S-1

As filed with the Securities and Exchange Commission on September 27, 2007

Registration No. 333-________

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM S-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933

KAISER FEDERAL FINANCIAL GROUP, INC. AND
KAISER FEDERAL BANK 401(K) PLAN
(Exact Name of Registrant as Specified in Its Charter)

Maryland	6712	Being Applied For
(State or Other Jurisdiction of	(Primary Standard Industrial	(I.R.S. Employer
Incorporation or Organization)	Classification Code Number)	Identification Number)

1359 North Grand Avenue
 Covina, California 91724
 (626) 339-9663
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
 Registrant’s Principal Executive Offices)

Kay M. Hoveland
1359 North Grand Avenue
Covina, California 91724
(626) 339-9663
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Agent for Service)

Copies to:
Richard S. Garabedian, Esq.
Benjamin M. Azoff, Esq.
Luse Gorman Pomerenk & Schick, P.C.
5335 Wisconsin Avenue, N.W., Suite 400
Washington, D.C. 20015
(202) 274-2000

Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box:       x

If this Form is filed to register additional shares for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering:      o

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering:      o

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering:       o

CALCULATION OF REGISTRATION FEE

Title of each class of securities to be registered	Amount to be registered		Proposed maximum offering price per share		Proposed maximum aggregate offering price		Amount of registration fee
Common Stock, $0.01 par value per share		27,062,063 shares		$10.00		$270,620,630(1)		$8,310(2)
Participation Interests		277,900 interests

(1)

Estimated solely for the purpose of calculating the registration fee.

(2)

The securities of Kaiser Federal Financial Group, Inc. to be purchased by the Kaiser Federal Bank 401(k) Plan are included in the amount shown for common stock.  However, pursuant to Rule 457(h) of the Securities Act of 1933, as amended, no separate fee is required for the participation interests.  Pursuant to such rule, the amount being registered has been calculated on the basis of the number of shares of common stock that may be purchased with the current assets of such plan.

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

Prospectus Supplement

Interests in

KAISER FEDERAL BANK
EMPLOYEES’ SAVINGS & PROFIT SHARING PLAN AND TRUST

Offering of Participation Interests in up to _________ Shares of

KAISER FEDERAL FINANCIAL GROUP, INC.
Common Stock

          In connection with the conversion of K-Fed Mutual Holding Company from the mutual to the stock form of organization, Kaiser Federal Financial Group, Inc. is allowing its employees who are participants in the Kaiser Federal Bank Employees’ Savings & Profit Sharing Plan and Trust (the “Plan”) to invest all or a portion of their accounts in stock units representing an ownership interest in the common stock of Kaiser Federal Financial Group, Inc. (the “Common Stock”).  Kaiser Federal Financial Group, Inc. has registered a number of participation interests through the Plan in order to enable the trustee of the Plan to purchase up to __________ shares of the Common Stock, assuming a purchase price of $10.00 per share.  As a participant in the Plan, you may direct the trustee of the Plan to purchase Common Stock in the stock offering by transferring amounts currently allocated to your account under the Plan to the Employer Stock Fund (other than amounts you presently have invested in the Employer Stock Fund).

          The prospectus of Kaiser Federal Financial Group, Inc., dated November ___, 2007, accompanies this prospectus supplement.  It contains detailed information regarding the conversion and stock offering of Kaiser Federal Financial Group, Inc. Common Stock and the financial condition, results of operations and business of K-Fed Bancorp, Inc.  This prospectus supplement provides information regarding the Plan.  You should read this prospectus supplement together with the prospectus and keep both for future reference.

          For a discussion of risks that you should consider, see “Risk Factors” in the prospectus.

          The interests in the Plan and the offering of Common Stock have not been approved or disapproved by the Office of Thrift Supervision, the Securities and Exchange Commission or any other federal or state agency.  Any representation to the contrary is a criminal offense.

          The securities offered in this prospectus supplement and in the prospectus are not deposits or accounts and are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.

          This prospectus supplement may be used only in connection with offers and sales by Kaiser Federal Financial Group, Inc. of interest or shares of Common Stock pursuant to the Plan.  No one may use this prospectus supplement to re-offer or resell interests or shares of Common Stock acquired through the Plan.

          You should rely only on the information contained in this prospectus supplement and the accompanying prospectus.  Kaiser Federal Financial Group, Inc. and the Plan have not authorized anyone to provide you with information that is different.

          This prospectus supplement does not constitute an offer to sell or solicitation of an offer to buy any securities in any jurisdiction to any person to whom it is unlawful to make an offer or solicitation in that jurisdiction.  Neither the delivery of this prospectus supplement and the prospectus nor any sale of Common Stock shall under any circumstances imply that there has been no change in the affairs of Kaiser Federal Financial Group, Inc. or any of its subsidiaries or the Plan since the date of this prospectus supplement, or that the information contained in this prospectus supplement or incorporated by reference is correct as of any time after the date of this prospectus supplement.

          The date of this prospectus supplement is November ____, 2007.

TABLE OF CONTENTS

THE OFFERING	i
Securities Offered	i
Election to Purchase Common Stock in the Offering: Priorities	ii
Composition and Purpose of Stock Units	iii
Value of the Plan Assets	iv
Method of Directing Transfer	iv
Order Deadline	iv
Irrevocability of Transfer Direction	v
Other Purchases in Your Account During the Offering Period	v
Direction to Purchase Common Stock after the Offering	v
Purchase Price of Common Stock	v
Nature of a Participant’s Interest in the Common Stock	vi
Voting Rights of Common Stock	vi
DESCRIPTION OF THE PLAN	1
Introduction	1
Eligibility and Participation	1
Contributions Under the Plan	2
Limitations on Contributions	2
Benefits Under the Plan	2
Investment of Contributions and Account Balances	3
Performance History	3
Description of the Investment Funds	6
Withdrawals and Distributions from the Plan	11
Administration of the Plan	12
Amendment and Termination	12
Merger, Consolidation or Transfer	13
Federal Income Tax Consequences	13
Additional ERISA Considerations	15
Securities and Exchange Commission Reporting and Short-Swing Profit Liability	15
Financial Information Regarding Plan Assets	16
LEGAL OPINION	16

THE OFFERING

Securities Offered

As a result of the conversion, Kaiser Federal Financial Group, Inc. will replace K-Fed Bancorp as the parent company of Kaiser Federal Bank. In connection with the conversion and “second step” offering of shares of Kaiser Federal Financial Group, Inc. to the public, participants in the Kaiser Federal Bank Employees’ Savings & Profit Sharing Plan and Trust (the “Plan”) have the opportunity to purchase employer stock units (“stock units”) as an investment alternative in the Plan. Stock units represent indirect ownership of Kaiser Federal Financial Group, Inc. through the Plan.  In the offering, a stock unit will consist of 100% Common Stock of Kaiser Federal Financial Group, Inc.  After the offering, a stock unit will consist of approximately 95% shares of Kaiser Federal Financial Group, Inc. Common Stock and 5% cash.  Given the $10 per unit price in the offering, at _________ __, 2007, there were sufficient funds in the Plan (excluding funds invested in the existing Employer Stock Fund) to purchase up to approximately __________ shares of Kaiser Federal Financial Group, Inc. Common Stock in the offering.  The shares of K-Fed Bancorp common stock currently held in the existing Employer Stock Fund in the Plan will be exchanged (within the Employer Stock Fund) for shares of Kaiser Federal Financial Group, Inc. Common Stock pursuant to an exchange ratio, as is more fully discussed in “The Conversion and Offering” section of the prospectus.  Only employees of Kaiser Federal Bank may participate in the Plan.  Your investment in the Common Stock of Kaiser Federal Financial Group, Inc. through the Plan in the offering is subject to the priorities listed below.  Information with regard to the Plan is contained in this prospectus supplement and information with regard to the financial condition, results of operations and business of K-Fed Bancorp is contained in the accompanying prospectus.  The address of the principal executive office of Kaiser Federal Financial Group, Inc. is 1359 North Grand Avenue, Covina, California 91724.

All elections to purchase stock units in the stock offering under the Plan and any questions about this prospectus supplement should be addressed to Mary Templin, Human Resources/Benefits Administrator, 1359 North Grand Avenue, Covina, California 91724, telephone number: (626)339-9663, extension 1252; fax: (626) 858-5745; email: m.templin@kffg.com.

i

Election to Purchase Common Stock in the Offering: Priorities	In connection with the conversion and stock offering, you may elect to transfer, by whole percentages, all or part of your account balances in the Plan (other than the amounts you currently have invested in the existing Employer Stock Fund) to the new Employer Stock Fund, to be used to purchase Common Stock of Kaiser Federal Financial Group, Inc. issued in the offering.  The trustee of the Employer Stock Fund will purchase Common Stock to be held as stock units in accordance with your directions.  However, such directions are subject to purchase limitations in the plan of conversion and reorganization of K-Fed Mutual Holding Company.
	The shares of Common Stock are being offered at $10 per share in a subscription offering and community offering.  In the offering, the purchase priorities are as follows:
	Subscription Offering:
	(1)	Depositors of Kaiser Federal Bank with $50 or more as of March 31, 2006, get first priority.
	(2)	Kaiser Federal Bank and Kaiser Federal Financial Group, Inc.’s tax-qualified plans, including the employee stock ownership plan and 401(k) plan, get second priority.
	(3)	Depositors of Kaiser Federal Bank with $50 or more on deposit as of September 30, 2007, get third priority.
	(4)	Depositors of Kaiser Federal Bank as of __________, 2007 get fourth priority.
	Community Offering:
	(5)	Residents of Los Angeles, San Bernardino, Riverside and Santa Clara Counties, California, get fifth priority.
	(6)	Public stockholders of K-Fed Bancorp as of ________, 2007 get sixth priority.
	(7)	Persons who do not qualify under any other priority listed above get last priority.
	If you are an eligible depositor in the subscription offering, as listed above, you will separately receive offering materials in the mail, including a Stock Order Form.  If you wish to purchase stock outside of the Plan, you must complete and submit the Stock Order Form and payment, using the reply envelope provided.
	Additionally, or instead of placing an order outside of the Plan through a Stock Order Form, as a Plan participant, you may place an

ii

	order for stock units through the Plan, using the enclosed Special Election Form, to be completed and submitted in the manner described on the next page.  If you are a participant in the Plan who is eligible in priority one (depositor of Kaiser Federal Bank with $50 or more on deposit at March 31, 2006), your Special Election Form order will receive priority one treatment.  If you are not eligible in priority one, your Special Election Form order will receive priority two treatment, as an order in a tax-qualified plan of Kaiser Federal Bank.
	No later than the subscription offering period deadline, the amount that you elect to transfer from your existing account balances for the purchase of Common Stock in the offering will be removed from your existing accounts and transferred to an interest-bearing money market account in the Plan, pending the closing of the offering.
	At the closing of the offering, the amount that you have transferred to purchase stock in the offering will be placed in the new Employer Stock Fund and allocated to your Plan account.
	Once the offering is closed, any amounts that you elected to apply towards the purchase of stock units in the offering will appear in your new Employer Stock Fund balance when you access your account via the internet or by telephone.  The formal closing of the offering is expected to be in __________, 2007.  Note that any amount that you have invested in the existing Employer Stock Fund will continue to exist, as Kaiser Federal Financial Group, Inc. stock units within the existing Employer Stock Fund until the existing Employer Stock Fund is eventually merged with the new Employer Stock Fund.  See page 10 for additional information.
	If you choose not to direct the investment of your account balances towards the purchase of any shares of Common Stock in the offering, your account balances will remain in the investment funds of the Plan as previously directed by you.
Composition and Purpose of Stock Units	The new Employer Stock Fund will initially invest 100% in the Common Stock of Kaiser Federal Financial Group, Inc.  After the closing of the stock offering, the new Employer Stock Fund will maintain a cash component for liquidity purposes.  Liquidity is required in order to facilitate daily transactions such as investment transfers or distributions from the new Employer Stock Fund.  Following the closing of the stock offering, the new Employer Stock Fund will consist of approximately 95% Common Stock and 5% cash. A unit of the new Employer Stock Fund (known as a “stock unit”) will be initially valued at $10.  Newly issued stock units will

iii

	consist of a percentage interest in both the Common Stock and cash held in the new Employer Stock Fund.  Unit values (similar to the stock’s share price) and the number of units (similar to number of shares) will be used to communicate the dollar value of a participant’s account.  Following the stock offering, each day, the stock unit value of the new Employer Stock Fund will be determined by dividing the total market value of the Employer Stock Fund at the end of the day by the total number of units held in the Employer Stock Fund by all participants as of the previous day’s end.  The change in stock unit value reflects the day’s change in stock price, any cash dividends accrued and the interest earned on the cash component of the Employer Stock Fund, less any investment management fees.  The market value and unit holdings of your account in the new Employer Stock Fund will be reported to you on your regular Plan participant statements. Note that any amount that you have invested in the existing Employer Stock Fund (which holds shares of Common Stock of K-Fed Bancorp and cash) will continue to be shown as being invested in the existing Employer Stock Fund until the existing Employer Stock Fund is eventually merged with the new Employer Stock Fund (which holds shares of Kaiser Federal Financial Group, Inc. Common Stock.)
Value of the Plan Assets	As of August 15, 2007, the market value of the assets of the Plan, excluding the existing Employer Stock Fund, was approximately $2,779,000.
Method of Directing Transfer	Accompanying this supplement is a Special Election Form on which you can elect to transfer all or a portion of your account balance in the Plan to the new Employer Stock Fund for the purchase of stock units in the offering (other than amounts you currently have invested in such fund).  If you wish to use all or part of your account balance in the Plan to purchase Common Stock issued in the offering (other than amounts you currently have invested in the Employer Stock Fund), you should indicate that decision on the Special Election Form.  If you do not wish to purchase stock units in the offering through the Plan, you should check Box 7 on page 2 of the Special Election Form and return the form to Mary Templin as instructed below.
Order Deadline	If you wish to purchase Common Stock with your Plan account balances, your Special Election Form must be received by Mary Templin, Human Resources/Benefits Administrator, 1359 North Grand Avenue, Covina, California 91724, telephone number (626) 339-9663, extension 1252; fax (626 ) 858-5745; email: m.templin@kffg.com no later than 5:00 p.m. on ____________, 2007.  To allow for processing, this deadline is prior to the subscription offering period deadline (which is ___________, 2007).

iv

	If you have any questions with respect to the Special Election Form, please contact Mary Templin.
Irrevocability of Transfer Direction	You may not revoke your Special Election Form once it has been delivered to Mary Templin.  You will, however, continue to have the ability to transfer amounts not directed towards the purchase of stock in the offering among all of the other investment funds, including the existing Employer Stock Fund, on a daily basis.
Other Purchases in Your Account During the Offering Period	Whether or not you choose to purchase stock in the offering through the Plan, you will at all times have complete access to those amounts in your account that you do not apply towards purchases in the offering.  For example, you will be able to purchase other funds within the Plan with that portion of your account balance that you do not apply towards purchases in the offering during the offering period.  Such purchases will be made at the prevailing market price in the same manner as you make such purchases now, i.e., through telephone transfers and internet access to your account.  You can only purchase stock units in the offering through the Plan by returning your Special Election Form to Mary Templin by the due date.  You cannot purchase stock units in the offering by means of telephone transfers or the internet.  That portion of your Plan account balance that you elect to apply towards the purchase of stock units in the offering will be irrevocably committed to such purchase.
Direction to Purchase Common Stock after the Offering	After the offering, you will again have complete access to any amount that you directed towards the purchase of shares of Common Stock in the offering.  For example, after the offering closes, you may sell any shares that you purchased in the offering.  Special restrictions may apply to transfers directed to and from the Employer Stock Fund by the participants who are subject to the provisions of section 16(b) of the Securities Exchange Act of 1934, as amended, relating to the purchase and sale of securities by officers, directors and principal shareholders of Kaiser Federal Financial Group, Inc.
Purchase Price of Common Stock	The trustee will pay $10.00 per stock unit, which will be the same price paid by all other persons for a share of Common Stock in the offering.  No sales commision will be charged for Common Stock purchased through stock units in the offering.
	After the offering, the trustee will acquire Common Stock in open market transactions at the prevailing price.  The trustee will pay transaction fees, if any, associated with the purchase, sale or transfer of the Common Stock after the offering.

v

Nature of a Participant’s Interest in the Common Stock	The trustee will hold the stock units in trust for the participants of the Plan.  Stock units acquired by the trustee at your direction will be allocated to your account.  Therefore, investment decisions of other participants should not affect the earnings allocated to your account.
Voting Rights of Common Stock	The trustee generally will exercise voting rights attributable to all Common Stock held by the existing Employer Stock Fund and the new Employer Stock Fund, as directed by participants with accounts invested in the fund.  When stockholders have a right to vote on a matter, you will be allocated voting instruction rights reflecting your proportionate interest in the existing or new Employer Stock Fund.  The trustee will vote the Common Stock in the existing or new Employer Stock Fund affirmatively or negatively on each matter, in proportion to the voting instructions the trustee receives from participants.  In connection with the conversion of K-Fed Mutual Holding Company, Plan participants who had shares of K-Fed Bancorp allocated to their accounts in the Plan on _________, 2007, soon will receive a packet of material containing, among other things, a Proxy Statement-Prospectus, Confidential 401(k) Plan Voting Instruction Letter and Confidential 401(k) Plan Vote Authorization Form.  The Confidential 401(k) Plan Voting Instruction Letter will provide instructions on completing the Confidential 401(k) Plan Vote Authorization Form so that the trustee can vote the shares of Common Stock attributable to your account at the [Annual] Stockholder Meeting on ___________, 2007.
	If you are a participant who has voting rights (as discussed above), you will need to complete the Confidential 401(k) Plan Vote Authorization Form and return it in the self-addressed stamped envelope provided to you, if you want the trustee to vote in accordance with your voting instructions.

vi

DESCRIPTION OF THE PLAN

Introduction

          Kaiser Federal Bank adopted the Kaiser Federal Bank Retirement Savings Plan, dated December 31, 2002, and amended it into the Kaiser Federal Bank Employees’ Savings & Profit Sharing Plan and Trust, effective January 1, 2004 (referred to as the “Plan”).  The Plan is a tax-qualified plan with a cash or deferred compensation feature established in accordance with the requirements under Section 401(a) and Section 401(k) of the Internal Revenue Code of 1986, as amended (the “Code”).

          Kaiser Federal Bank intends that the Plan, in operation, will comply with the requirements under Section 401(a) and Section 401(k) of the Code.  Kaiser Federal Bank will adopt any amendments to the Plan that may be necessary to ensure the continuing qualified status of the Plan under the Code and applicable Treasury Regulations.

          Employee Retirement Income Security Act of 1974 (“ERISA”).  The Plan is an “individual account plan” other than a “money purchase pension plan” within the meaning of ERISA.  As such, the Plan is subject to all of the provisions of Title I (Protection of Employee Benefit Rights) and Title II (Amendments to the Code Relating to Retirement Plans) of ERISA, except to the funding requirements contained in Part 3 of Title I of ERISA which by their terms do not apply to an individual account plan (other than a money purchase plan).  The Plan is not subject to Title IV (Plan Termination Insurance) of ERISA.  The funding requirements contained in Title IV of ERISA are not applicable to participants or beneficiaries under the Plan.

          Reference to Full Text of Plan. The following portions of this prospectus supplement summarize certain provisions of the Plan. They are not complete and are qualified in their entirety by the full text of the Plan.  Copies of the Plan are available to all employees by filing a request with the Plan administrator c/o Kaiser Federal Bank, Attn: Mary Templin, Human Resources/Benefits Administrator, 1359 North Grand Avenue, Covina, California 91724; telephone number: (626) 339-9663, extension 1252; fax: (626) 858-5745; email: m.templin@kffg.com. You are urged to read carefully the full text of the Plan.

Eligibility and Participation

          If you are a regular employee of Kaiser Federal Bank, you are eligible to become a participant in the Plan on January 1, April 1, July 1, or October 1 coinciding with or next following the date you attain age 21.  You become eligible to receive employer contributions upon attainment of age 21 and completion of 12 consecutive months of service.  The Plan Year is July 1 to June 30 (“Plan Year”).

          As of August 15, 2007, there were approximately 144 employees, former employees and beneficiaries eligible to participate in the Plan.

Contributions Under the Plan

          401(k) Plan Contributions.  You are permitted to defer on a pre-tax basis up to 15% of your monthly salary (expressed in terms of whole percentages), subject to certain restrictions imposed by the Code, and to have that amount contributed to the Plan on your behalf.  For purposes of the Plan, “salary” means your total taxable compensation as reported on Form W-2 (exclusive of any compensation deferred from a prior year).  In 2007, the annual salary of each participant taken into account under the Plan is limited to $225,000.  (Limits established by the Internal Revenue Service are subject to increase pursuant to an annual cost-of-living adjustment, as permitted by the Code).  You may elect to modify the amount contributed to the Plan by filing a new elective deferral agreement with the Plan administrator once per calendar quarter.

          Employer Matching Contributions. Kaiser Federal Bank makes matching contributions of 50% of your contributions to the Plan, up to 10% of your salary.

Limitations on Contributions

          Limitations on Employee Salary Deferrals. For the Plan Year beginning July 1, 2007, the amount of your before-tax contributions may not exceed $15,500 per year.  Contributions in excess of this limit are known as excess deferrals.  If you defer amounts in excess of this limitation, your gross income for federal income tax purposes will include the excess in the year of the deferral.  In addition, unless the excess deferral is distributed within 2 ½ months after the end of the plan year for which the deferral was made, , it will be taxed again in the year distributed.  In addition, income on the excess deferrals that are distributed within 2 ½ months after the end of the plan year for which the deferral was made will be treated, for federal income tax purposes, as earned and received by you in the tax year forwhich the excess deferral was made.

          Catch-up Contributions. If you have made the maximum amount of regular before-tax contributions allowed by the Plan or other legal limits and you have attained at least age 50 (or will reach age 50 prior to the end of the Plan Year), you are also eligible to make an additional catch-up contribution.  You may authorize your employer to withhold a specified dollar amount of your compensation for this purposes.  For 2007, the maximum catch-up contribution is $5,000.

Benefits Under the Plan

          Vesting.  At all times, you have a fully vested, nonforfeitable interest in the 401(k)  deferrals you have made and any earnings related thereto.  Employer contributions vest in accordance with the following schedule:

2

Completed Years of Employment	Vested Percentage
Less than 2	0%
2 but less than 3	20%
3 but less than 4	40%
4 but less than 5	60%
5 but less than 6	80%
6 or more	100%

Investment of Contributions and Account Balances

          All amounts credited to your accounts under the Plan are held in the Plan trust (the “Trust”) which is administered by the trustee appointed by Kaiser Federal Bank’s Board of Directors.

          Prior to the effective date of the offering, you were provided the opportunity to direct the investment of your account into one of the following funds:

1.	International Stock Fund
2.	NASDAQ 100 Stock Fund
3.	Russell 2000 Stock Fund
4.	S&P MidCap Stock Fund
5.	S&P/Growth Stock Fund
6.	S&P/Value Stock Fund
7.	S&P 500 Stock Fund
8.	US REIT Index Fund
9.	Long Treasury Index Fund
10.	Aggregate Bond Index Fund
11.	Stable Value Fund
12.	Short Term Investment Fund
13.	Income Plus Asset Allocation Fund
14.	Growth and Income Asset Allocation Fund
15.	Growth Asset Allocation Fund
16.	SSgA Target Retirement 2015 Fund
17.	SSgA Target Retirement 2025 Fund
18.	SSgA Target Retirement 2035 Fund
19.	SSgA Target Retirement 2045 Fund
20.	Employer Stock Fund

Performance History

          The following table provides performance data with respect to the investment funds available under the Plan through July 31, 2007:

3

FUND RETURNS THROUGH JULY 31, 2007 ¹

Stock Funds	Monthly Return			Year to Date			Last 12 Months			5 Calendar  Years Annualized			10 Calendar Years Annualized
INTERNATIONAL STOCK FUND 1,2		-1.5	%		8.8	%		23.2	%		18.6	%		6.5	%
Benchmark: MSCI EAFE Index		-1.5	%		9.1	%		23.9	%		19.9	%		7.4	%
NASDAQ 100 STOCK FUND 3		-0.1	%		9.7	%		27.3	%		14.5	%		5.2	%
Benchmark: NASDAQ 100 Index		-0.1	%		10.2	%		28.6	%		15.1	%		5.8	%
RUSSELL 2000 STOCK FUND 4		-6.9	%		-1.1	%		11.6	%		15.3	%		7.2	%
Benchmark: Russell 2000 Index		-6.8	%		-0.8	%		12.1	%		16.0	%		7.8	%
S&P MIDCAP STOCK FUND 5		-4.3	%		6.8	%		16.1	%		15.0	%		11.3	%
Benchmark: S&P MidCap 400 Index		-4.3	%		7.2	%		16.7	%		15.5	%		11.8	%
S&P/GROWTH STOCK FUND 4		-2.3	%		3.8	%		15.9	%		8.6	%		3.8	%
Benchmark: S&P 500/Citigroup Growth Index		-2.2	%		4.2	%		16.5	%		9.2	%		4.4	%
S&P/VALUE STOCK FUND 4		-4.0	%		2.8	%		15.0	%		13.8	%		6.5	%
Benchmark: S&P 500/Citigroup Value Index		-3.9	%		3.2	%		15.8	%		14.5	%		7.1	%
S&P 500 STOCK FUND 5		-3.1	%		3.3	%		15.5	%		11.2	%		5.4	%
Benchmark: S&P 500 Index		-3.1	%		3.6	%		16.1	%		11.8	%		6.0	%
US REIT INDEX FUND 6		-7.9	%		-13.7	%		-1.4	%		15.1	%		N/A
Benchmark: Dow Jones/Wilshire REIT Index		-7.8	%		-13.4	%		-0.6	%		18.6	%		12.7	%
Bond Funds
LONG TREASURY INDEX FUND 5		2.6	%		1.4	%		6.1	%		5.7	%		6.6	%
Benchmark: Lehman Bros Long Treasury Index		2.7	%		1.8	%		6.8	%		6.3	%		7.2	%
AGGREGATE BOND INDEX FUND 9		0.8	%		1.5	%		4.9	%		3.8	%		n.a.
Benchmark: Lehman Brothers Aggregate Bond Index		0.8	%		1.8	%		5.6	%		4.4	%		5.8	%
Fixed Income Funds
STABLE VALUE FUND 7		0.3	%		2.2	%		3.9	%		4.0	%		4.9	%
Benchmark: Ryan Labs 3 Yr. GIC		0.4	%		2.5	%		4.2	%		4.0	%		5.1	%
SHORT TERM INVESTMENT FUND 5		0.4	%		2.9	%		5.0	%		2.6	%		3.7	%
Benchmark: Citigroup 3 Month Treasury Bill		0.4	%		2.9	%		5.1	%		2.7	%		3.7	%
Asset Allocation Funds 2,8
INCOME PLUS ASSET ALLOCATION FUND		-0.2	%		2.1	%		7.6	%		6.5	%		5.1	%
GROWTH AND INCOME ASSET ALLOCATION FUND		-1.4	%		3.0	%		11.2	%		9.5	%		5.7	%
GROWTH ASSET ALLOCATION FUND		-2.6	%		3.8	%		14.8	%		12.2	%		5.7	%
Target Retirement Funds 10
SSgA TARGET RETIREMENT 2015 FUND		N/A			N/A			N/A			N/A			N/A
SSgA TARGET RETIREMENT 2025 FUND		N/A			N/A			N/A			N/A			N/A
SSgA TARGET RETIREMENT 2035 FUND		N/A			N/A			N/A			N/A			N/A
SSgA TARGET RETIREMENT 2045 FUND		N/A			N/A			N/A			N/A			N/A
EMPLOYER STOCK FUND		-15.1	%		-28.2	%		-11.54	%		N/A			N/A

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Returns are shown net of fees.  Dividends and interest are automatically reinvested.  Past performance is no guarantee of future performance.  Total expenses charged to each fund, as a percentage of each fund’s estimated average assets per year, are as follows: International Stock Fund 0.720%; Nasdaq 100 Stock Fund 0.594%; Russell 2000 Stock Fund 0.594%; S&P MidCap Stock Fund 0.594%; S&P Growth Stock Fund 0.594%; S&P Value Stock Fund 0.594%; S&P 500 Stock Fund 0.594%; Long Treasury Index Fund  0.670%; Aggregate Bond Index Fund 0.670%; REIT Fund 0.670%; Stable Value Fund 0.621%; Short Term Investment Fund 0.450%; Target Retirement Fund 0.92%. Unit values are determined as of the last business day of each month.  Benchmark indices are not investment funds and have no fees.  See following notes. 

