Exhibit 13

Parent company of

First Federal Savings and Loan Association of Hazard

and

First Federal Savings Bank of Kentucky

2021

Annual Report

KENTUCKY FIRST FEDERAL BANCORP

Kentucky First Federal Bancorp (“Kentucky First” or the “Company”) was formed under federal law in March 2005 and is the holding company for First Federal Savings and Loan Association of Hazard, Hazard, Kentucky (“First Federal of Hazard”) and First Federal Savings Bank of Kentucky, Frankfort, Kentucky (“First Federal of Kentucky”) (collectively, the “Banks”). Kentucky First’s operations consist primarily of operating the Banks as two independent, community-oriented savings institutions.

First Federal of Hazard is a federally chartered savings and loan association offering traditional financial services to consumers in Perry and surrounding counties in eastern Kentucky. First Federal of Hazard engages primarily in the business of attracting deposits from the general public and using such funds to originate, when available, loans secured by first mortgages on owner-occupied, residential real estate and, occasionally, other loans secured by real estate. To the extent there is insufficient loan demand in its market area, and where appropriate under its investment policies, First Federal of Hazard has historically invested in mortgage-backed and other securities, although since formation of the Company in 2005, First Federal of Hazard has been purchasing whole loans and participations in loans originated at First Federal of Kentucky.

First Federal of Kentucky is a federally chartered savings bank which is primarily engaged in the business of attracting deposits from the general public and the origination primarily of adjustable-rate loans secured by first mortgages on owner-occupied and non-owner-occupied one-to four-family residences in Franklin, Boyle, Garrard and surrounding counties in Kentucky. First Federal of Kentucky also originates, to a lesser extent, home equity loans, loans secured by churches, multi-family properties, professional office buildings and other types of property, as well as consumer loans and commercial and industrial loans.

MARKET INFORMATION

The Company’s common stock began trading under the symbol “KFFB” on the Nasdaq National Market on March 3, 2005. There are currently 8,222,046 shares of common stock outstanding and approximately 557 holders of record of the common stock. Following are the high and low closing prices, by fiscal quarter, as reported on the Nasdaq National Market during the periods indicated, as well as dividends declared on the common stock during each quarter.

Fiscal 2021	High		Low		Dividends Per Share
First quarter	$	6.80	$	5.65	$	0.10
Second quarter		8.15		5.67		0.10
Third quarter		8.16		6.15		0.10
Fourth quarter		7.50		6.46		0.10

Fiscal 2020	High		Low		Dividends Per Share
First quarter	$	8.12	$	6.78	$	0.10
Second quarter		8.15		7.10		0.10
Third quarter		8.14		4.40		0.10
Fourth quarter		7.94		5.50		0.10

TABLE OF CONTENTS

Kentucky First Federal Bancorp		i
Market Information		i
Letter to Shareholders		1
Selected Consolidated Financial and Other Data		2
Management’s Discussion and Analysis of Financial Condition and Results of Operations		4
Consolidated Financial Statements		31

Dear Shareholder:

We are pleased to present the 2021 Annual Report for Kentucky First Federal Bancorp. We encourage you to read both the Annual Report and Proxy Statement. We encourage you to vote and, if possible, to attend our annual meeting on November 18, 2021. We again plan to have this year’s meeting at the main office of First Federal Savings Bank of Kentucky, 216 West Main Street, Frankfort, Kentucky. If you wish to attend, prior to the meeting we ask that you contact Secretary Lee Ann Hockensmith at 1-888-818-3372 or leeann.hockensmith@ffsbky.bank to discuss the safety protocols we will have in place for the meeting.

Our Company continues to weather the pandemic storm quite well and this past year saw additional improvement from changes put in place previously. We continue to focus on community banking during this difficult time by concentrating on our core business, which is attracting local deposits and lending funds primarily for one-to-four family residences. Our loan portfolio increased by $12.0 million this year raising our three-year growth level to $27.6 million or 10.2%. At the same time we successfully navigated the emergency interest rate reduction from early 2020 through the repricing of interest-bearing liabilities. We continue to leverage the Banks’ infrastructure by offering long-term, fixed-rate mortgages to customers through our relationship with the Federal Home Loan Bank of Cincinnati. This relationship allows us to help customers with financial products they want without exposing the Banks to undue interest rate risk, all while maintaining our customer relationship through the servicing of the loan.

As shareholders, we appreciate the members of First Federal Savings and Loan for their continued support of the dividend waiver. For the eighth year in a row, they have voted overwhelmingly to allow us to waive the dividend which allows Kentucky First to pay a competitive dividend.

I would like to take this opportunity to congratulate three long-term employees on their retirements. Stan Betsworth retired last June after working in Frankfort for 17 years. Patty Luttrell retired in December after serving for 21 years in Frankfort. Kaye Craft retired in April after serving 43 years in Hazard and Janet Lewis retired in June after serving 38 years in Frankfort.

Please keep First Federal in mind for your banking needs in Frankfort, Danville, Lancaster, and Hazard and to recommend us to family and friends. All of our markets are very competitive and, while we market to offer attractive rates and useful products, often it is word of mouth or any additional help our shareholders can provide is appreciated. When you bank with us, you help yourself (and we think you will enjoy our excellent products and services.) Please let us know if there’s anything we can do for you.

Sincerely,

Don Jennings

SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

Selected Financial Condition Data

	At June 30,
	2021		2020		2019		2018		2017
	(Dollars in thousands)
Total assets	$	338,063	$	321,136	$	330,771	$	318,394	$	301,489
Cash and cash equivalents		21,648		13,702		9,861		9,343		12,804
Time deposits		247		2,229		6,962		5,692		4,201
Securities held to maturity		462		598		775		1,002		1,487
Securities available for sale		33		541		1.045		48		71
Loans, net		297,902		285,887		280,969		270,310		258,244
Deposits		226,843		212,273		195,836		195,653		182,845
Federal Home Loan Bank advances		56,873		54,715		66,703		53,052		55,780
Shareholders’ equity		52,296		51,911		66,278		67,203		67,146
Allowance for loan losses		1,622		1,488		1,456		1,576		1,533
Nonperforming loans (90 days delinquent and nonaccrual)		6,655		7,395		8,028		7,665		6,810

Selected Operating Data

	Year Ended June 30,
	2021		2020			2019		2018			2017
	(Dollars in thousands, except per share data)
Total interest income	$	12,152	$	12,823		$	12,700	$	11,886		$	11,316
Total interest expense		2,141		3,499			3,252		2,161			1,457
Net interest income		10,011		9,324			9,448		9,725			9,859
Provision for losses on loans		192		103			11		185			242
Net interest income after provision for losses on loans		9,819		9,221			9,437		9,540			9,617
Total non-interest income		595		399			243		691			362
Goodwill impairment		--		13,560			--		--			--
Total non-interest expenses		8,242		8,343			8,727		8,945			8,531
(Loss) income before federal income taxes		2,172		(12,283	)		953		1,286			1,448
Federal income taxes (benefit)		352		264			141		(37	)		513
Net (loss) income	$	1,820	$	(12,547	)	$	812	$	1,323		$	935

Net (loss) earnings per share – basic	$	0.22	$	(1.52	)	$	0.10	$	0.16		$	0.11

Net (loss) earnings per share – diluted	$	0.22	$	(1.52	)	$	0.10	$	0.16		$	0.11

Cash dividends declared per common share	$	0.40	$	0.40		$	0.40	$	0.40		$	0.40

Selected Financial Ratios and Other Data (1)

	Year Ended June 30,
	2021			2020			2019			2018			2017
Performance Ratios:
Return on average assets (net (loss) income divided by average total assets)		0.55	%		(3.80	%)		0.25	%		0.43	%		0.31	%
Return on average equity (net (loss) income divided by average equity)		3.50			(19.01	)		1.21			1.97			1.39
Interest rate spread (combined weighted average interest rate earned less combined weighted average interest rate cost)		3.00			2.82			2.97			3.28			3.52
Net interest margin (net interest income divided by average interest-earning assets)		3.14			3.05			3.19			3.43			3.63
Ratio of average interest-earning assets to average interest-bearing liabilities		120.39			119.57			120.03			120.11			120.34
Ratio of total general administrative and other expenses to average total assets		2.50			6.63			2.72			2.88			2.84
Efficiency ratio (1)		79.14			225.27			90.05			85.88			83.47
Dividend payout ratio (2)		76.26			(11.06	)		176.85			109.75			159.04

Asset Quality Ratios:
Nonperforming loans as a percent of total loans at end of period (3)		2.22			2.57			2.84			2.80			2.62
Nonperforming assets as a percent of total assets at end of period (3)		1.99			2.50			2.64			2.64			2.32
Allowance for loan losses as a percent of total loans at end of period		0.54			0.52			0.52			0.58			0.59
Allowance for loan losses as a percent of nonperforming loans at end of period		24.47			20.12			18.14			20.56			22.51
Provision for loan losses to total loans		0.06			0.04			0.00			0.07			0.09
Net charge-offs to average loans outstanding		0.02			0.03			0.05			0.05			0.09

Capital Ratios:
Average equity to average assets		15.79			19.97			20.89			21.66			22.45
Shareholders’ equity or capital to total assets at end of period		15.47			16.16			20.05			21.15			21.77

Consolidated Regulatory Capital Ratios:
Common equity Tier 1		27.48			26.08			26.79			29.46			30.01
Tier 1 (core) capital to risk-weighted assets		27.48			26.08			26.79			29.46			30.01
Total capital to risk-weighted assets		27.48			26.08			27.54			30.34			30.88
Tier 1 leverage capital to average assets		15.35			15.67			16.65			17.51			18.43

Number of banking offices		7			7			7			7			7

(1)

Efficiency ratio represents the ratio of non-interest expenses divided by the sum of net interest income and total non-interest income.

(2)

Represents dividends paid as a percent of net (loss) earnings. Dividends paid does not include dividends waived by First Federal MHC.

(3)

Nonperforming loans consist of nonaccrual loans, accruing loans greater than 90 days delinquent, and restructured loans not performing according to their revised terms, while nonperforming assets consist of nonperforming loans and real estate acquired through foreclosure.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

References in this Annual Report to “we,” “us,” and “our” refer to Kentucky First Federal Bancorp and where appropriate, collectively to Kentucky First Federal Bancorp, First Federal of Hazard and First Federal of Kentucky.

Forward-Looking Statements

Certain statements contained in this Annual Report that are not historical facts are forward-looking statements that are subject to certain risks and uncertainties. When used herein, the terms “anticipates,” “plans,” “expects,” “believes,” and similar expressions as they relate to the Company or its management are intended to identify such forward-looking statements. 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, interest rate environment, competitive conditions in the financial services industry, changes in law, governmental policies and regulations, rapidly changing technology affecting financial services, the potential effects of COVID-19 pandemic on the local and national economic environment, on our customers and on our operations (as well as any changes to federal, state and local government laws, regulations and orders in connection with the pandemic), and the other matters described in Item 1A of our Annual Report on Form 10-K for the year ended June 30, 2021. We wish to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made.

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 such statements or to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

General

The Company was incorporated as a mid-tier holding company under the laws of the United States on March 2, 2005, upon the completion of the reorganization of First Federal of Hazard into a federal mutual holding company form of organization (the “Reorganization”). On that date, Kentucky First also completed its minority stock offering and its concurrent acquisition of Frankfort First Bancorp, Inc. (“Frankfort First Bancorp”) and its wholly owned subsidiary, First Federal of Kentucky, Frankfort Kentucky (“First Federal of Kentucky”) (the “Merger”). Following the Reorganization and Merger, the Company has operated First Federal of Hazard and First Federal of Kentucky (collectively, the “Banks”) as two independent, community-oriented savings institutions.

On December 31, 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.

Our results of operations are dependent primarily on net interest income, which is the difference between the income earned on our loans and securities and our cost of funds, consisting of the interest paid on deposits and borrowings. Results of operations are also affected by the provision for losses on loans and service charges and fees collected on our deposit accounts. Our general, administrative and other expense primarily consists of employee compensation and benefits expense, occupancy and equipment expense, data processing expense, other operating expenses and state and federal income taxes. Results of operations are also significantly affected by general economic and competitive conditions, particularly changes in interest rates, government policies and actions of regulatory authorities.

Business Continuity, Processes and Controls

In response to the Covid-19 pandemic the Banks are considered essential businesses and have remained open for business. We implemented our pandemic preparedness plan and generally maintained regular business hours through drive-through facilities, automated teller machines, remote deposit capture and online and mobile banking applications. We offer by-appointment options for transactions requiring in-person contact while maintaining social distancing mandates and surface cleaning protocols. Our staff is practicing recommended personal hygiene protocols and social distancing while working on premises. We do not face current material resource constraints through the implementation of our pandemic preparedness plan and do not anticipate incurring any material cost related to its implementation. We have not identified any material operational or internal control challenges or risks, nor do we anticipate any significant challenges to our ability to maintain our systems and controls, related to operational changes resulting from implementation of the pandemic preparedness plan.

Financial Position and Results of Operations

Bank regulators have issued guidance and are encouraging banks to work with customers affected by COVID-19. Accordingly, we have been actively working with borrowers affected by COVID-19 by offering a payment deferral program providing for either a three-month interest-only period or a full payment deferral for three months. While interest and fees will continue to accrue to income, under normal GAAP accounting if eventual credit losses on these deferred payments emerge, interest and/or fee income accrued may need to be reversed. As a result, interest income in future periods could be negatively impacted. At this time management anticipates that the deferral program will have an immaterial impact to the Company’s financial condition and results of operation, while recognizing that a sustained negative economic impact from COVID-19 could change this assessment, as borrowers’ ability to repay is impacted in future periods.

At June 30, 2021 the Company and the Banks were considered well-capitalized with capital ratios in excess of regulatory requirements. However, an extended economic recession resulting from the COVID-19 pandemic could adversely impact the Company’s and the Banks’ capital position and regulatory capital ratios due to a potential increase in credit losses.

Lending Operations and Credit Risk

As noted in Note C-Loans in the Notes to Financial Statements herein, the Company continues working with its borrowers who are negatively impacted by COVID-19 by offering a payment deferral program. During the year ended June 30, 2021, a total of $815,000 in loans were accepted into the Company’s loan payment deferral plan. At June 30, 2021 all of those loans had reached the end of their three-month deferral periods and returned to regular payment status.

The CARES Act includes a Paycheck Protection Program (“PPP”), which is administered by the Small Business Administration (“SBA”) and is designed to aid small- and medium-sized businesses through federally-guaranteed loans disbursed through banks. These loans are intended to provide eight weeks of payroll and other costs to assist those businesses to either remain open or to re-open quickly and allow their workers to pay their bills. First Federal of Kentucky qualified as an SBA lender to assist the small business community in securing this important funding. As of the date of this filing, First Federal of Kentucky had approved and closed with the SBA 45 PPP loans representing approximately $1.5 million in funding. It is our understanding that loans funded through the PPP are fully guaranteed by the United States government and, if the borrower complies with provisions of the program, will be forgiven by the SBA. Should those circumstances change, the bank could be required to increase its allowance for loan and lease losses related to these loans resulting in an increase in the provision for loan and lease losses.

The Banks are prepared to continue to offer short-term assistance in accordance with regulatory guidelines. Management continues to identify and monitor weaknesses in the loan portfolio resulting from fallout from the pandemic. On a portfolio level, management continues to monitor aggregate exposures to highly sensitive segments such as residential rental properties for changes in asset quality and payment performance. Management also monitors unfunded commitments such as lines of credit and overdraft protection to determine liquidity and funding issues that may arise with our customers. If economic conditions worsen, the Company could need to increase its required allowance for loan losses through additional provisions for loan losses. It is possible that the Company’s asset quality metrics could be materially and adversely impacted in future periods, if the effects of COVID-19 are prolonged.

Income. We have two primary sources of pre-tax income. The first is net interest income, which is the difference between interest income, the income that we earn on our loans and investments, and interest expense, the interest that we pay on our deposits and borrowings.

To a much lesser extent, we also recognize pre-tax income from fee and service charges, which is the compensation we receive from providing financial products and services. However, during the twelve months ended June 30, 2021, we generated significant revenue from the sale of loans.

Expenses. The expenses we incur in operating our business consist of compensation, taxes and benefits, office occupancy, data processing fees, taxes and other expenses.

Compensation, taxes and benefits consist primarily of the salaries and wages paid to our employees and directors, payroll taxes and expenses for retirement and other employee benefits.

Office occupancy expenses, which are the fixed and variable costs of buildings and equipment, consist primarily of taxes, depreciation charges, maintenance and costs of utilities.

Data processing fees primarily include fees paid to our third-party data processing providers.

Taxes consist of the current and deferred portion of federal and state income taxes. Effective January 1, 2021, the Banks became subject to state income tax in the Commonwealth of Kentucky in lieu of the Savings and Loan tax to which they had previously been subject.

Other expenses include expenses for attorneys, accountants and consultants, advertising, telephone, employee training and education, charitable contributions, insurance, office supplies, postage and other miscellaneous operating activities.

Critical Accounting Policies

Our accounting and reporting policies comply with U.S. GAAP and conform to general practices within the banking industry. We believe that of our significant accounting policies, the following may involve a higher degree of management assumptions and judgments that could result in materially different amounts to be reported if conditions or underlying circumstances were to change.

Allowance for Loan Losses. The allowance for loan losses is the estimated amount considered necessary to cover probable incurred losses in the loan portfolio at the balance sheet date. The allowance is established through the provision for losses on loans, which is charged against income.

The management and the Boards of the Company and of First Federal of Hazard and First Federal of Kentucky review the allowance for loan losses on a quarterly basis. Consideration is given to a variety of factors in establishing this estimate including, but not limited to, current economic conditions, delinquency statistics, geographic and industry concentrations, the adequacy of the underlying collateral, the financial strength of the borrower, results of internal loan reviews, volume and mix of the loan portfolio and other relevant factors. This evaluation is inherently subjective, as it requires material estimates that may be susceptible to change. Management considers the economic climate in the Banks’ respective lending areas to be among the factors most likely to have an impact on the level of the required allowance for loan losses.

Management continues to monitor and evaluate factors which could have an impact on the required level of the allowance. Management watches for national issues that may negatively affect a significant percentage of homeowners in the Banks’ lending areas. These may include significant increases in unemployment or significant depreciation in home prices. Management reviews employment statistics periodically when determining the allowance for loan losses and generally finds the unemployment rates in both lending areas to be high in relation to historical trends. Management has no current plans to alter the type of lending or collateral currently offered, but if such plans change or market conditions result in large concentrations of certain types of loans, such as commercial real estate or high loan-to-value ratio residential loans, management would respond with an increase in the overall allowance for loan losses.

