fund First Federal MHC’s continuing operations, subject to the ability of First Federal MHC to obtain regulatory approval of

its requests to waive dividends and to its ability to obtain member approval of dividend waivers.

We cannot predict whether members will

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

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

by grandfathered mutual holding companies such as First Federal MHC.

If First Federal MHC is unable to waive the receipt of dividends,

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

On January 16, 2024, we announced that the Board

had determined to suspend the payment of dividends indefinitely.

For additional information regarding suspension of our quarterly dividend,

please see “Liquidity Risk - On January 16, 2024, the Company announced the suspension of quarterly dividends

indefinitely.

The suspension of our quarterly cash dividend could have an adverse impact on the market price of our common stock.”

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

What changed 10-K

Item 1A. Risk Factors