State Street Global Investors (SSgA) is the Investment Manager for all Funds and is the provider of benchmark index returns.  Historical returns of the index funds reflect management by Barclays Global Investors (BGI) before November 4, 2005 and SSgA’s management thereafter.  

¹ Prior to September 30, 1999, this Fund was limited to no more than 25% exposure to Japan.

² The Asset Allocation Funds and the International Stock Fund were first offered July 2, 1997.  Returns prior to inception are simulated using the returns of market indices for, or actual funds of, the Fund’s investment components, and are net of fees.

³ The Nasdaq 100 Stock Fund was first offered on May 1, 2002, while BGI’s underlying Nasdaq 100 Fund was initially offered on August 7, 2000.  Returns prior to May 1, 2002 are based on returns of the then-existing BGI funds (when available) and on the (hypothetical) returns of the Nasdaq 100 Index for periods prior to the inception date of the BGI fund.  All returns are net of fees.

⁴ The Russell 2000, S&P 500/Growth and S&P 500/Value Stock Funds were first offered on January 4, 2000.  Returns prior to January 4, 2000 are hypothetical and are based on the returns of the then-existing BGI funds, and are net of fees. Effective December 16, 2005, the S&P 500/Barra Growth and S&P 500/Barra Value indexes were reconstituted as the S&P 500/Citigroup Growth and S&P500/Citigroup Value Indexes.  Additional information can be found at www.styleindices.standardandpoors.com

⁵ The S&P MidCap, S&P 500, Long Treasury Index and Short Term Investment Funds were first offered on June 17, 1997.  Results prior to that date are hypothetical, based on previous investment returns of the then-existing BGI funds, and are net of fees. 

⁶  The US REIT Index Fund was first offered on January 1, 2005.  Returns shown for periods prior to that date are hypothetical and are based on the returns of the then-existing BGI Fund for the MSCI US REIT Index, and are net of fees.

⁷ The Stable Value Fund is a separately managed account; historical return data represents its actual performance.

⁸ The Asset Allocation Funds are designed investment vehicles utilizing various asset classes represented by index funds, and, under BGI management, were managed on an exclusive basis.  Only hypothetical results are available from January 1992 to July 2, 1997 (the inception date of the Asset Allocation Funds).  Note that SSgA changed certain allocations and underlying indexes (see fund descriptions for information on same).

⁹  The Aggregate Bond Index Fund became available effective April 30, 2006. Results prior to that date are based on historical investment returns of the then-existing SSgA fund, and are net of PSI fees which would have been levied.

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¹⁰ The Target Retirement Funds became available August 1, 2007.  Results prior to that date are based on historical investment returns of the then-existing SSgA fund, and are net of all relevant fees which would have been levied.

Description of the Investment Funds

The following is a description of each of the funds:

International Stock Fund.  The fund seeks to match the performance of the Moran Stanley Capital International, Europe, Australia, Far East (MSCI EAFE) Index while providing daily liquidity.  The MSCI EAFE Index is a float-adjusted developed markets international equity index which covers approximately 85% of each industry within each represented country and measures the performance of over 1,000 companies in 21 countries outside North and South America.  The International Stock Fund typically invests in all the stocks in the MSCI EAFE Index in proportion to their weighting in the index.  The strategy of investing in the same stocks as the index minimizes the need for trading and therefore results in lower expenses.

NASDAQ 100 Stock Fund.  The fund seeks to match the performances of the NASDAQ 100 Index, which consists of 100 of the largest non-financial companies, both domestic and international, listed on the NASDAQ exchange; the size of the companies is determined by market cap and all major industry groups are included, with the exception of financial and investment companies.  The NASDAQ 100 Stock Fund invests in all of the stocks in the NASDAQ 100 Index in proportion to their weighting in the index.  The fund may also hold 2-5% of its value in futures contacts (an agreement to buy or sell a specific security by a specific date at an agreed upon price).  The strategy of investing in the same stocks as the index minimizes the need for trading and therefore results in lower expenses.

Russell 2000 Stock Fund.  The fund seeks to match the performance of the Russell 2000 Index, which is a float-adjusted small cap equity index covering approximately 8% of the U.S. equity market and measuring the performance of the 2,000 smallest companies in the broad market Russell 3000 Index, based on total market capitalization.  The Russell 2000 Stock Fund attempts to invest in all 2,000 stocks in the Russell 2000 Index in proportion to their weighting in the index.  The fund may also hold 2-5% of its value in futures contracts (an agreement to buy or sell a specific security by a specific date at an agreed upon price).  The strategy of investing in the same stocks as the index minimizes the need for trading and therefore results in lower expenses.

S&P MidCap Stock Fund.  The fund seeks to match the performance of the S&P MidCap 400 Index, which is a float-adjusted mid-cap equity index covering approximately 15% of U.S. equity market and measuring the performance of 400 leading companies in leading industries within the mid cap segment of the market as determined by S&P’s Index Committee. The S&P MidCap Stock Fund invests in all 400 stocks in the index in proportion to their weighting in the index.  The fund may also hold 2-5% of its value in futures contracts (an agreement to buy or sell a specific security by a specific date at an agreed upon price).  The strategy of investing in the same stocks as the index minimizes the need for trading and therefore results in lower expenses.

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S&P/Growth Stock Fund.  The fund seeks to match the performance of the Standard & Poor’s 500/Citigroup Growth Index, which is constructed by including those stocks from the S&P 500 Index with higher price to book ratios.  The index is market capitalization weighted and their constituents are mutually exclusive.  The S&P/Growth Fund invests in all of the stocks in the S&P 500/Citigroup Growth Index in proportion to their weighting in the index.  The fund may also hold 2-5% of its value in futures contracts (an agreement to buy or sell a specific security by a specific date at an agreed upon price).  The strategy of investing in the same stocks as the index minimizes the need for trading and therefore results in lower expenses.

S&P/Value Stock Fund.  The fund seeks to match the performance of the Standard & Poor’s 500/Citigroup Value Index, which is constructed by including those stocks from the S&P 500 Index with lower price to book ratios.  The index is market capitalization weighted and their constituents are mutually exclusive.  The S&P/Value Stock Fund invests in all of the stocks in the S&P500/Citigroup Value Index in proportion to their weighting in the index.  The fund may also hold 2-5% of its value in futures contracts (an agreement to buy or sell a specific security by a specific date at an agreed upon price).  The strategy of investing in the same stocks as the index minimizes the need for trading and therefore results in lower expenses.

S&P 500 Stock Fund.  The fund seeks to match the performance of the Standard & Poor’s 500 Index, which is a float-adjusted large-cap equity index covering approximately 80% of U.S. equity market and measuring the performance of 500 leading companies in leading industries within the large cap segment of the market as determined by S&P’s Index Committee.  The S&P Stock Fund invests in all 500 stocks in the S&P 500 Index in proportion to their weighting in the index.  The fund may also hold 2-5% of its value in futures contracts (an agreement to buy or sell a specific security by a specific date at an agreed upon price).  The strategy of investing in the same stocks as the index minimizes the need for trading and therefore results in lower expenses.

US REIT Index Fund.  The fund seeks to match the performance of the Dow Jones/Wilshire REIT Index while providing daily liquidity.  The Dow Jones/Wilshire REIT Index is a market capitalization weighted index which is comprises of 90 publicly traded Real Estate Investment Trusts (REITs).  To be included in the index, a company must be an equity owner and operator of commercial (or residential) real estate and must generate at least 75% of its revenue from such assets; minimum requirements for market capitalization and liquidity also apply.  The US REIT Index Fund typically invests in all securities in the Dow Jones/Wilshire REIT Index in proportion to their weighting in the index.  As such, the fund seeks to maintain sector and security weightings that closely match the index.  This replication process results in low turnover, accurate tracking and low costs.  The fund invests primarily in equity shares of real estate investment trusts (REITs).  REITs invest in loans secured by real  estate and invest directly in real estate properties such as apartments, office buildings, and shopping malls. REITs generate income from rentals or lease payments and offer the potential for growth from property appreciation and the potential for capital gains from the sale of properties.

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Long Treasury Index Fund.  The fund seeks to match the total rate of return of the Lehman Brothers Long Treasury Bond Index.  The fund invests primarily in U.S. Treasury securities with a maturity of 10 years or longer.  The fund invests in a well diversified portfolio that is representative of the U.S. Long Treasury bond market.  The fund buys and holds securities, trading only when there is a change to the composition of the index or when cash flow activity occurs in the fund.  This process minimizes turnover and costs while maintaining accurate tracking.

Aggregate Bond Index Fund.  The fund seeks to match the returns of the Lehman Brothers Aggregate Bond Index.  The fund invests primarily in government, corporate, mortgage-backed and asset-backed securities.  The fund invests in a well-diversified portfolio that is representative of the broad domestic bond market.

Stable Value Fund.  The fund seeks to preserve the principal amount of your contributions while maintaining a rate of return comparable to other fixed income instruments.  The fund invests in investment contracts issued by insurance companies, banks, and other financial institutions, as well as enhanced short-term investment products.  Each issuer must meet the credit quality criteria in order to be approved by the investment manager.  The fund is managed to a weighted average maturity of approximately 1.5-4.0 years and maintains an average AA credit quality.

Short Term Investment Fund.  The fund seeks to maximize current income while preserving capital and liquidity through investing in a diversified portfolio of short-term securities.  The fund’s yield reflects short-term interest rates.  The fund seeks to maintain a diversified portfolio of short-term securities by investing in high-quality money market securities and other short-term debt investments.  Most of the investments in the fund may have a range of maturity from overnight to 90 days; however, 20% of the value of the fund may be invested in assets with a maturity date in excess of 90 days, but not to exceed 13 months.  All securities are required to meet strict guidelines for credit quality and must be rated at least A1 by Standard & Poor’s and P1 by Moody’s Investors Service.

Income Plus Asset Allocation Fund.  The fund seeks to provide income from fixed income securities and some growth of principal from stock funds.  The fund’s risk profile is somewhat conservative due to an emphasis on bond holdings.  The fund has a target asset allocation of 25% equities and 75% fixed income achieved by investing in a mix of other funds as follows: 15% in the S&P 500 Index Fund; 5% in the Russell Small Cap Completeness Index Fund; 5% in the Daily EAFE Fund; and 75% in the Bond Market Index Fund.  The fund will be managed to approximate this target portfolio mix.  The fund will be rebalanced monthly or more often when justified by significant activity or changes in the market values of the underlying funds.  These percentages may fluctuate away from the target weights between rebalancing.

Growth and Income Asset Allocation Fund.  The fund seeks to provide income from fixed income securities and growth of principal from stock funds.  The fund’s risk profile is moderate due to the presence of well-diversified stock and bond holdings.  The fund has a

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target asset allocation of 55% equities and 45% fixed income achieved by investing in a mix of other funds as follows: 35% in the S&P 500 Index Fund; 10% in the Russell Small Cap Completeness Index Fund; 10% in the Daily EAFE Fund; and 45% in the Bond Market Index Fund.  The fund will be managed to approximate this target portfolio mix.  The fund will be rebalanced monthly or more often when justified by significant activity or changes in the market values of the underlying funds.  These percentages may fluctuate away from the target weights between rebalancing.

Growth Asset Allocation Fund.  The fund seeks to provide growth of principal from stock funds and some income from fixed income securities.  The fund’s risk profile is somewhat aggressive due to its emphasis on stock holdings.  The fund has a target asset allocation of 85% equities and 15% fixed income achieved by investing in a mix of other funds as follows:  55% in S&P 500 Index Fund; 15% in the Russell Small Cap Completeness Index Fund; 15% in the Daily EAFE Fund, and 15% in the Bond Market Index Fund.

SSgA Target Retirement 2015 Fund.  The SSgA Target Retirement Funds are designed as “one-stop” investment solutions.  The funds are invested in a broadly diversified portfolio of SSgA index funds, covering U.S. and international large cap, U.S. mid-cap and U.S. small cap stocks along with long-term and short-term bonds.  The date in a fund’s name corresponds to an expected retirement date.  You simply select the fund with a date closest to when you expect to retire and invest accordingly.  The 2015 fund starts out with a stock and bond allocation suitable for the full time horizon – from now to the year 2015 and beyond.  Professional managers then adjust the index fund mix annually, gradually decreasing the stock allocations while increasing the bond allocations as the retirement date approaches.  Five years after the retirement date, the fund will maintain a fixed allocation of 35% stock funds and 65% bond funds.  The fund has a target mix among equities and fixed income as follows: 33% in the S&P 500 Index Fund; 8% in the Daily MSCI EAFE Index Fund; 3.9% in the S&P MidCap 400 Index Fund; 2.6% in the Russell 2000 Index Fund; 37% in the Lehman Long Government Bond Fund; 10.5% in the Limited Duration Bond Fund; and 5% in the Short Term Investment Fund.

SSgA Target Retirement 2025 Fund.  The SSgA Target Retirement Funds are designed as “one-stop” investment solutions.  The funds are invested in a broadly diversified portfolio of SSgA index funds, covering U.S. and international large cap, U.S. mid-cap and U.S. small cap stocks along with long-term and short-term bonds.  The date in a fund’s name corresponds to an expected retirement date.  You simply select the fund with a date closest to when you expect to retire and invest accordingly.  The 2025 fund starts out with a stock and bond allocation suitable for the full time horizon – from now to the year 2025 and beyond.  Professional managers then adjust the index fund mix annually, gradually decreasing the stock allocations while increasing the bond allocations as the retirement date approaches.  Five years after the retirement date, the fund will maintain a fixed allocation of 35% stock funds and 65% bond funds.  The fund currently has a target mix among equities and fixed income as follows: 41.5% in the S&P 500 Index Fund; 16.5% in the Daily MSCI EAFE Index Fund; 6.5% in the S&P MidCap 400 Index Fund; 5% in the Russell 2000 Index Fund; 27% in the Long US Government Bond Fund; 3.5% in the Short Term Investment Fund.

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SSgA Target Retirement 2035 Fund.  The SSgA Target Retirement Funds are designed as “one-stop” investment solutions.  The funds are invested in a broadly diversified portfolio of SSgA index funds, covering U.S. and international large cap, U.S. mid-cap and U.S. small cap stocks along with long-term and short-term bonds.  The date in a fund’s name corresponds to an expected retirement date.  You simply select the fund with a date closest to when you expect to retire and invest accordingly.  The 2035 fund starts out with a stock and bond allocation suitable for the full time horizon – from now to the year 2035 and beyond.  Professional managers then adjust the index fund mix annually, gradually decreasing the stock allocations while increasing the bond allocations as the retirement date approaches.  Five years after the retirement date, the fund will maintain a fixed allocation of 35% stock funds and 65% bond funds.  The fund has a target mix among equities and fixed income as follows: 45% in the S&P 500 Index Fund; 21.5% in the Daily MSCI EAFE Index Fund; 8.3% in the S&P MidCap 400 Index Fund; 8.2% in the Russell 2000 Index Fund; and 17% in the Long US Government Bond Fund.

SSgA Target Retirement 2045 Fund.  The SSgA Target Retirement Funds are designed as “one-stop” investment solutions.  The funds are invested in a broadly diversified portfolio of SSgA index funds, covering U.S. and international large cap, U.S. mid-cap and U.S. small cap stocks along with long-term and short-term bonds.  The date in a fund’s name corresponds to an expected retirement date.  You simply select the fund with a date closest to when you expect to retire and invest accordingly.  The 2045 fund starts out with a stock and bond allocation suitable for the full time horizon – from now to the year 2045 and beyond.  Professional managers then adjust the index fund mix annually, gradually decreasing the stock allocations while increasing the bond allocations as the retirement date approaches.  Five years after the retirement date, the fund will maintain a fixed allocation of 35% stock funds and 65% bond funds.  The fund has a target mix among equities and fixed income as follows: 45% in the S&P 500 Index Fund; 25% in the Daily MSCI EAFE Index Fund; 10% in the S&P MidCap 400 Index Fund; 10% in the Russell 2000 Index Fund; and 10% in the Long US Government Bond Fund.

An investment in any of the funds listed above is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.  As with any mutual fund investment, there is always a risk that you may lose money on your investment in any of the funds listed above.

Employer Stock Fund.  The Employer Stock Fund currently consists primarily of investments in common stock of K-Fed Bancorp (95% common stock and 5% cash).  K-Fed Bancorp is a federally chartered majority-owned subsidiary of K-Fed Mutual Holding Company.  Following the offering, K-Fed Bancorp, a federal corporation, will cease to exist, but will be succeeded by a new Maryland corporation with the name Kaiser Federal Financial Group, Inc., which will be 100% owned by its public shareholders, including Kaiser Federal Financial Group, Inc.’s tax-qualified plans.  Shares of K-Fed Bancorp (a federal corporation) which were held in the existing Employer Stock Fund prior to the conversion and offering will be converted, upon the closing of the offering, into new shares of common stock of Kaiser Federal Financial Group, Inc. (a

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Maryland corporation), in accordance with the exchange ratio, as described in the accompanying prospectus, in the section titled, “The Conversion and Offering.”  For a period of time following the offering, the existing Employer Stock Fund will be maintained separately from the newly created Employer Stock Fund.  The newly created Employer Stock Fund will initially consist of 100% Common Stock of Kaiser Federal Financial Group, Inc.  Following the offering, the newly created Employer Stock Fund will consist of approximately 95% common stock of Kaiser Federal Financial Group, Inc. and 5% cash.  During the first six months of 2008, the existing Employer Stock Fund will be merged with the newly created Employer Stock Fund.

          The trustee will use all amounts reallocated to the Employer Stock Fund in the special election to acquire shares in the Common Stock offering.  After the offering, the trustee will, to the extent practicable, use all amounts held by it in the new and existing Employer Stock Funds, including cash dividends paid on common stock held in the Employer Stock Funds, to purchase shares of Common Stock of Kaiser Federal Financial Group, Inc.  It is expected that all purchases will be made at prevailing market prices.  Under certain circumstances, the trustee may be required to limit the daily volume of shares purchased.  Pending investment in Common Stock of Kaiser Federal Financial Group, Inc., amounts allocated towards the purchase of shares of Common Stock in the offering will be held in the Plan in an interest-bearing account. 

For a discussion of material risks, you should consider the “Risk Factors” set forth in the attached prospectus.

Withdrawals and Distributions from the Plan

Applicable federal law requires the Plan to impose substantial restrictions on the right of a Plan participant to withdraw amounts held for his or her benefit under the Plan prior to the participant’s termination of employment with Kaiser Federal Bank.  A substantial federal tax penalty may also be imposed on withdrawals made prior to the participant’s attainment of age 59 ½, regardless of whether such a withdrawal occurs during his or her employment with Kaiser Federal Bank or after termination of employment.

          Withdrawals Prior to Termination of Employment.  You may make voluntary withdrawals of your pre-tax elective deferrals only in the event of attainment of age 59 ½.  You may also make withdrawals of your employee rollover contributions and the earnings thereon.  You may make withdrawals of employer matching contributions and the earnings thereon only in the event of hardship or upon attainment of age 59 ½.  In general, employer contributions credited on your behalf will not be available for in-service withdrawal until such employer contributions have been invested in the Plan for at least two years or you have been a participant in the Plan for at least five years.

          Withdrawal upon Termination of Employment.  You may make withdrawals from your account at any time after you terminate employment.  You may also leave your account with the Plan and defer commencement of receipt of your vested balance until April 1 of the calendar year following the calendar year in which you attain age 70 ½.  You may request a distribution of all or part of your account no more frequently than once per Plan Year.  Distribution will be made in a lump sum or in installments (no less frequently than annually).

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          Withdrawal upon Disability.  If you are disabled in accordance with the definition of disability under the Plan, you will be entitled to the same withdrawal rights as if you had terminated your employment.

          Withdrawal upon Death.  If you die while you are a participant in the Plan, the value of your entire account will be payable to your beneficiary.  You may elect to have your beneficiary receive distribution in 5 annual installments (10 if your spouse is your beneficiary, provided that you spouse’s remaining life expectancy is at least 10 years).  If such an election is not in effect at the time of your death, your beneficiary may elect to receive the benefit in the form of annual installments over a period not to exceed 5 years (10 years if your spouse is your beneficiary, provided that you spouse’s remaining life expectancy is at least 10 years) or make withdrawals as often as once per year, except that any balance remaining must be withdrawn by the 5^th anniversary (10^th anniversary if your spouse is your beneficiary, provided that you spouse’s remaining life expectancy is at least 10 years) of your death.

          The Plan allows participants to obtain loans from their accounts.

Administration of the Plan

          The Trustee and Custodian.  The trustee of the Plan is The Bank of New York.  The Bank of New York serves as trustee for all the investments funds under the Plan except the Employer Stock Fund.

          Plan Administrator.  Pursuant to the terms of the Plan, the Plan is administered by the Plan administrator.  The address of the Plan administrator is Kaiser Federal Bank, Attention: Mary Templin,  Human Resources/Benefits Administrator, 1359 North Grand Avenue, Covina, California 91724, telephone number  (626) 339-9663, extension 1252.  The Plan administrator is responsible for the administration of the Plan, interpretation of the provisions of the Plan, prescribing procedures for filing applications for benefits, preparation and distribution of information explaining the Plan, maintenance of Plan records, books of account and all other data necessary for the proper administration of the Plan, preparation and filing of all returns and reports relating to the Plan which are required to be filed with the U.S. Department of Labor and the Internal Revenue Service, and for all disclosures required to be made to participants, beneficiaries and others under Sections 104 and 105 of ERISA.

          Reports to Plan Participants.  The Plan administrator will furnish you a statement at least quarterly showing the balance in your account as of the end of that period, the amount of contributions allocated to your account for that period, and any adjustments to your account to reflect earnings or losses (if any).

Amendment and Termination

          It is the intention of Kaiser Federal Bank to continue the Plan indefinitely.  Nevertheless, Kaiser Federal Bank may terminate the Plan at any time.  If the Plan is terminated in whole or in part, then regardless of other provisions in the Plan, you will have a fully vested interest in your

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accounts.  Kaiser Federal Bank reserves the right to make any amendment or amendments to the Plan which do not cause any part of the trust to be used for, or diverted to, any purpose other than the exclusive benefit of participants or their beneficiaries; provided, however, that Kaiser Federal Bank may make any amendment it determines necessary or desirable, with or without retroactive effect, to comply with ERISA.

Merger, Consolidation or Transfer

          In the event of the merger or consolidation of the Plan with another plan, or the transfer of the trust assets to another plan, the Plan requires that you would, if either the Plan or the other plan terminates, receive a benefit immediately after the merger, consolidation or transfer which is equal to or greater than the benefit you would have been entitled to receive immediately before the merger, consolidation or transfer, if the Plan had then terminated.

Federal Income Tax Consequences

          The following is a brief summary of the material federal income tax aspects of the Plan. You should not rely on this summary as a complete or definitive description of the material federal income tax consequences relating to the Plan.  Statutory provisions change, as do their interpretations, and their application may vary in individual circumstances.  Finally, the consequences under applicable state and local income tax laws may not be the same as under the federal income tax laws.  Please consult your tax advisor with respect to any distribution from the Plan and transactions involving the Plan.

          As a “tax-qualified retirement plan,” the Code affords the Plan special tax treatment, including:

          (1)          the sponsoring employer is allowed an immediate tax deduction for the amount contributed to the Plan each year;

          (2)          participants pay no current income tax on amounts contributed by the employer on their behalf; and

          (3)          earnings of the Plan are tax-deferred, thereby permitting the tax-free accumulation of income and gains on investments.

          Kaiser Federal Bank will administer the Plan to comply with the requirements of the Code as of the applicable effective date of any change in the law.

          Lump-Sum Distribution. A distribution from the Plan to a participant or the beneficiary of a participant will qualify as a lump-sum distribution if it is made within one taxable year, on account of the participant’s death, disability or separation from service, or after the participant attains age 59 ½, and consists of the balance credited to participants under the Plan and all other profit sharing plans (and in some cases all other stock bonus plans), if any, maintained by Kaiser Federal Bank.  The portion of any lump-sum distribution required to be included in your taxable income for federal income tax purposes consists of the entire amount of the lump-sum

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distribution, less the amount of after-tax contributions, if any, you have made to this Plan and any other profit sharing plans maintained by Kaiser Federal Bank, which is included in the distribution.

          Kaiser Federal Financial Group, Inc. Common Stock Included in Lump-Sum Distribution. If a lump-sum distribution includes Kaiser Federal Financial Group, Inc. Common Stock, the distribution generally will be taxed in the manner described above, except that the total taxable amount may be reduced by the amount of any net unrealized appreciation with respect to Kaiser Federal Financial Group, Inc. Common Stock, that is, the excess of the value of Kaiser Federal Financial Group, Inc. Common Stock at the time of the distribution over its cost or other basis of the securities to the trust. The tax basis of Kaiser Federal Financial Group, Inc. Common Stock, for purposes of computing gain or loss on its subsequent sale, equals the value of Kaiser Federal Financial Group, Inc. Common Stock at the time of distribution, less the amount of net unrealized appreciation. Any gain on a subsequent sale or other taxable disposition of Kaiser Federal Financial Group, Inc. Common Stock, to the extent of the amount of net unrealized appreciation at the time of distribution, will constitute long-term capital gain, regardless of the holding period of Kaiser Federal Financial Group, Inc. Common Stock. Any gain on a subsequent sale or other taxable disposition of Kaiser Federal Financial Group, Inc. Common Stock, in excess of the amount of net unrealized appreciation at the time of distribution, will be considered long-term capital gain. The recipient of a distribution may elect to include the amount of any net unrealized appreciation in the total taxable amount of the distribution, to the extent allowed by regulations to be issued by the Internal Revenue Service.