The analysis has two components, specific and general allocations. Loans are classified as either homogenous or other. Homogenous loans are analyzed in the aggregate according to various criteria. Non-homogenous loans receive additional scrutiny and are classified as impaired or unimpaired. Specific allocations are made for loans that are determined to be impaired. Impairment is measured by determining the present value of expected future cash flows or, for collateral-dependent loans, the fair value of the collateral adjusted for market conditions and selling expenses. A loan is considered to be collateral-dependent when the circumstances of the borrower indicate that we can no longer rely upon the overall financial strength of that borrower to comply with the terms of the loan and that the loan will likely be repaid in whole or in part by proceeds from the sale of the collateral. Updated independent appraisals are ordered in most situations where management has determined to evaluate a loan for impairment. The general allocation is determined by segregating the remaining loans by type of loan, risk weighting (if applicable) and payment history. We also analyze historical loss experience, delinquency trends, general economic conditions and geographic and industry concentrations. This analysis establishes factors that are applied to the loan groups to determine the amount of the general reserve. Actual loan losses may be significantly more than the allowances we have established and, if so, this could have a material negative effect on our financial results.

Goodwill. We test goodwill for impairment at least annually and more frequently, if circumstances indicate its value may not be recoverable. We test goodwill for impairment by comparing the fair value of the reporting unit to the book value of the reporting unit. If the fair value exceeds book value, then goodwill is not considered to be impaired. Based on the annual goodwill impairment test at June 30, 2021, and consideration of potential triggering events through year end, management does not believe any of the goodwill is impaired. In the fiscal year ended June 30, 2020, we recorded a non-cash $13.6 million goodwill impairment charge, which had no income tax impact. See Note F-Goodwill in the Notes to Financial Statements for additional information regarding the goodwill impairment charge we recorded at June 30, 2020.

Deferred Taxes. We evaluate deferred tax assets and liabilities quarterly. We will realize these assets and liabilities to the extent profitable or carry back tax losses to periods in which we paid income taxes. Our determination of the realization of the deferred tax asset will be based upon management’s judgment of various future events and uncertainties, including the timing and amount of future income we will earn and the implementation of various tax plans to maximize realization of the deferred tax assets. Management believes the Company will generate sufficient operating earnings to realize the deferred tax benefits. Examinations of our income tax returns or changes in tax law may impact the tax liabilities and resulting provisions for income taxes.

Our Operating Strategy

Our mission is to operate and grow profitable, community-oriented financial institutions serving primarily retail customers in our market areas. We plan to pursue a strategy of:

●

operating two community-oriented savings institutions, First Federal of Hazard, which serves customers in Perry and surrounding counties in eastern Kentucky, and First Federal of Kentucky, which serves customers primarily in the central Kentucky counties of Franklin, Boyle and Garrard, as well as their surrounding counties. Each Bank emphasizes traditional thrift activities of accepting deposits and originating primarily residential mortgage loans for portfolio;

●

continuing our historic heavy reliance on our deposit base to fund our lending and investment activities and to supplement deposits with Federal Home Loan Bank of Cincinnati (“FHLB”) advances when advantageous or necessary. We expect our projected deposit mix to generally retain its existing composition of passbook, transaction and certificate of deposit accounts;

●

gradually pursuing opportunities to increase and diversify lending in our market areas;

●

applying conservative underwriting practices to maintain the high quality of our loan portfolios;

●

managing our net interest margin and interest rate risk; and

●

entertaining possibilities of expansion into other markets through branching or acquisition, if such possibilities are beneficial to the Company’s shareholders, provide a good fit within the Company’s mutual holding company framework and can be accomplished without undue encumbrance of the Company’s other operational areas.

Market Risk Analysis

Qualitative Aspects of Market Risk. Our most significant form of market risk is interest rate risk. We manage the interest rate sensitivity of our interest-bearing liabilities and interest-earning assets in an effort to minimize the adverse effects of changes in the interest rate environment. Deposit accounts typically react more quickly to changes in market interest rates than mortgage loans because of the shorter maturities of deposits. As a result, sharp increases in interest rates may adversely affect our earnings while decreases in interest rates may beneficially affect our earnings. To reduce the potential volatility of our earnings, we have sought to improve the match between asset and liability maturities (or rate adjustment periods), while maintaining an acceptable interest rate spread. Still, when market rates increase rapidly, increases in the cost of deposits and borrowings outpace the increases in the return on assets. The Company’s assets are primarily comprised of adjustable rate mortgages (all of which have some contractual limits in their ability to react to market changes) and short-term securities. Those assets will, over time, re-price to counteract the increased costs of deposits and borrowings.

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 in an effort 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.

Since December 2018 when the Federal Open Market Committee (“FOMC”) of the Federal Reserve Bank stopped increasing interest rates, on several occasions interest rate decreases were announced until March 2020 when the group made an emergency rate cut pursuant to COVID-19 pandemic. The FOMC announced at the end of its September 2021 meeting that it may start raising interest rates as early as 2022. At June 30, 2021, we believe our risk associated with rising interest rates was minimal. Our IRR model indicated that at June 30, 2021, in the event of a sudden and sustained increase in prevailing market interest rates of 300 basis points, our EVE would be expected to decrease $8.5 million or 14.4% to $50.4 million, at which level our fair value of tangible equity to fair value of tangible assets would be expected to be 15.8% and our fair value of equity to fair value of risk-weighted assets would be expected to be 28.9%. The projected decrease in EVE in the event of a sudden and sustained 300 basis point increase in prevailing interest rates is within the parameters established by each subsidiary Bank’s Board of Directors. 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.

Statement of Financial Condition

General. At June 30, 2021, assets totaled $338.1 million, an increase of $16.9 million, or 5.3%, compared to June 30, 2020. The increase in total assets was related primarily to an increase of $12.0 million or 4.2% in loans, net, which totaled $297.9 million at June 30, 2021 and an increase of $7.9 million or 58.0% in cash and cash equivalents, which totaled $21.6 million at the end of the period. Those increases were somewhat offset by a decrease of $2.0 million or 88.9% in time deposits in other institutions. Total liabilities increased $16.5 million, or 6.1%, to $285.8 million at June 30, 2021, as deposits increased $14.6 million or 6.9% to $226.8 million at June 30, 2021 and advances increased $2.2 million or 3.9% to $56.9 million.

Loans. Our primary lending activity is the origination of loans for the purchase, refinance or construction of one- to four-family residential real estate located in our market areas. As opportunities arise, we also originate church loans, commercial real estate loans, and multi-family and nonresidential real estate loans. At June 30, 2021, one- to four- family residential real estate loans totaled $224.1 million, or 74.8% of total loans, compared to $222.2 million, or 77.4% of total loans, at June 30, 2020, caused primarily by higher demand for home financing in the Banks’ markets. Construction real estate loans totaled $5.4 million, or 1.8% of total loans, at June 30, 2021, compared to $4.0 million, or 1.4% of total loans at June 30, 2020. At June 30, 2021, multi-family real estate loans totaled $19.8 million, or 6.6% of total loans, compared to $12.4 million or 4.3% of total loans at June 30, 2020. Nonresidential real estate loans totaled $35.5 million, or 11.9% of total loans at June 30, 2021, compared to $33.5 million, or 11.7% of total loans, at June 30, 2020. Commercial and industrial loans totaled $2.3 million or 0.7% of total loans at June 30, 2021, compared to $2.2 million or 0.8% of total loans at June 30, 2020. Farm loans totaled $2.2 million or 0.8% of total loans at June 30, 2021, compared to $2.4 million or 0.8% of total loans at June 30, 2020. Consumer loans (including automobile and unsecured loans) totaled $8.9 million and $9.6 million at June 30, 2021 and 2020, respectively. At June 30, 2021, consumer loans were comprised of loans secured by deposits of $1.1 million or 0.4% of total loans and other consumer loans of $7.8 million or 2.6% of total loans. Please refer to Note C-Loans of the Notes to Consolidated Financial Statements for a further breakdown of consumer and other loans.

The following table sets forth the composition of our loan portfolio at the dates indicated.

	At June 30,
	2021						2020						2019						2018						2017
	Amount			Percent			Amount			Percent			Amount			Percent			Amount			Percent			Amount			Percent
	(Dollars in thousands)
Real estate loans:
One- to four-family	$	224,125			74.8	%	$	222,489			77.4	%	$	216,066			76.5	%	$	206,908			76.1	%	$	197,978			76.2	%
Construction		5,433			1.8	%		4,045			1.4	%		3,757			1.3	%		2,919			1.1	%		2,102			0.8	%
Multi-family		19,781			6.6	%		12,373			4.3	%		15,928			5.7	%		15,113			5.6	%		15,678			6.0	%
Land		1,308			0.4	%		765			0.3	%		852			0.3	%		677			0.3	%		1,304			0.5	%
Farm		2,234			0.8	%		2,354			0.8	%		3,157			1.1	%		2,295			0.8	%		2,062			0.8	%
Nonresidential real estate		35,492			11.9	%		33,503			11.7	%		30,419			10.8	%		32,413			11.9	%		29,211			11.3	%
Commercial and industrial		2,259			0.7	%		2,214			0.8	%		2,075			0.7	%		1,917			0.7	%		2,540			1.0	%
Consumer:
Consumer and other		7,763			2.6	%		8,387			2.9	%		8,756			3.1	%		8,174			3.0	%		7,295			2.8	%
Loans on deposits		1,129			0.4	%		1,245			0.4	%		1,415			0.5	%		1,470			0.5	%		1,607			0.6	%
Total loans		299,524			100	%		287,375			100	%		282,425			100	%		271,886			100	%		259,777			100	%

Allowance for loan losses		(1,622	)					(1,488	)					(1,456	)					(1,576	)					(1,533	)
Loans receivable, net	$	297,902					$	285,887					$	280,969					$	270,310					$	258,244

The following table sets forth certain information at June 30, 2021 regarding the dollar amount of loans repricing or maturing during the periods indicated. The table does not include any estimate of prepayments which significantly shorten the average life of all loans and may cause our actual repayment experience to differ from that shown below. Demand loans having no stated maturity are reported as due in one year or less.

(In thousands)	Real Estate Loans		Commercial Loans		Consumer Loans		Total Loans
One year or less	$	53,294	$	731	$	8,237	$	62,262
More than one year to five years		197,784		1,528		655		199,967
More than five years		37,295		--		--		37,295
Total	$	288,373	$	2,259	$	8,892	$	299,524

As of June 30, 2021, there were $43.9 million fixed-rate and $191.1 million adjustable-rate real estate loans maturing in more than a year, while there were $1.5 million fixed-rate and $0 adjustable-rate commercial loans maturing in more than a year.

The following table shows loan origination activity during the periods indicated.

	Year Ended June 30,
(In thousands)	2021			2020			2019
Net loans at beginning of year	$	285,887		$	280,969		$	270,310
Loans originated:
Real estate loans:
Residential one- to four-family		67,859			53,601			51,935
Construction		8,697			14,787			9,059
Multi-family		1,720			2,287			490
Land		--			--			--
Farm		523			146			1,224
Nonresidential real estate		7,038			8,667			2,472
Commercial and industrial		1,343			1,502			1,075
Consumer loans		2,179			4,419			3,512
Total loans originated		89,359			85,409			69,767

Deduct:
Real estate loan principal repayments and other		(76,842	)		(80,136	)		(58,872	)
Decrease (increase) in allowance		(134	)		(32	)		120
Transfer to real estate acquired through foreclosure		(358	)		(304	)		(347	)
Other		(110	)		(19	)		(9	)
Net loan activity		12,015			4,918			10,659
Net loans at end of period	$	297,902		$	285,887		$	280,969

Allowance for Loan Losses and Asset Quality. The allowance for loan losses is a valuation allowance for the probable incurred losses in the loan portfolio. We evaluate the allowance for loan losses no less than quarterly. When additional allowances are needed a provision for losses on loans is charged against earnings. The recommendations for increases or decreases to the allowance are presented by management to the Banks’ boards of directors. The Company’s board of directors oversees the overall allowance level for the Company and may propose increases or decreases for allowance levels at the banks.

The allowance for loan losses is established to recognize the probable incurred losses associated with lending activities. Loss and risk factors are based on our historical loss experience and industry averages and are adjusted for significant factors that in management’s judgment affect the collectibility of the portfolio as of the evaluation date. These significant factors may include changes in lending policies and procedures, changes in existing general economic and business conditions affecting our primary lending area, credit quality trends, collateral value, loan volumes and concentrations, seasoning of the loan portfolio, recent loss experience, duration of the current business cycle and bank regulatory examination results.

The allowance for loan losses totaled $1.6 million and $1.5 million at June 30, 2021 and 2020, respectively, which represented 0.54% and 0.52% of total loans, respectively. The allowance is based on a number of factors including loan loss experience, which has a significant impact. The allowance included no specific reserves at June 30, 2021 or 2020. Such reserves are calculated when a non-homogenous loan is considered impaired. An impaired loan is one in which it is likely that we will be unable to collect all amounts due according to the contractual terms of the loan agreement. Most of the Company’s loans are collateral-based and, in case of impairment, the loans are carried at the lower of cost or fair value less disposal costs.

Nonperforming loans, which consist of all loans 90 days or more past due and nonaccrual loans, totaled $6.7 million at June 30, 2021 and $7.4 million at June 30, 2020, a decrease of $740,000 or 10.0%. The allowance for loan losses totaled 24.4% and 20.1% of nonperforming loans at June 30, 2021 and 2020, respectively. In determining the allowance for loan losses at any point in time, management and the boards of directors of the subsidiary Banks apply a systematic process focusing on the risk of loss in the portfolio. First, the loan portfolio is segregated by loan types to be evaluated collectively and loan types to be evaluated individually. Delinquent multi-family and nonresidential loans are evaluated individually for potential impairment. Second, the allowance for loan losses is evaluated using historic loss experience adjusted for significant factors by applying these loss percentages to the loan types to be evaluated collectively in the portfolio. It is difficult to derive direct correlation between the level of troubled loans, whether measured by impairment, non-performance, classification, or delinquency, because approximately 5.0% of total loans and 22.6% of classified loans were acquired in the merger with Central Kentucky Federal. The acquired loans are not covered by the allowance for loan losses in accordance with generally accepted accounting principles. To the best of management’s knowledge, all known and probable incurred losses that can be reasonably estimated have been recorded at June 30, 2021. However, there can be no assurance that additions to the allowance will not be necessary in future periods, which would adversely affect our results of operations.

Our banking regulators, as an integral part of their examination process, periodically review our allowance for loan losses. The examinations may require us to make additional provisions for loan losses based on judgments different from ours. In addition, because further events affecting borrowers and collateral cannot be predicted with certainty, there can be no assurance that the existing allowance for loan losses is adequate or that increases will not be necessary should the quality of any loans deteriorate as a result of the factors discussed above. Any material increase in the allowance for loan losses may adversely affect our financial condition and results of operations.

Summary of Loan Loss Experience. The following table sets forth an analysis of the allowance for loan losses for the periods indicated. Where specific loan loss allowances have been established, any difference between the loss allowance and the amount of loss realized has been charged or credited to the allowance.

	Year Ended June 30,
	2021			2020			2019			2018			2017
	(Dollars in thousands)
Allowance at beginning of period	$	1,488		$	1,456		$	1,576		$	1,533		$	1,515
Provision for loan losses		192			103			11			185			242

Charge-offs:
Real estate loans		(23	)		(65	)		(190	)		(240	)		(226	)
Consumer loans		(45	)		(8	)		--			--			(5	)
Total charge-offs		(68	)		(73	)		(190	)		(240	)		(231	)

Recoveries:
Real estate loans		--			2			39			98			5
Consumer and other loans		10			--			20			--			2
Total recoveries		10			2			59			98			7

Net charge-offs		(58	)		(71	)		(131	)		(142	)		(224	)
Allowance at end of period	$	1,622		$	1,488		$	1,456		$	1,576		$	1,533

Allowance to nonperforming loans		24.4	%		20.1	%		18.1	%		20.6	%		22.5	%
Allowance to total loans outstanding at end of period		0.54	%		0.52	%		0.52	%		0.58	%		0.59	%
Net charge-offs to average loans outstanding during the period		0.02	%		0.03	%		0.05	%		0.05	%		0.09	%

The following table sets forth the breakdown of the allowance for loan losses by loan category, which management believes can be allocated on an approximate basis, at the dates indicated.

	At June 30,
	2021								2020								2019								2018								2017
	Amount		% of Allowance to Total Allowance			% of Loans in Category To Total Loans			Amount		% of Allowance to Total Allowance			% of Loans in Category To Total Loans			Amount		% of Allowance to Total Allowance			% of Loans in Category To Total Loans			Amount		% of Allowance to Total Allowance			% of Loans in Category To Total Loans			Amount		% of Allowance to Total Allowance			% of Loans in Category To Total Loans
	(Dollars in thousands)
Loans category:
Residential one- to four-family	$	749		49.0	%		74.8	%	$	671		45.1	%		77.4	%	$	685		47.1	%		76.5	%	$	795		50.4	%		75.5	%	$	773		50.4	%		76.2	%
Construction		12		0.7			1.8			6		0.4			1.4			6		0.4			1.3			8		0.5			1.8			6		0.4			0.9
Multi-family		291		17.9			6.6			184		12.4			4.3			200		13.7			5.7			225		14.3			5.5			243		15.9			6.0
Land		3		0.2			0.4			1		0.1			0.3			1		0.1			0.3			1		0.1			0.3			4		0.3			0.5
Farm		5		0.3			0.8			4		0.3			0.8			6		0.4			1.1			6		0.4			0.9			9		0.6			0.8
Nonresidential real estate		494		30.5			11.9			405		27.2			11.7			336		23.1			10.8			321		20.3			11.8			270		17.6			11.2
Commercial and industrial		5		0.3			0.7			3		0.2			0.8			5		0.3			0.7			3		0.2			0.7			6		0.4			1.0
Consumer and other		16		1.0			2.6			12		0.8			2.9			14		1.0			3.1			14		0.9			3.0			18		1.2			2.8
Loans on deposits		2		0.1			0.4			2		0.1			0.4			3		0.2			0.5			3		0.2			0.5			4		0.2			0.6
Unallocated		--		--			--			200		13.4			--			200		13.7			--			200		12.7			--			200		13.0			--
Total allowance for loan losses	$	1,622		100	%		100	%	$	1,488		100	%		100	%	$	1,456		100	%		100	%	$	1,576		100	%		100	%	$	1,533		100	%		100	%

Nonperforming and Classified Assets. When a loan becomes 90 days delinquent, the loan may be placed on nonaccrual status at which time the accrual of interest ceases, the interest previously accrued to income is reversed and interest income is thereafter recognized on a cash basis. Payments on a nonaccrual loan are applied to the outstanding principal and interest as determined at the time of collection of the loan or applied entirely to principal, depending on management’s assessment of ultimate collectability. In situations where management believes collection of interest due is likely even if the loan is more than 90 days delinquent, then management may decide not to place the loan on non-accrual status.