          Distributions: Rollovers and Direct Transfers to Another Qualified Plan or to an IRA. You may roll over virtually all distributions from the Plan to another qualified plan or to an individual retirement account in accordance with the terms of the other plan or account.

          Notice of Your Rights Concerning Employer Securities.  There has been an important change in Federal law that provides specific rights concerning investments in employer securities, such as Kaiser Federal Financial Group, Inc. Common Stock.  Because you may in the future have investments in Kaiser Federal Financial Group, Inc. Stock Fund under the Plan, you should take the time to read the following information carefully.

          Your Rights Concerning Employer Securities. Beginning in 2007, the Plan must allow you to elect to move any portion of your account that is invested in the Kaiser Federal Financial Group, Inc. Stock Fund from that investment into other investment alternatives under the Plan.  You may contact the Plan administrator shown above for specific information regarding this new right, including how to make this election.  In deciding whether to exercise this right, you will want to give careful consideration to the information below that describes the importance of diversification.  All of the investment options under the Plan are available to you if you decide to diversify out of the Kaiser Federal Financial Group, Inc. Stock Fund.

          The Importance of Diversifying Your Retirement Savings.  To help achieve long-term retirement security, you should give careful consideration to the benefits of a well-balanced and diversified investment portfolio.  Spreading your assets among different types of investments can help you achieve a favorable rate of return, while minimizing your overall risk of losing money.

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This is because market or other economic conditions that cause one category of assets, or one particular security, to perform very well often cause another asset category, or another particular security, to perform poorly.  If you invest more than 20% of your retirement savings in any one company or industry, your savings may not be properly diversified.  Although diversification is not a guarantee against loss, it is an effective strategy to help you manage investment risk.

          In deciding how to invest your retirement savings, you should take into account all of your assets, including any retirement savings outside of the Plan.  No single approach is right for everyone because, among other factors, individuals have different financial goals, different time horizons for meeting their goals, and different tolerance for risk.  Therefore, you should carefully consider the rights described here and how these rights affect the amount of money that you invest in Kaiser Federal Financial Group, Inc. Common Stock through the Plan.

          It is also important to periodically review your investment portfolio, your investment objectives, and the investment options under the Plan to help ensure that your retirement savings will meet your retirement goals.

Additional ERISA Considerations

          As noted above, the Plan is subject to certain provisions of ERISA, including special provisions relating to control over the Plan’s assets by participants and beneficiaries.  The Plan’s feature that allows you to direct the investment of your account balances is intended to satisfy the requirements of Section 404(c) of ERISA relating to control over plan assets by a participant or beneficiary.  The effect of this is two-fold.  First, you will not be deemed a “fiduciary” because of your exercise of investment discretion.  Second, no person who otherwise is a fiduciary, such as Kaiser Federal Bank, the Plan administrator, or the Plan’s trustee is liable under the fiduciary responsibility provision of ERISA for any loss which results from your exercise of control over the assets in your Plan account.

          Because you will be entitled to invest all or a portion of your account balance in the Plan in Kaiser Federal Financial Group, Inc. Common Stock, the regulations under Section 404(c) of ERISA require that the Plan establish procedures that ensure the confidentiality of your decision to purchase, hold, or sell employer securities, except to the extent that disclosure of such information is necessary to comply with federal or state laws not preempted by ERISA.  These regulations also require that your exercise of voting and similar rights with respect to the Common Stock be conducted in a way that ensures the confidentiality of your exercise of these rights. 

Securities and Exchange Commission Reporting and Short-Swing Profit Liability

          Section 16 of the Securities Exchange Act of 1934, as amended, imposes reporting and liability requirements on officers, directors, and persons beneficially owning more than 10% of public companies such as Kaiser Federal Financial Group, Inc.  Section 16(a) of the Securities Exchange Act of 1934 requires the filing of reports of beneficial ownership.  Within 10 days of becoming an officer, director or person beneficially owning more than 10% of the shares of Kaiser Federal Financial Group, Inc. Common Stock, a Form 3 reporting initial beneficial

15

ownership must be filed with the Securities and Exchange Commission.  Changes in beneficial ownership, such as purchases, sales and gifts generally must be reported periodically, either on a Form 4 within two business days after the change occurs, or annually on a Form 5 within 45 days after the close of Kaiser Federal Financial Group, Inc.’s fiscal year.  Discretionary transactions in and beneficial ownership of the Common Stock through the Kaiser Federal Financial Group, Inc. Stock Fund of the Plan by officers, directors and persons beneficially owning more than 10% of the Common Stock of Kaiser Federal Financial Group, Inc. generally must be reported to the Securities and Exchange Commission by such individuals.

          In addition to the reporting requirements described above, Section 16(b) of the Securities Exchange Act of 1934, as amended, provides for the recovery by Kaiser Federal Financial Group, Inc. of profits realized by an officer, director or any person beneficially owning more than 10% of Kaiser Federal Financial Group, Inc.’s Common Stock resulting from non-exempt purchases and sales of Kaiser Federal Financial Group, Inc. Common Stock within any six-month period.

          The Securities and Exchange Commission has adopted rules that provide exemptions from the profit recovery provisions of Section 16(b) for all transactions in employer securities within an employee benefit plan, provided certain requirements are met.  These requirements generally involve restrictions upon the timing of elections to acquire or dispose of employer securities for the accounts of Section 16(b) persons.

          Except for distributions of Common Stock due to death, disability, retirement, termination of employment or under a qualified domestic relations order, persons affected by Section 16(b) are required to hold shares of Common Stock distributed from the Plan for six months following such distribution and are prohibited from directing additional purchases within the Kaiser Federal Financial Group, Inc. Stock Fund for six months after receiving such a distribution.

Financial Information Regarding Plan Assets

          Financial information representing the assets available for plan benefits at June 30, [2006] and June 30, [2007], and changes in net assets available for benefits for the years ended June 30, [2006] and June 30, [2007], are available upon written request to the Plan administrator at the address shown above.

LEGAL OPINION

          The validity of the issuance of the Common Stock has been passed upon by Luse Gorman Pomerenk & Schick, A Professional Corporation, Washington, D.C., which firm acted as special counsel to Kaiser Federal Financial Group, Inc. in connection with Kaiser Federal Financial Group, Inc.’s stock offering.

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To:	Participants in the Kaiser Federal Bank Employees’ Savings & Profit Sharing Plan and Trust (“401(k) Plan”)
From:	Kaiser Federal Bank
Date:	___________, 2007
Re:	Purchasing Kaiser Federal Financial Group, Inc. Stock through the 401(k) Plan

          The following questions and answers are intended to help explain how participants in the Kaiser Federal Bank Employees’ Savings & Profit Sharing Plan and Trust (the “401(k) Plan”) can purchase Kaiser Federal Financial Group, Inc. common stock in the “second step” public offering through the new Employer Stock Fund in the 401(k) Plan (“Employer Stock Fund”). You should read the Prospectus, Prospectus Supplement and Special Election Form that have been provided to you, which provide more complete information about purchasing Employer Stock Fund units through the 401(k) Plan and about the stock offering.

          The 401(k) Plan already has an Employer Stock Fund which was established in connection with the “first step” public offering.  Amounts that are already invested in the existing Employer Stock Fund cannot be used to purchase new stock units in the “second step” Employer Stock Fund.  Rather, your share of the existing Employer Stock Fund will be converted (using the exchange ratio described in the Prospectus) into a corresponding share of the new Employer Stock Fund.  Therefore, only amounts that are invested in something other than the existing Employer Stock Fund can be used to purchase new stock units in the new Employer Stock Fund. 

If you have general questions about the stock offering or about placing an order for stock outside of the 401(k) Plan, you should call the Stock Information Center at _________________.

If you have questions about the procedures for completing and turning in the Special Election Form in order to purchase new Employer Stock Fund units inside the 401(k) Plan, contact Mary Templin, Human Resources/Benefits Administrator, 1359 North Grand Avenue, Covina, California 91724, telephone number: (626) 339-9663; fax: (626) 858-5745; email:m.templin@kffg.com.

Q1:     How can I buy stock in the offering through my 401(k) Account?

As a participant in the 401(k) Plan, you may subscribe for units of the new Employer Stock Fund in the 401(k) Plan (known as “stock units”) by making an election to transfer all or a portion of your existing account balance that is invested in anything other than the existing Employer Stock Fund into the new Employer Stock Fund.  The purchase price is $10.00 per stock unit.  Whether or not you participate in the offering, you will be able to purchase stock units after the offering, at the market price applicable at the time, which may be higher or lower than the $10.00 price in the offering. 

Q2:     What does a stock unit consist of?

In the stock offering and thereafter, each stock unit will consist of primarily stock, but with a small percentage of cash.  The cash (known as a “cash buffer”) will be maintained for liquidity purposes.  Liquidity is required to facilitate daily transactions such as investment transfers or distributions from the stock fund.  The size of the cash buffer will depend on share volume and transaction frequency, but will generally be around 5% of the total value of the Employer Stock Fund.

Q3:     How many shares may I purchase through the 401(k) Plan?

You may use your entire account balance (excluding the amount currently held in the existing Employer Stock Fund) to purchase units representing an ownership interest in shares in the stock offering.

Q4:     Will I receive all of my order?

If the offering is oversubscribed (i.e., more orders to purchase shares through the 401(k) Plan are received than the total number of shares that are available for purchase through the 401(k) Plan) you may not receive all of your order. 

Q5:     If I want to buy Kaiser Federal Financial Group, Inc. common stock in the 401(k) Plan, what do I do?

Read the Prospectus and accompanying Prospectus Supplement.  Regardless of whether or not you decide to place an order, please fill out and return the Special Election Form to Mary Templin at Kaiser Federal Bank no later than __ p.m., Local Time on _________, _________, 2007, so that we have affirmative answers from all 401(k) Plan participants about their wishes with respect to purchasing or not purchasing stock units in the Employer Stock Fund. 

If you do not want to purchase any stock units, in Section A, fill in your name and Social Security Number, then in Section D on page 2, check the box and return the form to Mary Templin.

If you want to place an order, complete all of the Special Election Form.  Indicate on the form the specific percentage of your account that you want to have transferred into the Employer Stock Fund in order to purchase stock fund units.  Orders will be rounded down to the nearest whole $10.

Please see the Special Election Form for more details, or contact Mary Templin if you have any questions.

Q6:     How do I purchase shares both through the 401(k) Plan and outside the 401(k) Plan?

In order to purchase shares through the 401(k) Plan, you must complete and return the Special Election Form to Mary Templin no later than __ p.m., Local Time on ________, __________, 2007.  In order to purchase shares outside the 401(k) Plan (in your name or through an IRA) you must complete and return a Stock Order Form along with payment by check or by authorizing a withdrawal from your Kaiser Federal Bank deposit account(s) to the Stock Information Center no later than ___ a.m., Local Time, on _________ __, 2007.  If you do not have a Stock Order Form, contact the Stock Information Center.

Q7:     Is there a tax-qualified way for me to buy stock in Kaiser Federal Financial Group, Inc. outside the 401(k) Plan?

If you have an individual retirement account or individual retirement annuity (IRA), you may be able to purchase shares of common stock of Kaiser Federal Financial Group, Inc. in the offering with your interest in your IRA.  If your IRA is with Kaiser Federal Bank, you will first be required to transfer your IRA to a self-directed account (such as a brokerage account) maintained by an independent trustee in order to purchase shares.  IRA purchases cannot be made through the 401(k) Plan.  Call the Stock Information Center promptly for assistance with IRA purchases!  They take time to process.

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Q8:     Why must I complete and return my Special Election Form to Mary Templin by _________, 2007, but the Prospectus says that I can return my Stock Order Form to the Stock Information Center by _______ __?

The 401(k) Plan needs to have enough time to determine how many shares to purchase for the Employer Stock Fund and, therefore, you are required to return your Special Election Form to Mary Templin by ___ p.m. on _________, 2007.  The 401(k) Plan will then submit an Order Form to the Stock Information Center on behalf of the 401(k) Plan no later than ___ a.m., Local Time, on _______ __, 2007.  If you do not return your Special Election Form by ___ p.m. on ________ __, you will not be able to purchase stock units through your 401(k) account in the stock offering.  However, after the stock offering, you generally may invest your 401(k) account in the Employer Stock Fund at any time.  Please note that federal law restricts certain “insiders” from trading in the stock fund during “black out” periods. Please see Mary Templin if you have questions about the black out period trading restrictions.

Q9:     Should I keep a copy of my Special Election Form?

It is always a good idea to keep a record of your Special Election Form. 

Q10:     Can I use interoffice mail to get my Special Election Form to Mary Templin by _______ __, 2007?

You can either use interoffice mail, facsimile, regular mail or return your Special Election Form in person.  Remember, if you use interoffice mail, facsimile, or regular mail, your form must be delivered to Mary Templin no later than ___ p.m., Local Time, on _________, 2007.  If you put your form in the interoffice mail on __________ __, 2007, you cannot be guaranteed that it will be received prior to the deadline.

Q11:     May I change my mind after I submit a Special Election Form to transfer assets to the Employer Stock Fund?

No.  Once you submit a Special Election Form to transfer assets from the various mutual funds in the 401(k) Plan to the Employer Stock Fund, your election is irrevocable.  Once the offering is concluded, you will be entitled to transfer assets in and out of the Employer Stock Fund when the stock begins to trade in the open market. 

Q12:     When will my account be credited with stock units?

Your investment in the new Employer Stock Fund will be credited after your Special Election Form has been processed, subject to completion of the offering.  You will not have access to the amounts in your account credited to the Employer Stock Fund until after the closing of the offering, expected to occur on or around __________ 2007.

Q13:     Will I receive a stock certificate for my 401(k) order?

No.  Your request to purchase shares through the 401(k) Plan will be deemed to be a request to purchase an ownership interest in stock units in the Employer Stock Fund.  You will only be entitled to a distribution of your interest in the 401(k) Plan in accordance with the provisions of the 401(k) Plan.

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Q14:     Can I contribute shares that I purchase in my individual name (i.e., outside the 401(k) Plan) to an IRA at some time in the future?

No. Shares that you purchase in your individual name cannot be contributed to an IRA.

4

KAISER FEDERAL BANK EMPLOYEES’ SAVINGS & PROFIT SHARING PLAN AND TRUST (“401(k) Plan”)

SPECIAL ONE-TIME ELECTION FORM
USE INCONNECTION WITH KAISER FEDERAL FINANCIAL GROUP, INC. STOCK OFFERING

SECTION A:  NAME / SOCIAL SECURITY #

PLEASE PRINT:  Last Name First Name Middle Social Security #

SECTION B: SPECIAL ONE-TIME ELECTION FORM

Participants with existing account balances in the following funds may change the investment of existing account balances to invest all or a portion of their account in the new Employer Stock Fund (as described in the prospectus supplement).  This will not affect the investment of future contributions. To the extent there are insufficient funds in any source that you designate to be transferred to the new Employer Stock Fund, the maximum available amount (rounded down to the nearest $10) will be transferred to the new Employer Stock Fund.  Amounts that are already invested in the existing Employer Stock Fund (consisting primarily of shares of common stock of K-Fed Bancorp) cannot be used to purchase stock units in the new Employer Stock Fund (which, in the offering, will consist 100% of shares of common stock of Kaiser Federal Financial Group, Inc. and after the offering will consist of approximately 95% shares of common stock of Kaiser Federal Financial Group, Inc. and 5% cash). No later than the subscription offering period deadline (______ __, 2007), the amount that you elect to transfer from your existing account balances for the purchase of stock units in the new Employer Stock Fund in the offering will be removed from your existing accounts and transferred to an interest-bearing money market account, pending the closing of the offering.  Please see the Prospectus of Kaiser Federal Financial Group, Inc. for a discussion of purchase limits in the stock offering.

Fund Name		Indicate Whole Percentages To Transfer to the Employer Stock Fund
1.	International Stock Fund%	____________________%
2.	NASDAQ 100 Stock Fund%	____________________%
3.	Russell 2000 Stock Fund%	____________________%
4.	S&P MidCap Stock Fund%	____________________%
5.	S&P/Growth Stock Fund%	____________________%
6.	S&P/Value Stock Fund%	____________________%
7.	S&P 500 Stock Fund%	____________________%
8.	US REIT Index Fund%	____________________%
9.	Long Treasury Index Fund%	____________________%
10.	Aggregate Bond Index Fund%	____________________%
11.	Stable Value Fund%	____________________%
12.	Short Term Investment Fund%	____________________%
13.	Income Plus Asset Allocation Fund%	____________________%
14.	Growth and Income Asset Allocation Fund%	____________________%
15.	Growth Asset Allocation Fund%	____________________%
16.	SSgA Target Retirement 2015 Fund%	____________________%
17.	SSgA Target Retirement 2025 Fund%	____________________%
18.	SSgA Target Retirement 2035 Fund%	____________________%
19.	SSgA Target Retirement 2045 Fund%	____________________%

The percentage amount you elect should be the percentage you wish to have removed from that fund.  For example, if you have $10,000 in the 401(k) Plan and $2,000 in the Pentegra S&P 500 Stock Fund and you elect to transfer 50% from the Pentegra S&P 500 Stock Fund, we will remove $1,000 from that fund (or 50% of $2,000) to transfer to the new Employer Stock Fund to purchase stock in the stock offering.  Please note, percentages will be transferred, rounding down to the nearest $10.  For example if you elect to transfer 50% from the Pentegra S&P 500 Stock Fund and at the time you have $2,348 in that Fund, we will transfer $1,170 to the new Employer Stock Fund to purchase stock units in the offering ($2,348 ÷ 50% = $1,174 or $1,170, rounded down to the nearest $10).

SECTION C: IMPORTANT CONSIDERATIONS

Please note that your election made on this special election form to invest all or a portion of your account in the new Employer Stock Fund will be subject to the purchase priorities set forth in the Prospectus and will be IRREVOCABLEduring the stock offering.  As you know, you are permitted to change your investment election among the various investment funds in the 401(k) Plan on a daily basis.  However, you will not be permitted to change your investment election made on this election form with respect to that portion of your account that you invest in the new Employer Stock Fund for the purchase of stock units in the offering.  Of course, any amounts not set aside on this Election Form, plus the amount that you currently have invested in the existing Employer Stock Fund can be transferred to other investments during this time. Following the conclusion of the offering, when the election on this form takes effect, you will be permitted to change your investment in the amounts you transferred to the new Employer Stock Fund to purchase stock in the offering in accordance with the 401(k) Plan’s standard investment procedures.

SECTION D: PURCHASER INFORMATION

The purchase priorities below are in descending order of priority.  Please select the one category that applies to you.

SUBSCRIPTION OFFERING  (for eligible depositors)

1.	o	Eligible Account Holder - Check here if you were a depositor with at least $50 on deposit with Kaiser Federal Bank as of March 31, 2006.  Enter information below for all deposit accounts that you had an interest in (IRA, individual, joint) at Kaiser Federal Bank on March 31, 2006.
2.	o	Supplemental Eligible Account Holder - Check here if A above does not apply, but you were a depositor with at least $50 on deposit with Kaiser Federal Bank as of September 30, 2007.  Enter information below for all deposit accounts that you had at Kaiser Federal Bank on September 30, 2007.
3.	o	Other Depositors – Check here if A and B above do not apply, but you were a depositor with Kaiser Federal Bank as of __________ __, 2007.  Enter information below for all deposit accounts that you had at Kaiser Federal Bank as of _______ __, 2007.

COMMUNITY OFFERING – (if you are not an eligible depositor)

4.	o	Community Member – Check here if Categories 1 through 3 above do not apply to you, but you are a resident of Los Angeles, San Bernardino, Riverside or Santa Clara County, California, and none of the above subscription categories apply to you, but you wish to place an order for common stock through the 401(k) Plan.
5.	o	Public Stockholder – Check here if categories 1 through 4 above do not apply to you, but you were a stockholder of Kaiser Federal Financial Group, Inc. at __________ __, 2007 and you wish to place an order for common stock through the 401(k) Plan.
6.	o	Community Member – Check here if categories 1 through 5 above do not apply to you, but you wish to place an order for common stock through the 401(k) Plan.
7.	o	No Election – I do not wish to make an election to purchase stock in the offering through my 401(k) Plan account.

     Please Note: Complete this information only if you checked Box 1, 2 or 3.  Failure to list all of your accounts may result in the loss of part or all of your stock allocation in the event of oversubscription.

Account Title (Names on Accounts) Deposit Account Number

SECTION E: PARTICIPANT AUTHORIZATION

I certify that I have received a copy of the Prospectus of Kaiser Federal Financial Group, Inc. dated ___________ __, 2007, which provides detailed information with respect to the offering of Kaiser Federal Financial Group, Inc. common stock and the Prospectus Supplement relating to the election to direct investments under the 401(k) Plan to the new Employer Stock Fund.  I understand that the value of the common stock may fluctuate over time and that risks are associated with investing in the common stock.  Furthermore, I authorize the Plan Administrator to execute my directions as set forth above.  I understand these directions are irrevocable during the stock offering.

Participant Signature Date  

You must return this Special Election Form to Mary Templin to be received no later than ___ p.m. on ___________ __, 2007, even if you do not want to purchase shares of Kaiser Federal Financial Group, Inc. common stock through the 401(k) Plan.  Please return your completed form to: Mary Templin, Human Resources/Benefits Administrator, 1359 North Grand Avenue, Covina, California, telephone number: (626) 339-9663; fax: (626) 858-5745; email:m.templin@kffg.com.

PLEASE KEEP A COPY OF THE COMPLETED FORM FOR YOUR RECORDS

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          PROSPECTUS

KAISER FEDERAL FINANCIAL GROUP, INC.
(Proposed Holding Company for Kaiser Federal Bank)
Up to 14,950,000 Shares of Common Stock
(Subject to Increase to up to 17,192,500 Shares)

          Kaiser Federal Financial Group, Inc., a Maryland corporation, is offering shares of common stock for sale in connection with the conversion of K-Fed Mutual Holding Company from the mutual to the stock form of organization. The shares of common stock we are offering represent the 63.5% ownership interest in K-Fed Bancorp currently owned by K-Fed Mutual Holding Company.  In addition, at the conclusion of the conversion and offering, existing shares of K-Fed Bancorp common stock currently held by the public will be exchanged for shares of common stock of Kaiser Federal Financial Group, Inc.  All shares of common stock are being offered for sale at a price of $10.00 per share.  Purchasers will not pay a commission to purchase shares of common stock in the offering.  We expect that Kaiser Federal Financial Group, Inc.’s shares of common stock will trade on the Nasdaq Global Market under the trading symbol “KFFG.”

If you are or were a depositor of Kaiser Federal Bank:
•	You have priority rights to purchase shares of our common stock if (1) you had $50.00 on deposit at Kaiser Federal Bank at the close of business on March 31, 2006; (2) you had $50.00 on deposit at Kaiser Federal Bank at the close of business on September 30, 2007; or (3) you are a depositor of Kaiser Federal Bank on __________, 2007.
If you are currently a stockholder of K-Fed Bancorp:
•	You may have the opportunity to purchase additional shares of our common stock in the offering after priority orders are filled.
•	Each of your shares of common stock will be exchanged at the conclusion of the offering for between 1.2469 and 1.6870 new shares (subject to adjustment to up to 1.9401 new shares) of common stock of Kaiser Federal Financial Group, Inc. to maintain approximately your existing percentage ownership in K-Fed Bancorp excluding additional purchases of shares of common stock in the offering.
If you fit neither of the categories above, but are interested in purchasing shares of our common stock:
•	You may have the opportunity to purchase shares of common stock after priority orders in the preceding categories are filled.

           We are offering up to 14,950,000 shares of common stock for sale on a best efforts basis.  We may sell up to 17,192,500 shares of common stock because of regulatory considerations, demand for the shares of common stock or changes in financial market conditions, without resoliciting purchasers.  In addition to the shares we are selling in the offering, we also will simultaneously issue up to 8,582,229 shares of common stock to public stockholders of K-Fed Bancorp in exchange for their existing shares.  The number of shares to be issued in the exchange may be increased to up to 9,869,563 shares of common stock, if we sell 17,192,500 shares of common stock in the offering.  We must sell a minimum of 11,050,000 shares in the offering and issue 6,343,386 shares in the exchange in order to complete the offering and the exchange of existing shares of common stock. 

          The minimum number of shares of common stock you may order is 25.  The offering is expected to expire at 12:00 Noon, Pacific Time, on [Expiration Date].  We may extend this expiration date without notice to you until [Extension Date #1], unless the Office of Thrift Supervision approves a later date, which may not be beyond [Extension Date #2].  Once submitted, orders are irrevocable unless the offering is terminated or is extended beyond [Extension Date #1], or the number of shares of common stock to be sold is increased to more than 17,192,500 shares or decreased to less than 11,050,000 shares.  If the offering is terminated, purchasers will have their funds returned promptly, with interest.  If the offering is extended beyond [Extension Date #1] or there is a change in the offering range, we will resolicit purchasers, and you will have the opportunity to maintain, change or cancel your order.  If you do not provide us with a written indication of your intent, your order will be cancelled and your funds will be returned to you, with interest. Funds received prior to the completion of the offering up to the minimum of the offering range will be held in a segregated account at Kaiser Federal Bank. Funds received in excess of the minimum of the offering range may be maintained in a segregated account at Kaiser Federal Bank or, at our discretion, at another federally insured depository institution. However, in no event will we maintain more than one escrow account. All funds received will bear interest calculated at Kaiser Federal Bank’s passbook savings rate, which is currently 0.35% per annum.  Keefe Bruyette & Woods will assist us in selling our shares of common stock on a best efforts basis in the subscription offering. We may also offer shares of common stock not subscribed for in the subscription offering in a syndicated offering through a syndicate of selected dealers managed by Keefe Bruyette & Woods.  Keefe Bruyette & Woods is not required to purchase any shares of the common stock that are being offered for sale. 

OFFERING SUMMARY
Price: $10.00 per share

	Minimum		Midpoint		Maximum		Maximum as Adjusted
Number of shares		11,050,000		13,000,000		14,950,000		17,192,500
Gross offering proceeds	$	110,500,000	$	130,000,000	$	149,500,000	$	171,925,000
Estimated offering expenses excluding selling agent commissions and expenses	$	1,200,000	$	1,200,000	$	1,200,000	$	1,200,000
Selling agent commissions and expenses(1)	$	3,123,850	$	4,132,000	$	5,140,150	$	6,299,523
Net proceeds	$	106,176,150	$	124,668,000	$	143,159,850	$	164,425,477
Net proceeds per share	$	9.61	$	9.59	$	9.58	$	9.56

(1) Please see “The Conversion and Offering—Marketing Arrangements” for a discussion of Keefe Bruyette & Wood’s compensation for this offering.

This investment involves a degree of risk, including the possible loss of principal.

Please read “Risk Factors” beginning on page 20.

          These securities are not deposits or savings accounts and are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.  Neither the Securities and Exchange Commission, the Office of Thrift Supervision, nor any state securities regulator has approved or disapproved of these securities or determined if this prospectus is accurate or complete. Any representation to the contrary is a criminal offense.

KEEFE BRUYETTE & WOODS

For assistance, please contact the Stock Information Center at _____________.

The date of this prospectus is November____, 2007.

[MAP SHOWING KAISER FEDERAL BANK’S MARKET AREA APPEARS HERE]

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TABLE OF CONTENTS

	Page
SUMMARY	1
RISK FACTORS	20
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA OF K-FED BANCORP AND SUBSIDIARY	29
HOW WE INTEND TO USE THE PROCEEDS FROM THE OFFERING	32
OUR POLICY REGARDING DIVIDENDS	34
MARKET FOR THE COMMON STOCK	34
HISTORICAL AND PRO FORMA REGULATORY CAPITAL COMPLIANCE	36
CAPITALIZATION	37
PRO FORMA DATA	39
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	43
BUSINESS OF K-FED BANCORP AND KAISER FEDERAL FINANCIAL GROUP, INC.	59
BUSINESS OF KAISER FEDERAL BANK	60
SUPERVISION AND REGULATION	88
TAXATION	97
MANAGEMENT	98
SUBSCRIPTIONS BY DIRECTORS AND EXECUTIVE OFFICERS	116
THE CONVERSION AND OFFERING	117
COMPARISON OF STOCKHOLDERS’ RIGHTS FOR EXISTING STOCKHOLDERS OF K-FED BANCORP	140
RESTRICTIONS ON ACQUISITION OF KAISER FEDERAL FINANCIAL GROUP, INC.	147
DESCRIPTION OF CAPITAL STOCK OF KAISER FEDERAL FINANCIAL GROUP, INC. FOLLOWING THE CONVERSION	150
TRANSFER AGENT	151
EXPERTS	152
LEGAL MATTERS	152
WHERE YOU CAN FIND ADDITIONAL INFORMATION	152
K-FED BANCORP INDEX TO CONSOLIDATED FINANCIAL STATEMENTS	F-1

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SUMMARY

          The following summary explains the significant aspects of the conversion, the offering and the exchange of existing shares of K-Fed Bancorp common stock for new shares of Kaiser Federal Financial Group, Inc. common stock. It may not contain all of the information that is important to you. For additional information before making an investment decision, you should read this prospectus carefully, including the consolidated financial statements, the notes to the consolidated financial statements, and the section entitled “Risk Factors.”

The Companies

          Kaiser Federal Financial Group, Inc.

          Kaiser Federal Financial Group, Inc. is a newly-formed Maryland corporation that was incorporated on September 24, 2007 to be the successor corporation to K-Fed Bancorp upon completion of the conversion. Kaiser Federal Financial Group, Inc. will own all of the outstanding shares of common stock of Kaiser Federal Bank upon completion of the conversion. 

          Kaiser Federal Financial Group, Inc.’s executive offices are located at 1359 North Grand Avenue, Covina, California 91724.  Our telephone number at this address is (626) 339-9663.

          K-Fed Mutual Holding Company

          K-Fed Mutual Holding Company is the federally chartered mutual holding company of K-Fed Bancorp.  K-Fed Mutual Holding Company’s principal business activity is the ownership of 8,861,750 shares of common stock of K-Fed Bancorp, or 63.5% of the issued and outstanding shares as of June 30, 2007. The remaining 5,087,195 shares of K-Fed Bancorp common stock were held by the public.  After the completion of the conversion, K-Fed Mutual Holding Company will cease to exist.

          K-Fed Bancorp

          K-Fed Bancorp is a federally chartered corporation that owns all of the outstanding shares of common stock of Kaiser Federal Bank.  At June 30, 2007, K-Fed Bancorp had consolidated assets of $799.6 million, deposits of $494.1 million and stockholders’ equity of $92.3 million.  After the completion of the conversion, K-Fed Bancorp will cease to exist, and will be succeeded by Kaiser Federal Financial Group, Inc., a new Maryland corporation formed to be K-Fed Bancorp’s successor corporation.  As of June 30, 2007, K-Fed Bancorp had 13,948,945 shares of common stock outstanding.

          Kaiser Federal Bank

          Kaiser Federal Bank is a federally chartered savings association headquartered in Covina, California. It was originally founded in 1953 as a credit union to serve the employees of the Kaiser Foundation Hospital in Los Angeles, California and converted to a federal mutual savings association in 1999. Kaiser Federal Bank reorganized into the mutual holding company structure in 2003 and became the wholly owned subsidiary of K-Fed Bancorp. Kaiser Federal Bank conducts its business from three full-service banking offices and six financial service centers that provide all the same services as a full service branch but do not dispense or accept cash except through an on-site ATM.  We currently have 54 ATMs.

          Kaiser Federal Bank’s principal business activity has historically consisted of attracting retail deposits from the general public and investing those funds primarily in permanent loans secured by first

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mortgages on owner-occupied, one- to four-family residences and, to a lesser extent, multi-family residential and commercial real estate loans. Kaiser Federal Bank also originates automobile and other consumer loans. Historically, Kaiser Federal Bank has not made commercial business loans or residential or commercial real estate construction loans.  Kaiser Federal Bank purchases a significant amount of loans as well as originates loans in order to more efficiently use its resources to build its loan portfolio without additional staff.  Kaiser Federal Bank offers a variety of deposit accounts, including savings accounts, money market accounts, demand deposit accounts, individual retirement accounts (“IRA”) and certificate of deposit accounts with varied terms ranging from 90 days to five years, and emphasizes personal and efficient service for its customers. See “Business of Kaiser Federal Bank—General.”

Our Current Organizational Structure

          In March 2004, K-Fed Bancorp completed a minority stock offering by selling approximately 39.0% of its shares of common stock to depositors of Kaiser Federal Bank.  The majority of the outstanding shares of common stock of K-Fed Bancorp are owned by K-Fed Mutual Holding Company, which is a mutual holding company with no stockholders. K-Fed Bancorp owns 100% of the outstanding shares of common stock of Kaiser Federal Bank.

          Pursuant to the terms of K-Fed Mutual Holding Company’s plan of conversion and reorganization, K-Fed Mutual Holding Company will convert from the mutual holding company to the stock holding company corporate structure.  As part of the conversion, we are offering for sale in a subscription offering, and possibly in a community and/or a syndicated community offering, the majority ownership interest of K-Fed Bancorp that is currently owned by K-Fed Mutual Holding Company.  Upon the completion of the conversion and offering, K-Fed Mutual Holding Company will cease to exist, and we will complete the transition from partial to full public stock ownership.  Upon completion of the conversion, existing public stockholders of K-Fed Bancorp will receive shares of common stock of Kaiser Federal Financial Group, Inc. in exchange for their shares of K-Fed Bancorp common stock in order to maintain the public stockholders’ existing percentage ownership in our organization (excluding any new shares purchased by them in the offering).

          The following diagram shows our current organizational structure:

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Our Organizational Structure Following the Conversion and Offering

          After the conversion and offering are completed, we will be organized as a fully public holding company, as follows:

Business Strategy

          Our goal is to operate as a well-capitalized and profitable financial institution.  We seek to accomplish this goal by:

• Continued focus on maintaining cost efficiencies through purchases of loans to grow our loan portfolio and expanding our market locations through the use of financial service centers and ATMs;

• Continuing our branch expansion by building or leasing new branch facilities or by acquiring branches from other financial institutions primarily located near Kaiser Permanente Medical Centers in Southern California.  We have no current understandings or agreements for the establishment of any branch;

• Capitalizing on the profitability and growth opportunities in our retail banking network by expanding existing individual customer relationships and developing new customer relationships to increase our core deposits;

• Increasing our commercial real estate and multi-family lending while maintaining a moderate growth of one to four-family residential real estate loans through originations, purchases and sales of such loans while continuing to apply our underwriting standards in order to maintain a high quality loan portfolio;

• Enhancing existing products and services, and supporting the development of new products and services by investing, for example, in technology to support development of commercial deposit products such as sweep accounts and business checking services; and

• Expanding through acquisitions of other financial institutions, primarily in Southern California.  We have no current understandings or agreements for any specific acquisition.

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          See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Business Strategy” for a more detailed discussion of our business strategy.

Reasons for the Conversion and Offering

          Our Board of Directors decided at this time to convert to a fully public stock form of ownership and conduct the offering in order to increase our capital position and support future growth. Completing the conversion and offering is necessary for us to continue to grow and execute our business strategy. We believe that our conversion to a fully public company and the increased capital resources that will result from the sale of our shares of common stock will provide us with the flexibility to:

• support internal growth through loan purchases and lending in the communities we serve;

• enhance existing products and services, and support the development of new products and services;

• build or lease new branch facilities or acquire branches from other financial institutions;

• finance the acquisition of financial institutions, or other financial service companies primarily in Southern California, although we do not currently have any understandings or agreements regarding any specific acquisition transaction;

• improve the liquidity of our shares of common stock and enhance stockholder returns through higher earnings and more flexible capital management strategies; and

• use the additional capital for other general corporate purposes.

Terms of the Conversion and Offering

          Pursuant to K-Fed Mutual Holding Company’s plan of conversion and reorganization, our organization will convert from a partially public form to a fully public form of holding company structure.  In connection with the conversion, we are selling shares of common stock that represent the ownership interest in K-Fed Bancorp currently held by K-Fed Mutual Holding Company.

          We are offering between 11,050,000 and 14,950,000 shares of common stock to eligible depositors of Kaiser Federal Bank, to our tax qualified employee benefit plans, including our employee stock ownership plan and our 401(k) plan and, to the extent shares remain available, to natural persons residing in the California Counties of Los Angeles, San Bernardino, Riverside and Santa Clara, to our existing public stockholders and to the general public.  The number of shares of common stock to be sold may be increased to up to 17,192,500 as a result of regulatory considerations, demand for our shares, or changes in the market for financial institution stocks.  Unless the number of shares of common stock to be offered is increased to more than 17,192,500 shares or decreased to fewer than 11,050,000 shares, or the offering is extended beyond [Extension Date #1], purchasers will not have the opportunity to modify or cancel their stock orders once submitted.  If the number of shares of common stock to be sold is increased to more than 17,192,500 shares or decreased to fewer than 11,050,000 shares, or if the offering is extended beyond [Extension Date #1], purchasers will have the opportunity to maintain, cancel or change their orders for common stock during a designated resolicitation period or have their funds returned promptly with interest.  If you do not provide us with written indication of your intent, your stock order will be cancelled, your funds will be returned to you with interest calculated at Kaiser Federal Bank’s passbook savings rate and any deposit account withdrawal authorization will be cancelled.

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          The purchase price of each share of common stock to be offered for sale in the offering is $10.00.  All investors will pay the same purchase price per share.  Investors will not be charged a commission to purchase shares of common stock in the offering.  Keefe Bruyette & Woods, our financial advisor and selling agent in the offering, will use its best efforts to assist us in selling shares of our common stock.  Keefe Bruyette & Woods is not obligated to purchase any shares of common stock in the offering.

Persons Who May Order Shares of Common Stock in the Offering

          We are offering the shares of common stock in a “subscription offering” in the following descending order of priority:

(i)	First, to depositors with accounts at Kaiser Federal Bank with aggregate balances of at least $50 at the close of business on March 31, 2006.
(ii)	Second, to our tax-qualified employee benefit plans, including our employee stock ownership plan and 401(k) plan, which will receive nontransferable subscription rights to purchase in the aggregate up to 10% of the shares of common stock sold in the offering.
(iii)	Third, to depositors with accounts at Kaiser Federal Bank with aggregate balances of at least $50 at the close of business on September 30, 2007.
(iv)	Fourth, to depositors of Kaiser Federal Bank at the close of business on _________, 2007.

          Shares of common stock not purchased in the subscription offering may be offered for sale to the general public in a “community offering,” with a preference given first to natural persons residing in the California Counties of Los Angeles, San Bernardino, Riverside and Santa Clara, and then to K-Fed Bancorp public stockholders as of _________, 2007.  The community offering, if held, may begin concurrently with, during or promptly after the subscription offering as we may determine at any time.  We also may offer for sale shares of common stock not purchased in the subscription offering or community offering through a “syndicated community offering.”  We have the right to accept or reject, in our sole discretion, orders received in the community offering or syndicated community offering.  Any determination to accept or reject purchase orders in the community offering and the syndicated community offering will be based on the facts and circumstances available to management at the time of the determination.

          If we receive orders for more shares than we are offering, we may not be able to fully or partially fill your order.  Shares will be allocated first to categories in the subscription offering in accordance with K-Fed Mutual Holding Company’s plan of conversion and reorganization.  A detailed description of share allocation procedures can be found in the section of this prospectus entitled “The Conversion and Offering.”

How We Intend to Use the Proceeds from the Offering

          We estimate that the aggregate net proceeds from the offering will be between $106.2 million and $143.2 million, or $164.4 million if the offering range is increased by 15%.  Kaiser Federal Financial Group, Inc. intends to retain between $46.5 million and $62.6 million of the net proceeds, or $71.9 million if the offering range is increased by 15% (excluding the portion of the net proceeds loaned to our employee stock ownership plan).  Approximately $53.1 million to $71.6 million of the net proceeds (or $82.2 million if the offering range is increased by 15%) will be invested in Kaiser Federal Bank. 

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          A portion of the net proceeds retained by Kaiser Federal Financial Group, Inc. will be loaned to our employee stock ownership plan to fund its purchase of shares of common stock in the offering (between 663,000 shares and 897,000 shares, or 1,031,550 shares if the offering is increased by 15%).  The employee stock ownership plan was established in connection with our 2004 minority stock issuance.  As of June 30, 2007, there were 307,084 shares remaining unallocated in the plan. The remainder of the net proceeds may be used for general corporate purposes, including paying cash dividends or repurchasing shares of our common stock.  Funds invested in Kaiser Federal Bank will be used to support increased lending and new products and services.  The net proceeds retained by Kaiser Federal Financial Group, Inc. and Kaiser Federal Bank may also be used for future business expansion such as acquisitions of banking or financial services companies and the establishment of additional branch offices primarily in Southern California, and for general corporate purposes.  We currently have no arrangements or understandings regarding any specific transaction or any new branch location.  Initially, a substantial portion of the net proceeds will be invested in short-term investments, investment-grade debt obligations and mortgage-backed securities.

          Please see the section of this prospectus entitled “How We Intend to Use the Proceeds from the Offering” for more information on the proposed use of the net proceeds from the offering.

How We Determined the Offering Range, the Exchange Ratio and the $10.00 Per Share Stock Price

          The offering range and exchange ratio are based on an independent appraisal of the estimated market value of Kaiser Federal Financial Group, Inc., assuming the conversion, the exchange and the offering are completed.  RP Financial, LC., an appraisal firm experienced in appraisals of financial institutions, has estimated that, as of August 31, 2007, this pro forma market value ranged from $173.9 million to $235.3 million, with a midpoint of $204.6 million.  Based on this valuation, the ownership interest of K-Fed Mutual Holding Company being sold in the offering and the $10.00 per share price, the number of shares of common stock being offered for sale by Kaiser Federal Financial Group, Inc. will range from 11,050,000 shares to 14,950,000 shares.  The $10.00 per share price was selected primarily because it is the price most commonly used in mutual-to-stock conversions of financial institutions. The exchange ratio will range from 1.2469 shares at the minimum of the offering range to 1.6870 shares at the maximum of the offering range in order to preserve the existing percentage ownership of public stockholders in our organization (excluding any new shares purchased by them in the offering).  The independent appraisal is based in part on K-Fed Bancorp’s financial condition and results of operations, the pro forma impact of the additional capital raised by the sale of shares of common stock in the offering, and an analysis of a peer group of 10 publicly traded thrift holding companies that RP Financial, LC. considered comparable to K-Fed Bancorp.

          The independent appraisal does not indicate actual market value or post offering trading value.  Do not assume or expect that the estimated valuation as indicated above means that, after the conversion and offering, the shares of our common stock will trade at or above the $10.00 purchase price.

          The following table presents a summary of selected pricing ratios for the peer group companies, Kaiser Federal Financial Group, Inc. (on a pro forma basis) and K-Fed Bancorp (on a historical basis). The pricing ratios are based on earnings and other information as of and for the twelve months ended June 30, 2007 and stock price information as of August 31, 2007, as reflected in RP Financial, LC.’s appraisal report, dated August 31, 2007.  Compared to the average pricing of the peer group, our pro forma pricing ratios at the maximum of the offering range indicated a discount of 16.1 % on a price-to-book value basis and a discount of 20.9 % on a price-to-tangible book value basis, and a premium of 82.0 % on a price-to-core earnings basis. 

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          Our Board of Directors, in reviewing and approving the independent appraisal, considered the range of price-to-core earnings multiples, the range of price-to-book value and price-to-tangible book value ratios at the different ranges of shares of common stock to be sold in the offering, and did not consider one valuation approach to be more important than the other.  Instead, in approving the independent appraisal, the Board of Directors concluded that these ranges represented the appropriate balance of the three approaches to establishing our estimated valuation range, and the number of shares of common stock to be sold, in comparison to the peer group institutions.  Specifically, in approving the independent appraisal, the Board of Directors believed that we would not be able to sell our shares at a price-to-book and price-to-tangible book value that was in line with the peer group without unreasonably exceeding the peer group on a price-to-core earnings basis.  The estimated appraised value and the resulting discount/premium took into consideration the potential financial impact of the conversion and offering as well as the trading price of K-Fed Bancorp common stock, which decreased from $14.75 per share on June 27, 2007, the closing price on the last trading day immediately preceding the announcement of the conversion, to $13.72 per share, the trading price on August 31, 2007, the effective date of the independent appraisal.

	Price-to-core earnings multiple			Price-to-book value ratio			Price-to-tangible book value ratio
Kaiser Federal Financial Group, Inc. (on a pro forma basis, assuming completion of the conversion)
Minimum		25.64	x		92.59	%		94.79	%
Midpoint		29.41	x		100.10	%		102.25	%
Maximum		32.26	x		106.50	%		108.58	%
Maximum, as adjusted		35.71	x		112.74	%		114.81	%
Valuation of peer group companies, as of August 31, 2007
Averages		17.73	x		126.99	%		137.30	%
Medians		15.43	x		119.01	%		124.46	%

          RP Financial, LC. will update the independent appraisal prior to the completion of the conversion. If the estimated appraised value changes to either below $173.9 million or above $270.6 million, we will resolicit persons who submitted stock orders.  See “The Conversion and Offering—Stock Pricing and Number of Shares to be Issued.”

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After-Market Performance Information

          The following table presents selected stock price performance information for all conversions of mutual holding companies to stock holding companies, commonly referred to as “second-step” conversions, completed between January 1, 2005 and August 31, 2007. The companies for which the stock price performance is presented completed their conversions in different market conditions than Kaiser Federal Financial Group, Inc. and may have issued more or less than the 63.5% ownership interest of K-Fed Mutual Holding Company being offered by Kaiser Federal Financial Group, Inc. in the offering.  In addition, the companies may have no similarities to Kaiser Federal Financial Group, Inc. with regard to the market in which Kaiser Federal Financial Group, Inc. competes, earnings quality or growth potential, among other factors. The information shown in the following table was not included in the independent appraisal report; however, RP Financial, LC. did consider the after-market trading performance of any transaction that was completed within the three months prior to the August 31, 2007 valuation date used in the appraisal.

					Price Performance From Initial Trading Date
Institution	Conversion Date		Exchange		% Change 1 day			% Change 1 week			% Change 4 weeks			Through August 31, 2007
Abington Bancorp, Inc. (ABBC)		06/28/07		Nasdaq		(4.0	)		(1.6	)		(6.6	)		(4.1	)
People’s United Financial, Inc. (PBCT)		04/16/07		Nasdaq		3.8	%		2.0	%		0.9	%		(11.6	)%
Osage Bancshares, Inc. (OSBK)		01/18/07		Nasdaq		(0.5	)		(0.5	)		(2.5	)		(16.0	)
Westfield Financial, Inc. (WFD)		01/04/07		Amex		7.0			7.5			9.9			1.1
Citizens Community Bancorp, Inc. (CZWI)		11/01/06		Nasdaq		(2.5	)		(1.0	)		(2.5	)		(10.0	)
Liberty Bancorp, Inc. (LBCP)		07/24/06		Nasdaq		2.5			1.0			(0.8	)		8.1
First Clover Leaf Financial Corp. (FCLF)		07/11/06		Nasdaq		3.9			6.0			9.8			9.0
Monadnock Bancorp, Inc. (MNKB)		06/29/06		Otcbb		—			(5.0	)		(15.6	)		(15.6	)
New England Bancshares, Inc. (NEBS)		12/29/05		Nasdaq		6.6			7.0			7.0			20.1
American Bancorp of New Jersey, Inc. (ABNJ)		10/06/05		Nasdaq		1.6			(2.0	)		0.1			11.0
Hudson City Bancorp, Inc. (HCBK)		06/07/05		Nasdaq		9.6			10.7			15.5			42.2
First Federal of Northern Michigan (FFNM)		04/04/05		Nasdaq		(5.1	)		(7.0	)		(16.0	)		(20.0	)
Rome Bancorp, Inc. (ROME)		03/31/05		Nasdaq		0.5			(2.0	)		(5.6	)		19.0
Averages						1.8	%		1.2	%		(0.5	)%		2.6	%

* Transaction involved simultaneous acquisition.

          The table above presents only short-term historical information on stock price performance for a small number of transactions, which may not be indicative of the short or long-term performance of such stock prices.  The table above is also not intended to predict how our shares of common stock may perform following the offering.  The historical information in the tables may not be meaningful to you because the data were calculated using a small sample and the transactions from which the data were derived occurred primarily during a low market interest rate environment, during which time the trading prices for financial institution stocks typically increase.

          You should bear in mind that stock price appreciation or depreciation is affected by many factors. There can be no assurance that our stock price will not trade at or below $10.00 per share.  The movement of any particular company’s stock price is subject to various factors, including, but not limited to, the amount of proceeds a company raises, the company’s historical and anticipated operating results, the nature and quality of the company’s assets, the company’s market area and the quality of management and management’s ability to deploy proceeds (such as through loans and investments, the acquisition of other financial institutions or other businesses, the payment of dividends and common stock repurchases).  In addition, stock prices may be affected by general market and economic conditions, the interest rate environment, the market for financial institutions and merger or takeover transactions and the presence of professional and other investors who purchase stock on speculation, as well as other unforeseeable events

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not in the control of management.  Before you make an investment decision, we urge you to read this entire prospectus carefully, including, but not limited to, the section entitled “Risk Factors” beginning on page 20.

Benefits to Management and Potential Dilution to Stockholders Resulting from the Conversion

          Employee Stock Ownership Plan.  Our tax-qualified employee stock ownership plan expects to purchase up to 6.0% of the shares of common stock we sell in the offering, or 897,000 shares of common stock, assuming we sell the maximum number of the shares proposed to be sold which, when combined with the existing shares held by the employee stock ownership plan, will be less than 8.0% of the shares outstanding following the conversion as required by Office of Thrift Supervision regulations.  If we receive orders for more shares of common stock than the maximum of the offering range, the employee stock ownership plan will have first priority to purchase shares over this maximum, up to a total of 6.0% of the shares of common stock sold in the offering.  We reserve the right to purchase shares of common stock in the open market following the offering in order to fund all or a portion of the employee stock ownership plan.  This plan is a tax-qualified retirement plan for the benefit of all our employees that was established in 2004 in connection with our minority stock offering and that, as of June 30, 2007, had 307,084 shares remaining unallocated under this plan.  Assuming the employee stock ownership plan purchases 897,000 shares in the offering, which when combined with the 307,084 unallocated shares currently outstanding, for an aggregate amount of 1,204,084 unallocated shares under the plan, we will recognize compensation expense of $12.0 million over a 20-year period for the plan, assuming the shares of common stock have a fair market value of $10.00 per share for the full 20-year period.  If, in the future, the shares of common stock have a fair market value greater or less than $10.00, the compensation expense will increase or decrease accordingly.

          Stock-Based Incentive Plan.  We also intend to implement a new stock-based incentive plan no earlier than six months after completion of the conversion.  Stockholder approval of this plan will be required.  If adopted within 12 months following the completion of the conversion, the stock-based incentive plan will reserve a number of shares up to 3.7%of the shares of common stock sold in the offering, or up to 557,541 shares of common stock at the maximum of the offering range, for awards of restricted stock to key employees and directors, at no cost to the recipients, in order to ensure that the aggregate number of restricted shares of common stock subject to the new stock-based incentive plan and the 2004 Recognition and Retention Plan does not exceed 4.0% of the shares outstanding (including shares issued in exchange for existing shares of K-Fed Bancorp common stock) following completion of the conversion as required by Office of Thrift Supervision regulations.  If the shares of common stock awarded under the stock-based incentive plan come from authorized but unissued shares of common stock, stockholders would experience dilution of up to approximately 2.3% in their ownership interest in Kaiser Federal Financial Group, Inc.  If adopted within 12 months following the completion of the conversion, the stock-based incentive plan will also reserve a number of shares up to 9.3% of the shares of common stock sold in the offering, or up to 1,393,854 shares of common stock at the maximum of the offering range, for grants of stock options to key employees and directors in order to ensure that the aggregate number of shares reserved does not exceed 10.0% of the shares outstanding (including shares issued in exchange for existing shares of K-Fed Bancorp common stock) following completion of the conversion as required by Office of Thrift Supervision regulations.  If the shares of common stock issued upon the exercise of options come from authorized but unissued shares of common stock, stockholders would experience dilution of approximately 5.6% in their ownership interest in Kaiser Federal Financial Group, Inc.  Restricted stock awards and stock option grants made under this plan would be subject to vesting over a period of not less than five years.  If the stock-based incentive plan is adopted more than one year after the completion of the conversion, awards of restricted stock or grants of stock options under the plan may exceed 3.7%and 9.3%, respectively, of the shares sold in the offering and have a

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shorter vesting period.  For a description of our current stock benefit plans, see “Management—Benefit Plans.”

          The following table summarizes the number of shares of common stock and the aggregate dollar value of grants that are expected under the new stock-based incentive plan as a result of the conversion.  The table also shows the dilution to stockholders if all such shares are issued from authorized but unissued shares, instead of shares purchased in the open market.  A portion of the stock grants shown in the table below may be made to non-management employees.