We consider repossessed assets and loans that are 90 days or more past due to be nonperforming assets. Real estate that we acquire as a result of foreclosure or by deed-in-lieu of foreclosure is classified as real estate owned until it is sold. When property is acquired it is recorded at the lower of carrying value of the investment or fair value less estimated selling costs at the date of foreclosure. Holding costs and declines in fair value after acquisition of the property are charged against income.

Under current accounting guidelines, a loan is defined as impaired when, based on current information and events, it is probable that the creditor will be unable to collect all amounts due under the contractual terms of the loan agreement. We consider one- to four-family mortgage loans and loans secured by deposits to be homogeneous and collectively evaluate them for impairment. Other loans are evaluated for impairment on an individual basis. At June 30, 2021, there were no loans individually considered impaired with valuation adjustments.

The following table provides information with respect to our nonperforming assets at the dates indicated.

	Year Ended June 30,
	2021			2020			2019			2018			2017
	(Dollars in thousands)
Nonaccrual loans:
Real estate loans	$	4,660		$	4,415		$	4,936		$	3,668		$	3,816
Commercial loans		--			4			1			7			--
Consumer loans		21			95			9			2			8
Total		4,681			4,514			4,946			3,677			3,824

Accruing loans past due 90 days or more:
Real estate loans		243			1,135			1,747			2,419			1,770
Commercial loans		--			--			49			--			--
Consumer loans		--			--			--			--			11
Total of accruing loans past due 90 days or more		243			1,135			1,796			2,419			1,781
Restructured loans not performing as agreed		1,731			1,836			1,286			1,569			1,205
Total nonperforming loans		6,655			7,485			8,028			7,665			6,810
Restructured loans performing as agreed		--			36			163			161			328
Real estate acquired through foreclosure		82			640			710			710			358
Total nonperforming assets and performing restructured loans	$	6,737		$	8,161		$	8,901		$	8,536		$	7,496

Total nonperforming loans to total loans		2.22	%		2.60	%		2.84	%		2.80	%		2.62	%
Total nonperforming loans to total assets		1.97	%		2.33	%		2.43	%		2.41	%		2.21	%
Total nonperforming assets to total assets		1.99	%		2.54	%		2.64	%		2.64	%		2.32	%

Interest income that would have been recorded for the years ended June 30, 2021 and 2020, had nonaccrual loans been current according to their original terms amounted to $27,000, and $48,000, respectively. Income related to nonaccrual loans included in interest income for the years ended June 30, 2021 and 2020 amounted to $0, and $0, respectively.

Federal regulations require us to regularly review and classify our assets. In addition, our regulators have the authority to identify problem assets and, if appropriate, require them to be classified. There are three classifications for problem assets: substandard, doubtful and loss. “Substandard assets” must have one or more defined weaknesses and are characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected. “Doubtful assets” have the weaknesses of substandard assets with the additional characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions and values questionable, and there is a high possibility of loss. An asset classified “loss” is considered uncollectible and of such little value that continuance as an asset of the institution is not warranted. The regulations also provide for a “special mention” category, described as assets which do not currently expose us to a sufficient degree of risk to warrant classification but do possess credit deficiencies or potential weaknesses deserving our close attention. Special mention assets totaled $1.6 million and $1.7 million at June 30, 2021 and 2020, respectively.

The following table shows the aggregate amounts of our assets classified for regulatory purposes at the dates indicated.

	At June 30,
	2021		2020		2019
	(In thousands)
Substandard assets	$	8,925	$	9,587	$	11,590
Doubtful assets		--		--		--
Loss assets		--		--		--
Total classified assets	$	8,925	$	9,587	$	11,590

Substandard assets at June 30, 2021, consisted of 157 loans totaling $8.8 million and two parcels of real estate owned with an aggregate carrying value of $82,000, compared to substandard assets at June 30, 2020 which consisted of 170 loans totaling $8.9 million and six parcels of real estate owned with an aggregate carrying value of $640,000. At June 30, 2021, 0.9% of the Company’s substandard assets were represented by real estate acquired through foreclosure compared to 6.7% at June 30, 2020. During the fiscal years ended June 30, 2021 and 2020, the Company made loans to facilitate the purchase of its other real estate owned by qualified borrowers. The Company sold property with carrying values of $75,000 and $65,000 for $72,000 and $75,000 during the fiscal years ended June 30, 2021 and 2020, respectively. Such loans are considered loans to facilitate an exchange. Loans to facilitate the sale of other real estate owned and which were included in substandard loans totaled $43,000 and $23,000 at June 30, 2021 and 2020, respectively.

The table below summarizes other real estate owned at June 30, 2021:

(Dollars in thousands)	Number of properties		Net carrying value
Single family		2	$	82
Building lots		1		--
Total		3	$	82

The table below summarizes substandard loans at June 30, 2021:

(Dollars in thousands)	Number of loans		Net carrying value
One- to four-family		143	$	6,044
Multi-family		1		646
Nonresidential real estate		5		1,820
Farm		1		274
Consumer		7		59
Total		157	$	8,843

Other than disclosed above, there are no other loans at June 30, 2021 that we have serious doubts about the ability of the borrowers to comply with the present loan repayment terms.

Delinquencies. The following table provides information about delinquencies in our loan portfolios at the dates indicated.

	At June 30,
	2021				2020
	30-59 Days Past Due		60-89 Days Past Due		30-59 Days Past Due		60-89 Days Past Due
	(In thousands)
Real estate loans	$	2,165	$	408	$	2,455	$	447
Commercial and industrial		6		--		--		--
Consumer loans		116		4		255		--
Total	$	2,287	$	412	$	2,710	$	447

Securities. Our securities portfolio consists of mortgage-backed securities with maturities of 30 years or less, which totaled $495,000 at June 30, 2021, a decrease of $641,000, or 56.4%, compared to the $1.1 million total at June 30, 2020. The decrease in these securities resulted from scheduled maturities and normal repayment/prepayment from the mortgage-backed securities. All of our mortgage-backed securities were issued by Ginnie Mae, Fannie Mae or Freddie Mac.

The following table sets forth the carrying values and fair values of our securities portfolio at the dates indicated.

	At June 30,
	2021				2020				2019
	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(In thousands)
Available-for-sale securities:
Agency mortgage-backed: residential	$	33	$	33	$	38	$	38	$	43	$	43
Agency bonds		--		--		500		503		501		505
U.S. Treasury securities		--		--		--		--		496		497
	$	33	$	33	$	538	$	541	$	1,040	$	1,045

Held-to-maturity securities
Agency mortgage-backed: residential	$	462	$	476	$	598	$	611	$	775	$	775

At June 30, 2021 and 2020, we did not own any securities that had an aggregate book value in excess of 10% of our equity at that date.

The following table sets forth the maturities and weighted average yields of debt securities at June 30, 2021. At June 30, 2021, we had no agency securities with adjustable rates.

	One Year or Less					More Than One Year to Five Years					More Than Five Years to Ten Years					More Than Ten Years					Total Investment Portfolio
	Amortized Cost		Weighted Average Yield			Amortized Cost		Weighted Average Yield			Amortized Cost		Weighted Average Yield			Amortized Cost		Weighted Average Yield			Amortized Cost		Fair Value		Weighted Average Yield
	(Dollars in thousands)
Available for sale securities:
Mortgage-backed securities	$	2		2.67	%	$	10		2.67	%	$	14		2.67	%	$	7		2.67	%	$	33	$	33		2.67	%
Agency bonds		--					--					--					--					--		--
		2					10					14					7					33		33

Held to maturity securities:
Mortgage-backed securities		36		4.32	%		161		4.34	%		234		4.34	%		31		4.54	%		462		476		4.35	%
	$	38				$	171				$	248				$	38				$	495	$	509

Other Assets. Other assets at June 30, 2021 and 2020 include goodwill of $947,000, which was a result of the Company’s acquisition of Frankfort First, and bank owned life insurance policies with a carrying value of $2.7 million and $2.6 million at June 30, 2021 and 2020, respectively, of which First Federal of Kentucky is the owner and beneficiary. Both subsidiary Banks are members and stockholders of the Federal Home Loan Bank of Cincinnati (“FHLB”). FHLB stock, at cost, totaled $6.5 million at June 30, 2021 and 2020.

Deposits. Our primary source of funds is retail deposit accounts held primarily by individuals within our market areas. Deposits totaled $226.8 million at June 30, 2021, increasing $14.6 million or 6.9% between the two periods.

The following table sets forth the balances of our deposit products at the dates indicated.

	At June 30,
	2021		2020		2019
	(In thousands)
Certificate of deposit accounts	$	124,892	$	134,155	$	125,892
Demand, transaction and savings accounts		101,951		78,118		69,944
Total	$	226,843	$	212,273	$	195,836

The following table indicates at June 30, 2021, the amount of certificate of deposit accounts with balances equal to or greater than $100,000, by time remaining until maturity. The Federal Deposit Insurance Corporation (“FDIC”) currently insures deposits up to $250,000 in most cases, making certificate of deposit accounts with balances equal to or greater than $100,000 less volatile as before the limit was raised.

Maturity Period	Certificates of Deposit
	(In thousands)
Three months or less	$	12,101
Over three months through six months		13,284
Over six months through twelve months		19,735
Over twelve months		17,796
Total	$	62,917

The following table sets forth our certificate of deposit accounts classified by rates at the dates indicated.

	At June 30,
Rate	2021		2020		2019
	(In thousands)
0.01 - 0.99%	$	69,400	$	30,125	$	22,743
1.00 - 1.99		36,613		75,796		39,077
2.00 - 2.99		18,879		28,234		64,072
Total	$	124,892	$	134,155	$	125,892

The following table sets forth the amount and maturities of certificate accounts at June 30, 2021.

	Amount Due										Percentage of
	Less Than One Year		More Than One Year to Two Years		More Than Two Years to Three Years		More Than Three Years		Total		Total Certificate Accounts
	(Dollars in thousands)
0.01 –0.99%	$	51,273	$	18,078	$	49	$	--	$	69,4005		55.6	%
1.00 –1.99		23,653		4,068		7,314		1,578		36,613		29.3
2.00 –2.99		10,314		5,533		806		2,226		18,879		15.1
Total	$	85,240	$	27,679	$	8,169	$	3,804	$	124,892		100.0	%

The following table sets forth the average balances and rates paid on deposits.

	Year Ended June 30,
	2021					2020					2019
	Average		Average			Average		Average			Average		Average
	Balance		Rate			Balance		Rate			Balance		Rate
	(Dollars in thousands)
Noninterest-bearing demand	$	10,472		0.00	%	$	6,796		0.00	%	$	5,275		0.00	%
Interest-bearing demand		18,438		0.16	%		14,181		0.16	%		15,258		0.15	%
Savings accounts		64,611		0.42	%		51,123		0.41	%		54,156		0.40	%
Certificates of deposit		127,371		1.11	%		131,728		1.65	%		123,180		1.41	%

The following table sets forth the deposit activities for the periods indicated.

	Year Ended June 30,
	2021		2020		2019
	(In thousands)
Beginning balance	$	212,273	$	195,836	$	195,653
Increase (decrease) before interest credited		12,859		14,032		(1,793	)
Interest credited		1,711		2,405		1,976
Net increase (decrease) in deposits		14,570		16,437		183
Ending balance	$	226,843	$	212,273	$	195,836

Borrowings. Advances from the Federal Home Loan Bank of Cincinnati amounted to $56.9 million and $54.7 million at June 30, 2021 and 2020, respectively.

The following table presents certain information regarding our Federal Home Loan Bank of Cincinnati advances during the periods and at the dates indicated.

	Year Ended June 30,
	2021			2020			2019
	(Dollars in thousands)
Balance outstanding at end of period	$	56,873		$	54,715		$	66,703
Maximum amount of advances outstanding at any month end during the period	$	61,048		$	65,198		$	66,703
Average advances outstanding during the period	$	54,319		$	58,788		$	53,824
Weighted average interest rate during the period		0.79	%		1.86	%		2.37	%
Weighted average interest rate at end of period		0.71	%		0.99	%		2.39	%

Capital. Total shareholders’ equity totaled $52.3 million at June 30, 2021, an increase of $385,000 or 0.7%, compared to June 30, 2020. The increase resulted primarily from earnings reduced by dividends declared during the year.

Effective January 1, 2015, the Company and the Banks became subject to the capital regulations in accordance with Basel III. These regulations established higher minimum risk-based capital ratio requirements, a new common equity Tier 1 risk-based capital ratio and a new capital conservation buffer (“CCB”). The regulations also included a revised definition of capital and changed the risk-weighting of certain assets. For purposes of prompt corrective action, the new regulations establish definitions of “well capitalized” as follows:

		Minimum for banks to be well-capitalized under regulatory requirements
Tier 1 Capital to Total Average Assets		5.0%
Common Equity Tier 1 Capital		6.5%
Tier 1 Capital to Risk-Weighted Assets		8.0%
Total Capital to Risk-Weighted Assets		10.0%

Additionally, the CCB of Common Equity Tier 1 Risk-Based capital above the minimum risk-based capital requirements was introduced. The CCB is 2.5%. The Company and the Banks, in order to avoid limitations on capital distributions, including dividend payments, engaging in share repurchases and certain discretionary bonus payments to executive officers, must maintain the CCB at the appropriate level.

Community Bank Leverage Ratio

Certain community banks and holding companies (which include the Company, Frankfort First, First Federal of Kentucky and First Federal of Hazard) that satisfy certain qualifying criteria, including having less than $10 billion in average total consolidated assets and a leverage ratio (referred to as the “community bank leverage ratio”) of greater than 9%, were eligible to opt-in to the CBLR framework. The CBLR ratio is the ratio of a banking organization’s Tier 1 capital to its average total consolidated assets as reported on the banking organization’s applicable regulatory filings. The Banks elected to utilize the CBLR framework effective for the quarter ended March 31, 2020. See Note K-Stockholders’ Equity and Regulatory Capital in audited financial statements.

At June 30, 2021, both First Federal of Hazard’s and First Federal of Kentucky’s regulatory capital substantially exceeded all minimum regulatory capital requirements. Management is not aware of any recent event that would cause this classification to change. See Note K-Stockholders’ Equity and Regulatory Capital in the Notes to Financial Statements.

Results of Operations for the Years Ended June 30, 2021 and 2020

General. Net income totaled $1.8 million or $0.22 diluted earnings per share for the year ended June 30, 2021, compared to a net loss of $12.5 million or $1.52 per common share for the twelve months ended June 30, 2020. The largest contributor to the Company’s increase in net income year to year was the absence of the prior year’s goodwill impairment charge of $13.6 million, or $1.64 per common share, during the quarter ended June 30, 2020, which represented 93.5% of goodwill previously reported. Earnings were strengthened by increases in net interest income and non-interest income, as well as a decrease in non-interest expense year over year. Net interest income totaled $10.0 million for the year just ended compared to $9.3 million for the prior year.

Interest Income. Total interest income for the fiscal year ended June 30, 2021 was $12.2 million, a decrease of $671,000, or 5.2%, compared to the fiscal year ended June 30, 2020. The decrease in interest income was due primarily to a decrease in the average rate earned on assets during the fiscal year, as the average balance of interest-earning assets increased $12.9 million or 4.2% to $318.7 million for the twelve months recently ended.

Interest income from loans decreased $385,000 or 3.1% to $12.0 million for the year ended June 30, 2021 due to a decrease in the average rate earnings on the portfolio, which decreased 34 basis points to 4.0% for the year just ended, while the average balance of the loan portfolio increased $14.1 million or 5.0% to $296.2 million for the year just ended. Interest income from mortgage-backed securities decreased $8,000 or 36.4% to $14,000 for the recently ended fiscal year primarily due to a decrease in the volume of assets, while interest income from other investment securities decreased $15,000 for the recently ended year. Income from other interest-earning assets decreased $263,000 or 62.8% year over year and totaled $156,000 for the recently ended fiscal year.

Interest Expense. Interest expense totaled $2.1 million for the fiscal year ended June 30, 2021, a decrease of $1.4 million, or 38.8%, from fiscal 2020. The decrease in interest expense resulted primarily from lower average costs of deposits along with lower average balances of interest-bearing liabilities. Interest expense on deposits decreased $694,000 or 28.9% to $1.7 million for the 2021 fiscal year primarily due to a decrease in the average rate paid on those deposits, which decreased 41 basis points to 0.81% for the recently-ended fiscal year. The average balance of deposits increased $13.4 million or 6.8% to $210.4 million for the year just ended. Interest expense on certificates of deposit was primarily responsible for the decrease in interest expense on deposits for the year and was due principally to a decrease in the rate paid on certificates of deposits, although the average balance year over year also decreased. The average rate paid on certificates of deposit decreased 54 basis points to 1.11% for the year, while the average balance outstanding decreased $4.4 million or 3.3% to $127.4 million for the recently-ended year. The average balance of savings and interest-bearing demand deposits increased $13.5 million or 26.4% and $4.3 million or 30.0%, respectively, totaling $64.6 million and $18.4 million for the 2021 fiscal year, respectively. Interest expense on borrowings decreased $664,000 or 60.7% to $430,000 for the twelve months ended June 30, 2021, primarily due to a decrease in the average rate paid on FHLB advances outstanding. The average rate paid on borrowings decreased 107 basis points year over year to 0.79% for the recently-ended period, while the average balance of borrowings decreased $4.5 million or 7.6% to $54.3 million for the year just ended.

Net Interest Income. As a result of the aforementioned changes in interest income and interest expense, net interest income before provision for loan losses increased $687,000 or 7.4% to $10.0 million for the 2021 year. As indicated on the following table, our net interest margin increased from 3.05% for the 2020 fiscal year to 3.14% for the year just ended. The Banks’ net interest margins began to expand in light of emergency rate reduction and easing of monetary policy by the Federal Open Market Committee of the Federal Reserve Bank Board of Governors in March 2020. The policy-setting group reduced the overnight rate to zero at that time and has clearly indicated that no rate increases are forthcoming in the near term. This stance in turn impacts the bank’s funding sources, including local deposits, FHLB advances and some other wholesale sources.

Average Balances and Yields. The following table presents information regarding average balances of assets and liabilities, the total dollar amounts of interest income and dividends, the total dollar amount of interest expense and the resulting average yields and costs. The yields and costs for the periods indicated are derived by dividing income or expense by the average balances of assets or liabilities, respectively, for the periods presented. For purposes of this table, average balances have been calculated using the average of daily balances and nonaccrual loans are included in average balances only. We did not hold any non-taxable securities during any of the periods presented in the table.

	2021								2020								2019
				Interest								Interest								Interest
	Average			And		Yield/			Average			And		Yield/			Average			And		Yield/
(Dollars in thousands)	Balance			Dividends		Cost			Balance			Dividends		Cost			Balance			Dividends		Cost
Interest-earning assets:
Loans	$	296,247		$	11,979		4.04	%	$	282,154		$	12,364		4.38	%	$	273,802		$	12,021		4.39	%
Mortgage-backed securities		567			14		2.47			708			22		3.11			911			31		3.40
Other securities		99			3		3.03			670			18		2.69			475			13		2.74
Other interest-earning assets		21,816			156		0.72			22,345			419		1.88			20,584			635		3.00
Total interest-earning assets		318,729			12,152		3.81			305,877			12,823		4.19			295,772			12,700		4.29
Less: ALLL		(1,569	)							(1,446	)							(1,536	)
Noninterest-earning assets		12,073								26,063								26,240
Total assets	$	329,233							$	330,494							$	320,476

Interest-bearing liabilities:
Demand deposits	$	18,438		$	30		0.16	%	$	14,181		$	22		0.16	%	$	15,258		$	23		0.15	%
Savings		64,611			268		0.42			51,123			208		0.41			54,156			216		0.40
Certificates of deposit		127,371			1,413		1.11			131,728			2,175		1.65			123,180			1,737		1.41
Total deposits		210,420			1,711		0.81			197,032			2,405		1.22			192,594			1,976		1.03
Borrowings		54,319			430		0.79			58,788			1,094		1.86			53,824			1,276		2.37
Total interest-bearing liabilities		264,739			2,141		0.81			255,820			3,499		1.37			246,418			3,252		1.31
Noninterest-bearing demand deposits		10,472								6,796								5,275
Noninterest-bearing liabilities		2,047								1,876								1,824
Total liabilities		277,258								264,492								253,517

Shareholders’ equity		51,975								66,002								66,959
Total liabilities and shareholders’ Equity	$	329,233							$	330,494							$	320,476
Net interest income/average yield				$	10,011		3.00	%				$	9,324		2.82	%				$	9,448		2.97	%

Net interest margin							3.14	%							3.05	%							3.19	%

Average interest-earning assets to Average interest-bearing liabilities							120.39	%							119.57	%							120.03	%

Rate/Volume Analysis. The following table sets forth the effects of changing rates and volumes on our net interest income. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior year volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior year rate). For purposes of this table, changes attributable to changes in both rate and volume that cannot be segregated have been allocated proportionately based on the changes due to rate and the changes due to volume. The total column represents the sum of the prior columns.

	Twelve months ended June 30, 2021 to June 30, 2020 Increase (Decrease) Due to Changes In									Twelve months ended June 30, 2020 to June 30, 2019 Increase (Decrease) Due to Changes In
(in thousands)	Volume			Rate			Total			Volume			Rate			Total
Interest-earning assets:
Loans receivable	$	707		$	(1,092	)	$	(385	)	$	365		$	(22	)	$	343
Mortgage-backed securities		(4	)		(4	)		(8	)		(6	)		(3	)		(9	)
Investment securities		(18	)		3			(15	)		5			--			5
Other interest-earning assets		(10	)		(253	)		(263	)		60			(276	)		(216	)
Total interest-earning assets		675			(1,346	)		(671	)		424			(301	)		123

Interest-bearing liabilities:
Demand deposits		7			1			8			(2	)		1			(1	)
Savings		56			4			60			(12	)		4			(8	)
Certificates of deposit		(70	)		(692	)		(762	)		126			312			438
Borrowings		(78	)		(586	)		(664	)		137			(319	)		(182	)
Total interest-bearing liabilities		(85	)		(1,273	)		(1,358	)		249			(2	)		247
Increase (decrease) in net interest income	$	760		$	(73	)	$	687		$	175		$	(299	)	$	(124	)

Provision for Losses on Loans. A provision for losses on loans is charged to earnings to maintain the total allowance for loan losses at a level calculated by management based on historical experience, the volume and type of lending conducted by the Banks, the status of past due principal and interest payments and other factors related to the collectability of the loan portfolio. Based upon an analysis of these factors, management recorded a provision of $192,000 for losses on loans for the fiscal year ended June 30, 2021, an increase of $89,000, compared to a provision of $103,000 for fiscal 2020. Management believes all nonperforming loans are adequately collateralized or have been written down to their realizable value; however, there can be no assurance that the loan loss allowance will be adequate to absorb losses on known nonperforming assets or that the allowance will be adequate to cover losses on nonperforming assets in the future. See discussion about Allowance Loan Losses and Asset Quality.

Non-interest Income. Other non-interest income increased $196,000 or 49.1% to $595,000 for the fiscal year ended June 30, 2021, due primarily to an increase of $194,000 in net gains on sales of loans, which totaled $380,000 for the year just ended. The Banks sell most of their long-term, fixed rate mortgages to FHLB as part of the overall interest rate risk strategy. Impairment charges for REO decreased $17,000 or 47.2% to $19,000 for the year just ended.

Non-interest Expense. Non-interest expense decreased $13.7 million or 62.4% to $8.2 million for the fiscal year ended June 30, 2021 compared to fiscal 2020 primarily due to recognition of a $13.6 million goodwill impairment charge in the prior fiscal year.

Non-interest expense adjusted for goodwill impairment charge decreased $101,000 or 1.2% to $8.2 million primarily due to a positive impact of a change to the tax system in the Commonwealth of Kentucky to which the Company and its Banks are subject, as well as cost-savings strategies implemented by management. Decreases in non-interest expense were primarily associated with franchise and other taxes, employee compensation and benefits, other non-interest expenses, voice and data communications and advertising.

Franchise and other taxes decreased $128,000 or 49.4% to $131,000 for the twelve months ended June 30, 2021, as the Banks became subject to Kentucky corporate income tax effective January 1, 2021, rather than the Savings and Loan Franchise Tax. In addition, the tax law change allows for the filing of consolidated income tax returns.

Employee compensation and benefits costs decreased $96,000 or 1.7% to $5.4 million for the twelve months ended June 30, 2021, primarily due to a combination of lower overall compensation costs due to attrition, lower compensated absence expense and an increase in deferred costs associated with loan production. Compensation of directors and employees decreased $44,000 year over year due to retirements and other events, while compensated absences decreased $37,000. Deferral of compensation costs associated with loan production reduced expenses by $33,000.

Other non-interest expenses decreased $87,000 or 12.2% to $624,000 for the recently-ended year primarily related to reduced insurance costs, loan expenses, and other miscellaneous expenses.

Voice and data communications expense decreased $42,000 or 27.8% and totaled $109,000 for the year ended June 30, 2021, as technology investments continue to reduce ongoing costs with faster and more reliable connectibility.

Advertising expense decreased $17,000 or 10.0% and totaled $153,000 for the recently ended fiscal year as advertising decisions were somewhat impacted by pandemic conditions during the period.

Somewhat offsetting the decreases in various non-interest expenses were increases in FDIC insurance premiums and data processing. FDIC insurance premiums increased to $168,000 for the twelve months ended June 30, 2021. In the prior year the Banks were able to utilize their Small Bank Assessment Credits (“SBAC”). The SBAC were depleted in the quarterly period ended June 30, 2020. Data processing increased $106,000 or 19.6% and totaled $647,000 for the year ended June 30, 2021, as core processing costs increased and the Company expanded its technology infrastructure.

Income Taxes. As noted herein, the Company reported income tax expense of $352,000 for the fiscal year just ended compared to income tax expense of $264,000 for the fiscal year ended June 30, 2020, an increase of $88,000 or 33.3%. The increase in income tax expense was primarily related to an increase in taxable earnings year over year. The goodwill impairment charge from fiscal 2020 had no income tax impact. The effective income tax rate for the years ended June 30, 2021 and 2020, was 16.2% and -2.1%, respectively.

Liquidity and Capital Resources

Liquidity is the ability to meet current and future short-term financial obligations. Our primary sources of funds consist of cash and deposits at other banks, deposit inflows, loan repayments and maturities, calls and sales of investment and mortgage-backed securities and advances from the FHLB. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition.

We periodically assess our available liquidity and projected upcoming liquidity demands. We regularly adjust our investments in liquid assets based upon our assessment of (1) expected loan demand, (2) expected deposit flows, (3) yields available on interest-earning deposits and securities, and (4) the objectives of our asset/liability management program. Excess liquid assets are invested generally in interest-earning deposits, federal funds and short- and intermediate-term U.S. Government agency obligations.

Our most liquid assets are cash, federal funds sold and interest-bearing deposits. The levels of these assets depend on our operating, financing, lending and investing activities during any given period. At June 30, 2021 and June 30, 2020, cash and cash equivalents totaled $21.6 million and $13.7 million, respectively. Time deposits in other financial institutions totaled $247,000 and $2.2 million at June 30, 2021 and 2020, respectively, and securities classified as available-for-sale, which provide additional sources of liquidity, totaled $33,000 and $541,000 at June 30, 2021 and 2020, respectively.

We are not aware of any trends and/or demands, commitments, events or uncertainties that could result in a material protracted decrease in liquidity. We expect that all of our liquidity needs, including the contractual commitments can be met by our currently available liquid assets and cash flows. In the event any unforeseen demand or commitments were to occur, we would access our borrowing capacity with the FHLB. We expect that our currently available liquid assets and our ability to borrow from the FHLB would be sufficient to satisfy our liquidity needs without any material adverse effect on our liquidity.

Our primary investing activities are the origination of loans and the purchase of investment securities. In fiscal 2021 and 2020 we originated $89.4 million and $85.4 million of loans, respectively. During fiscal 2021, these activities were funded primarily by proceeds from principal repayments on loans of $76.8 million and increased deposits of $14.6 million. During fiscal 2020, these activities were funded primarily by principal repayments on loans of $80.1 million and increased deposits of $16.4 million.

Financing activities consist primarily of activity in deposit accounts and in FHLB advances. Total deposits increased $14.6 million for the year ended June 30, 2021, compared to a net increase of $16.4 million for the year ended June 30, 2020. FHLB advances increased $2.2 million from June 30, 2020 to June 30, 2021. Deposit flows are affected by the overall level of interest rates, the products and corresponding interest rates offered by us and our local competitors and other factors. We generally manage the pricing of our deposits to be competitive and to increase core deposit relationships. FHLB advances are collateralized by a blanket mortgage on the 1-4 family residential mortgages owned by the banks. See Note H-Advances from the Federal Home Loan Bank in Notes to Consolidated financial Statements. At June 30, 2021, the Banks had combined additional FHLB borrowing capacity of $74.6 million.

Commitments and Contractual Obligations

At June 30, 2021, we had $9.4 million in mortgage commitments. Certificates of deposit due within one year of June 30, 2021 totaled $85.2 million, or 37.6% of total deposits. If these deposits do not remain with us, we might be required to seek other sources of funds, including FHLB advances or other certificates of deposit. Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on the certificates of deposit due on or before June 30, 2022. We believe, however, based on past experience, that a significant portion of our certificates of deposit will remain with us. We have the ability to attract and retain deposits by adjusting the interest rates offered.

Off-balance Sheet Arrangements

For the year ended June 30, 2021, other than loan commitments, we engaged in no off-balance-sheet transactions reasonably likely to have a material effect on our financial condition, results of operations or cash flows.

Dividend Policy

In fiscal 2021, the Company’s aggregate dividend of $1.4 million was less than its net income by $432,000. In fiscal 2020, the Company’s aggregate dividend of $1.4 million exceeded its net income by $13.9 million. Approximately 57.3% of the shares of Kentucky First Federal are held by First Federal MHC, a mutual holding company created in 2005. Under regulations of the Board of Governors of the Federal Reserve System mutual holding companies, who have waived their dividends prior to December 1, 2009, may continue to waive these dividends provided there is no objection by the Federal Reserve. This waiver action is conditioned on providing appropriate notice and absent the Federal Reserve’s determination that the waiver would be detrimental to the safe and sound operations of the banks. First Federal MHC put the issue to a vote of the members August 2012 and each of the succeeding years since 2012. Members of First Federal MHC voted in favor of the dividend waiver on all occasions and the Federal Reserve Bank of Cleveland subsequently approved the waiver of the dividends including an approval in 2021. As a result, First Federal MHC will be permitted to waive the receipt of dividends for quarterly dividends up to $0.10 per common share through the third quarter of 2021. Management believes that the Company has sufficient capital to continue the current dividend policy without affecting the well-capitalized status of either subsidiary bank. Indeed, the Banks still far exceed all regulatory required capital levels. Therefore, we expect to continue to seek approval from the Federal Reserve to allow First Federal MHC to waive its right to dividends. If management should anticipate a long-term trend in which dividends consistently exceed net income (either due to regulatory mandate or a drop in income levels), the dividend policy would be reconsidered. Management cautions that comparison between the Company’s published earnings per share and the Company’s published dividends per share does not lead to an accurate portrayal of the relationship between net income and dividends paid, because the published dividend per share is calculated with the inclusion of the shares owned by First Federal MHC.

Impact of Inflation and Changing Prices

Our consolidated financial statements and accompanying notes have been prepared in accordance with U.S. generally accepted accounting principles, which require the measurement of financial position and operating results in terms of historical dollars without considering the change in the relative purchasing power of money over time due to inflation. The primary impact of inflation on our operations is reflected in increased operating costs. Unlike most industrial companies, virtually all of our assets and liabilities are monetary in nature. As a result, interest rates generally have a more significant impact on our performance than do general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.

Report of Independent Registered Public Accounting Firm

Shareholders, Board of Directors and Audit Committee

Kentucky First Federal Bancorp

Frankfort, Kentucky

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Kentucky First Federal Bancorp (Company) as of June 30, 2021 and 2020, the related consolidated statements of operations, comprehensive (loss) income, changes in shareholders’ equity and cash flows for the years then ended, and the related notes (collectively referred to as the financial statements). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of June 30, 2021 and 2020, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the U.S. Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Allowance for Loan and Lease Losses

As more fully described in Note 1 to the consolidated financial statements, the Company estimates the allowance for loan and lease losses (ALLL) for probable incurred credit losses. The ALLL consists of a specific component for loans that are classified as impaired and a general component for all other loans. Impairment on loans determined to be impaired is measured on a loan-by-loan basis. Historical loss experience is an input applied to loans not considered impaired and is adjusted for current factors, including the nature and volume of the portfolio, trends in level of delinquent and problem loans, and economic conditions.

We identified the valuation of the ALLL as a critical audit matter. The primary reason for our determination that the ALLL is a critical audit matter is that auditing the estimated ALLL involved significant judgment and complex review. Further, auditing the ALLL involved a high degree of subjectivity in evaluating management’s estimates, such as evaluating management’s assessment of economic conditions and other environmental factors, evaluating the adequacy of specific allowances associated with impaired loans and assessing the appropriateness of loan grades.

Our audit procedures related to the estimated ALLL included the following procedures, among others.

	●	Obtaining an understanding of the design of internal controls over the ALLL calculation

●

Testing of completeness and accuracy of the information utilized in the calculation of the ALLL

●

Testing clerical/computational accuracy of the formulas within the calculation

●

Evaluating the reasonableness of management’s qualitative adjustments to the historical loss rates, including assessing the basis for the adjustments and the reasonableness of the significant assumptions. Our evaluation considered evidence from internal and external sources, loan portfolio performance and whether such assumptions were applied consistently period to period.

●

Evaluating management’s risk ratings of loans through utilizing internal professionals to assist us in evaluating the appropriateness of loan grades and identification of impaired loans

●

Evaluating specific allowances on impaired loans

●

Preparation of an independent estimate of an acceptable range of the ALLL to compare to management’s estimate

●

Evaluating overall reasonableness and directional consistency of the estimated reserve by considering past performance of the Company’s loan portfolio, trends in credit quality of the loan portfolio and trends in peer institutions’ credit quality and ALLL.

/s/ BKD, LLP

We have served as the Company’s auditor since 2018.

Louisville, Kentucky

September 28, 2021

KENTUCKY FIRST FEDERAL BANCORP

CONSOLIDATED BALANCE SHEETS

June 30, 2021 and 2020

(Dollar amounts in thousands, except per share data)

	2021			2020
ASSETS

Cash and due from financial institutions	$	1,834		$	1,662
Fed funds sold		5,001			--
Interest-bearing demand deposits		14,813			12,040
Cash and cash equivalents		21,648			13,702

Time deposits in other financial institutions		247			2,229
Securities available for sale		33			541
Securities held-to-maturity, at amortized cost- approximate fair value of $476 and $611 at June 30, 2021 and 2020, respectively		462			598
Loans held for sale		1,307			667
Loans, net of allowance of $1,622 and $1,488 at June 30, 2021 and 2020, respectively		297,902			285,887
Other real estate owned, net		82			640
Premises and equipment, net		4,697			4,916
Federal Home Loan Bank stock, at cost		6,498			6,498
Accrued interest receivable		694			830
Bank-owned life insurance		2,672			2,594
Goodwill		947			947
Prepaid income taxes		40			135
Prepaid expenses and other assets		834			952

Total assets	$	338,063		$	321,136

LIABILITIES AND SHAREHOLDERS’ EQUITY

Deposits	$	226,843		$	212,273
Federal Home Loan Bank advances		56,873			54,715
Advances by borrowers for taxes and insurance		838			800
Accrued interest payable		20			27
Deferred income taxes		614			837
Other liabilities		579			573
Total liabilities		285,767			269,225

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		34,916			34,981
Retained earnings		20,364			19,932
Unearned employee stock ownership plan (ESOP)		(102	)		(289	)
Treasury shares at cost, 369,349 and 343,849 common shares at June 30, 2021 and 2020, respectively		(2,968	)		(2,801	)
Accumulated other comprehensive income		--			2
Total shareholders’ equity		52,296			51,911

Total liabilities and shareholders’ equity	$	338,063		$	321,136

The accompanying notes are an integral part of these statements.