	Number of Shares to be Granted or Purchased(1)						Dilution Resulting From Issuance of Shares for Stock Benefit Plans		Value of Grants (2)
	At Minimum of Offering Range		At Maximum of Offering Range		As a Percentage of Common Stock to be Sold in the Offering				At Minimum of Offering Range		At Maximum of Offering Range
Employee stock ownership plan		663,000		897,000	6.0	%	—	%	$	6,630,000	$	8,970,000
Restricted stock awards		412,096		557,541	3.7		2.3	(3)		4,120,960		5,575,410
Stock options		1,030,240		1,393,854	9.3		5.6	(3)		2,606,507		3,526,451
Total		2,105,336		2,848,395	19.0	%	7.7	%	$	13,357,467	$	18,071,861

(1)	The stock-based incentive plan may award a greater number of options and shares, respectively, if the plan is adopted more than one year after the completion of the conversion, although such plan may remain subject to supervisory restrictions.
(2)	The actual value of restricted stock awards will be determined based on their fair value as of the date grants are made.  For purposes of this table, fair value is assumed to be the same as the offering price of $10.00 per share.  The fair value of stock options has been estimated at $2.53 per option using the Black-Scholes option pricing model with the following assumptions:  a grant-date share price and option exercise price of $10.00; an expected option life of 6.25 years; a dividend rate of 2.33%; a risk free interest rate of 4.67%; and a volatility rate of 23.35% based on an index of publicly traded thrift institutions.  The actual value of option grants will be determined by the grant-date fair value of the options, which will depend on a number of factors, including the valuation assumptions used in the option pricing model ultimately adopted.
(3)	Calculated at the maximum of the offering range, and assumes such shares come from authorized but unissued shares.

          We may fund our plans through open market purchases, as opposed to new issuance of common stock; however, if any options previously granted under our existing 2004 Stock Option Plan are exercised during the first year following completion of the offering, they will be funded with newly-issued shares as the Office of Thrift Supervision regulations do not permit us to repurchase our shares during the first year following the completion of this offering except to fund the grants of restricted stock under the stock-based incentive plan or under extraordinary circumstances.  We have been advised by the staff of the Office of Thrift Supervision that the exercise of outstanding options and cancellation of treasury shares in the conversion will not constitute an extraordinary circumstance or a compelling business purpose for purposes of this test.

          The following table presents information as of June 30, 2007 regarding our existing employee stock ownership plan, our 2004 Stock Option Plan, our 2004 Recognition and Retention Plan, our proposed employee stock ownership plan purchases and our proposed stock-based incentive plan.  The table below assumes that 23,532,229 shares are outstanding after the offering, which includes the sale of 14,950,000 shares in the offering at the maximum of the offering range and the issuance of 8,582,229 shares in exchange for shares of K-Fed Bancorp using an exchange ratio of 1.6870.  It also assumes that the value of the stock is $10.00 per share.

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Existing and New Stock Benefit Plans	Participants		Shares			Estimated Value of Shares			Percentage of Shares Outstanding After the Conversion
Existing employee stock ownership plan shares		Employees		767,495	(1)	$	7,674,950			3.3	%
New employee stock ownership plan shares		Employees		897,000			8,970,000			3.8
Total employee stock ownership plan shares		Employees		1,664,495			16,644,950			7.1
Existing shares of restricted stock		Directors, Officers and Employees		383,748	(2)		3,837,480	(3)		1.6
New shares of restricted stock		Directors, Officers and Employees		557,541			5,575,410			2.4
Total shares of restricted stock		Directors, Officers and Employees		941,289			9,412,890			4.0
Existing stock options		Directors, Officers and Employees		959,369	(4)		2,609,484	(5)		4.1
New stock options		Directors, Officers and Employees		1,393,854			3,526,451	(5)		5.9
Total stock options		Directors, Officers and Employees		2,353,223			6,135,935			10.0
Total of stock benefit plans				4,959,007		$	32,193,775			21.1	%

(1)	K-Fed Bancorp initially established an employee stock ownership plan, which purchased 454,940 shares of its common stock in its minority stock issuance.  As of June 30, 2007, the employee stock ownership plan held 454,940 shares of which 147,856 have been allocated.  These shares will be exchanged for 767,495 shares using the exchange ratio at the maximum of the offering range.
(2)	Represents 227,470 shares of restricted stock authorized for grant under the 2004 Recognition and Retention Plan, which will be exchanged for 383,748 shares using the exchange ratio at the maximum of the offering range.  As of June 30, 2007, 164,540 shares of restricted stock were awarded.  As of June 30, 2007, 56,880 shares or 25% of the shares awarded have vested and will be exchanged for 95,958 shares using the exchange ratio at the maximum of the offering range.
(3)	The actual value of restricted stock awards will be determined based on their fair value as of the date grants are made.  For purposes of this table, fair value is assumed to be the same as the offering price of $10.00 per share.
(4)	Represents 568,675 shares reserved for issuance under the 2004 Stock Option Plan, which will be exchanged for 959,369 shares using the exchange ratio at the maximum of the offering range.  Options to purchase a total of 348,400 shares have been granted and are outstanding under the existing 2004 Stock Option Plan, which will be exchanged for options to purchase a total of 587,760 shares using the exchange ratio at the maximum of the offering range. A total of 11,720 options have been exercised. A total of 22% of the outstanding awards or 126,280 options have vested, which will be exchanged for 213,038 shares using the exchange ratio at the maximum of the offering range.
(5)	The weighted-average fair value of stock options granted under the 2004 Stock Option Plan has been estimated at $4.59 per option using the Black-Scholes option pricing model.  The assumptions used for the options granted in 2004 were: exercise price, $15.18; a dividend yield range of 1.33% to 2.35%; expected life of five to seven years; an expected volatility range of 23.0% to 39.18%; and a risk-free interest rate range of 3.54% to 4.77%.  The fair value of stock options granted under the 2004 Stock Option Plan has been adjusted to $2.72 per option to reflect the additional shares issued at the maximum exchange ratio from the conversion and stock offering.  The fair value of stock options to be granted under the new stock-based incentive plan has been estimated based on an index of publicly traded thrift institutions at $2.53 per option using the Black-Scholes option pricing model with the following assumptions; exercise price, $10.00; trading price on date of grant; dividend yield, 2.33%; expected life, 6.25 years; expected volatility, 23.35%; and risk-free interest rate, 4.67%.

          The value of the restricted shares awarded under the stock-based incentive plan will be based on the market value of Kaiser Federal Financial Group, Inc.’s common stock at the time the shares are awarded. The stock-based incentive plan is subject to stockholder approval, and cannot be implemented until at least six months after completion of the conversion and offering.  The following table presents the total value of all shares that would be available for award and issuance under the new stock-based incentive plan, assuming the shares are awarded when the market price of our common stock ranges from $8.00 per share to $14.00 per share.

Share Price	412,096 Shares Awarded at Minimum of Range		484,819 Shares Awarded at Midpoint of Range		557,541 Shares Awarded at Maximum of Range		641,173 Shares Awarded at Maximum of Range, As Adjusted
$          8.00		$   3,296,768		$   3,878,552		$   4,460,328		$   5,129,384
10.00		4,120,960		4,848,190		5,575,410		6,411,730
12.00		4,945,152		5,817,828		6,690,492		7,694,076
14.00		5,769,344		6,787,466		7,805,574		8,976,422

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          The grant-date fair value of the options granted under the new stock-based incentive plan will be based in part on the price of shares of common stock of Kaiser Federal Financial Group, Inc. at the time the options are granted. The value will also depend on the various assumptions utilized in the option pricing model ultimately adopted.  The following table presents the total estimated value of the options to be available for grant under the proposed stock-based incentive plan, assuming the market price and exercise price for the stock options are equal and the range of market prices for the shares is $8.00 per share to $14.00 per share.

Exercise Price	Grant Date Fair Value Per Option		1,030,240 Options at Minimum of Range		1,212,047 Options at Midpoint of Range		1,393,854 Options at Maximum of Range		1,602,932 Options at Maximum of Range, As Adjusted
$          8.00		$   2.02		$   2,081,084		$   2,448,335		$   2,815,585		$   3,237,923
10.00		2.53		2,606,507		3,066,479		3,526,451		4,055,418
12.00		3.04		3,131,930		3,684,623		4,237,316		4,872,913
14.00		3.54		3,647,050		4,290,646		4,934,243		5,674,379

          The tables presented above are provided for informational purposes only.  There can be no assurance that our stock price will not trade at or below $10.00 per share.  Before you make an investment decision, we urge you to read this entire prospectus carefully, including, but not limited to, the section entitled “Risk Factors” beginning on page 20.

Employment Agreements

          Following completion of the conversion and offering we plan to enter into employment agreements with our president and chief executive officer and our three other executive officers.  See “Management—Benefits to be Considered Following Completion of the Conversion—Employment Agreements.”

The Exchange of Existing Shares of K-Fed Bancorp Common Stock

          If you are a stockholder of K-Fed Bancorp as of the conclusion of the conversion, your shares will be canceled and exchanged for shares of common stock of Kaiser Federal Financial Group, Inc.  The number of shares of common stock you receive will be based on an exchange ratio determined as of the conclusion of the conversion, which will depend upon our final appraised value.  The number of shares you receive will not be based on the market price of our currently outstanding K-Fed Bancorp shares.  Instead, the exchange ratio will ensure that existing public stockholders of K-Fed Bancorp will own the same percentage of Kaiser Federal Financial Group, Inc.’s common stock after the conversion and offering exclusive of their purchase of any additional shares of common stock in the offering and their receipt of cash in lieu of fractional exchange shares.  The following table shows how the exchange ratio will adjust, based on the valuation of Kaiser Federal Financial Group, Inc. and the number of shares of common stock issued in the offering.  The table also shows the number of whole shares of Kaiser Federal Financial Group, Inc. common stock a hypothetical owner of K-Fed Bancorp common stock would receive in exchange for 100 shares of K-Fed Bancorp common stock owned at the consummation of the conversion, depending on the number of shares of common stock sold in the offering. 

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	New Shares to be Sold in This Offering				New Shares to be Exchanged for Existing Shares of K-Fed Bancorp				Total Shares of Common Stock to be Outstanding after the Conversion and Offering		Exchange Ratio		Equivalent Per Share Current Market Price(1)		New Shares That Would be Received for 100 Existing Shares
	Amount		Percent		Amount		Percent
Minimum		11,050,000		63.5%		6,343,386		36.5%		17,393,386		1.2469		$   12.47		124
Midpoint		13,000,000		63.5%		7,462,808		36.5%		20,462,808		1.4670		14.67		146
Maximum		14,950,000		63.5%		8,582,229		36.5%		23,532,229		1.6870		16.87		168
Maximum; as adjusted		17,192,500		63.5%		9,869,563		36.5%		27,062,063		1.9401		19.40		194

(1) Represents the value of shares of Kaiser Federal Financial Group, Inc. common stock received in the conversion by a holder of one share of K-Fed Bancorp at the exchange ratio, assuming the market price of $10.00 per share.

          If you own shares of K-Fed Bancorp common stock through a brokerage account in “street name,” you do not need to take any action to exchange your shares of common stock.  Your shares will be automatically exchanged.  If you hold K-Fed Bancorp stock certificate(s), you will receive a transmittal form with instructions on how to surrender your stock certificate(s) after consummation of the conversion. New certificate(s) of Kaiser Federal Financial Group, Inc. common stock will be mailed to you within five business days after the exchange agent receives your properly executed transmittal form and your K-Fed Bancorp stock certificate(s).  You should not submit a stock certificate for exchange until you receive a transmittal form.

          No fractional shares of Kaiser Federal Financial Group, Inc. common stock will be issued to any public stockholder of K-Fed Bancorp. For each fractional share that would otherwise be issued, Kaiser Federal Financial Group, Inc. will pay in cash an amount equal to the product obtained by multiplying the fractional share interest to which the holder would otherwise be entitled by the $10.00 per share purchase price of the common stock in the offering. 

          Outstanding options to purchase shares of K-Fed Bancorp common stock also will convert into and become options to purchase new shares of Kaiser Federal Financial Group, Inc. common stock. The number of shares of common stock to be received upon exercise of these options will be determined pursuant to the exchange ratio. The aggregate exercise price, duration and vesting schedule of these options will not be affected by the conversion.  At June 30, 2007, there were 348,400 outstanding options to purchase shares of K-Fed Bancorp common stock, 114,560 of which have vested.  Such options will be converted into options to purchase 142,844 shares of common stock at the minimum of the offering range and 193,262 shares of common stock at the maximum of the offering range.  Because Office of Thrift Supervision regulations prohibit us from repurchasing our common stock during the first year following the conversion unless compelling business reasons exist for such repurchases, we may use authorized but unissued shares to fund option exercises that occur during the first year following the conversion.  If all existing options were exercised for authorized, but unissued shares of common stock following the conversion, stockholders would experience dilution of approximately 5.6% at the minimum of the offering range and 5.6% at the maximum of the offering range. 

Limits on How Much Common Stock You May Purchase

          The minimum number of shares of common stock that may be purchased in the offering is 25.

          If you are not currently a K-Fed Bancorp stockholder –

          No person exercising subscription rights through one or more similarly titled individual deposit accounts, and no group of persons exercising subscription rights through one deposit account may purchase more than five percent (5%) of the common stock sold in the offering.  At the midpoint of the

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offering range this would be $6,500,000 or 650,000 shares of common stock.  If any of the following persons purchase shares of common stock, their purchases, in all categories of the offering combined, when aggregated with your purchases, cannot exceed five percent (5%) of the common stock sold in the offering:

• your spouse or relatives of you or your spouse living in your house;

• companies, trusts or other entities in which you are a trustee, have a controlling beneficial interest or hold a senior position; or

• other persons who may be your associates or persons acting in concert with you.

          Unless we determine otherwise, persons having the same address and persons exercising subscription rights through qualifying deposit accounts registered to the same address will be subject to the overall purchase limitation of five percent (5%) of the common stock sold in the offering in all categories of the offering combined.

          See the detailed description of purchase limitations and definitions of “acting in concert” and “associate” in “The Conversion and Offering—Limitations on Common Stock Purchases.”

          If you are currently a K-Fed Bancorp stockholder –

          In addition to the above purchase limitations, there is an ownership limitation for stockholders other than our employee stock ownership plan.  Shares of common stock that you purchase in the offering individually and together with persons described above, plus any shares you and they receive in exchange for existing shares of K-Fed Bancorp common stock, may not exceed five percent (5%) of the total shares of common stock to be issued and outstanding after the completion of the conversion. 

          Subject to Office of Thrift Supervision approval, we may increase or decrease the purchase and ownership limitations at any time.

How You May Purchase Shares of Common Stock

          In the subscription offering and community offering, you may pay for your shares only by:

(i)	personal check, bank check or money order made payable directly to Kaiser Federal Financial Group, Inc.; or
(ii)	authorizing us to withdraw funds from the types of Kaiser Federal Bank deposit accounts designated on the stock order form.

          Kaiser Federal Bank is not permitted to lend funds to anyone for the purpose of purchasing shares of common stock in the offering.  Additionally, you may not use Kaiser Federal Bank line of credit check or any type of third party check or wire transfer to pay for shares of common stock.  Please do not submit cash.

          You may purchase shares of common stock in the offering by delivering a signed and completed original stock order form, together with full payment payable to Kaiser Federal Financial Group, Inc. or authorization to withdraw funds from one or more of your Kaiser Federal Bank deposit accounts, provided that we receive the stock order form before 12:00 Noon, Pacific Time, on [Expiration Date], which is the end of the offering period. Checks and money orders will be immediately deposited in a

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segregated account with Kaiser Federal Bank or another insured depository institution upon receipt.  We will pay interest calculated at Kaiser Federal Bank’s passbook savings rate from the date funds are received until completion or termination of the conversion.  On your stock order form, you may not authorize direct withdrawal from a Kaiser Federal Bank individual retirement account. If you wish to use funds in an individual retirement account to purchase shares of our common stock, please see “—Using Individual Retirement Account Funds to Purchase Shares” below.  You may not designate a withdrawal from Kaiser Federal Bank accounts with check-writing privileges. Please provide a check instead.

          Withdrawals from certificates of deposit to purchase shares of common stock in the offering may be made without incurring an early withdrawal penalty.  If a withdrawal results in a certificate account with a balance less than the applicable minimum balance requirement, the certificate will be canceled at the time of withdrawal without penalty and the remaining balance will earn interest at the current passbook savings rate subsequent to the withdrawal.  All funds authorized for withdrawal from deposit accounts at Kaiser Federal Bank must be available in the accounts at the time the stock order is received. However, funds will not be withdrawn from an account until the completion of the offering and will earn interest at the applicable deposit account rate until that time.  A hold will be placed on those funds when your stock order is received, making the designated funds unavailable to you.     

          We are not required to accept copies or facsimiles of stock order forms.  By signing the stock order form, you are acknowledging both receipt of this prospectus and that the shares of common stock are not deposits or savings accounts that are federally insured or otherwise guaranteed by Kaiser Federal Bank, Kaiser Federal Financial Group, Inc. or the federal government.

Submitting Your Order

          You may submit your stock order form by mail using the order reply envelope provided, by overnight courier to the indicated address on the stock order form, or by delivery to our Stock Information Center, which is located in our main office at 1359 North Grand Avenue, Covina, California 91724.  Stock order forms may not be delivered to other Kaiser Federal Bank offices.  Once submitted, your order is irrevocable unless the offering is terminated or extended beyond [Extension Date #1] or the number of shares of common stock to be sold is increased to more than 17,192,500 shares or decreased to fewer than 11,050,000 shares. 

Using Individual Retirement Account Funds to Purchase Shares

          You may be able to subscribe for shares of common stock using funds in your individual retirement account.  However, shares of common stock must be held in a self-directed retirement account, such as those offered by a brokerage firm. By regulation, Kaiser Federal Bank’s individual retirement accounts are not self-directed, so they cannot be invested in our common stock. If you wish to use some or all of the funds in your Kaiser Federal Bank individual retirement account, the applicable funds must be transferred to a self-directed account maintained by an independent trustee, such as a brokerage firm. If you do not have such an account, you will need to establish one before placing your stock order. An annual administrative fee may be payable to the independent trustee. Because individual circumstances differ and processing of retirement fund orders takes additional time, we recommend that you contact our Stock Information Center promptly, preferably at least two weeks before the [Expiration Date] offering deadline, for assistance with purchases using your individual retirement account or other retirement account that you may have at Kaiser Federal Bank or elsewhere.  Whether you may use such funds for the purchase of shares in the offering may depend on timing constraints and, possibly, limitations imposed by the institution where the funds are held.

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Delivery of Stock Certificates

          Certificates representing shares of common stock sold in the offering will be mailed by regular mail to the persons entitled thereto at the certificate registration address noted on the stock order form, as soon as practicable following consummation of the offering and receipt of all necessary regulatory approvals.  It is possible that, until certificates for the common stock are delivered, purchasers might not be able to sell the shares of common stock that they ordered, even though the common stock will have begun trading.

You May Not Sell or Transfer Your Subscription Rights

          Office of Thrift Supervision regulations prohibit you from transferring your subscription rights.  If you order shares of common stock in the subscription offering, you will be required to state that you are purchasing the common stock for yourself and that you have no agreement or understanding to sell or transfer your subscription rights.  We intend to take legal action, including reporting persons to federal agencies, against anyone who we believe has sold or transferred his or her subscription rights.  We will not accept your order if we have reason to believe that you have sold or transferred your subscription rights.  On the stock order form, you may not add the names of others for joint stock registration who do not have subscription rights or who qualify only in a lower subscription offering priority than you do.  You may add only those who were eligible to purchase shares of common stock in the subscription offering at your date of eligibility.  In addition, the stock order form requires that you list all deposit accounts, giving all names on each account and the account number at the applicable eligibility date.  Failure to provide this information, or providing incomplete or incorrect information, may result in a loss of part or all of your share allocation, in the event of an oversubscription.

Deadline for Orders of Common Stock

          If you wish to purchase shares of common stock, a properly completed and signed original stock order form, together with full payment for the shares of common stock, must be received (not postmarked) by the Stock Information Center located in our main office at 1359 North Grand Avenue, Covina, California 91724 no later than 12:00 Noon, Pacific Time, on [Expiration Date].

          Once submitted, your order is irrevocable unless the offering is terminated or extended or the number of shares to be issued increases to more than 17,192,500 shares or decreases to less than 11,050,000 shares. We may extend the [Expiration Date] expiration date, without notice to you, until [Extension Date #1]. If the offering is extended beyond [Extension Date #1], or if the offering range is increased or decreased, we will be required to resolicit purchasers before proceeding with the offering. In either of these cases, purchasers will have the right to maintain, change or cancel their orders. If we do not receive a written response from a purchaser to any resolicitation, the purchaser’s order will be cancelled and all funds received will be returned promptly with interest, and deposit account withdrawal authorizations will be cancelled. No extension may last longer than 90 days. All extensions, in the aggregate, may not last beyond [Extension Date #2].

          Although we will make reasonable attempts to provide this prospectus and offering materials to holders of subscription rights, the subscription offering and all subscription rights will expire at 12:00 Noon, Pacific Time, on [Expiration Date], whether or not we have been able to locate each person entitled to subscription rights.

          TO ENSURE THAT EACH PERSON RECEIVES A PROSPECTUS AT LEAST 48 HOURS PRIOR TO THE EXPIRATION DATE OF THE OFFERING IN ACCORDANCE WITH FEDERAL LAW, NO PROSPECTUS WILL BE MAILED ANY LATER THAN FIVE DAYS

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PRIOR TO THE OFFERING EXPIRATION DATE OR HAND-DELIVERED ANY LATER THAN TWO DAYS PRIOR TO THE OFFERING EXPIRATION DATE.

Steps We May Take if We Do Not Receive Orders for the Minimum Number of Shares

          If we do not receive orders for at least 11,050,000 shares of common stock in the subscription, community and/or syndicated community offering, we may take several steps in order to issue the minimum number of shares of common stock in the offering range.  Specifically, we may:

• increase the purchase and ownership limitations; and/or

• seek regulatory approval to extend the offering beyond the [Extension Date #1] expiration date, provided that any such extension will require us to resolicit subscriptions received in the offering.

Alternatively, we may terminate the offering, return funds with interest and cancel deposit account withdrawal authorizations.

Purchases by Officers and Directors

          We expect our directors and executive officers, together with their associates, to purchase 46,600 shares of common stock in the offering.  The purchase price paid by them will be the same $10.00 per share price paid by all other persons who purchase shares of common stock in the offering.  Following the conversion, our directors and executive officers, together with their associates, are expected to own 763,530 shares of common stock, or 3.7% of our total outstanding shares of common stock at the maximum of the offering range, including shares they receive in exchange for shares they currently own in K-Fed Bancorp.

Market for Common Stock

          Publicly held shares of K-Fed Bancorp’s common stock trade on the Nasdaq Global Market under the symbol “KFED.” Upon completion of the conversion, the shares of common stock of Kaiser Federal Financial Group, Inc. will replace K-Fed Bancorp’s existing shares. We expect that Kaiser Federal Financial Group, Inc.’s shares of common stock will trade on the Nasdaq Global Market under the trading symbol “KFFG.” In order to list our common stock on the Nasdaq Global Market, we are required to have at least three broker-dealers who will make a market in our common stock.  K-Fed Bancorp currently has 23 registered market makers. There can be no assurance that persons purchasing shares of common stock in the offering will be able to sell their shares at or above the $10.00 price per share.

Our Dividend Policy

          As of June 30, 2007, K-Fed Bancorp currently paid a quarterly cash dividend of $0.10 per share, which equals $0.40 per share on an annualized basis.  After the conversion, we intend to continue to pay cash dividends on a quarterly basis.  After adjustment for the exchange ratio, we expect the annual dividends to equal $0.32, $0.27, $0.24 and $0.21 per share at the minimum, midpoint, maximum and adjusted maximum of the offering range, respectively, which represents an annual dividend yield of 3.2%, 2.7%, 2.4% and 2.1%, at the minimum, midpoint, maximum and adjusted maximum of the offering range, respectively, based upon a price of $10.00 per share.  The amount of dividends that we intend to pay after the conversion will preserve the dividend amount that K-Fed Bancorp stockholders currently receive, as adjusted to reflect the exchange ratio. However, the dividend rate and the continued payment of dividends will depend on a number of factors, including our capital requirements, our financial condition and results

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of operations, tax considerations, statutory and regulatory limitations, and general economic conditions. No assurance can be given that we will continue to pay dividends or that they will not be reduced or eliminated in the future.

          See “Selected Consolidated Financial and Other Data of K-Fed Bancorp and Subsidiary” and “Market For The Common Stock” for information regarding our historical dividend payments.

Tax Consequences

          As a general matter, the conversion will not be a taxable transaction for federal or state income tax purposes to K-Fed Mutual Holding Company, K-Fed Bancorp, Kaiser Federal Bank, Kaiser Federal Financial Group, Inc., persons eligible to subscribe in the subscription offering, or existing stockholders of K-Fed Bancorp.  Existing stockholders of K-Fed Bancorp who receive cash in lieu of fractional share interests in shares of Kaiser Federal Financial Group, Inc. common stock will recognize a gain or loss equal to the difference between the cash received and the tax basis of the fractional share.

Conditions to Completion of the Conversion

          We cannot complete the conversion and offering unless:

• The plan of conversion and reorganization is approved by at least a majority of votes eligible to be cast by members of K-Fed Mutual Holding Company (depositors of Kaiser Federal Bank as of ___________, 2007);

• The plan of conversion and reorganization is approved by a vote of at least two-thirds of the outstanding shares of common stock of K-Fed Bancorp, including shares held by K-Fed Mutual Holding Company (because K-Fed Mutual Holding Company owns more than 50% of the outstanding shares of K-Fed Bancorp common stock, we expect that K-Fed Mutual Holding Company will control the outcome of this vote);

• The plan of conversion and reorganization is approved by vote of at least a majority of the outstanding shares of common stock of K-Fed Bancorp, excluding those shares held by K-Fed Mutual Holding Company;

• We sell at least the minimum number of shares of common stock offered; and

• We receive the final approval of the Office of Thrift Supervision to complete the conversion and offering, however, such approval does not constitute a recommendation or endorsement of the plan of conversion and reorganization by that agency.

          K-Fed Mutual Holding Company intends to vote its ownership interest in favor of the plan of conversion and reorganization.  At June 30, 2007, K-Fed Mutual Holding Company owned 63.5% of the outstanding shares of common stock of K-Fed Bancorp. The directors and executive officers of K-Fed Bancorp and their affiliates beneficially owned 452,026 shares of K-Fed Bancorp, or 3.2% of the outstanding shares of common stock as of June 30, 2007. They have indicated their intention to vote those shares in favor of the plan of conversion and reorganization.

Decrease in Stockholders’ Rights for Existing Stockholders of K-Fed Bancorp

          As a result of the conversion, existing stockholders of K-Fed Bancorp will become stockholders of Kaiser Federal Financial Group, Inc.  Some rights of stockholders of Kaiser Federal Financial Group,

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Inc. will be reduced compared to the rights stockholders currently have in K-Fed Bancorp.  The reduction in stockholder rights results from differences between the federal and Maryland charters and bylaws, and from distinctions between federal and Maryland law.  Many of the differences in stockholder rights under the articles of incorporation and bylaws of Kaiser Federal Financial Group, Inc. are not mandated by Maryland law but have been chosen by management as being in the best interests of Kaiser Federal Financial Group, Inc. and all of its stockholders.  The differences in stockholder rights in the articles of incorporation and bylaws of Kaiser Federal Financial Group, Inc. include the following:  (i) approval by at least 80% of outstanding shares required to remove a director for cause; (ii) greater lead time required for stockholders to submit proposals for new business or nominate directors; (iii) approval by at least 80% of outstanding shares required to amend the articles of incorporation and bylaws; (iv) a residency requirement for directors; and (v) approval by at least 80% of outstanding shares required to approve business combinations involving an interested stockholder. See “Comparison of Stockholders’ Rights For Existing Stockholders of K-Fed Bancorp” for a discussion of these differences.