KENTUCKY FIRST FEDERAL BANCORP

CONSOLIDATED STATEMENTS OF OPERATIONS

For the years ended June 30, 2021 and 2020

(Dollar amounts in thousands, except per share data)

	2021			2020
Interest income
Loans, including fees	$	11,979		$	12,364
Mortgage-backed securities		14			22
Other securities		3			18
Interest-bearing deposits and other		156			419
Total interest income		12,152			12,823

Interest expense
Deposits		1,711			2,405
Borrowings		430			1,094
Total interest expense		2,141			3,499
Net interest income		10,011			9,324
Provision for loan losses		192			103
Net interest income after provision for loan losses		9,819			9,221

Non-interest income
Earnings on bank-owned life insurance		78			76
Net gains on sales of loans		380			186
Net gain (loss) on sales of REO		(19	)		5
Valuation adjustment for REO		(19	)		(36	)
Net loss on sales of property		(2	)		--
Other		177			168
Total non-interest income		595			399

Non-interest expense
Employee compensation and benefits		5,440			5,536
Data processing		647			541
Occupancy and equipment		567			568
FDIC insurance premiums		168			--
Voice and data communications		109			151
Advertising		153			170
Outside service fees		179			176
Audit and accounting		158			165
Franchise and other taxes		131			259
Foreclosure and REO expense, net		66			66
Goodwill impairment		--			13,560
Other		624			711
Total non-interest expense		8,242			21,903
Income (loss) before income taxes		2,172			(12,283	)

Income tax expense
Current		575			128
Deferred		(223	)		136
Total income tax expense		352			264

NET INCOME (LOSS)	$	1,820		$	(12,547	)

EARNINGS (LOSS) PER SHARE
Basic and diluted	$	0.22		$	(1.52	)

The accompanying notes are an integral part of these statements.

KENTUCKY FIRST FEDERAL BANCORP

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

For the years ended June 30, 2021 and 2020

(Dollar amounts in thousands)

	2021			2020
Net income (loss)	$	1,820		$	(12,547	)

Other comprehensive loss, net of tax-related effects:
Unrealized holding losses on securities designated as available for sale during the year, net of tax benefits of $(1) and $(1) in 2021 and 2020, respectively		(2	)		(2	)
Comprehensive income (loss)	$	1,818		$	(12,549	)

The accompanying notes are an integral part of these statements.

KENTUCKY FIRST FEDERAL BANCORP

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

For the years ended June 30, 2021 and 2020

(Dollar amounts in thousands, except per share data)

	Common stock		Additional paid-in capital			Retained earnings			Unearned employee stock ownership plan (ESOP)			Treasury shares			Accumulated other comprehensive income			Total
Balance at June 30, 2019	$	86	$	35,056		$	33,867		$	(476	)	$	(2,259	)	$	4		$	66,278
Net loss		-		-			(12,547	)		-			-			-			(12,547	)
Allocation of ESOP shares		-		(75	)		-			187			-			-			112
Acquisition of shares for treasury		-		-			-			-			(542	)		-			(542	)
Other Comprehensive Loss		-		-			-			-			-			(2	)		(2	)
Cash dividends of $0.40 per common share		-		-			(1,388	)		-			-			-			(1,388	)

Balance at June 30, 2020	$	86	$	34,981		$	19,932		$	(289	)	$	(2,801	)	$	2		$	51,911
Net income		-		-			1,820			-			-			-			1,820
Allocation of ESOP shares		-		(65	)		-			187			-			-			122
Acquisition of shares for treasury		-		-			-			-			(167	)		-			(167	)
Other Comprehensive Loss		-		-			-			-			-			(2	)		(2	)
Cash dividends of $0.40 per common share		-		-			(1,388	)		-			-			-			(1,388	)

Balance at June 30, 2021	$	86	$	34,916		$	20,364		$	(102	)	$	(2,968	)	$	-		$	52,296

The accompanying notes are an integral part of these statements.

KENTUCKY FIRST FEDERAL BANCORP

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the years ended June 30, 2021 and 2020

(Dollar amounts in thousands)

	2021			2020
Cash flows from operating activities:
Net (loss) income	$	1,820		$	(12,547	)
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Goodwill impairment		--			13,560
Depreciation		288			277
Accretion of purchased loan discount		(321	)		(97	)
Amortization of purchased loan premium		26			10
Amortization of discounts and premiums on investment securities, net		--			8
Amortization of deferred loan origination costs (fees)		7			85
Net gain on sale of loans		(380	)		(186	)
Valuation adjustment of REO		19			36
Net gain (loss) on real estate owned		19			(5	)
ESOP compensation expense		122			112
Net gain on sale of property & equipment		2			--
Earnings on bank-owned life insurance		(78	)		(76	)
Provision for loan losses		192			103
Origination of loans held for sale		(9,963	)		(5,598	)
Proceeds from loans held for sale		9,703			5,117
Increase (decrease) in cash, due to changes in:
Accrued interest receivable		136			(72	)
Prepaid expenses and other assets		118			(62	)
Accrued interest payable		(7	)		(1	)
Accounts payable and other liabilities		6			111
Income tax (benefit)
Current		95			131
Deferred		(223	)		136
Net cash provided by operating activities		1,581			1,042

Cash flows from investing activities:
Purchase of time deposits in other financial institutions		--			(2,500	)
Maturities of time deposits in other financial institutions		1,982			7,233
Investment securities maturities, prepayments and calls:
Held to maturity		129			169
Available for sale		506			502
Purchase of FHLB stock		--			(16	)
Proceeds from sale of property & equipment		30			--
Loans originated for investment, net of principal collected		(12,220	)		(5,228	)
Proceeds from sale of real estate owned		829			292
Additions to real estate owned		(1	)		(44	)
Additions to premises and equipment, net		(101	)		(165	)
Net cash (used) provided by investing activities		(8,846	)		243

Cash flows from financing activities:
Net change in deposits		14,570			16,437
Payments by borrowers for taxes and insurance, net		38			37
Proceeds from Federal Home Loan Bank advances		51,600			23,500
Repayments on Federal Home Loan Bank advances		(49,442	)		(35,488	)
Treasury stock purchases		(167	)		(542	)
Dividends paid on common stock		(1,388	)		(1,388	)
Net cash provided by financing activities		15,211			2,556

Net increase in cash and cash equivalents		7,946			3,841

Beginning cash and cash equivalents		13,702			9,861

Ending cash and cash equivalents	$	21,648		$	13,702

The accompanying notes are an integral part of these statements.

KENTUCKY FIRST FEDERAL BANCORP

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

For the years ended June 30, 2021 and 2020

(Dollar amounts in thousands)

	2021		2020
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Federal income taxes	$	475	$	--

Interest on deposits and borrowings	$	2,148	$	3,500

Supplemental disclosure of noncash investing activities:
Transfers from loans to real estate acquired through foreclosure	$	358	$	304

Loans disbursed upon sales of real estate acquired through foreclosure	$	50	$	95

The accompanying notes are an integral part of these statements.

KENTUCKY FIRST FEDERAL BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2021 and 2020

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Kentucky First Federal Bancorp (the “Company”) is a savings and loan holding company whose activities are primarily limited to holding the stock and managing the operations of First Federal Savings and Loan Association of Hazard, Kentucky (“First Federal of Hazard”) and Frankfort First Bancorp, Inc., (“Frankfort First”) the holding company for First Federal Savings Bank of Kentucky (“First Federal of Kentucky”). First Federal of Hazard and First Federal of Kentucky are collectively referred to herein as “the Banks.” First Federal of Hazard is a community-oriented savings and loan association dedicated to serving consumers in Perry and surrounding counties in eastern Kentucky, while First Federal of Kentucky operates through six banking offices located in Frankfort, Danville and Lancaster, Kentucky. Both institutions engage primarily in the business of attracting deposits from the general public and applying those funds to the origination of loans for residential and consumer purposes. First Federal of Kentucky also originates, to a lesser extent, church loans, home equity and other loans. Other than a predominance of one- to four-family residential property, which is common in most thrifts, there are no significant concentrations of loans to any one industry or customer. However, the customers’ ability to repay their loans is dependent on the real estate and general economic conditions in the Banks’ specific operating areas. The Banks’ profitability is significantly dependent on net interest income, which is the difference between interest income generated from interest-earning assets (i.e. loans and investments) and the interest expense paid on interest-bearing liabilities (i.e. customer deposits and borrowed funds). Net interest income is affected by the relative amount of interest-earning assets and interest-bearing liabilities and the interest received or paid on these balances. The level of interest rates paid or received by the Banks can be significantly influenced by a number of environmental factors, such as governmental monetary policy, that are outside of management’s control.

The following is a summary of the Company’s significant accounting policies which have been consistently applied in the preparation of the accompanying consolidated financial statements.

1. Principles of Consolidation: The consolidated financial statements include the accounts of the Company, First Federal of Hazard, Frankfort First and First Federal of Kentucky. All significant intercompany accounts and transactions have been eliminated in consolidation.

2. Use of Estimates: The consolidated financial information presented herein has been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP.”) To prepare financial statements in conformity with U.S. GAAP, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and actual results could differ. Such estimates include, but are not limited to, the allowance for loan losses, goodwill, and deferred taxes.

3. Securities: Debt securities are classified as held to maturity or available for sale. Securities classified as held to maturity are to be carried at cost only if the Company has the positive intent and ability to hold these securities to maturity. Securities designated as available for sale are carried at fair value with resulting unrealized gains or losses recorded to shareholders’ equity, net of tax.

Interest income includes amortization of purchase premium or discount. Premiums and discounts on securities are amortized on the level-yield method without anticipating prepayments, except for mortgage backed securities where prepayments are anticipated. Gains and losses on sales are recorded on the trade date and determined using the specific identification method.

KENTUCKY FIRST FEDERAL BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2021 and 2020

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

3. Securities: (continued)

Management evaluates securities for other-than-temporary impairment (“OTTI”) at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. For securities in an unrealized loss position, management considers the extent and duration of the unrealized loss, and the financial condition and near-term prospects of the issuer. Management also assesses whether it intends to sell, or it is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings. For debt securities that do not meet the aforementioned criteria, the amount of impairment is split into two components as follows: 1) OTTI related to credit loss, which must be recognized in the income statement and 2) OTTI related to other factors, which is recognized in other comprehensive income. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis.

4. Loans: 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 loan 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.

All interest accrued but not received for loans placed on nonaccrual is reversed against interest income. Interest received on such loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

5. Loans held for sale and Mortgage Servicing Rights: Loans held for sale are carried at the lower of cost (less principal payments received) or fair value, calculated on an aggregate basis. At June 30, 2021 and 2020 the Company had $1.3 million and $667,000 in loans held for sale, respectively.

In selling loans, the Company utilizes a program with the Federal Home Loan Bank, retaining servicing on loans sold. Mortgage servicing rights on originated loans that have been sold are initially recorded at fair value. Capitalized servicing rights are amortized in proportion to and over the period of estimated servicing revenues. The Company recorded amortization related to mortgage servicing rights totaling $28,000 and $20,000 during the years ended June 30, 2021 and 2020, respectively. The carrying value of the Company’s mortgage servicing rights, which approximated fair value, totaled approximately $147,000 and $96,000 at June 30, 2021 and 2020, respectively.

The Company was servicing mortgage loans of approximately $18.3 million and $12.1 million that had been sold to the Federal Home Loan Bank at June 30, 2021 and 2020, respectively.

KENTUCKY FIRST FEDERAL BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2021 and 2020

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

5. Loans held for sale and Mortgage Servicing Rights: (continued)

Servicing rights are evaluated for impairment based upon the fair value of the rights as compared to carrying amount. Impairment is recognized through a valuation allowance for an individual grouping, to the extent that fair value is less than the carrying amount. If the Company later determines that all or a portion of the impairment no longer exists for a particular grouping, a reduction of the allowance may be recorded as an increase to income. Changes in valuation allowances are reported with other non-interest income on the income statement. The fair values of servicing rights are subject to significant fluctuations as a result of changes in estimated and actual prepayment speeds and default rates and losses.

Servicing fee income which is reported on the income statement as other non-interest income is recorded for fees earned for servicing loans. The fees are based on a contractual percentage of the outstanding principal and are recorded as income when earned. The amortization of mortgage servicing rights is netted against loan servicing fee income. Servicing fees totaled $14,000 and $7,000 for the fiscal years ended June 30, 2021 and 2020, respectively. Late fees and ancillary fees related to loan servicing are not material.

6. Allowance for Loan Losses: The allowance for loan losses is a valuation allowance for probable incurred credit losses. Loan losses are charged 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 past loss experience, the nature and volume of the portfolio, trends in the level of delinquent and problem loans, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral and current and anticipated economic conditions in the primary lending area. 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.

The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired or loans otherwise classified as substandard or doubtful. The general component covers all loans and is based on historical loss experience adjusted for current factors. In consultation with regulators, the Company considers a time frame of two years when estimating the appropriate level of allowance for loan losses. This period may be shortened or extended based on anticipated trends in the banks or in the banks’ markets.

The historical loss experience is determined by portfolio segment and is based on the actual loss history experienced by the Company over the most recent eight quarters. This actual loss experience is supplemented with other economic factors based on the risks present for each portfolio segment.

These economic factors include consideration of the following: levels of and trends in delinquencies and impaired loans; levels of and trends in charge-offs and recoveries; trends in volume and terms of loans; changes in lending policies, procedures and practices; experience, ability and depth of lending management and other relevant staff; economic trends and conditions; industry conditions; and effects of changes in credit concentrations. Our portfolio segments include residential real estate, nonresidential real estate and land, loans on deposits and consumer and other loans. Risk factors associated with our portfolio segments are as follows:

KENTUCKY FIRST FEDERAL BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2021 and 2020

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

6. Allowance for loan losses: (continued)

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 95% 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 occasionally lend to builders for construction of speculative or custom residential properties for resale, but on a limited basis. 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 and Nonresidential Loans

We offer mortgage loans secured by residential multi-family (five or more units), and nonresidential real estate. Nonresidential real estate loans are 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. Loans secured by multi-family and commercial real estate 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.

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.

KENTUCKY FIRST FEDERAL BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2021 and 2020

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

6. Allowance for loan losses: (continued)

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.

7. Federal Home Loan Bank Stock: The banks are members of the FHLB system. Members are required to own a certain amount of stock based on the level of borrowings and other factors, and may invest in additional amounts. FHLB stock is carried at cost, classified as a restricted security, and periodically evaluated for impairment based on ultimate recovery of par value. Both cash and stock dividends are reported as interest income.

8. Real Estate Owned: Real estate acquired through or instead of foreclosure is initially recorded at fair value less estimated selling expenses at the date of acquisition, establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. If fair value declines subsequently, the carrying value is adjusted through a valuation allowance and the amount is recorded through expense. Costs relating to holding real estate owned, net of rental income, are charged against earnings as incurred.

KENTUCKY FIRST FEDERAL BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2021 and 2020

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

9. Premises and Equipment: Land is carried at cost. Premises and equipment are carried at cost less accumulated depreciation. The cost of premises and equipment includes expenditures which extend the useful lives of existing assets. Maintenance, repairs and minor renewals are expensed as incurred. For financial reporting, depreciation is provided on the straight-line method over the useful lives of the assets, estimated to be forty years for buildings, ten to forty years for building improvements, and five to ten years for furniture and equipment. When management initiates a plan to dispose of assets, those assets are transferred to fixed assets held for sale and evaluated for potential impairment. At June 30, 2021 and 2020, the Company had fixed assets held for sale of $161,000 related to a branch office no longer in use and included in other assets on the balance sheet. No impairment losses have been taken on the property.

10. Income Taxes: Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates. Deferred tax assets are recorded only to the extent that the amount of net deductible temporary differences or carryforward attributes may be utilized against current period earnings, carried back against prior years’ earnings, offset against taxable temporary differences reversing in future periods, or utilized to the extent of management’s estimate of future taxable income. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized. Deferred tax liabilities are provided on the total amount of net temporary differences taxable in the future.

A tax provision is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. The Company recognizes interest and/or penalties related to income tax matters as income tax expense.

Kentucky First Federal Bancorp and Frankfort First Bancorp, Inc., each are subject to state income taxes in the Commonwealth of Kentucky. Both of the Banks became subject to state income tax in the Commonwealth on January 1, 2021, according to legislation enacted in the spring of 2019. On March 26, 2019, Kentucky enacted H.B. 354 repealing the bank franchise tax. On April 9, 2019, Kentucky enacted related legislation, H.B. 458, which made technical corrections to H.B. 354. Beginning on or after January 1, 2021, the banks will be subject to the corporation income tax and limited liability entity tax (“LLET”) instead of the savings and loan tax. Because the banks operate on a fiscal year, they must file a short-year corporation income tax and LLET return and pay any tax due for the period beginning January 1, 2021 through the end of the banks’ normal fiscal year. With few exceptions, the Company is no longer subject to U.S. federal, state and local tax examinations by tax authorities for years before 2018.