How You Can Obtain Additional Information – Stock Information Center

          Our banking office personnel may not, by law, assist with investment related questions about the offering.  If you have any questions regarding the conversion or offering, please call ___________ or visit our Stock Information Center, located in our main office at 1359 North Grand Avenue, Covina, California 91724.  The Stock Information Center is open Monday 12:00 Noon until 4:00 p.m., Tuesday-Thursday 8:30 a.m. until 4:00 p.m. and Friday 8:30 a.m. until 12:00 Noon, Pacific Time.  The Stock Information Center will be closed weekends and bank holidays.  Other Kaiser Federal Bank offices will not accept stock order forms or proxy cards.

Important Risks in Owning Kaiser Federal Financial Group, Inc.’s Common Stock

          Before you decide to purchase stock, you should read the “Risk Factors” section on pages 20 to 28 of this prospectus.

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RISK FACTORS

          You should consider carefully the following risk factors in evaluating an investment in the shares of common stock.

Risks Related to Our Business

The Current Interest Rate Environment Has Had And Can Have An Adverse Effect On Our Net Interest Income.

          Net income is the amount by which net interest income and non-interest income exceeds non-interest expenses and the provision for loan losses. Net interest income makes up a majority of our income and is based on the difference between:

• the interest income we earn on our interest-earning assets, such as loans and securities; and

• the interest we pay on our interest-bearing liabilities, such as deposits and borrowings.

          A substantial percentage of our interest-earning assets, such as residential mortgage loans, have longer maturities than our interest-bearing liabilities, which consist primarily of deposits and borrowings.  As a result, our net interest income is adversely affected if the average cost of our interest-bearing liabilities increases more rapidly than the average yield on our interest-earning assets.

          Long-term interest rates are generally higher than short-term interest rates.  In the past few years, however, the difference between long-term rates and short-term rates has narrowed from historical levels, placing pressure on our net interest income.  Our average net interest rate spread (the difference between the weighted-average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities) decreased to 1.87% for the year ended June 30, 2007 from 2.17% and 2.48% for the years ended June 30, 2006 and 2005, respectively, and our net interest margin (net interest income as a percent of average interest-earning assets) decreased to 2.43% for the year ended June 30, 2007 from 2.66% and 2.93% for the years ended June 30, 2006 and 2005, respectively.  We expect that our net interest rate spread and net interest margin will continue to be compressed in the current interest rate environment, which will have a negative effect on our profitability.  See “Selected Consolidated Financial and Other Data of K-Fed Bancorp and Subsidiary” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Management of Market Risk.”

We Purchase A Large Percentage Of Our Real Estate Mortgage Loans From Third Parties And Our Net Income Would Be Negatively Affected If We Are Unable To Continue To Purchase These Loans.

          We have purchased without recourse a substantial number of our one- to four-family real estate mortgage loans from large third party originators since 2001.  As of June 30, 2007, $391.9 million or 83.5% of our $469.5 million one- to four-family real estate mortgage loan portfolio consisted of purchased loans.  All of our real estate loans are secured by properties located in the State of California.  We purchase these loans, with servicing retained by the seller, in order to increase our net interest income. By emphasizing loan purchases, we avoid the costs of additional origination staff and infrastructure and believe we increase the overall profitability from these loans.  We review each loan to ensure that it meets our own underwriting standards before making any commitment to purchase the loan.  Should we be unable to purchase loans from these third party originators in the future due to pricing considerations, loan quality or acceptable sellers, among other factors, our ability to originate residential mortgage loans may be disrupted unless we are able to find suitable replacements or have the capability to produce a

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greater volume of mortgage originations through our lending staff. A disruption to our residential mortgage lending program may negatively impact our net income.

Our Loan Portfolio Possesses Increased Risk Due To Our Level Of Multi-Family Real Estate, Commercial Real Estate And Consumer Loans Which Could Increase Our Level Of Provision For Loan Losses.

          Our outstanding multi-family real estate, commercial real estate and consumer loans accounted for approximately 33.1% of our total loan portfolio as of June 30, 2007.  Generally, management considers these types of loans to involve a higher degree of risk compared to permanent first mortgage loans on one- to four-family, owner occupied residential properties.  These loans have higher risks than permanent loans secured by residential real estate for the following reasons:

• Multi-Family Real Estate Loans.  These loans are underwritten on the income producing potential of the property, financial strength of the borrower and any guarantors.  Repayment is dependent on income being generated in amounts sufficient to cover operating expenses and debt service.

• Commercial Real Estate Loans.  These loans are underwritten on the income producing potential of the property or the successful operation of the borrower’s business, financial strength of the borrower and any guarantors which can be significantly affected by conditions in the real estate markets or in the economy.  Repayment is dependent on income being generated in amounts sufficient to cover operating expenses and debt service.

• Consumer Loans.  Consumer loans (such as automobile loans) are collateralized, if at all, by assets that may not provide adequate source of repayment of the loan due to depreciation, damage or loss.  As a result, consumer loan collections are dependant on the borrower’s continuing financial stability and thus, more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy.

          Management plans to increase emphasis on higher yielding products such as multi-family and commercial real estate loans, while maintaining a moderate growth of one- to four-family residential real estate loans.  Many of our commercial and multi-family real estate loans are not fully amortizing and contain large balloon payments upon maturity.  These balloon payments may require the borrower to either sell or refinance the underlying property in order to make the balloon payment.  Further, commercial and multi-family real estate loans generally have relatively large balances to single borrowers or related groups of borrowers.  Accordingly, if we make any errors in judgment in the collectibility of our commercial and multi-family real estate loans, any resulting charge-offs may be larger on a per loan basis than those incurred with our residential or consumer loan portfolios.  As a result of the above factors, management may determine it necessary to increase the level of provision for loan losses.  Increased provisions for loan losses could negatively affect our results of operation.

Future Changes in Interest Rates Could Reduce Our Net Income.

          To be profitable, we must earn more money in interest received on loans and investments than what we pay in interest to depositors and lenders.  The Federal Reserve Board increased the targeted Federal Funds Rate four times during calendar year 2006, from 4.25% to 5.25%, with all increases occurring during the first six months of 2006. On September 18, 2007, the Federal Reserve Board decreased its target for the Federal Funds Rate from 5.25% to 4.75%.  The targeted Federal Funds Rate has a direct correlation to general rates of interest, including our interest-bearing deposits.  Kaiser Federal Bank’s mix of asset and liabilities are considered to be sensitive to interest rate changes.  Accordingly, if

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short-term interest rates continue to rise, net interest income could be reduced because interest paid on interest-bearing liabilities, including deposits and borrowings, increases more quickly than interest received on interest-earning assets, including loans and mortgage-backed and related securities.  In addition, rising interest rates may negatively affect income because higher rates may reduce the demand for loans and the value of mortgage-related and investment securities. 

          In a declining rate environment, we may be susceptible to the prepayment or refinancing of high rate loans, which could reduce net interest income.  Under these circumstances, we are subject to reinvestment risk as we may have to redeploy such loan or securities proceeds into lower-yielding assets, which might also negatively impact our income.

          We principally manage interest rate risk by managing our volume and mix of our interest earning assets and funding our interest bearing liabilities.  In a changing interest rate environment, we may not be able to manage this risk effectively.  If we are unable to manage interest rate risk effectively, our business, financial condition and results of operations could be materially harmed.  Changes in the level of interest rates also may negatively affect our ability to originate real estate loans, the value of our assets and our ability to realize gains from the sale of our assets, all of which ultimately affect our earnings.  For further discussion of how changes in interest rates could impact us, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Management of Market Risk.”

Our Loan Portfolio Possesses Increased Risk Due To Its Rapid Expansion, Unseasoned Nature And Amount Of Nonconforming Loans.

          From June 30, 2003 to June 30, 2007, our loan portfolio increased by $309.5 million or 79.4%.  As a result of this rapid expansion, a significant portion of our portfolio is unseasoned and may not have had sufficient time to perform to properly indicate the potential performance. Our unseasoned adjustable rate loans have not, therefore, been subject to an interest rate environment that causes them to adjust to the maximum level and may involve risks resulting from potentially increasing payment obligations by the borrower as a result of the repricing.  A significant portion of our one- to four-family residential loans are non-conforming to secondary market requirements, due mainly to the large loan size, loan terms or the credit score of the borrower and, therefore, are not saleable to Freddie Mac or Fannie Mae.  At June 30, 2007, 40.9% of our one- to four-family loans consisted of loans that were considered nonconforming due to loan size.  In addition, $32.9 million of our one- to four-family residential loans were to borrowers with a credit score less than or equal to 660 which may be an indication of a credit-impaired borrower.

          As of June 30, 2007, we held in our portfolio $100.4 million in one-to four-family interest-only mortgage loans.  This amount represents 14.3% of our gross loan portfolio, with $55.2 million of that amount comprised of adjustable rate loans.  The interest rate on these loans are initially fixed for three, five or seven year terms and then adjust in accordance with the terms of the loan to require payment of both principal and interest in order to amortize the loan for the remainder of the term. In 2005, we began underwriting interest-only loans based on the fully amortized payment and for an adjustable rate loan by qualifying the borrower based upon the rate that would apply upon the first interest rate adjustment rather than upon origination. We have also purchased loans to borrowers who provide limited or no documentation of assets or income, known as stated income loans.  At June 30, 2007, we had $118.8 million of stated income loans consisting of $79.4 million in fixed rate stated income loans and $39.4 million in adjustable rate stated income loans.  Included in our stated income loans at June 30, 2007 were $42.4 million of interest only loans. 

          These types of one- to four-family residential loans are generally considered to have an increased risk of delinquency and foreclosure than conforming loans and may result in higher levels of provisions

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for loan losses.  For example, if the interest rate adjustment results in the borrower being unable to make higher payments of both interest and principal or to refinance the loan, we would be required to initiate collection efforts including foreclosure in order to protect our investment.  Although we have not experienced such increased delinquencies or foreclosures in the current interest rate environment, there can be no assurance that our residential loan portfolio would not be adversely affected in the event of a downturn in regional or national economic conditions.  In addition, there can be no assurance, that we will recover funds in an amount equal to any remaining loan balance. Consequently, we could sustain loan losses and potentially incur a higher provision for loan loss expense.

If The Allowance For Loan Losses Is Not Sufficient To Cover Actual Losses, Net Income May Be Negatively Affected.

          Credit risk is inherent in the lending business, and failure to adequately assess such credit risk could have a material adverse affect on our financial condition and results of operations. Management makes various assumptions and judgments about the collectibility of the loan portfolio, including the creditworthiness of the borrowers and the value of the real estate and other assets serving as collateral for the repayment of many of the loans. In determining the amount of the allowance for loans losses, management reviews the loan portfolio and Kaiser Federal Bank’s historical loss and delinquency experience, as well as overall economic conditions. If management’s assumptions are incorrect, the allowance for loan losses may be insufficient to cover probable losses in the loan portfolio, resulting in additions to the allowance.  The allowance for loan losses is also periodically reviewed by the Office of Thrift Supervision, who may disagree with the allowance and require us to increase or decrease such amount.  Additions to the allowance for loans losses would be made through increased provisions for loan losses and would negatively affect our results of operations. At June 30, 2007, our allowance for loan losses was $2.8 million, or 0.40% of total loans and 245.84% of non-performing loans.

We Depend On Our Management Team To Implement Our Business Strategy And Execute Successful Operations And We Could Be Harmed By The Loss Of Their Services.

          We are dependent upon the services of our senior management team.  Our strategy and operations are directed by the senior management team. Upon completion of the conversion and offering, our president and chief executive officer and our three other executive officers will enter into employment agreements with Kaiser Federal Bank. Any loss of the services of the president and chief executive officer or other members of the management team could impact our ability to implement our business strategy, and have a material adverse effect on our results of operations and our ability to compete in our markets. See “Management– Benefits to be Considered Following Completion of the Conversion—Employment Agreements.”

Strong Competition In Our Primary Market Area May Reduce Our Ability To Attract And Retain Deposits And Also May Increase Our Cost of Funds.

          We operate in a very competitive market for the attraction of deposits, the primary source of our funding.  Historically, our most direct competition for deposits has come from credit unions, community banks, large commercial banks and thrift institutions within our primary market areas.  In recent years competition has also come from institutions that largely deliver their services over the internet.  Such competitors have the competitive advantage of lower infrastructure costs.  Particularly in times of extremely low or extremely high interest rates, we have faced significant competition for investors’ funds from short-term money market securities and other corporate and government securities.  During periods of regularly increasing interest rates, competition for interest bearing deposits increases as customers, particularly certificate of deposit customers, tend to move their accounts between competing businesses to obtain the highest rates in the market. As a result, Kaiser Federal Bank incurs a higher cost of funds in an

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effort to attract and retain customer deposits.  We strive to grow our lower cost deposits, such as non-interest bearing checking accounts, in order to reduce our cost of funds. 

Strong Competition In Our Primary Market Area May Reduce Our Ability To Obtain Loans And Also Decrease Our Yield On Loans.

          We are located in a competitive market that affects our ability to obtain loans through origination or purchase as well as originating them at rates that provide an attractive yield.  Competition for loans comes principally from mortgage bankers, commercial banks, other thrift institutions, nationally based homebuilders and credit unions.  Internet based lenders have also become a greater competitive factor in recent years.  Such competition for the origination and purchase of loans may limit future growth and earnings prospects.

If Economic Conditions Deteriorate In Our Primary Market Of Southern California, Our Results Of Operations And Financial Condition Could Be Adversely Impacted As Borrowers’ Ability To Repay Loans Declines And The Value Of The Collateral Securing Loans Decreases.

          Our financial results may be adversely affected by changes in prevailing economic conditions, including decreases in real estate values, changes in interest rates which may cause a decrease in interest rate spreads, adverse employment conditions, the monetary and fiscal policies of the federal and California state governments and other significant external events.  As of June 30, 2007, 66.9% or $469.5 million of our loan portfolio consisted of loans secured by one- to four-family residences.  All our loans are secured by real estate located in California.  Decreases in California real estate values could adversely affect the value of property used as collateral.  In the event that we are required to foreclose on a property securing a mortgage loan or pursue other remedies in order to protect our investment, there can be no assurance that we will recover funds in an amount equal to any remaining loan balance as a result of prevailing general economic or local conditions, real estate values and other factors associated with the ownership of real property.  As a result, the market value of the real estate or other collateral underlying the loans may not, at any given time, be sufficient to satisfy the outstanding principal amount of the loans. Consequently, we would sustain loan losses and potentially incur a higher provision for loan loss expense. Adverse changes in the economy may also have a negative effect on the ability of borrowers to make timely repayments of their loans, which would have an adverse impact on earnings.

We Operate In A Highly Regulated Environment And May Be Adversely Affected By Changes In Laws And Regulations.

          Kaiser Federal Bank is subject to extensive regulation, supervision and examination by the Office of Thrift Supervision, its chartering authority, and by the Federal Deposit Insurance Corporation, which insures Kaiser Federal Bank’s deposits.  As a thrift holding company, we are subject to regulation and supervision by the Office of Thrift Supervision.  Such regulation and supervision govern the activities in which financial institutions and their holding companies may engage and are intended primarily for the protection of the federal deposit insurance fund and depositors.  These regulatory authorities have extensive discretion in connection with their supervisory and enforcement activities, including the imposition of restrictions on the operations of financial institutions, the classification of assets by financial institutions and the adequacy of financial institutions’ allowance for loan losses.  Any change in such regulation and oversight, whether in the form of regulatory policy, regulations, or legislation, could have a material impact on Kaiser Federal Bank and K-Fed Bancorp or its successor.

          Kaiser Federal Bank’s operations are also subject to extensive regulation by other federal, state and local governmental authorities, and are subject to various laws and judicial and administrative decisions that impose requirements and restrictions on operations.  These laws, rules and regulations are

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frequently changed by legislative and regulatory authorities.  There can be no assurance that changes to existing laws, rules and regulations, or any other new laws, rules or regulations, will not be adopted in the future, which could make compliance more difficult or expensive or otherwise adversely affect the business, financial condition or prospects. See “Supervision and Regulation.”

Risks Related to the Conversion and Offering

The Future Price Of The Shares Of Common Stock May Be Less Than The $10.00 Purchase Price Per Share In The Offering.

          We cannot assure you that if you purchase shares of common stock in the offering you will be able to sell them later at or above the $10.00 purchase price in the offering.  In several cases, shares of common stock issued by newly converted savings institutions or mutual holding companies have traded below the price at which such shares were sold in the offering conducted by those companies.  The aggregate purchase price of the shares of common stock sold in the offering will be based on an independent appraisal. The independent appraisal is not intended, and should not be construed, as a recommendation of any kind as to the advisability of purchasing shares of common stock. The independent appraisal is based on certain estimates, assumptions and projections, all of which are subject to change from time to time.  After our shares begin trading, the trading price of our common stock will be determined by the marketplace, and may be influenced by many factors, including prevailing interest rates, the overall performance of the economy, investor perceptions of Kaiser Federal Financial Group, Inc. and the outlook for the financial institutions industry in general.

Our Failure To Effectively Utilize The Net Proceeds Of The Offering Could Reduce Our Return On Stockholders’ Equity And Our Return On Assets And Negatively Impact The Value Of Our Common Stock.

          Kaiser Federal Financial Group, Inc. intends to contribute between $53.1 million and $71.6 million of the net proceeds of the offering (or $82.2 million at the adjusted maximum of the offering range) to Kaiser Federal Bank.  Kaiser Federal Financial Group, Inc. may use the remaining net proceeds to invest in short-term investments, repurchase shares of common stock, pay dividends or for other general corporate purposes.  Kaiser Federal Financial Group, Inc. also expects to use a portion of the net proceeds it retains to fund a loan for the purchase of shares of common stock in the offering by the employee stock ownership plan.  Kaiser Federal Bank may use the net proceeds it receives to fund new loans, purchase investment securities, acquire financial institutions or financial services companies, build new branches or acquire branches or for other general corporate purposes.  With the exception of the loan to the employee stock ownership plan, we have not allocated specific amounts of the net proceeds for any of these purposes, and we will have significant flexibility in determining the amount of the net proceeds we apply to different uses and the timing of such applications. We have not established a timetable for the effective deployment of the net proceeds, and we cannot predict how long we will require to effectively deploy the net proceeds.

          Additionally, net income divided by average stockholders’ equity, known as “return on equity,” and net income divided by average total assets, known as “return on assets” are ratios many investors use to compare the performance of a financial institution to its peers. Our return on equity ratio for the years ended June 30, 2007 and June 30, 2006 was 5.09% and 5.33%, respectively, compared to an average of 5.48% for all publicly traded savings institutions as of August 3, 2007.  Our return on assets ratio for the years ended June 30, 2007 and June 30, 2006 was 0.61% and 0.68%, respectively, compared to an average of 0.56% for all publicly traded savings institutions as of August 3, 2007.  Our return on equity has decreased from 6.05% for the fiscal year ended June 30, 2004 to 5.09% for the year ended June 30, 2006. Our return on assets, however, has increased from 0.58% for the year ended June 30, 2004 to 0.61% for

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the year ended June 30, 2007.  Until we can increase our net interest income and non-interest income and effectively deploy the additional capital raised in the offering, we expect our return on equity to be below the industry average, which may negatively affect the value of our common stock. 

The Ownership Interest Of Management And Employees Could Enable Insiders To Prevent A Merger That May Provide Stockholders A Premium For Their Shares.

          The shares of common stock that our directors and officers intend to purchase in the offering, when combined with the shares that they will receive in the exchange for their existing shares of K-Fed Bancorp common stock is expected to result in management and the board controlling approximately 3.7% of our outstanding shares of common stock at the maximum of the offering range.  As of June 30, 2007, directors and officers owned 3.2% of the outstanding shares of K-Fed Bancorp common stock.  These shares, when combined with the 6.0% of the shares in the offering expected to be purchased by our employee stock ownership plan, will result in management and employees controlling a large percentage of our common stock.  If these individuals were to act together, they could have significant influence over the outcome of any stockholder vote.  This voting power may discourage a potential sale of Kaiser Federal Financial Group, Inc. that our stockholders may desire.  In addition, the total voting power of management and employees could, in the future, exceed 15.8% of our outstanding shares of common stock if a stock-based incentive plan is adopted in the future.  Such voting power could enable management and employees as a group to possibly defeat a stockholder matter that requires an 80% vote, including removal of directors, and certain amendments to our articles of incorporation and bylaws.

There May Be a Limited Market For Our Common Stock, Which May Lower Our Stock Price And Make It More Difficult For Investors To Sell Their Shares Of Our Common Stock.

          We currently trade on the Nasdaq Global Market and plan to continue to do so following the conversion. However, we cannot guarantee that the shares of common stock will be regularly traded. Even if a liquid market develops for our common stock, there is no assurance that it can be maintained.  An active, orderly trading market depends on the presence and participation of willing buyers and sellers which neither Kaiser Federal Financial Group, Inc. nor the market makers in the common stock can control.  This may affect your ability to sell your shares on short notice, and the sale of a large number of shares at one time could temporarily depress the market price of our common stock.  For these reasons, our common stock should not be viewed as a short-term investment. 

          Additionally, the aggregate purchase price of common stock sold in the offering is based on an independent appraisal.  After our shares begin trading, the marketplace will determine the price per share, which may be influenced by various factors, such as prevailing interest rates, investor perceptions of Kaiser Federal Financial Group, Inc., economic conditions and the outlook for financial institutions.  Price fluctuations may be unrelated to the operating performance of particular companies.  In several cases, due to market volatility, shares of common stock of newly converted savings institutions traded below the price at which the shares were sold in the companies’ initial public offerings.  We cannot assure you that, after the conversion, the trading price of our common stock will be at or above $10.00.

The Implementation Of The Stock-Based Incentive Plan May Dilute Your Ownership Interest.

          We intend to adopt a new stock-based incentive plan following the conversion and offering, subject to receipt of stockholder approval. This stock-based incentive plan may be funded either through open market purchases or from the issuance of authorized but unissued shares of common stock of Kaiser Federal Financial Group, Inc.  While our intention is to fund this plan through open market purchases, stockholders would experience a reduction in ownership interest totaling 7.7% at the maximum of the offering range in the event newly issued shares of our common stock are used to fund stock options or

26

shares of restricted common stock under the plan in an amount equal to up to 3.7% and 9.3%, respectively, of the shares sold in the offering.  In the event we adopt the plan within one year following the conversion, shares of restricted stock to be issued and options to be granted under the stock-based incentive plan will be limited in order to ensure that the aggregate number of shares of restricted common stock and option awards subject to the new stock-based incentive plan and the 2004 Recognition and Retention Plan and the 2004 Stock Option Plan do not exceed 4.0% and 10.0%, respectively, of the total shares outstanding (including shares issued by Kaiser Federal Financial Group, Inc. in exchange for existing shares of K-Fed Bancorp) following completion of the conversion and the offering.

Additional Expenses Following The Conversion From The Compensation And Benefit Expenses Associated With The Implementation Of The New Stock-Based Incentive Plan Will Adversely Affect Our Profitability.

          We intend to adopt a new stock-based incentive plan after the offering under which plan participants would be awarded restricted shares of our common stock (at no cost to them) or options to purchase shares of our common stock.  If the stock-based incentive plan is implemented and approved by stockholders within one year of the completion of the conversion and offering, the number of restricted shares of common stock or options granted under any initial stock-based incentive plan may not exceed 3.7% and 9.3%, respectively, of the shares sold in the conversion and offering.  If we award restricted shares of common stock or grant options in excess of these amounts under a stock-based incentive plan adopted more than one year after the completion of the conversion and offering, our costs would increase further. 

          Following the conversion and offering, our non-interest expenses are likely to increase as we will recognize additional annual employee compensation and benefit expenses stemming from the shares granted to employees and executives under our stock-based incentive plan.  We cannot predict the actual amount of these new stock-related compensation and benefit expenses because applicable accounting practices require that expenses be based on the fair market value of the shares of common stock at specific points in the future; however, we expect them to be material.  In addition, we would recognize expense for our employee stock ownership plan when shares are committed to be released to participants’ accounts (i.e., as the loan used to acquire these shares is repaid) and would recognize expense for restricted stock awards and stock options over the vesting period of awards made to recipients.  The additional expense in the first year following the conversion and offering has been estimated to be approximately $448,500 ($264,000 after tax) at the maximum of the offering range as set forth in the pro forma financial information under “Pro Forma Data,” assuming the $10.00 per share purchase price as fair market value.  Actual expenses, however, may be higher or lower, depending on the price of our common stock.  For further discussion of our proposed stock-based plans, see “Management—Benefit Plans.”

Various Factors May Make Takeover Attempts More Difficult To Achieve.

          Our Board of Directors has no current intention to sell control of Kaiser Federal Financial Group, Inc. Provisions of our articles of incorporation and bylaws, federal regulations, Maryland law and various other factors may make it more difficult for companies or persons to acquire control of Kaiser Federal Financial Group, Inc. without the consent of our Board of Directors.  You may want a takeover attempt to succeed because, for example, a potential acquiror could offer a premium over the then prevailing price of our common stock.  The factors that may discourage takeover attempts or make them more difficult include:

• Office of Thrift Supervision regulations.  Office of Thrift Supervision regulations prohibit, for three years following the completion of a conversion, the direct or indirect

27

	acquisition of more than 10% of any class of equity security of a converted savings institution or its holding company without the prior approval of the Office of Thrift Supervision.
•	Articles of incorporation and statutory provisions.  Provisions of the articles of incorporation and bylaws of Kaiser Federal Financial Group, Inc. and Maryland law may make it more difficult and expensive to pursue a takeover attempt which management opposes, even if the takeover is favored by a majority of our stockholders.  These provisions also would make it more difficult to remove our current Board of Directors or management, or to elect new directors.  Specifically, our articles of incorporation provide that certain mergers or acquisitions must be approved by stockholders owning at least 80% of our shares of common stock, unless the transaction has been approved by a majority of the disinterested directors or certain fair price and procedure requirements have been satisfied.  Additional provisions include limitations on voting rights of beneficial owners of more than 10% of our common stock, the election of directors to staggered terms of three years and not permitting cumulative voting in the election of directors.  Our bylaws also contain provisions regarding the timing and content of stockholder proposals and nominations and qualification for service on the Board of Directors.
•	Issuance of stock options and restricted stock.  We also intend to issue stock options and shares of restricted stock to key employees and directors that will require payments to them in connection with a change in control of Kaiser Federal Financial Group, Inc.  These payments may have the effect of increasing the costs of acquiring Kaiser Federal Financial Group, Inc., thereby discouraging future takeover attempts.