KENTUCKY FIRST FEDERAL BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2021 and 2020

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

11. Retirement and Employee Benefit Plans: The Banks participate in the Pentegra Defined Benefit Plan for Financial Institutions (“The Pentegra DB Plan”), which is a tax-qualified, multi-employer defined benefit pension fund covering all employees who qualify as to length of service. The Pentegra DB Plan’s Employer Identification Number is 13-5645888 and the Plan Number is 333. The Pentegra DB Plan operates as a multi-employer plan for accounting purposes and as a multiple-employer plan under the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code. The Pentegra DB Plan is a single plan under Internal Revenue Code Section 413(c) and, as a result, all of the assets stand behind all of the liabilities. Accordingly, under the Pentegra DB Plan contributions made by a participating employer may be used to provide benefits to participants of other participating employers. Total contributions made to the Pentegra DB Plan, as reported on Form 5500, equal $253.2 million and $138.3 million for the plan years ended June 30, 2020 and 2019, respectively. Our contributions for fiscal 2021 and 2020 were not more than 5% of the total contributions made to the Pentegra DB Plan. Pension expense is the net contributions, which are based upon covered employees’ age and salaries and are dependent upon the ultimate prescribed benefits of the participants and the funded status of the plan. The Company recognized expense related to the plans totaling approximately $955,000 and $935,000 for the fiscal years ended June 30, 2021 and 2020, respectively. There are no collective bargaining agreements in place that require contributions to the Pentegra DB Plan. As of July 1, 2020, the most recent period for which information is available, the Banks had an adjusted funding target attainment percentage (“AFTAP”) of 87.27%. There are no funding improvement plans or surcharges to participants. Effective July 1, 2016, sponsorship of the plan was transferred to the Company, benefits ratios were standardized and prospectively each bank will contribute to the plan based generally on its pro rata share of future benefits. Effective April 1, 2019, the Company elected to freeze benefits to its employee participants.

The Company also maintains a nonqualified deferred compensation plan for the benefit of certain directors, which is closed to any future deferrals. The expense incurred for the deferred compensation was $0 and $2,000 for the fiscal years ended June 30, 2021 and 2020, respectively, while the liabilities totaled $51,000 and $51,000 at June 30, 2021 and 2020, respectively.

The Company maintains an Employee Stock Ownership Plan (“ESOP”) which provides retirement benefits for substantially all full-time employees who have completed one year of service and have attained the age of 21. Annual contributions are made to the ESOP equal to the ESOP’s debt service less dividends received by the ESOP on unallocated shares. Shares in the ESOP were acquired using funds provided by a loan from the Company and, accordingly, the cost of those shares is shown as a reduction of stockholders’ equity. Shares are released to participants proportionately as the loan is repaid. Dividends on allocated shares are recorded as dividends and charged to retained earnings. Dividends on unallocated shares are used to repay loan principal and accrued interest. Compensation expense is recorded equal to the fair value of shares committed to be released during a given fiscal year. Allocation of shares to the ESOP participants is contingent upon the repayment of a loan to Kentucky First Federal Bancorp totaling $277,000 and $528,000 at June 30, 2021 and 2020, respectively. The Company recorded expense for the ESOP of approximately $122,000 and $135,000 for the years ended June 30, 2021 and 2020, respectively. Shares may be surrendered from the plan as employees leave employment. Total shares surrendered from the plan totaled 217,706 and 194,445 at June 30, 2021 and 2020, respectively.

KENTUCKY FIRST FEDERAL BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2021 and 2020

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

11. Retirement and Employee Benefit Plans: (continued)

The amounts contributed to the ESOP were $280,000 for each of the years 2021 and 2020.

	For the fiscal year ended
	June 30,
	2021		2020
Allocated shares		99,668		104,254
Shares committed to be released		9,338		9,338
Unearned shares		10,261		28,936
Total ESOP shares		119,267		142,528

Fair value of unearned shares at End of period	$	76,000	$	195,000

The Company maintains a 401(k) plan for the benefit of all full-time employees. No employer contributions have been made to the 401(k) plan.

12. 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. There is no adjustment to net earnings for the calculation of diluted earnings per share. The factors used in the basic and diluted earnings per share computations for the fiscal years ended June 30 follow:

	For the fiscal year ended
	June 30,
	2021		2020
Net income (loss) allocated to common shareholders, basic and diluted	$	1,820,000	$	(12,547,000	)

EARNINGS (LOSS) PER SHARE	$	0.22	$	(1.52	)

Weighted average common shares outstanding, basic and diluted		8,216,193		8,251,860

Basic earnings per share is computed based upon the weighted-average shares outstanding during the year (which excludes treasury shares) less average shares in the ESOP that are unallocated and not committed to be released. There were no options outstanding for fiscal years 2021 and 2020.

KENTUCKY FIRST FEDERAL BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2021 and 2020

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

13. Fair Value of Assets and Liabilities: Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:

Level 1 - Quoted prices in active markets for identical assets or liabilities that the entity has the ability to access as of the measurement date.

Level 2 - Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in 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 - Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

Following is a description of the valuation methodologies used for assets measured at fair value on a recurring basis and recognized in the accompanying balance sheet, 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 matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs).

The following table presents the fair value measurements of assets and liabilities measured at fair value on a recurring basis at June 30, 2021 and 2020. The securities represented are only those classified as available-for sale.

			Fair Value Measurements Using
			Quotes Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
(in thousands)	Fair Value		(Level 1)		(Level 2)		(Level 3)
2021
Agency mortgage-backed: residential	$	33	$	--	$	33	$	--

2020
Agency bonds	$	503	$	--	$	503	$	--
Agency mortgage-backed: residential	$	38	$	--	$	38	$	--

There were no transfers between levels 1 and 2.

KENTUCKY FIRST FEDERAL BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2021 and 2020

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

13. Fair Value of Assets and Liabilities (continued)

Following is a description of the valuation methodologies and inputs used for assets measured at fair value on a nonrecurring basis and recognized in the accompanying consolidated balance sheet, as well as the general classification of such assets pursuant to the valuation hierarchy. For assets classified within Level 3 of the fair value hierarchy, the process used to develop the reported fair value is described below.

Impaired Loans

The fair value of impaired loans with specific allocations of the allowance for loan losses is generally based on recent independent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value and totaled $0 and $0 for the years ended June 30, 2021 and 2020, respectively.

Independent appraisals for collateral-dependent loans are updated periodically (usually every 12-24 months depending on the size of the loan and the loan-to-value ratio).

Real Estate Owned

Real estate properties acquired through or instead of loan foreclosure are initially recorded as real estate owned (“REO”) at fair value, less costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. Fair value is commonly based on recent real estate appraisals which are updated no less frequently than annually. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach with data from comparable properties. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments were $19,000 and $36,000 for the fiscal years 2021 and 2020, respectively, and resulted in a Level 3 classification of the inputs for determining fair value. One single-family residential property, which was held as OREO and was written down by $19,000 during the year ended June 30, 2021, was sold during the period. There was no OREO measured at fair value less costs to sell at June 30, 2021.

The following table presents the fair value measurements of assets and liabilities measured at fair value on a nonrecurring basis at June 30, 2020.

			Fair Value Measurements Using
(in thousands)	Fair Value		Quotes Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
2020
Other real estate owned, net One- to four-family	$	465	$	-	$	-	$	465

KENTUCKY FIRST FEDERAL BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2021 and 2020

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

13. Fair Value of Assets and Liabilities (continued)

The following table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at June 30, 2020:

June 30, 2020

Fair Value
(in thousands)

Valuation
Technique(s)

Unobservable
Input(s)

Range

(Weighted
Average)

Foreclosed and repossessed assets:

1-4 family

465

Sales comparison approach

Adjustments for differences between comparable sales

-2.7% to 41.2%
(20.4%)

The following disclosure of the fair value of financial instruments, both assets and liabilities, whether or not recognized in the consolidated balance sheet, is based on the assumptions presented for each particular item and 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.

The Company’s financial instruments at June 30, 2021 and 2020 are as follows:

			Fair Value Measurements at
	Carrying		June 30, 2021 Using
(in thousands)	Value		Level 1		Level 2		Level 3		Total
Financial assets
Cash and cash equivalents	$	21,648	$	21,648					$	21,648
Time deposits in other financial institutions		247		248						248
Available-for-sale securities		33			$	33				33
Held-to-maturity securities		462				476				476
Loans held for sale		1,307				1,336				1,336
Loans receivable - net		297,902					$	306,346		306,346
Federal Home Loan Bank stock		6,498								n/a
Accrued interest receivable		694				694				694

Financial liabilities
Deposits	$	226,843	$	101,951	$	125,232			$	227,183
Federal Home Loan Bank advances		56,873				57,314				57,314
Advances by borrowers for taxes and insurance		838				838				838
Accrued interest payable		20				20				20

KENTUCKY FIRST FEDERAL BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2021 and 2020

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

13. Fair Value of Assets and Liabilities (continued)

	Carrying		Fair Value Measurements at June 30, 2020 Using
(in thousands)	Value		Level 1		Level 2		Level 3		Total
Financial assets
Cash and cash equivalents	$	13,702	$	13,702					$	13,702
Time deposits in other financial institutions		2,229		2,252						2,252
Available-for-sale securities		541			$	541				541
Held-to-maturity securities		598				611				611
Loans held for sale		667				685				685
Loans receivable - net		285,887					$	295,431		295,431
Federal Home Loan Bank stock		6,498								n/a
Accrued interest receivable		830				830				830

Financial liabilities
Deposits	$	212,273	$	78,118	$	135,000			$	213,118
Federal Home Loan Bank advances		54,715				55,416				55,416
Advances by borrowers for taxes and insurance		800				800				800
Accrued interest payable		27				27				27

14. Cash and Cash Equivalents: For purposes of reporting cash flows, cash and cash equivalents include cash and due from banks and interest-bearing deposits in other financial institutions with original maturities of less than ninety days.

15. Goodwill: Goodwill of $14.5 million was originally recorded in March 2005 when the Company, as part of its initial public offering, purchased Frankfort First Bancorp, Inc., with a portion of the stock and cash proceeds from the offering. Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but tested for impairment at least annually. The Company has selected March 31 as the date to perform its annual impairment test with more frequent monitoring if circumstances warrant. The Company adopted ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350) Simplifying the Test for Goodwill Impairment, effective April 1, 2020. According to the accounting pronouncement, the Company recorded a goodwill impairment charge of $13.6 million during the period ended June 30, 2020. The carrying value of goodwill was $947,000 at June 30, 2021 and 2020. Intangible assets with definite useful lives are amortized over their estimated useful lives to their estimated residual values. Goodwill is the only intangible asset with an indefinite life on our balance sheet.

16. Cash Surrender Value of Life Insurance: First Federal of Kentucky has purchased life insurance policies on certain key executives. Bank-owned life insurance is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement.

17. Treasury Stock: Treasury stock is stated at cost. Cost is determined by the first-in, first-out method.

KENTUCKY FIRST FEDERAL BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2021 and 2020

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

18. Related Party Transactions: Loans outstanding to executive officers, directors, significant shareholders and their affiliates (related parties) at June 30, 2021 and 2020 are summarized as follows:

(in thousands)	2021			2020
Outstanding principal, beginning of year	$	1,047		$	1,246
Changes in composition of related parties		936			(129	)
Principal disbursed during the year		--			--
Principal repaid and refinanced during the year		(578	)		(70	)
Outstanding principal, end of year	$	1,405		$	1,047

Deposits from related parties held by the Company at June 30, 2021 and 2020 totaled $4.3 million and $3.3 million, respectively.

In management’s opinion, such loans and other extensions of credit and deposits were made in the ordinary course of business and were made on substantially the same terms (including interest rates and collateral) as those prevailing at the time for comparable transactions with other persons. Further, in management’s opinion, these loans did not involve more than normal risk of collectability or present other unfavorable features.

19. Comprehensive Income and Accumulated Comprehensive Income: Comprehensive income consists of net income and other comprehensive income. Other comprehensive income includes unrealized gains and losses on securities available for sale, net of tax, for the period which are also recognized as separate components of equity. Accumulated comprehensive income consists solely of unrealized gain or loss on available-for-sale securities at the end of the period.

20. Revenue Recognition: The Company’s revenue-generating activities accounted for under Topic 606 includes primarily service charges and fees on deposits and other service charges and fees and comprise the majority of other non-interest income on the statement of income. Service charges and fees on deposits are primarily overdraft fees, dormant account fees, and service charges on checking and savings accounts. Overdraft fees are recognized at the time an account is overdrawn. Dormant account fees are recognized when an account is inactive for at least 365 days. Service charges on checking and savings accounts are primarily account maintenance services performed and recognized in the same calendar month. Other deposit-based service charges and fees include transaction-based services completed at the request of the customer and recognized at the time the transaction is completed. These transaction-based services include ATM usage and stop payment services. All service charges and fees on deposits are withdrawn from the customer’s account at the time the service is provided.

21. Loss Contingencies: Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe there now are such matters that will have a material effect on the financial statements.

22. Loan Commitments and Related Financial Instruments: Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial letters of credit, issued to meet customer financing needs. The face amount for these items represents the exposure to loss, before considering customer collateral or ability to repay. Such financial instruments are recorded when they are funded.

KENTUCKY FIRST FEDERAL BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2021 and 2020

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

23. Dividend Restriction: Banking regulations require maintaining certain capital levels and may limit the dividends paid by the banks to the holding company or by the holding company to shareholders.

24. Operating Segments: While the chief decision-makers monitor the revenue streams of the various products and services, operations are managed and financial performance is evaluated on a Company-wide basis. Operating segments are aggregated into one as operating results for all segments are similar. Accordingly, all of the financial service operations are considered by management to be aggregated in one reportable operating segment.

25. Reclassifications: Some items in the prior year financial statements were reclassified to conform to the current presentation. Reclassifications had no effect on prior year net income or shareholders’ equity.

26. New Accounting Standards:

FASB ASC 326 - In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The final standard will change estimates for credit losses related to financial assets measured at amortized cost such as loans, held-to-maturity debt securities, and certain other contracts. For estimating credit losses, the FASB is replacing the incurred loss model with an expected loss model, which is referred to as the current expected credit loss (CECL) model. 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 will be 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 is effective for public companies for annual periods and interim periods within those annual periods beginning after December 15, 2019. However, the FASB has 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 will be applied through a cumulative effect adjustment to retained earnings (modified-retrospective approach), except for debt securities for which an other-than-temporary impairment had been recognized before the effective date. A prospective transition approach is required for these debt securities. We have formed a functional committee that is assessing our data and system needs and are evaluating the impact of adopting the new guidance. We expect to recognize a one-time cumulative effect adjustment to the allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective, but cannot yet determine the magnitude of any such one-time adjustment or the overall impact of the new guidance on the consolidated financial statements. However, the Company does expect ASU 2016-13 to add complexity and costs to its current credit loss evaluation process.

FASB ASC 820 – In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820) Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. This guidance reduces the level of detail surrounding the processes used by the Company in determining the fair value of some of its assets. The Company adopted this ASU effective July 1, 2020, with no material impact to the financial statements.

KENTUCKY FIRST FEDERAL BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2021 and 2020

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

26. New Accounting Standards: continued

FASB ASC 740– In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes. The amendments in this ASU removes certain exceptions for recognizing deferred taxes for investments, performing intraperiod allocation and calculating income taxes during interim periods. The ASU also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. For public business entities, the amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, or July 1, 2021, with respect to the Company. Early adoption is permitted. We do not anticipate a significant impact to our consolidated financial statements.

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 B - SECURITIES

The following table summarizes the amortized cost and fair value of the available for sale securities and held to maturity investment securities portfolio at June 30, 2021 and 2020 and the corresponding amounts of gross unrealized or unrecognized gains and losses. Unrealized gains or losses apply to available-for-sale securities and are recognized in accumulated other comprehensive income, while unrecognized gains or losses on held-to-maturity securities are not recognized in the financial statements. The gains and losses are as follows:

	2021
(in thousands)	Amortized cost		Gross unrealized/ unrecognized gains		Gross unrealized/ unrecognized losses		Estimated fair value
Available-for-sale Securities
Agency mortgage-backed residential	$	33	$	-	$	-	$	33

Held-to-maturity Securities
Agency mortgage-backed: residential	$	462	$	16	$	2	$	476

	2020
(in thousands)	Amortized cost		Gross unrealized/ unrecognized gains		Gross unrealized/ unrecognized losses		Estimated fair value
Available-for-sale Securities
Agency bonds	$	500	$	3	$	-	$	503
Agency mortgage-backed: residential		38		-		-		38
	$	538	$	3	$	-	$	541

Held-to-maturity Securities
Agency mortgage-backed: residential	$	598	$	16	$	3	$	611

KENTUCKY FIRST FEDERAL BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2021 and 2020

NOTE B - SECURITIES (continued)

At June 30, 2021, 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. Securities without a single maturity, primarily mortgage-backed, are not shown.

There were no sales of securities during the fiscal year ended June 30, 2021 or 2020. At June 30, 2021 the Company had $258,000 in held-to-maturity mortgage-backed securities with gross unrealized losses of $2,000, while at June 30, 2020, the Company had $67,000 in held-to-maturity mortgage-backed securities with gross unrealized losses of $3,000. Unrealized losses on agency mortgage-backed securities have not been recognized into income because they are of high credit quality (rated AA or higher), management does not intend to sell and it is likely that management will not be required to sell the securities prior to their anticipated recovery, and the decline in fair value is largely due to changes in interest rates and other market conditions. The fair value is expected to recover as the investments reach maturity.

At June 30, 2021 and 2020, pledged securities totaled $1.8 million and $1.9 million, respectively. At June 30, 2021 and 2020, the pledged total included time deposits and/or overnight deposits of $1.5 million and $1.5 million, respectively.

NOTE C - LOANS

The composition of the loan portfolio at June 30 was as follows:

(in thousands)	2021			2020
Residential real estate
One- to four-family	$	224,125		$	222,489
Multi-family		19,781			12,373
Construction		5,433			4,045
Land		1,308			765
Farm		2,234			2,354
Nonresidential real estate		35,492			33,503
Commercial and industrial		2,259			2,214
Consumer and other
Loans on deposits		1,129			1,245
Home equity		7,135			7,645
Automobile		75			67
Unsecured		553			675
		299,524			287,375

Allowance for loan losses		(1,622	)		(1,488	)
	$	297,902		$	285,887

The amounts above include net deferred loan fees of $167,000 and $177,000 as of June 30, 2021 and 2020.

KENTUCKY FIRST FEDERAL BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2021 and 2020

NOTE C - LOANS (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, 2021 and 2020. There were $595,000 and $751,000 in loans acquired with deteriorated credit quality at June 30, 2021 and 2020, respectively.

June 30, 2021:

(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	$	3,738	$	595	$	4,333	$	--
Multi-family		646		--		646		--
Farm		274		--		274		--
Nonresidential real estate		1,367		--		1,367		--
Consumer and other:
Unsecured		16		--		16		--
		6,041		595		6,636		--

Loans collectively evaluated for impairment:
Residential real estate:
One- to four-family					$	219,792	$	794
Multi-family						19,135		291
Construction						5,433		12
Land						1,308		3
Farm						1,960		5
Nonresidential real estate						34,125		494
Commercial and industrial						2,259		5
Consumer and other:
Loans on deposits						1,129		2
Home equity						7,135		15
Automobile						75		--
Unsecured						537		1
						292,888		1,622
					$	299,524	$	1,622

These loans were evaluated at acquisition date at their estimated fair value and there has been no subsequent deterioration since acquisition.