The Rights Of Existing Stockholders Of K-Fed Bancorp Will Be Reduced Under Kaiser Federal Financial Group, Inc.’s Articles Of Incorporation And Bylaws.

          As a result of the conversion, existing stockholders of K-Fed Bancorp will become stockholders of Kaiser Federal Financial Group, Inc.  Some rights of stockholders of Kaiser Federal Financial Group, Inc. will be reduced compared to the rights stockholders currently have in K-Fed Bancorp.  Many of the differences in stockholder rights under our articles of incorporation and bylaws, while not mandated by Maryland law, are permitted and have been chosen by management as being in the best interests of Kaiser Federal Financial Group, Inc. and all of our stockholders.

          For example, current stockholders must submit nominations for election of directors at an annual meeting of stockholders and any new business to be taken up at such a meeting by filing the proposal in writing with K-Fed Bancorp at least five days before the date of any such meeting.  However, Kaiser Federal Financial Group, Inc.’s bylaws generally provide that any stockholder desiring to make a nomination for the election of directors or a proposal for new business at an annual meeting of stockholders must submit written notice to Kaiser Federal Financial Group, Inc. at least 90 days prior to the anniversary date of the mailing of proxy materials in connection with the immediately preceding annual meeting of stockholders.   Similarly, under the current federal charter, special meetings of stockholders may be called by the holders of not less than one-tenth of the outstanding capital stock entitled to vote at the meeting.  However, Kaiser Federal Financial Group, Inc.’s bylaws provide that special meetings of the stockholders may be called by the president or, by a majority of the whole board on the written request of stockholders entitled to cast at least a majority of all votes. See “Comparison of Stockholders’ Rights for Existing Stockholders of K-Fed Bancorp” for a discussion of these differences.

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SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
OF
K-FED BANCORP AND SUBSIDIARY

          The summary financial information presented below is derived in part from the consolidated financial statements of K-Fed Bancorp.  The following is only a summary and you should read it in conjunction with the consolidated financial statements and notes beginning on page F-1.  The information at June 30, 2007 and 2006, and for the years ended June 30, 2007, 2006 and 2005 is derived in part from the audited consolidated financial statements of K-Fed Bancorp that appear in this prospectus.  The information at June 30, 2005, 2004 and 2003, and for the years ended June 30, 2004 and 2003 is derived in part from audited consolidated financial statements that do not appear in this prospectus. 

	At June 30,
	2007		2006		2005			2004		2003
	(Dollars in thousands, except per share amounts)
Selected Financial Condition Data:
Total assets	$	799,625	$	738,899	$	639,882		$	584,422	$	433,753
Total cash and cash equivalents		26,732		25,579		17,315			12,158		16,190
Loans receivable, net		699,143		634,093		537,567			496,206		389,640
Securities available-for-sale		13,579		11,289		18,848			21,003		—
Securities held-to-maturity		21,096		24,738		30,834			41,361		14,247
Interest bearing deposits in other financial institutions		2,970		9,010		9,010			2,970		6,437
Federal Home Loan Bank stock		9,870		8,746		4,027			3,290		2,602
Total deposits		494,128		463,454		475,792	1		422,953		346,239
Total borrowings		210,016		179,948		70,777			70,000		50,000
Total stockholders’ equity		92,317		92,657		90,760			89,116		35,395
Selected Operations Data:
Total interest income	$	41,166	$	35,821	$	28,168		$	22,037	$	20,444
Total interest expense		23,140		17,464		10,800			9,622		8,365
Net interest income		18,026		18,357		17,368			12,415		12,079
Provision for loan losses		529		652		406			483		1,124
Net interest income after provision for loan losses		17,497		17,705		16,962			11,932		10,955
Total noninterest expense		14,518		13,476		12,041			10,000		9,992
Income before income tax expense		7,238		7,655		7,977			5,161		4,149
Income tax expense		2,534		2,726		2,980			1,993		1,710
Net income	$	4,704	$	4,929	$	4,997		$	3,168	$	2,439
Basic earnings per share	$	0.35	$	0.36	$	0.36		$	0.06	$	n/m
Diluted earnings per share	$	0.34	$	0.36	$	0.36		$	0.06	$	n/m
Dividends per share	$	0.39	$	0.28	$	0.16		$	—	$	—

¹ In September 2004, we acquired $60 million in deposits from another financial institution in connection with a branch acquisition.

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	At or for the Year Ended June 30,
	2007			2006			2005			2004			2003
Selected Operating Ratios:
Performance Ratios:
Return on assets (ratio of net income to average total assets)		0.61	%		0.68	%		0.82	%		0.58	%		0.68	%
Return on equity (ratio of net income to average total equity)		5.09	%		5.33	%		5.49	%		6.05	%		7.13	%
Dividend payout ratio (1)		112.69	%		78.62	%		44.80	%		n/a			n/a
Ratio of noninterest expense to average total assets		1.89	%		1.87	%		1.97	%		1.82	%		2.77	%
Efficiency ratio (2)		65.15	%		61.86	%		58.96	%		63.92	%		65.46	%
Ratio of average interest-earning assets to average interest-bearing liabilities		117.84	%		119.38	%		124.49	%		117.32	%		118.57	%
Interest Rate Spread Information:
Average interest rate spread		1.87	%		2.17	%		2.48	%		2.03	%		2.98	%
Interest rate spread at end of period		1.84	%		2.18	%		2.33	%		2.31	%		2.84	%
Net interest margin (3)		2.43	%		2.66	%		2.93	%		2.34	%		3.42	%
Asset Quality Ratios:
Non-performing assets to total assets		0.18	%		0.02	%		0.13	%		0.02	%		0.01	%
Allowance for loan losses to non-performing loans(4)		245.84	%		4062.69	%		305.97	%		2839.02	%		8773.08	%
Allowance for loan losses to total loans (4) (5)		0.40	%		0.43	%		0.45	%		0.47	%		0.58	%
Net charge-offs to average outstanding loans		0.07	%		0.06	%		0.06	%		0.11	%		0.19	%
Non-performing loans to total loans		0.16	%		0.01	%		0.15	%		0.02	%		0.01	%
Capital Ratios:
Equity to total assets at end of period		11.55	%		12.54	%		14.18	%		15.25	%		8.16	%
Average equity to average assets		12.00	%		12.84	%		14.85	%		9.56	%		9.47	%
Tier 1 leverage		8.32	%		9.58	%		10.17	%		11.05	%		8.16	%
Tier 1 risk-based		12.76	%		15.42	%		16.12	%		17.95	%		14.20	%
Total risk-based		13.30	%		16.03	%		16.74	%		18.63	%		15.11	%
Other Data:
Number of branches		9			7			5			4			3
Number of ATMs		54			52			30			28			13
Number of loans		9,442			8,942			8,847			9,936			11,020
Number of deposit accounts		66,330			64,995			65,724			65,264			64,495
Assets in millions per total number of full-time equivalent employees	$	8.79		$	7.46		$	7.44		$	7.04		$	4.82

(1)	The dividend payout ratio is calculated using dividends declared and not waived by our mutual holding company parent, K-Fed Mutual Holding Company, divided by net income.
(2)	Efficiency ratio represents noninterest expense as a percentage of net interest income plus noninterest income, exclusive of securities gains and losses.
(3)	Net interest income divided by average interest-earning assets.
(4)	The allowance for loan losses at June 30, 2007, 2006, 2005, 2004, and 2003 was $2.8 million, $2.7 million, $2.4 million, $2.3 million, and $2.3 million, respectively.
(5)	Total loans are net of deferred fees and costs.

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FORWARD-LOOKING STATEMENTS

          This prospectus contains forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “plan,” “seek,” “expect” and words of similar meaning. These forward-looking statements include, but are not limited to:

• statements of our goals, intentions and expectations;

• statements regarding our business plans, prospects, growth and operating strategies;

• statements regarding the asset quality of our loan and investment portfolios; and

• estimates of our risks and future costs and benefits.

          These forward-looking statements are based on current beliefs and expectations of our management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change.

          The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:

• general economic conditions, either nationally or in our market areas, that are worse than expected;

• competition among depository and other financial institutions;

• inflation and changes in the interest rate environment that reduce our margins or reduce the fair value of financial instruments;

• adverse changes in the securities markets;

• changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements;

• our ability to enter new markets successfully and capitalize on growth opportunities;

• our ability to successfully integrate acquired entities, if any;

• changes in consumer spending, borrowing and savings habits;

• changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Public Accounting Oversight Board and the Financial Accounting Standards Board; and

• changes in our organization, compensation and benefit plans.

          Any of the forward-looking statements we make in this prospectus and in other public statements we may make may turn out to be inaccurate due to mistaken assumptions we might make, because of the

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factors listed above or because of other factors we cannot control.  Because of these and other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements and you should not rely on these statements.  Please see “Risk Factors” beginning on page 20.

HOW WE INTEND TO USE THE PROCEEDS FROM THE OFFERING

          Although we cannot determine what the actual net proceeds from the sale of the shares of common stock in the offering will be until the offering is completed, we anticipate that the aggregate net proceeds will be between $106.2 million and $143.2 million, or $164.4 million if the offering range is increased by 15%.  Kaiser Federal Financial Group, Inc. expects to contribute to Kaiser Federal Bank not less than 50% of the net proceeds.  We intend to retain between $46.5 million and $62.6 million of the net proceeds, or $71.9 million if the offering range is increased by 15% (excluding the portion of the net proceeds loaned to our employee stock ownership plan).  Between $6.6 million and $9.0 million, or $10.3 million if the offering range is increased by 15%, will be used for the loan to the employee stock ownership plan to fund its purchase of shares of common stock in the offering.

          A summary of the anticipated net proceeds at the minimum, midpoint, maximum and adjusted maximum of the offering range and distribution of the net proceeds is as follows:

	Based Upon the Sale at $10.00 Per Share of
	Minimum 11,050,000 Shares				Midpoint 13,000,000 Shares				Maximum 14,950,000 Shares				Maximum, As Adjusted 17,192,500 Shares (1)
	Amount		Percent of Net Proceeds		Amount		Percent of Net Proceeds		Amount		Percent of Net Proceeds		Amount		Percent of Net Proceeds
	(Dollars in thousands)
Offering proceeds	$	110,500			$	130,000			$	149,500			$	171,925
Less offering expenses		4,324				5,332				6,340				7,500
Net offering proceeds	$	106,176		100%	$	124,668		100%	$	143,160		100%	$	164,425		100%
Distribution of net proceeds:
To Kaiser Federal Bank	$	53,088		50.0%	$	62,334		50.0%	$	71,580		50.0%	$	82,213		50.0%
To fund loan to employee stock ownership plan	$	6,630		6.2%	$	7,800		6.3%	$	8,970		6.3%	$	10,316		6.3%
Retained by Kaiser Federal Financial Group, Inc.	$	46,458		43.8%	$	54,534		43.7%	$	62,610		43.7%	$	71,896		43.7%

(1) As adjusted to give effect to an increase in the number of shares which could occur due to a 15% increase in the offering range to reflect demand for the shares, changes in market or general financial conditions following the commencement of the offering, or regulatory considerations.

          Payments for shares of common stock made through withdrawals from existing deposit accounts will not result in the receipt of new funds for investment but will result in a reduction of Kaiser Federal Bank’s deposits.  The net proceeds may vary because total expenses relating to the offering may be more or less than our estimates.  For example, our expenses would increase if the shares sold in any syndicated community offering are greater than what has been assumed for purposes of this table.  See “Pro Forma Data.” 

Kaiser Federal Financial Group, Inc. May Use The Proceeds It Retains From The Offering:

• to fund a loan to the employee stock ownership plan to purchase shares of common stock in the offering;

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• to finance the acquisition of financial institutions or other financial service companies primarily in Southern California as opportunities arise, although we do not currently have any agreements or understandings regarding any specific acquisition transaction and it is impossible to determine when, if ever, such opportunities may arise;

• to pay cash dividends to stockholders;

• to repurchase shares of our common stock for, among other things, the funding of our stock-based incentive plan;

• to invest in securities; and

• for other general corporate purposes.

          Initially, a substantial portion of the net proceeds will be invested in short-term investments, investment-grade debt obligations and mortgage-backed securities.

          Under current Office of Thrift Supervision regulations, we may not repurchase shares of our common stock during the first year following the completion of the conversion, except when extraordinary circumstances exist and with prior regulatory approval.

Kaiser Federal Bank May Use The Net Proceeds It Receives From The Offering:

• to fund the origination and purchase of new loans including one- to four-family residential, multi-family and commercial real estate mortgage loans and consumer loans;

• to enhance existing products and services and to support the development of new products and services;

• to expand our retail banking franchise by acquiring branches from other financial institutions or by building or leasing new branches primarily in Southern California, although we do not currently have any agreements or understandings regarding the establishment of specific branches;

• to acquire other financial institutions or other financial services companies primarily in Southern California as opportunities arise, although we do not currently have any agreements or understandings regarding any specific acquisition;

• to invest in securities; and

• for other general corporate purposes.

          Initially, a substantial portion of the net proceeds will be invested in short-term investments, investment-grade debt obligations and mortgage-backed securities.

          We expect our return on equity to be relatively low until we are able to utilize effectively the additional capital raised in the offering.  Until we can increase our net interest income and non-interest income, we expect our return on equity to continue to be below the industry average, which may negatively affect the value of our common stock. See “Risk Factors—Risks Related to the Conversion and Offering—Our Failure to Utilize Effectively The Net Proceeds Of The Offering Could Reduce Our

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Return on Stockholders’ Equity And Our Return On Assets And Negatively Impact The Value Of Our Common Stock.”

OUR POLICY REGARDING DIVIDENDS

          K-Fed Bancorp currently pays a quarterly cash dividend of $0.10 per share, which equals $0.40 per share on an annualized basis.  After the conversion, we intend to continue to pay cash dividends on a quarterly basis.  After adjustment for the exchange ratio, we expect the annual dividends to equal $0.32, $0.27, $0.24 and $0.21 per share at the minimum, midpoint, maximum and adjusted maximum of the offering range, respectively, which represents an annual dividend yield of 3.2%, 2.7%, 2.4% and 2.1% at the minimum, midpoint, maximum and adjusted maximum of the offering range, respectively, based upon a stock price of $10.00 per share.  The amount of dividends that we intend to pay to our stockholders following the conversion is intended to preserve the per share dividend amount, adjusted to reflect the exchange ratio, that our stockholders currently receive on their shares of K-Fed Bancorp common stock.  However, the dividend rate and the continued payment of dividends will depend on a number of factors including our capital requirements, our financial condition and results of operations, tax considerations, statutory and regulatory limitations, and general economic conditions.  We cannot assure you that we will not reduce or eliminate dividends in the future.

          Under the rules of the Office of Thrift Supervision, Kaiser Federal Bank will not be permitted to pay dividends on its capital stock to Kaiser Federal Financial Group, Inc., its sole stockholder, if Kaiser Federal Bank’s stockholder’s equity would be reduced below the amount of the liquidation account established in connection with the conversion.  In addition, Kaiser Federal Bank will not be permitted to make a capital distribution if, after making such distribution, it would be undercapitalized.  See “The Conversion and Offering—Liquidation Rights.” For information concerning additional federal and state law and regulations regarding the ability of Kaiser Federal Bank to make capital distributions, including the payment of dividends to Kaiser Federal Financial Group, Inc., see “Taxation—Federal Taxation” and “Supervision and Regulation—Federal Banking Regulation.”

          Unlike Kaiser Federal Bank, we are not restricted by Office of Thrift Supervision regulations on the payment of dividends to our stockholders, although the source of dividends will depend on the net proceeds retained by us and earnings and dividends from Kaiser Federal Bank.  However, we will be subject to state law limitations on the payment of dividends. Maryland law generally limits dividends to an amount equal to the excess of our capital surplus over payments that would be owed upon dissolution to stockholders whose preferential rights upon dissolution are superior to those receiving the dividend, and to an amount that would not make us insolvent.

          Finally, pursuant to Office of Thrift Supervision regulations, during the three-year period following the conversion, we will not take any action to declare an extraordinary dividend to stockholders that would be treated by recipients as a tax-free return of capital for federal income tax purposes.

          See “Selected Consolidated Financial and Other Data of K-Fed Bancorp and Subsidiary” and “Market for the Common Stock” for information regarding our historical dividend payments.

MARKET FOR THE COMMON STOCK

          K-Fed Bancorp’s common stock currently trades on the Nasdaq Global Market under the symbol “KFED.” Upon completion of the conversion and offering, the shares of common stock of Kaiser Federal Financial Group, Inc. will replace K-Fed Bancorp’s shares of common stock. We expect that Kaiser Federal Financial Group, Inc.’s shares of common stock will trade on the Nasdaq Global Market under the trading symbol “KFFG.”  In order to list our common stock on the Nasdaq Global Market, we are

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required to have at least three broker-dealers who will make a market in our common stock.  K-Fed Bancorp currently has 23 registered market makers.

          The development of a public market having the desirable characteristics of depth, liquidity and orderliness depends on the existence of willing buyers and sellers, the presence of which is not within our control or that of any market maker.  The number of active buyers and sellers of our common stock at any particular time may be limited, which may have an adverse effect on the price at which our common stock can be sold.  There can be no assurance that persons purchasing the common stock will be able to sell their shares at or above the $10.00 price per share in the offering.  Purchasers of our common stock should have a long-term investment intent and should recognize that there may be a limited trading market in our common stock.

          The following table sets forth the high and low trading prices for shares of K-Fed Bancorp common stock and cash dividends paid per share for the periods indicated.  As of June 30, 2007, there were 5,087,195 shares of K-Fed Bancorp common stock issued and outstanding (excluding shares held by K-Fed Mutual Holding Company). In connection with the conversion, each existing publicly held share of common stock of K-Fed Bancorp will be converted into a right to receive a number of shares of Kaiser Federal Financial Group, Inc. common stock, based upon the exchange ratio that is described in other sections of this prospectus.  See “The Conversion and Offering—Share Exchange Ratio for Current Stockholders.”

Year Ending June 30, 2008	High		Low		Dividend Paid Per Share
Quarter Ended September 30, 2007	$		$	$
Year Ended June 30, 2007	High		Low		Dividend Paid Per Share
Quarter ended June 30, 2007	$	19.70	$	14.51	$	0.10
Quarter ended March 31, 2007		20.05		18.45		0.10
Quarter ended December 31, 2006		19.25		16.09		0.10
Quarter ended September 30, 2006		16.09		14.25		0.09
Year Ended June 30, 2006	High		Low		Dividend Paid Per Share
Quarter ended June 30, 2006	$	14.49	$	12.61	$	0.08
Quarter ended March 31, 2006		12.74		12.05		0.07
Quarter ended December 31, 2005		12.54		11.88		0.07
Quarter ended September 30, 2005		13.04		12.13		0.06

          On June 27, 2007, the business day immediately preceding the public announcement of the conversion, and on June 28, 2007, the closing prices of K-Fed Bancorp common stock as reported on the Nasdaq Global Market were $14.75 per share and $15.00 per share, respectively.  At June 30, 2007, K-Fed Bancorp had approximately 2,428 stockholders of record. On the effective date of the conversion, all publicly held shares of K-Fed Bancorp common stock, including shares of common stock held by our officers and directors, will be converted automatically into and become the right to receive a number of shares of Kaiser Federal Financial Group, Inc. common stock determined pursuant to the exchange ratio.  See “The Conversion and Offering—Share Exchange Ratio for Current Stockholders.”  Options to purchase shares of K-Fed Bancorp common stock will be converted into options to purchase a number of shares of Kaiser Federal Financial Group, Inc. common stock determined pursuant to the exchange ratio, for the same aggregate exercise price. See “Management—Beneficial Ownership of Common Stock.”

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HISTORICAL AND PRO FORMA REGULATORY CAPITAL COMPLIANCE

          At June 30, 2007, Kaiser Federal Bank exceeded all of the applicable regulatory capital requirements. The table below sets forth the historical equity capital and regulatory capital of Kaiser Federal Bank at June 30, 2007, and the pro forma regulatory capital of Kaiser Federal Bank, after giving effect to the sale of Kaiser Federal Financial Group, Inc.’s shares of common stock at a $10.00 per share purchase price.  Accordingly, the table assumes the receipt by Kaiser Federal Bank of between $53.1 million and $71.6 million (and $82.2 million if the offering amount of the offering range is increased by 15%) of the net offering proceeds at the minimum and maximum of the offering range, respectively.

						Pro Forma at June 30, 2007 Based Upon the Sale at $10.00 Per Share
	Kaiser Federal Bank Historical at June 30, 2007
						11,050,000 Shares (Minimum of Range)					13,000,000 Shares (Midpoint of Range)					14,950,000 Shares (Maximum of Range)					17,192,500 Shares (Maximum of Range, as Adjusted)(1)
	Amount		Percent of Assets (2)			Amount		Percent of Assets (2)			Amount		Percent of Assets (2)			Amount		Percent of Assets (2)			Amount		Percent of Assets (2)
	(Dollars in thousands)
Equity capital	$	69,148		8.82	%	$	115,630		13.81	%	$	123,706		14.62	%	$	131,782		15.40	%	$	141,069		16.28	%
Core (leverage) capital	$	64,875		8.32	%	$	111,357		13.37	%	$	119,433		14.18	%	$	127,509		14.98	%	$	136,796		15.87	%
Core (leverage) requirement (3)		31,191		4.00			33,315		4.00			33,685		4.00			34,055		4.00			34,480		4.00
Excess	$	33,684		4.32	%	$	78,042		9.37	%	$	85,748		10.18	%	$	93,454		10.98	%	$	102,316		11.87	%
Tier 1 risk-based capital (4)	$	64,875		12.76	%	$	111,357		21.46	%	$	119,433		22.94	%	$	127,509		24.40	%	$	136,796		26.07	%
Tier 1 requirement		20,330		4.00			20,755		4.00			20,829		4.00			20,903		4.00			20,988		4.00
Excess	$	44,545		8.76	%	$	90,602		17.46	%	$	98,604		18.94	%	$	106,606		20.40	%	$	115,808		22.07	%
Total risk-based capital (4)	$	67,622		13.30	%	$	114,104		21.99	%	$	122,180		23.46	%	$	130,256		24.93	%	$	139,543		26.60	%
Risk-based requirement		40,660		8.00			41,510		8.00			41,658		8.00			41,806		8.00			41,976		8.00
Excess	$	26,962		5.30	%	$	72,594		13.99	%	$	80,522		15.46	%	$	88,450		16.93	%	$	97,567		18.60	%
Reconciliation of capital infused into Kaiser Federal Bank:
Net proceeds						$	53,088				$	62,334				$	71,580				$	82,213
Add: Kaiser Federal Mutual Holding Company capital consolidation
Less:							24					24					24					24
Common stock acquired by employee stock ownership plan							6,630					7,800					8,970					10,316
Pro forma increase in GAAP and regulatory capital						$	46,482				$	54,558				$	62,634				$	71,921

(1)	As adjusted to give effect to an increase in the number of shares that could occur due to a 15% increase in the offering range to reflect demand for the shares, changes in market or general financial conditions following the commencement of the offering, or regulatory considerations.
(2)	Tangible and core capital levels are shown as a percentage of total adjusted assets. Risk-based capital levels are shown as a percentage of risk-weighted assets.
(3)	The current Office of Thrift Supervision core capital requirement for financial institutions is 3% of total adjusted assets for financial institutions that receive the highest supervisory rating for safety and soundness and a 4% to 5% core capital ratio requirement for all other financial institutions.
(4)	Pro forma amounts and percentages assume net proceeds are invested in assets that carry a 20% risk weighting.

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CAPITALIZATION

          The following table presents the historical consolidated capitalization of K-Fed Bancorp at June 30, 2007 and the pro forma consolidated capitalization of Kaiser Federal Financial Group, Inc. after giving effect to the conversion and offering, based upon the assumptions set forth in the “Pro Forma Data” section.

				Kaiser Federal Financial Group, Inc. $10.00 Per Share Pro Forma
	K-Fed Bancorp Historical at June 30, 2007			11,050,000 Shares (Minimum of Range)			13,000,000 Shares (Midpoint of Range)			14,950,000 Shares (Maximum of Range)			17,192,500 Shares (Maximum of Range, as Adjusted)(1)
	(Dollars in thousands)
Deposits (2)	$	494,128		$	494,128		$	494,128		$	494,128		$	494,128
Borrowed funds		210,016			210,016			210,016			210,016			210,016
Total deposits and borrowed funds	$	704,144		$	704,144		$	704,144		$	704,144		$	704,144
Stockholders’ equity:
Preferred stock, $0.01 par value, 25,000,000 shares authorized (post-conversion) (3)		—			—			—			—			—
Common stock $0.01 par value, 100,000,000 shares authorized (post-conversion); shares to be issued as reflected (3) (4)		147			174			205			235			271
Additional paid-in capital (3)		58,976			153,782			172,243			190,705			211,934
Retained earnings (5)		49,084			49,084			49,084			49,084			49,084
Accumulated other comprehensive income		(126	)		(126	)		(126	)		(126	)		(126	)
Plus:
Cash held by K-Fed Mutual Holding Company					24			24			24			24
Less:
Treasury stock		(11,343	)		—			—			—			—
Unallocated ESOP shares		(3,071	)		(3,071	)		(3,071	)		(3,071	)		(3,071	)
Common stock held by existing recognition and retention plan		(1,350	)		(1,350	)		(1,350	)		(1,350	)		(1,350	)
Common stock to be acquired by the ESOP(6)		—			(6,630	)		(7,800	)		(8,970	)		(10,316	)
Common stock to be acquired by the stock-based incentive plan (7)		—			(4,121	)		(4,848	)		(5,575	)		(6,412	)
Total stockholders’ equity	$	92,317		$	187,766		$	204,361		$	220,956		$	240,039
Pro Forma Shares Outstanding
Total shares outstanding					17,393,386			20,462,808			23,532,229			27,062,063
Exchange shares issued					6,343,386			7,462,808			8,582,229			9,869,563
Shares offered for sale					11,050,000			13,000,000			14,950,000			17,192,500
Total stockholders’ equity as a percentage of total assets		11.55	%		20.98	%		22.42	%		23.80	%		25.34	%

(1)	As adjusted to give effect to an increase in the number of shares of common stock that could occur due to a 15% increase in the offering range to reflect demand for shares, changes in market or general financial conditions following the commencement of the subscription and community offerings, or regulatory considerations.
(2)	Does not reflect withdrawals from deposit accounts for the purchase of shares of common stock in the conversion and offering. These withdrawals would reduce pro forma deposits by the amount of the withdrawals.  On a pro forma basis, reflects transfer to equity of $24,000 in K-Fed Mutual Holding Company deposits held at Kaiser Federal Bank.
(3)	K-Fed Bancorp currently has 2,000,000 authorized shares of preferred stock and 18,000,000 authorized shares of common stock, par value $0.01 per share.  On a pro forma basis, Kaiser Federal Financial Group, Inc. common stock and additional paid-in capital have been revised to reflect the number of shares of Kaiser Federal Financial Group, Inc. common stock to be outstanding, which is 17,393,386 shares, 20,462,808 shares, 23,532,229 shares and 27,062,063 shares at the minimum, midpoint, maximum and adjusted maximum of the offering range, respectively.
(4)	No effect has been given to the issuance of additional shares of Kaiser Federal Financial Group, Inc. common stock pursuant to stock options to be granted under a stock-based incentive plan. If this plan is implemented, an amount up to 9.3% of the shares of Kaiser Federal Financial Group, Inc. common stock sold in the offering will be reserved for issuance upon the exercise of options.  No effect has been

(Footnotes Continued on next Page)

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	given to the exercise of options currently outstanding. See “Management—Benefits to be Considered Following Completion of the Conversion.”
(5)	The retained earnings of Kaiser Federal Bank will be substantially restricted after the conversion.  See “The Conversion and Offering—Liquidation Rights” and “Supervision and Regulation—Federal Banking Regulation.”
(6)	Assumes that 6.0% of the shares sold in the offering will be acquired by the employee stock ownership plan financed by a loan from Kaiser Federal Financial Group, Inc. The loan will be repaid principally from Kaiser Federal Bank’s contributions to the employee stock ownership plan. Since Kaiser Federal Financial Group, Inc. will finance the employee stock ownership plan debt, this debt will be eliminated through consolidation and no liability will be reflected on Kaiser Federal Financial Group, Inc.’s consolidated financial statements.  Accordingly, the amount of shares of common stock acquired by the employee stock ownership plan is shown in this table as a reduction of total stockholders’ equity.
(7)	Assumes at the midpoint, the maximum and the maximum as adjusted, of the offering range that a number of shares of common stock equal to 3.7% of the shares of common stock to be sold in the offering will be purchased by the stock-based incentive plan in open market purchases for the purpose of funding future grants of restricted stock.  The funds to be used by the stock-based incentive plan to purchase the shares will be provided by Kaiser Federal Financial Group, Inc. The dollar amount of common stock to be purchased is based on the $10.00 per share offering price and represents unearned compensation. This amount does not reflect possible increases or decreases in the value of common stock relative to the subscription price in the offering. As Kaiser Federal Financial Group, Inc. accrues compensation expense to reflect the vesting of shares pursuant to the stock-based incentive plan, the credit to capital will be offset by a charge to operations. Implementation of the stock-based incentive plan will require stockholder approval. If the shares to fund the plan are assumed to come from authorized but unissued shares of Kaiser Federal Financial Group, Inc., the number of outstanding shares at the minimum, midpoint, maximum and the maximum, as adjusted, of the offering range would be 18,835,722, 22,159,674, 25,483,624 and 29,306,168, respectively, total stockholders’ equity would be $191.9 million, $209.2 million, $226.5 million and $246.5 million, respectively, and total stockholders’ ownership in Kaiser Federal Financial Group, Inc. would be diluted by approximately 5.6% at the maximum of the offering range.