KENTUCKY FIRST FEDERAL BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2021 and 2020

NOTE C - LOANS (continued)

June 30, 2020:

(in thousands)	Loans individually evaluated		Loans acquired with deteriorated credit quality*		Ending loans balance		Ending allowance attributed to loans		Unallocated allowance		Total allowance
Loans individually evaluated for impairment:
Residential real estate:
One- to four-family	$	3,983	$	751	$	4,734	$	--	$	--	$	--
Multi-family		671		--		671		--		--		--
Construction		63		--		63		--		--		--
Farm		309		--		309		--		--		--
Nonresidential real estate		660		--		660		--		--		--
		5,686		751		6,437		--		--		--

Loans collectively evaluated for impairment:
Residential real estate:
One- to four-family					$	217,755	$	671	$	--	$	671
Multi-family						11,702		184		--		184
Construction						3,982		6		--		6
Land						765		1		--		1
Farm						2,045		4		--		4
Nonresidential real estate						32,843		405		--		405
Commercial and industrial						2,214		3		--		3
Consumer and other
Loans on deposits						1,245		2		--		2
Home equity						7,645		11		--		11
Automobile						67		--		--		--
Unsecured						675		1		--		1
Unallocated						--		--		200		200
						280,938		1,288		200		1,488
					$	287,375	$	1,288	$	200	$	1,488

These loans were evaluated at acquisition date at their estimated fair value and there has been no subsequent deterioration since acquisition.

KENTUCKY FIRST FEDERAL BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2021 and 2020

NOTE C - LOANS (continued)

The following tables present impaired loans by class of loans as of and for the years ended June 30, 2021 and 2020:

June 30, 2021:

(in thousands)	Unpaid Principal Balance and Recorded Investment		Allowance for Loan Losses Allocated		Average Recorded Investment		Interest Income Recognized		Cash Basis Income Recognized
With no related allowance recorded:
Residential real estate:
One- to four-family	$	4,333	$	--	$	4,534	$	107	$	107
Multi-family		646		--		659		24		24
Construction		--		--		32		--		--
Farm		274		--		292		35		35
Nonresidential real estate		1,367		--		1,014		60		60
Consumer and other:
Unsecured		16		--		8		1		1
Total	$	6,636	$	--	$	6,537	$	227	$	227

June 30, 2020:

(in thousands)	Unpaid Principal Balance and Recorded Investment		Allowance for Loan Losses Allocated		Average Recorded Investment		Interest Income Recognized		Cash Basis Income Recognized
With no related allowance recorded:
Residential real estate:
One- to four-family	$	4,734	$	--	$	4,713	$	172	$	172
Multi-family		671		--		679		32		32
Construction		63		--		13		--		--
Farm		309		--		309		11		11
Nonresidential real estate		660		--		701		47		47
Total	$	6,437	$	--	$	6,415	$	262	$	262

KENTUCKY FIRST FEDERAL BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2021 and 2020

NOTE C - LOANS (continued)

The following tables present the recorded investment in nonaccrual and loans past due over 90 days still on accrual status by class of loans as of June 30, 2021 and 2020. The tables include loans acquired with deteriorated credit quality. At June 30, 2021, the table below includes approximately $365,000 of loans on nonaccrual and no loans past due over 90 days and still accruing of loans acquired with deteriorated credit quality, while at June 30, 2020, approximately $508,000 of loans on nonaccrual and no loans past due over 90 days and still accruing represent such loans.

	June 30, 2021				June 30, 2020
(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	$	4,104	$	243	$	4,458	$	1,135
Multi-family		646		--		671		--
Construction		--		--		63		--
Farm		274		--		309		--
Nonresidential real estate		1,367		--		660		--
Commercial and industrial		--		--		4		--
Consumer		21		--		95		--
	$	6,412	$	243	$	6,260	$	1,135

One- to four-family loans in process of foreclosure totaled $577,000 and $694,000 at June 30, 2021 and 2020, respectively.

Troubled Debt Restructurings:

A Troubled Debt Restructuring (“TDR”) is the situation where the Bank grants 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, 2021 and 2020, the Company had $1.7 million and $1.9 million of loans classified as TDRs, respectively. Of the TDRs at June 30, 2021, approximately 26.8% were related to the borrower’s completion of Chapter 7 bankruptcy proceedings with no reaffirmation of the debt to the Banks.

During the year ended June 30, 2021, the Company had two loans, which were associated with a single borrower and were both secured by a single-family residence, restructured as TDRs. The loans were classified as TDRs pursuant to court action under Chapter 7 bankruptcy proceedings without the borrower reaffirming the debt personally. Those two loans were current and totaled $142,000 at June 30, 2021.

KENTUCKY FIRST FEDERAL BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2021 and 2020

NOTE C - LOANS (continued)

In December 2020, Congress amended the CARES Act through the Consolidated Appropriation Act of 2021, which provided additional COVID-19 relief to American families and businesses, including extending TDR relief under the CARES Act until the earlier of December 31, 2021 or 60 days following the termination of the national emergency. The relief can only be applied to modifications for borrowers that were not more than 30 days past due as of December 31, 2019. The Company elected to adopt these provisions of the CARES Act. In response to the Covid-19 pandemic and the widespread economic downturn that immediately resulted, the Company adopted a loan forbearance plan in which then-current affected borrowers could request deferral of their loan payments for a period of three months. A total of $815,000 in loans were accepted into the plan for the twelve months ended June 30, 2021. At June 30, 2021 all of those loans had reached the end of their three-month deferral date period and returned to regular payment status.

During the year ended June 30, 2020, the Company had six loans restructured as TDRs. One borrower refinanced a piece of one- to four-family, non-owner occupied, residential property to bring to current amounts owed on other loans with the Bank. Because the borrower’s financial condition had deteriorated, it was unlikely that the borrower could have secured financing elsewhere. The restructured loan is collateralized and cross-collateralized by real estate. Three single family residential borrowers filed for Chapter 7 bankruptcy protection and did not reaffirm the debts personally, although the Company’s collateral position remains intact. Finally, a first and second mortgage on an 8-plex were refinanced into a single loan with a slightly extended maturity term and a lower interest rate, which was consistent with similarly-priced comparable loans at the time of refinance

In order to determine whether a borrower is experiencing financial difficulty, we consider the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under the Company’s internal underwriting policy.

The Company had no allocated specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of June 30, 2021 or 2020. At June 30, 2021 and 2020, TDR loans on nonaccrual status totaled $1.7 million and $1.8 million, respectively. The Company had no commitments to lend additional amounts as of June 30, 2021 and 2020, to customers with outstanding loans that are classified as troubled debt restructurings. The Company had no TDR loans which defaulted during fiscal 2021 or during fiscal 2020.

The following tables present the aging of the principal balance outstanding in accruing past due loans as of June 30, 2021 and 2020, by class of loans. The tables include loans acquired with deteriorated credit quality. At June 30, 2021, the table below includes $96,000 in loans 30-89 days past due and approximately $25,000 of loans past due over 90 days that were acquired with deteriorated credit quality, while at June 30, 2020, the table below includes $101,000 in loans 30-89 days past due and approximately $28,000 of loans past due over 90 days of such loans.

KENTUCKY FIRST FEDERAL BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2021 and 2020

NOTE C - LOANS (continued)

June 30, 2021:

(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	$	2,392	$	1,338	$	3,730	$	220,395	$	224,125
Multi-family		--		--		--		19,781		19,781
Construction		80		--		80		5,353		5,433
Land		--		--		--		1,308		1,308
Farm		101		--		101		2,133		2,234
Nonresidential real estate		--		241		241		35,251		35,492
Commercial and industrial		6		--		6		2,253		2,259
Consumer and other:
Loans on deposits		--		--		--		1,129		1,129
Home equity		116		--		116		7,019		7,135
Automobile		--		--		--		75		75
Unsecured		4		--		4		549		553
Total	$	2,699	$	1,579	$	4,278	$	295,246	$	299,524

June 30, 2020:

(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	$	2,546	$	2,670	$	5,216	$	217,273	$	222,489
Multi-family		--		--		--		12,373		12,373
Construction		192		63		255		3,790		4,045
Land		--		--		--		765		765
Farm		107		309		416		1,938		2,354
Nonresidential real estate		57		253		310		33,193		33,503
Commercial and industrial		--		--		--		2,214		2,214
Consumer and other:
Loans on deposits		--		--		--		1,245		1,245
Home equity		255		90		345		7,300		7,645
Automobile		--		--		--		67		67
Unsecured		--		--		--		675		675
Total	$	3,157	$	3,385	$	6,542	$	280,833	$	287,375

KENTUCKY FIRST FEDERAL BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2021 and 2020

NOTE C - LOANS (continued)

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.

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 June 30, 2021, and 2020, and based on the most recent analysis performed, the risk category of loans by class of loans was as follows:

June 30, 2021:

(in thousands)	Pass		Special Mention		Substandard		Doubtful
Residential real estate:
One- to four-family	$	217,485	$	596	$	6,044	$	--
Multi-family		19,135		--		646		--
Construction		5,433		--		--		--
Land		1,308		--		--		--
Farm		1,960		--		274		--
Nonresidential real estate		32,748		924		1,820		--
Commercial and industrial		2,259		--		--		--
Consumer and other:
Loans on deposits		1,129		--		--		--
Home equity		7,044		39		52		--
Automobile		75		--		--		--
Unsecured		546		--		7		--
Total	$	289,122	$	1,559	$	8,843	$	--

KENTUCKY FIRST FEDERAL BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2021 and 2020

NOTE C - LOANS (continued)

June 30, 2020:

(in thousands)	Pass		Special Mention		Substandard		Doubtful
Residential real estate:
One- to four-family	$	215,010	$	742	$	6,737	$	--
Multi-family		11,702		--		671		--
Construction		3,982		--		63		--
Land		765		--		--		--
Farm		2,045		--		309		--
Nonresidential real estate		31,529		939		1,035		--
Commercial and industrial		2,188		--		26		--
Consumer and other:
Loans on deposits		1,245		--		--		--
Home equity		7,505		39		101		--
Automobile		67		--		--		--
Unsecured		670		--		5		--
Total	$	276,708	$	1,720	$	8,947	$	--

The following tables present the activity in the allowance for loan losses by portfolio segment for the years ended June 30, 2021 and 2020:

June 30, 2021:

(in thousands)	Beginning balance		Provision for loan losses			Loans charged off			Recoveries		Ending balance
Residential real estate:
One- to four-family	$	671	$	146		$	(23	)	$	--	$	794
Multi-family		184		107			--			--		291
Construction		6		6			--			--		12
Land		1		2			--			--		3
Farm		4		1			--			--		5
Nonresidential real estate		405		89			--			--		494
Commercial and industrial		3		2			--			--		5
Consumer and other:
Loans on deposits		2		--			--			--		2
Home equity		11		42			(45	)		7		15
Auto		--		--			--			--		--
Unsecured		1		(3	)		--			3		1
Unallocated		200		(200	)		--			--		--
Totals	$	1,488	$	192		$	(68	)	$	10	$	1,622

KENTUCKY FIRST FEDERAL BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2021 and 2020

NOTE C - LOANS (continued)

June 30, 2020:

(in thousands)	Beginning balance		Provision for loan losses			Loans charged off			Recoveries		Ending balance
Residential real estate:
One- to four-family	$	685	$	49		$	(65	)	$	2	$	671
Multi-family		200		(16	)		--			--		184
Construction		6		--			--			--		6
Land		1		--			--			--		1
Farm		6		(2	)		--			--		4
Nonresidential real estate		336		69			--			--		405
Commercial and industrial		5		(2	)		--			--		3
Consumer and other:
Loans on deposits		3		(1	)		--			--		2
Home equity		14		(3	)		--			--		11
Auto		--		8			(8	)		--		--
Unsecured		--		1			--			--		1
Unallocated		200		--			--			--		200
Totals	$	1,456	$	103		$	(73	)	$	2	$	1,488

Purchased Loans:

The Company purchased loans during the fiscal year ended June 30, 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 $351,000, at June 30, 2021 and 2020, respectively, was as follows:

(in thousands)	2021		2020
Residential real estate:
One- to four-family	$	595	$	751

Accretable yield, or income expected to be collected on loans purchased during fiscal year 2013, for the years ended June 30 was as follows:

(in thousands)	2021			2020
Balance at beginning of year	$	447		$	544
Accretion of income		(57	)		(97	)
Balance at end of year	$	390		$	447

For those purchased loans disclosed above, the Company made no increase in allowance for loan losses for the years ended June 30, 2021 or 2020, nor were any allowance for loan losses reversed during those years.

KENTUCKY FIRST FEDERAL BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2021 and 2020

NOTE D - REAL ESTATE OWNED

Activity in real estate owned for the years ended June 30 was as follows:

(in thousands)	2021			2020
Balance at beginning of year	$	640		$	710
Loans transferred to real estate owned		358			304
Capitalized expenditures		1			44
Valuation adjustments		(19	)		(36	)
Disposals		(898	)		(382	)
Balance at end of year	$	82		$	640

NOTE E - PREMISES AND EQUIPMENT

Premises and equipment at June 30 are comprised of the following:

(in thousands)	2021		2020
Land	$	1,516	$	1,516
Buildings and improvements		6,536		6,493
Furniture and equipment		2,172		2,204
Automobiles		--		36
		10,224		10,249
Less: accumulated depreciation		5,527		5,333
Balance at end of year	$	4,697	$	4,916

NOTE F - GOODWILL

Goodwill of $14.5 million was originally recorded in March 2005 when the Company, as part of its initial public offering, purchased Frankfort First Bancorp, Inc., with a portion of the stock and cash proceeds from the offering. The Company has $947,000 of goodwill net of impairment losses of $13.6 million at June 30, 2021 and 2020. During the fiscal year ended June 30, 2020, a prolonged decline in the stock price of the Company exacerbated by the COVID-19 pandemic and its related economic impact led to management’s performance of a goodwill impairment analysis as of June 30, 2020. Based on the results of this analysis and in conjunction with management’s early adoption of ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, the estimated fair value of the Company was less than book value, resulting in a $13.6 million goodwill impairment charge. Goodwill impairment exists when a Company’s reporting unit’s carrying value of goodwill exceeds its fair value. The estimated fair value of the Company was determined based on a combination of methods including discounted cash flows of forecasted earnings and estimated sales price based on recent observable market transactions of similar securities.

KENTUCKY FIRST FEDERAL BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2021 and 2020

NOTE G - DEPOSITS

Deposits consist of the following major classifications at June 30:

(in thousands)	2021		2020
Non-interest bearing checking accounts	$	13,090	$	8,258
Checking accounts		21,352		15,133
Savings accounts		56,576		45,571
Money market demand deposits		10,933		9,156
Total demand, transaction and passbook deposits		101,951		78,118
Certificates of deposit		124,892		134,155
Total deposits	$	226,843	$	212,273

At June 30, 2021 and 2020, the Banks had certificate of deposit accounts with balances equal to or in excess of $250,000 totaling approximately $11.2 million and $13.0 million, respectively.

Maturities of outstanding certificates of deposit at June 30 are summarized as follows:

(in thousands)	2021
2022	$	85,217
2023		27,703
2024		8,169
2025		2,002
2026 and thereafter		1,801
	$	124,892

NOTE H - ADVANCES FROM THE FEDERAL HOME LOAN BANK

Advances from the Federal Home Loan Bank, collateralized at June 30, 2021 and 2020 by pledges of certain qualifying residential mortgage loans totaling $133.7 million and $172.0 million, respectively, and the Banks’ investment in Federal Home Loan Bank stock, are summarized as follows:

Maturing year ending June 30
(in thousands)
2022	$	23,807
2023		25,679
2024		3,659
2025		3,643
2026		31
2027		22
2028		16
2029-2032		16
	$	56,873

KENTUCKY FIRST FEDERAL BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2021 and 2020

NOTE H - ADVANCES FROM THE FEDERAL HOME LOAN BANK (continued)

At June 30, 2021 interest rates for advances were fixed ranging from 0.20% to 2.30%, with a weighted-average interest rate of 0.71%.

At June 30, 2020 interest rates for advances were fixed ranging from 0.21% to 2.30%, with a weighted-average interest rate of 0.99%.

Each advance is payable at its maturity date, with a prepayment penalty for fixed rate advances. Based on collateral composed of first mortgage loans and the Company’s holdings of FHLB stock, the Company was eligible to borrow up to $76.8 million as of June 30, 2021. In addition, we have the ability to borrow from the Federal Reserve Bank Discount Window. At June 30, 2021, based on home equity loans and share loans we had pledged collateral which would enable us to borrow up to $4.6 million. First Federal Savings Bank of Kentucky at June 30, 2021, had a $2.0 million Fed Funds line of credit with the Bankers’ Bank of Kentucky.

NOTE I - INCOME TAXES

Federal income taxes on earnings differs from that computed at the statutory corporate tax rate for the years ended June 30, 2021 and 2020, as follows:

(in thousands)	2021			2020
Income taxes at the statutory rate	$	456		$	(2,579	)
Increase (decrease) resulting primarily from:
Cash surrender value of life insurance		(19	)		(16	)
State income taxes		(83	)		--
Deferred tax liability adjustment, net, resulting from Kentucky tax legislation		--			14
Goodwill impairment		--			2,848
Other		(2	)		(3	)
	$	352		$	264

KENTUCKY FIRST FEDERAL BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2021 and 2020

NOTE I - INCOME TAXES (continued)

The composition of the Company’s net deferred tax liability at June 30 is as follows:

(in thousands)	2021			2020
Taxes (payable) refundable on temporary differences at estimated corporate tax rate:
Deferred tax assets:
General loan loss allowance	$	405		$	371
Accrued expenses		102			164
Fair value accounting adjustments on acquisition		199			199
Nonaccrued interest on loans		109			118
Other real estate owned adjustments		3			17
Depreciation		42			37
Charitable contributions		--			12
State net operating loss carryforward		227			--
Total deferred tax assets		1,087			918

Deferred tax liabilities:
Federal Home Loan Bank stock dividends		(981	)		(981	)
Deferred loan origination costs		(30	)		(33	)
Loan servicing rights		(37	)		(24	)
Accrual to cash adjustment		(106	)		(170	)
Fair value accounting adjustments on acquisition		(547	)		(547	)
Total deferred tax liabilities		(1,701	)		(1,755	)
Net deferred tax liability	$	(614	)	$	(837	)

The Company recorded a deferred tax asset for the state net operating loss carryforward. The losses are expected to be utilized when the Company begins filing a combined Kentucky income tax return with the Banks in 2021. The loss carryforward is $5,747 and expires beginning 2023.

Prior to 1997, the Banks were allowed a special bad debt deduction, generally limited to 8% of otherwise taxable income, and subject to certain limitations based on aggregate loans and deposit account balances at the end of the year. If the amounts that qualified as deductions for federal income taxes are later used for purposes other than bad debt losses, including distributions in excess of accumulated earnings and profits, such distributions will be subject to federal income taxes at the then current corporate income tax rate. Retained earnings at June 30, 2021, include approximately $5.2 million for which federal income taxes have not been provided. The amount of unrecognized deferred tax liability relating to the cumulative bad debt deduction was approximately $1.3 million at June 30, 2021.

KENTUCKY FIRST FEDERAL BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2021 and 2020

NOTE J - LOAN COMMITMENTS

The Banks are a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of their customers, including commitments to extend credit. Such commitments involve, to varying degrees, elements of credit and interest-rate risk in excess of the amount recognized in the consolidated statements of financial condition. The contract or notional amounts of the commitments reflect the extent of the Banks’ involvement in such financial instruments.

The Banks’ exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual notional amount of those instruments. The Banks use the same credit policies in making commitments and conditional obligations as those utilized for on-balance-sheet instruments.

At June 30, 2021 and 2020, the Banks had the following outstanding loan commitments:

	2021				2020
(in thousands)	Fixed		Variable		Fixed		Variable
Unused commitment:
Revolving, open-end lines secured by real estate	$	--	$	11,835	$	--	$	10,354
Commitments to fund real estate construction loans		519		4,125		854		8,443
Other unused commitment:
Commercial and industrial loans		1,364		--		2,541		--
Other		886		4,207		1,576		2,454
Letters of credit		--		--		--		--

Commitments to make loans are generally made for periods of 60 days or less. The fixed rate loan commitments at June 30, 2021 totaled $519,000 and had interest rates ranging from 2.63% to 3.00% and maturities ranging from 1 year to 30 years. The fixed rate loan commitments at June 30, 2020 totaled $854,000 and had interest rates ranging from 3.25% to 6.00% with maturities ranging from 1 year to 30 years.

NOTE K - STOCKHOLDERS’ EQUITY AND REGULATORY CAPITAL

Qualified Thrift Lender – Federal regulations require the Banks comply with the Qualified Thrift Lender (“QTL”) test, which requires that 65% of assets be maintained in housing-related finance and other specified assets. If the QTL test is not met, limits are placed on growth, branching, new investment, FHLB advances, and dividends or the institutions must convert to a commercial bank charter. Management believes that the QTL test has been met.

Dividend Restrictions – Dividends from the Banks are the primary source of funds for the Company. Banking regulations limit the amount of dividends that may be paid to the Company by the Banks without prior approval of the Office of the Controller of the Currency (the “OCC.”) Under these regulations the amount of dividends that may be paid in any calendar year is limited to the current year’s net profits, combined with the retained net profits of the preceding two years. At June 30, 2021, the Banks could, without prior approval, declare no dividends.

KENTUCKY FIRST FEDERAL BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2021 and 2020

NOTE K - STOCKHOLDERS’ EQUITY AND REGULATORY CAPITAL

Regulatory Capital Requirements - The Banks are subject to minimum regulatory capital standards promulgated by the OCC. Failure to meet minimum capital requirements can initiate certain mandatory -- and possibly additional discretionary -- actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Banks must meet specific capital guidelines that involve quantitative measures of the Company’s assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Prompt corrective action regulations provide five classifications: well-capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required.

Capital Standards – Effective January 1, 2020, the Company and the Banks became subject to the Community Bank Leverage Ratio (“CBLR”) framework. Previously the Company and the Banks were subject to regulatory capital reforms in accordance with Basel III.

Community Bank Leverage Ratio

On April 6, 2020, federal banking regulators issued two interim final rules that make changes to the CBLR ratio framework and implement certain directives of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act. The first of the April 2020 interim final rules reduced the minimum ratio from 9% to 8% for those banking organizations otherwise meeting the other existing qualifying criteria) as well as establishing a two-quarter grace period for qualifying community banking organizations whose leverage ratios fall below the 8% CBLR requirement, so long as the banking organization maintains a leverage ratio of 7% or greater. The second interim final rule provides a transition from the temporary 8% CBLR requirement to a 9% requirement. It establishes a minimum CBLR of 8% for the second through fourth quarters of 2020, an 8.5% minimum for 2021 and 9% thereafter, while maintaining a two-quarter grace period for qualifying community banking organizations whose leverage ratios fall no more than 100 basis points below the applicable CBLR requirement. The Company intends to continue with the existing layered ratio structure. Under this framework the Company and the Banks would be considered well-capitalized under the applicable guidelines.

The Basel III, which became effective January 1, 2015, established higher minimum risk-based capital ratio requirements, a new common equity Tier 1 risk-based capital ratio and a new capital conservation buffer (“CCB.”) The regulations also included revisions to the definition of capital and changes in the risk-weighting of certain assets, in addition to redefining “well capitalized” as a 6.5% common equity Tier 1 risk-based capital ratio, an 8.0% Tier 1 risk-based capital ratio, a 10.0% total risk-based capital ratio and a 5.0% Tier 1 leverage ratio. The CCB is 2.5% and, if the Company and the Banks were unable to qualify for the CBLR framework, in order to avoid limitations on capital distributions, including dividend payments, engaging in share repurchases and certain discretionary bonus payments to executive officers, must maintain the CCB at the appropriate level.

KENTUCKY FIRST FEDERAL BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2021 and 2020

NOTE K - STOCKHOLDERS’ EQUITY AND REGULATORY CAPITAL (continued)

The Company’s regulatory capital as of June 30, 2021, is presented in the following table.

	Actual					Minimum Requirement For Capital Adequacy Purposes
(Dollars in thousands)	Amount		Ratio			Amount		Ratio
Risk-based capital:
Common Equity Tier 1 capital ratio	$	51,349		27.5	%	$	8,408		4.5	%
Tier 1 (core) capital ratio	$	51,349		27.5		$	11,211		6.0
Total capital ratio	$	51,349		27.5		$	14,947		8.0

Leverage capital:
Tier 1 leverage capital to average assets	$	51,349		15.4		$	13,378		4.0

The Banks’ regulatory capital as of June 30, 2021, is presented in the following table.

	Actual					Minimum Requirement For Capital Adequacy Purposes
(Dollars in thousands)	Amount		Ratio			Amount		Ratio
Community Bank Leverage Ratio:
First Federal Savings and Loan Association of Hazard	$	18,376		20.9	%	$	7,021		8.0	%
First Federal Savings Bank of Kentucky	$	30,276		12.3		$	19,734		8.0

KENTUCKY FIRST FEDERAL BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2021 and 2020

NOTE K - STOCKHOLDERS’ EQUITY AND REGULATORY CAPITAL (continued)

The Company’s regulatory capital as of June 30, 2020, is presented in the following table.

	Actual					Minimum Requirement For Capital Adequacy Purposes
(Dollars in thousands)	Amount		Ratio			Amount		Ratio
Risk-based capital:
Common Equity Tier 1 capital ratio	$	50,962		26.1	%	$	8,305		4.5	%
Tier 1 (core) capital ratio	$	50,962		26.1		$	11,073		6.0
Total capital ratio	$	50,962		26.1		$	14,764		8.0

Leverage capital:
Tier 1 leverage capital to average assets	$	50,962		15.7		$	13,220		4.0

The Banks’ regulatory capital as of June 30, 2020, is presented in the following table.

	Actual					Minimum Requirement For Capital Adequacy Purposes
(Dollars in thousands)	Amount		Ratio			Amount		Ratio
Community Bank Leverage Ratio:
First Federal Savings and Loan Association of Hazard	$	18,256		21.9	%	$	3,740		8.0	%
First Federal Savings Bank of Kentucky	$	29,898		12.1		$	15,153		8.0

As of June 30, 2021 and 2020, management believes that First Federal of Hazard and First Federal of Kentucky met all capital adequacy requirements to which the Banks were subject. There are no conditions or subsequent events that have occurred that managements believes have changed the Banks’ categories.

Regulations of the Board of Governors of the Federal Reserve System governing mutual holding companies require First Federal MHC to meet certain criteria before the company may waive the receipt by it of any common stock dividend declared by Kentucky First Federal Bancorp. During each of the fiscal years ended June 30, 2021 and 2020, and pursuant to the provisions allowed by the Board of Governors of the Federal Reserve System, First Federal MHC waived $1.9 million in dividends.

KENTUCKY FIRST FEDERAL BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2021 and 2020

NOTE L - CONDENSED FINANCIAL STATEMENTS OF KENTUCKY FIRST FEDERAL BANCORP

The following condensed financial statements summarize the financial position of Kentucky First Federal Bancorp as of June 30, 2021 and 2020, and the results of its operations and its cash flows for the fiscal years ended June 30, 2021 and 2020.

KENTUCKY FIRST FEDERAL BANCORP

BALANCE SHEETS

June 30, 2021 and 2020

(In thousands)

	2021		2020
ASSETS
Interest-bearing deposits in First Federal of Hazard	$	933	$	1,282
Interest-bearing deposits in First Federal of Kentucky		1,070		167
Other interest-bearing deposits		9		34
Investment in First Federal of Hazard		18,407		18,314
Investment in Frankfort First		31,646		31,257
Prepaid expenses and other assets		458		883

Total assets	$	52,523	$	51,937

LIABILITIES AND SHAREHOLDERS’ EQUITY
Accounts payable and other liabilities	$	227	$	26
Total liabilities		227		26

Shareholders’ equity		52,296		51,911

Total liabilities and shareholders’ equity	$	52,523	$	51,937

KENTUCKY FIRST FEDERAL BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2021 and 2020

NOTE L - CONDENSED FINANCIAL STATEMENTS OF KENTUCKY FIRST FEDERAL BANCORP (continued)

KENTUCKY FIRST FEDERAL BANCORP

STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME

Years ended June 30, 2021 and 2020

(Dollar amounts in thousands)

	2021			2020
Income
Interest income	$	27		$	42
Non-interest income		15			--
Dividends from First Federal of Hazard		590			607
Equity in undistributed (excess distributed) earnings of First Federal of Hazard		101			(47	)
Dividends from Frankfort First		826			576
Equity in undistributed (excess distributed) earnings of Frankfort First		434			(13,459	)
Total income		1,993			(12,281	)

Non-interest expenses		330			325

Earnings (loss) before income taxes		1,663			(12,606	)

Income tax expense (benefit)		(157	)		(59	)

Net income (loss)		1,820			(12,547	)

Other comprehensive (loss) income, net of tax-related effects:
Unrealized holding losses on securities designated as available for sale during the year, net of taxes (benefits) of $(1) and $(1) in 2021 and 2020, respectively		(2	)		(2	)
Comprehensive income (loss)	$	1,818		$	(12,549	)

KENTUCKY FIRST FEDERAL BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2021 and 2020

NOTE L - CONDENSED FINANCIAL STATEMENTS OF KENTUCKY FIRST FEDERAL BANCORP (continued)

KENTUCKY FIRST FEDERAL BANCORP

STATEMENTS OF CASH FLOWS

For Years ended June 30, 2021 and 2020

(Dollar amounts in thousands)

	2021			2020
Cash flows from operating activities:
Net (loss) earnings for the year	$	1,820		$	(12,547	)
Adjustments to reconcile net earnings to net cash provided by operating activities:
Excess (deficit) distributions over earnings (undistributed earnings) from consolidated subsidiaries		(535	)		13,509
Noncash compensation expense		122			112
Gain on sale of automobile		16			--
Depreciation		11			12
Increase (decrease) in cash due to changes in:
Prepaid expenses and other assets		449			68
Other liabilities		201			4
Net cash provided by operating activities		2,084			1,158

Cash flows from investing activities:
Additions to premises and equipment, net		--			--
Net cash used in investing activities		--			--

Cash flows from financing activities:
Treasury stock purchases		(167	)		(542	)
Dividends paid on common stock		(1,388	)		(1,388	)
Net cash used in financing activities		(1,555	)		(1,930	)

Net increase (decrease) in cash and cash equivalents		529			(772	)

Cash and cash equivalents at beginning of year		1,483			2,255

Cash and cash equivalents at end of year	$	2,012		$	1,483

Kentucky First Federal Bancorp would like to recognize our employees who work hard every day to maximize the value of your investment:

First Federal Savings Bank of Kentucky
Frankfort-Danville-Lancaster

Lesa Asbery		Customer Service Manager
Lyndi Baker		Customer Service
Brenda Baldwin		Vice President
James Baxter		Vice President/Head of Commercial Lending
Lisa Craig		Assistant Vice President/Branch Manager
Kelsey Carter		Customer Service
Katresha Clay		Customer Service
Andrea Cline		Accounting
Tracie Crawley		Customer Service
Becky Crowe		Customer Service
Deryl Curtis		Loan Servicing
Julie DeWolfe		Assistant Vice President/Loan Officer
Cortney Dillingham		Credit Administrator
Betty Doolin		Customer Service
Tyler Eades		Loan Support Specialist
Diana Eads		Customer Service Supervisor
Tiffaney Elliott		Chief Operating Officer/Vice President/Human Resources
Jamey Ensley		Information Technology Operations
Debra Freeman		Customer Service Manager/Training Coordinator
Stacey Greenawalt		Vice President/Head of Residential Lending
Bernice Harrod		Loan Processing Manager
Melissa Harrod		Customer Service
Karen Hatfield		Assistant Vice President/Customer Service Manager
Stuart Haven		Loan Officer
Judy Hicks		Loan Processor
Baylee Hockensmith		Loan Assistant
Lee Ann Hockensmith		Vice President/Chief Customer Officer
Ronald Howard		Vice President/Chief Lancaster Market Officer
Brittany Hulette		Credit Analyst/Accounting
Clay Hulette		Frankfort Area President
Teresa Hulette		Executive Vice President
Gracie Isaacs		Customer Service
Don Jennings		Chief Executive Officer
Bill Johnson		Danville/Lancaster Area President
Eve Ann Jones		Customer Service
Janet Lewis		Customer Service
Nancy Long		Assistant Vice President/Customer Service Manager
Patty Luttrell		Compliance Assistant
Tracey McCoun		Vice President/BSA Officer/Deposit Compliance Officer
Katina Mickens		Assistant Vice President/Loan Officer/Assistant Loan Servicing Coordinator
Christina Miller		Customer Service
Samantha Miller		Vice President/Loan Compliance Officer/Credit Analyst
Carolyn Mulcahy		Assistant Vice President
Jeanie Murphy		Loan Servicing
Lavenna Quire		Vice President/Loan Officer

First Federal Savings Bank of Kentucky Frankfort-Danville-Lancaster, continued

Elizabeth Raymond		Customer Service
David Semones		Security Officer/Loan Processor
Cynthia Shank		Customer Service
Jenny Stump		Loan Processor
Angie Tennell		Customer Service
Yvonne Thornberry		Vice President/Head of Loan Servicing
Joey Ward		Customer Service
Mike Ware		Vice President/Information Technology Manager
Laurel Wemyss		Customer Service
Jennifer Whalen		Vice President/Loan Processor


First Federal Savings and Loan Association of Hazard

Jaime S. Coffey		Chief Executive Officer
Carlen Dixon		Vice President/Loan Officer/Information Technology
Kelly Fugate		Customer Service
Jamie Haynes		Assistant Vice President/Treasurer
Melissa Matthews		Customer Service
Margaret S. Petrey		Vice President/Head Teller
Lauren Riley		Vice President/Collections
Eliza Stacy		Customer Service
Jessica Watts		Vice President/Secretary

Kentucky First Federal Bancorp Board of Directors:

Stephen G. Barker, Attorney and President and General Counsel to Kentucky River Properties, LLC

Walter G. Ecton, Jr., Attorney and principal of Ecton, Murphy and Shannon, PLLC

William D. Gorman, Jr., former President and CEO of Hazard Insurance Agency

David R. Harrod, CPA, principal of Harrod and Associates, PSC

Don D. Jennings, President, Kentucky First Federal Bancorp

William H. Johnson, Danville/Lancaster area President, First Federal Savings Bank of Kentucky

Tony D. Whitaker, Chairman, Kentucky First Federal Bancorp

First Federal Savings and Loan Association of Hazard Board of Directors:

Stephen G. Barker		Jaime Coffey		Walter G. Ecton, Jr.
Lou Ella Farler		William D. Gorman, Jr.		Tony D. Whitaker, Chairman

First Federal Savings Bank of Kentucky Board of Directors:

Russell M. Brooks	J. Mark Goggans	David R. Harrod
R. Clay Hulette	Don D. Jennings, Chairman	William C. Jennings
William H. Johnson	Yvonne Y. Morley	Jerry M. Purcell
Mark Stamper	Virginia R.S. Stump

Special Counsel		Kilpatrick Townsend & Stockton LLP
		Suite 900
		607 14^th Street NW
		Washington, DC 20005-2018

Transfer Agent and		American Stock Transfer & Trust Company, LLC
Registrar		6201 15^th Avenue
		Brooklyn, NY 11219
		(718) 921-8124

The Annual Meeting of Shareholders will be held on November 18, 2021 at 3:30 p.m. at the offices of First Federal Savings Bank of Kentucky, located at 216 West Main Street, Frankfort, KY.

Shareholder Inquiries and Availability of 10-K Reports: A COPY OF THE COMPANY’S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED JUNE 30, 2021, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION WILL BE FURNISHED WITHOUT CHARGE TO SHAREHOLDERS AS OF THE RECORD DATE FOR THE NOVEMBER 18, 2021 ANNUAL MEETING, UPON WRITTEN REQUEST TO:

Investor Relations:	Don Jennings	don.jennings@ffsbky.bank
	Clay Hulette	clay.hulette@ffsbky.bank
	(502) 223-1638 or 1-888-818-3372 216 W Main St PO Box 535 Frankfort, KY 40602