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PRO FORMA DATA

          The following tables summarize historical data of K-Fed Bancorp and pro forma data at and for the year ended June 30, 2007.  This information is based on assumptions set forth below and in the table, and should not be used as a basis for projections of market value of the shares of common stock following the conversion and offering.  Moreover, pro forma stockholders’ equity per share does not give effect to the liquidation account to be established in the conversion or, in the unlikely event of a liquidation of Kaiser Federal Bank, to the recoverability of intangibles or the tax effect of the recapture of the bad debt reserve.  See “The Conversion and Offering—Liquidation Rights.”

          The net proceeds in the tables are based upon the following assumptions:

(i)	all shares of common stock will be sold in the subscription and community offerings;
(ii)	46,600 shares of common stock will be purchased by our executive officers and directors, and their associates;
(iii)	our employee stock ownership plan will purchase 6.0% of the shares of common stock sold in the offering, with a loan from Kaiser Federal Financial Group, Inc. The loan will be repaid in substantially equal payments of principal and interest over a period of 20 years;
(iv)	Keefe Bruyette & Woods will receive a fee equal to 1.0% of the common stock sold in the subscription and community offering.  In addition, Keefe, Bruyette & Woods, Inc. will receive a fee of 5.5% of the common stock sold in the syndicated community offering.  Such fee will be used to compensate Keefe, Bruyette & Woods, Inc. and broker-dealers selected by Kaiser Federal Financial Group, Inc. to assist Keefe, Bruyette & Woods, Inc. in selling the stock in the syndicated community offering.  The following pro forma information assumes that at the minimum, midpoint, maximum and maximum, as adjusted, 4,667,000, 6,500,000, 8,330,000, and 10,440,950, shares are sold through the syndicated community offering.  No fee will be paid with respect to shares of common stock purchased by our qualified and non-qualified employee stock benefit plans, or stock purchased by our officers, directors and employees, and their immediate families; and
(v)	total expenses of the offering, including the marketing fees to be paid to Keefe Bruyette & Woods, will be between $4.3 million at the minimum of the offering range and $7.5 million at the maximum of the offering range, as adjusted.

          We calculated pro forma consolidated net earnings for the year ended June 30, 2007 as if the estimated net proceeds we received had been invested at the beginning of the period at an assumed interest rate of 4.9%, (2.9% on an after-tax basis), which represented the yield on the one-year U.S. Treasury Bill as of June 30, 2007 (which we consider to reflect more accurately the pro forma reinvestment rate than an arithmetic average method in light of current market interest rates).  The effect of withdrawals from deposit accounts for the purchase of shares of common stock has not been reflected.  Historical and pro forma per share amounts have been calculated by dividing historical and pro forma amounts by the indicated number of shares of common stock. No effect has been given in the pro forma stockholders’ equity calculations for the assumed earnings on the net proceeds. It is assumed that Kaiser Federal Financial Group, Inc. will retain between $46.5 million and $62.6 million of the estimated net proceeds in the offering, or $71.9 million if the offering range is increased by 15% (excluding the portion the net proceeds loaned to our employee stock ownership plan). The actual net proceeds from the sale of shares of common stock will not be determined until the offering is completed.  However, we currently estimate the net proceeds to be between $106.2 million and $143.2 million, or $164.4 million if the offering range is increased by 15%.

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          The following pro forma information may not be representative of the financial effects of the offering at the date on which the offering actually occurs, and should not be taken as indicative of future results of operations. Pro forma consolidated stockholders’ equity represents the difference between the stated amounts of our assets and liabilities.  The pro forma stockholders’ equity is not intended to represent the fair market value of the shares of common stock.

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	At or for the Year Ended June 30, 2007 Based upon the Sale at $10.00 Per Share of
	11,050,000 Shares at Minimum of Offering Range			13,000,000 Shares at Midpoint of Offering Range			14,950,000 Shares at Maximum of Offering Range			17,192,500 Shares at Maximum of Offering Range, as Adjusted(1)
	(Dollars in thousands, except per share amounts)
Gross proceeds of offering	$	110,500		$	130,000		$	149,500		$	171,925
Less: Expenses		4,324			5,332			6,340			7,500
Estimated net proceeds	$	106,176		$	124,668		$	143,160		$	164,425
Less: Common stock purchased by employee stock ownership plan	$	(6,630	)	$	(7,800	)	$	(8,970	)	$	(10,316	)
Less: Common stock purchased by the stock-based incentive plan	$	(4,121	)	$	(4,848	)	$	(5,575	)		(6,412	)
Plus: K-Fed Mutual Holding Company capital consolidation		24			24			24			24
Estimated net proceeds, as adjusted	$	95,449		$	112,044		$	128,639		$	147,722
For the Year Ended June 30, 2007
Consolidated net earnings:
Historical	$	4,704		$	4,704		$	4,704		$	4,704
Pro forma adjustments:
Income on adjusted net proceeds		2,760			3,240			3,720			4,272
Employee stock ownership plan (2)		(195	)		(230	)		(264	)		(304	)
Shares granted under the stock-based incentive plan (3)		(485	)		(571	)		(657	)		(755	)
Options granted under the stock-based incentive plan (4)		(469	)		(551	)		(634	)		(729	)
Pro forma net income	$	6,315		$	6,592		$	6,869		$	7,188
Net income per share (5):
Historical	$	0.29		$	0.24		$	0.21		$	0.18
Pro forma adjustments:
Income on adjusted net proceeds		0.17			0.17			0.17			0.17
Employee stock ownership plan (2)		(0.01	)		(0.01	)		(0.01	)		(0.01	)
Shares granted under the stock-based incentive plan (3)		(0.03	)		(0.03	)		(0.03	)		(0.03	)
Options granted under the stock-based incentive plan (4)		(0.03	)		(0.03	)		(0.03	)		(0.03	)
Pro forma net income per share (5) (6)	$	0.39		$	0.34		$	0.31		$	0.28
Offering price to pro forma net income per share		25.64	x		29.41	x		32.26	x		35.71	x
Number of shares used in net income per share calculations (5)		16,362,797			19,250,353			22,137,905			25,458,590
At June 30, 2007
Stockholders’ equity:
Historical	$	92,317		$	92,317		$	92,317		$	92,317
Estimated net proceeds		106,176			124,668			143,160			164,425
K-Fed Mutual Holding Company capital consolidation		24			24			24			24
Less: Common stock acquired by employee stock ownership plan (2)		(6,630	)		(7,800	)		(8,970	)		(10,316	)
Less: Common stock acquired by the stock-based incentive plan (3)		(4,121	)		(4,848	)		(5,575	)		(6,412	)
Pro forma stockholders’ equity	$	187,766		$	204,361		$	220,956		$	240,038
Less: Intangible assets		4,273			4,273			4,273			4,273
Pro forma tangible stockholders’ equity	$	183,493		$	200,088		$	216,683		$	235,765
Stockholders’ equity per share (7):
Historical	$	5.31		$	4.51		$	3.92		$	3.41
Estimated net proceeds		6.11			6.10			6.09			6.08
K-Fed Mutual Holding Company capital consolidation		0.00			0.00			0.00			0.00
Less: Common stock acquired by employee stock ownership plan (2)		(0.38	)		(0.38	)		(0.38	)		(0.38	)
Less: Common stock acquired by the stock-based incentive plan (3)		(0.24	)		(0.24	)		(0.24	)		(0.24	)
Pro forma stockholders’ equity per share (7)	$	10.80		$	9.99		$	9.39		$	8.87
Pro forma tangible stockholders’ equity per share (7)	$	10.55		$	9.78		$	9.21		$	8.71
Offering price as percentage of pro forma stockholders’ equity per share		92.59	%		100.10	%		106.50	%		112.74	%
Offering price as percentage of pro forma tangible stockholders’ equity per share		94.79	%		102.25	%		108.58	%		114.81	%
Number of shares outstanding for pro forma book value per share calculations (8)		17,393,386			20,462,808			23,532,229			27,062,063

(Footnotes follow on next page)

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(1)	As adjusted to give effect to an increase in the number of shares that could occur due to a 15% increase in the offering range to reflect demand for the shares, changes in market and financial conditions following the commencement of the offering, or regulatory considerations.
(2)	Assumes that 6.0% of shares of common stock sold in the offering will be purchased by the employee stock ownership plan.  For purposes of this table, the funds used to acquire these shares are assumed to have been borrowed by the employee stock ownership plan from Kaiser Federal Financial Group, Inc.  Kaiser Federal Bank intends to make annual contributions to the employee stock ownership plan in an amount at least equal to the required principal and interest payments on the debt.  Kaiser Federal Bank’s total annual payments on the employee stock ownership plan debt are based upon 20 equal annual installments of principal and interest.  Statement of Position 93-6 requires that an employer record compensation expense in an amount equal to the fair value of the shares committed to be released to employees.  The pro forma adjustments assume that (i) the employee stock ownership plan shares are allocated in equal annual installments based on the number of loan repayment installments assumed to be paid by Kaiser Federal Bank, (ii) the fair value of the common stock remains equal to the $10.00 subscription price and (iii) the employee stock ownership plan expense reflects an effective combined federal and state tax rate of 41.1%.  The unallocated employee stock ownership plan shares are reflected as a reduction of stockholders’ equity.  No reinvestment is assumed on proceeds contributed to fund the employee stock ownership plan.  The pro forma net income further assumes that 33,150, 39,000, 44,850 and 51,578 shares were committed to be released during the period at the minimum, midpoint, maximum, and adjusted maximum of the offering range, respectively, and in accordance with Statement of Position 93-6, only the employee stock ownership plan shares committed to be released during the period were considered outstanding for purposes of net income per share calculations.
(3)	Gives effect to the grant of stock awards pursuant to the stock-based incentive plan expected to be adopted by Kaiser Federal Financial Group, Inc. following the offering and presented to stockholders for approval not earlier than six months after the completion of the offering.  We have assumed that at the midpoint, maximum and maximum as adjusted, of the offering range this plan acquires a number of shares of restricted common stock equal to 3.7% of the shares sold in the offering, either through open market purchases, from authorized but unissued shares of common stock or treasury stock of Kaiser Federal Financial Group, Inc., if any, in order to ensure that the aggregate number of shares subject to such plan and our 2004 Recognition and Retention Plan does not exceed 4.0% of the shares outstanding following completion of the conversion. Funds used by the stock-based incentive plan to purchase the shares of common stock will be contributed by Kaiser Federal Financial Group, Inc.  In calculating the pro forma effect of the stock-based incentive plan, it is assumed that the shares of common stock were acquired by the plan in open market purchases at the beginning of the period presented for a purchase price equal to the price for which the shares are sold in the offering, and that 15% of the amount contributed was an amortized expense (20% annually based upon a five-year vesting period) during the year ended June 30, 2007.  There can be no assurance that the actual purchase price of the shares of common stock granted under the stock-based incentive plan will be equal to the $10.00 subscription price.  If shares are acquired from authorized but unissued shares of common stock or from treasury shares of Kaiser Federal Financial Group, Inc., our net loss per share will increase and stockholders’ equity per share will decrease.  This will also have a dilutive effect of approximately 2.3% (at the maximum of the offering range) on the ownership interest of stockholders.  The impact on pro forma net income per share and pro forma stockholders’ equity per share is not material. The following table shows pro forma net income per share and pro forma stockholders’ equity per share, assuming all the shares of common stock to fund the stock awards are obtained from authorized but unissued shares.
(4)	Gives effect to the granting of options pursuant to the stock-based incentive plan, which is expected to be adopted by Kaiser Federal Financial Group, Inc. following the offering and presented to stockholders for approval not earlier than six months after the completion of the offering.  We have assumed that options will be granted to acquire shares of common stock equal to 9.3% of the shares sold in the offering.  In calculating the pro forma effect of the stock options, it is assumed that the exercise price of the stock options and the trading price of the stock at the date of grant were $10.00 per share, and the estimated grant date fair value pursuant to the application of the Black-Scholes option pricing model was $2.53 for each option.  The pro forma net income assumes that the options granted under the stock-based incentive plan have a value of $2.53 per option, which was determined using the Black-Scholes option pricing formula using the following assumptions:  (i) the trading price on date of grant was $10.00 per share; (ii) exercise price is equal to the trading price on the date of grant; (iii) dividend yield of 2.33%; (iv) expected life of 6.25 years; (v) expected volatility of 23.35%; and (vi) risk-free interest rate of 4.67%.  If the fair market value per share on the date of grant is different than $10.00, or if the assumptions used in the option pricing formula are different from those used in preparing this pro forma data, the value of options and the related expense recognized will be different.  The aggregate grant date fair value of the stock options was amortized to expense on a straight-line basis over a five-year vesting period of the options.  There can be no assurance that the actual exercise price of the stock options will be equal to the $10.00 price per share.  If a portion of the shares to satisfy the exercise of options under the stock-based incentive plan is obtained from the issuance of authorized but unissued shares of common stock, our net income and stockholders’ equity per share will decrease.  This also will have a dilutive effect of up to 5.6% on the ownership interest of persons who purchase shares of common stock in the offering.
(5)	The number of shares used to calculate pro forma net income per share is equal to the weighted average shares outstanding for the year ended June 30, 2007 (13,627,566 shares) multiplied by the exchange ratio at the minimum, midpoint, maximum and maximum, as adjusted by subtracting the employee stock ownership plan shares which have not been committed for release during the respective periods in accordance with Statement of Position 93-6. See footnote 2.
(6)	The retained earnings of Kaiser Federal Bank will be substantially restricted after the conversion. See “Our Dividend Policy,” “The Conversion and Offering—Liquidation Rights” and “Supervision and Regulation—Federal Banking Regulation—Capital Distributions.”
(7)	Per share figures include publicly held shares of K-Fed Bancorp common stock that will be exchanged for shares of Kaiser Federal Financial Group, Inc. common stock in the conversion. Stockholders’ equity per share calculations are based upon the sum of (i) the number of subscription shares assumed to be sold in the offering and (ii) shares to be issued in exchange for publicly held shares at the minimum, midpoint, maximum and adjusted maximum of the offering range, respectively. The exchange shares reflect an exchange ratio of 1.2469, 1.4670, 1.6870 and 1.9401 at the minimum, midpoint, maximum and adjusted maximum of the offering range, respectively. The number of subscription shares actually sold and the corresponding number of exchange shares may be more or less than the assumed amounts.
(8)	The number of shares used to calculate pro forma stockholders’ equity per share is equal to the total number of shares to be outstanding upon completion of the offering.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

Overview and Management Strategy

          Our results of operations depend primarily on our net interest income, which is the difference between interest income on interest-earning assets, which principally consist of loans and investment securities, and interest expense on interest-bearing liabilities, which principally consist of deposits and borrowings. Our results of operations also are affected by the level of our provisions for loan losses, noninterest income and noninterest expenses. Noninterest income consists primarily of service charges on deposit accounts and ATM fees and charges. Noninterest expense consists primarily of salaries and employee benefits, occupancy, equipment, data processing, and ATM costs. Our results of operations may also be affected significantly by general and local economic and competitive conditions, changes in market interest rates, governmental policies and actions of regulatory authorities.

          Our strategy continues to focus on operating as an independent financial institution dedicated to serving the needs of customers in our market area, which extends from Southern California to the San Francisco Bay area as a result of our history as a credit union serving the employees of the Kaiser Permanente Medical Care Program. We intend to continue to attract retail deposits, with the goal of expanding the deposit base by building upon the existing market locations. We opened new financial service centers in Los Angeles and Riverside during the 2007 fiscal year as part of this effort.

          We seek to accomplish this strategy by:

• Continued focus on maintaining cost efficiencies through purchases of loans to grow our loan portfolio and expanding our market locations through the use of financial service centers and ATMs;

• Continuing our branch expansion by building or leasing new branch facilities or by acquiring branches from other financial institutions primarily located near Kaiser Permanente Medical Centers in Southern California. We have no current understandings or agreements for any specific branch establishment;

• Capitalizing on the profitability and growth opportunities in our retail banking network by expanding existing individual customer relationships and developing new customer relationships to increase our core deposits;

• Increasing our commercial real estate and multi-family lending while maintaining a moderate growth of one-to four-family residential real estate loans through originations and purchases of such loans while continuing to apply our underwriting standards in order to maintain a high quality loan portfolio;

• Enhancing existing products and services, and supporting the development of new products and services by investing, for example, in technology to support the introduction of commercial deposit products such as sweep accounts and business checking services; and

• Expanding through acquisitions of other financial institutions, primarily in Southern California.  We have no current understandings or agreements for any specific acquisition.

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          Remote access methods, such as our 54 ATMs, audio response unit, call center, and internet banking / bill payer continue to process over 90% of our customer transactions. Branches and financial service centers are strategically located in our markets to provide touchstones to attract new account holders and facilitate transactions that cannot be completed electronically.  Financial service centers provide all the services as a full service branch but do not dispense or accept cash except through an on-site ATM. By utilizing our remote access methods and “cash-less” branches we are able to reduce branch personnel costs and improve our efficiency in delivering financial services.

          Historically, a majority of our deposits have been used to originate or purchase one- to four-family residential, multi-family or commercial real estate loans. We anticipate we will continue this practice. A majority of our loan portfolio consists one- to four-family residential of loans that we have purchased from other large mortgage originators or financial institutions.  We review each loan prior to purchase to ensure consistency with our current underwriting standards. We will continue to rely on purchased and broker sourced loans as a method of reducing costs related to internally generated loans. By purchasing loans we can increase our loan portfolio without adding additional staff.  We will also continue to analyze the utilization of borrowed funds from the Federal Home Loan Bank of San Francisco to purchase attractive loan pools in an effort to leverage our current financial structure to further reduce marginal operating costs.

          We have a commitment to our customers, existing and new, to provide high quality service. Our goal is to grow Kaiser Federal Bank while providing cost effective services to our market area.

Expected Increase in Non-Interest Expense Following the Conversion and Offering

          Following the completion of the conversion and offering, our non-interest expense can be expected to increase because of the increased compensation expenses associated with the purchase of shares of common stock by our employee stock ownership plan, the adoption of a new stock-based incentive plan, if approved by our stockholders, and implementation of our business plan.

          Assuming that 14,950,000 shares are sold in the offering (the maximum of the offering range):

(i)	the employee stock ownership plan will acquire 897,000 shares of common stock with a $8,970,000 loan from Kaiser Federal Financial Group, Inc. that is expected to be repaid over 20 years, resulting in an annual expense (after-tax) of approximately $264,000 (assuming that the shares of common stock maintain a value of $10.00 per share);
(ii)	the new stock-based incentive plan may award a number of shares of restricted stock equal to 3.7% of the shares sold in the offering, or 557,541 shares, to eligible participants, and such awards will be expensed as the awards vest.  Assuming all shares are awarded under the stock-based incentive plan at a price of $10.00 per share, and that the awards vest over a minimum of five years, the corresponding annual expense (after-tax) associated with shares awarded under the stock-based incentive plan will be approximately $657,000; and
(iii)	the new stock-based incentive plan may award options to purchase a number of shares equal to 9.3% of the shares sold in the offering, or 1,393,854 shares, to eligible participants, and such options will be expensed as the options vest.  Assuming all options are awarded under the stock-based incentive plan at a price of $10.00 per share, and that the options vest over a minimum of five years and using the Black-Scholes option pricing model with the following assumptions:  an exercise price and trading price on the date of grant of $10.00 and a fair value of $2.53 per option based upon a dividend yield of 2.33% as of June 30, 2007, expected life of 6.25 years, expected volatility of 23.35% and risk-free interest rate of 4.67%. The corresponding annual

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expense (after-tax) associated with options awarded under the stock-based incentive plan will be approximately $634,000.

          The actual expense that will be recorded for the employee stock ownership plan will be determined by the market value of the shares of common stock as they are released to employees over the term of the loan, and whether the loan is repaid faster than its contractual term.  Accordingly, increases in the stock price above $10.00 per share will increase the total employee stock ownership plan expense, and accelerated repayment of the loan will increase the employee stock ownership plan expense for those periods in which accelerated or larger loan repayments are made.  Further, the actual expense of the stock-based incentive plan will be determined by the fair market value of the common stock on the grant date, which may be less than or greater than $10.00 per share.

Critical Accounting Policies and Estimates

          In reviewing and understanding financial information for us, you are encouraged to read and understand the significant accounting policies used in preparing our consolidated financial statements.

          These policies are described in Note 1 to the consolidated financial statements and are essential in understanding Management’s Discussion and Analysis of Financial Condition and Results of Operation. Our accounting and financial reporting policies conform to generally accepted accounting principles practiced within the banking industry. Accordingly, the consolidated financial statements require certain estimates, judgments, and assumptions, which are believed to be reasonable, based upon the information available. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the periods presented. The following accounting policies comprise those that management believes are the most critical to aid in fully understanding and evaluating our reported financial results.

          Allowance for Loan Losses.  The allowance for loan losses is established through a provision for loan losses charged to expense. Loans are charged against the allowance for loan losses when management believes that collectibility of the principal is unlikely. Subsequent recoveries, if any, are credited to the allowance.

          The allowance is an amount that management believes will absorb probable incurred losses relating to specifically identified loans, as well as probable incurred credit losses inherent in the balance of the loan portfolio, based on an evaluation of the collectibility of existing loans and prior loss experience. This evaluation also takes into consideration such factors as changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans, and current economic conditions that may affect the borrower’s ability to pay. This evaluation does not include the effects of expected losses on specific loans or groups of loans that are related to future events or expected changes in economic conditions. While management uses the best information available to make its evaluation, future adjustments to the allowance may be necessary if there are significant changes in economic conditions. In addition, regulatory agencies, as an integral part of their examination process, periodically review the allowance for loan losses, and may require adjustments to the allowance based on their judgment about information available to them at the time of their examinations.

          The allowance consists of specific and general components. The specific component relates to loans that are classified as doubtful, substandard, or special mention. For such loans that are also classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers non-classified loans and is based on historical loss experience for consumer loans and peer group loss experience for real estate loans adjusted for qualitative factors.

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          A loan is impaired when it is probable, based on current information and events, Kaiser Federal Bank will be unable to collect all contractual principal and interest payments due in accordance with the terms of the loan agreement. Commercial real estate loans are evaluated for impairment based on their past due status and are measured on an individual basis based on the present value of expected future cashflows discounted at the loan’s effective interest rate or, as a practical expedient, at the loan’s observable market price or the fair value of the collateral if the loan is collateral dependent. The amount of impairment, if any, and any subsequent changes are included in the allowance for loan losses.

          Large groups of smaller balance homogenous loans are collectively evaluated for impairment. Accordingly, Kaiser Federal Bank does not separately identify individual consumer and residential loans for impairment disclosures.

          In addition, management’s determination as to the amount of our allowance for loan losses is subject to review by the Office of Thrift Supervision and the FDIC, which may require the establishment of additional general or specific allowances based upon their judgment of the information available to them at the time of their examination of Kaiser Federal Bank.

          Loans. Loans are stated at the amount of unpaid principal, reduced by an allowance for loan losses and deferred net loan origination fees, and increased by net premiums on purchased loans. Interest on loans is recognized over the terms of the loans and is accrued as earned, using the effective interest rate. Net premiums on purchased loans are recognized in interest income as a yield adjustment over the estimated lives of the loan pools using the effective interest method. The estimated lives of these loan pools are re-evaluated periodically based on actual prepayments. The current estimated lives of these loan pools range from two to eight years. Loan fees and certain direct loan origination costs are deferred, and the net fee or cost is recognized as an adjustment to interest income using the effective interest method over the estimated lives of the related loans.

          Fair Value of Financial Instruments.  Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in Note 15 of our consolidated financial statements. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the estimates.

Comparison of Financial Condition at June 30, 2007 and June 30, 2006.

          General. Our total assets increased by $60.7 million, or 8.2%, to $799.6 million at June 30, 2007 compared to $738.9 million at June 30, 2006. The increase primarily reflects growth in our net loan portfolio of $65.0 million to $699.1 million at June 30, 2007 from $634.1 million at June 30, 2006. The increase in assets was funded by increases in borrowings and deposits. Borrowings from the Federal Home Loan Bank increased $30.1 million to $210.0 million at June 30, 2007 from $179.9 million at June 30, 2006. Deposits increased $30.6 million to $494.1 million at June 30, 2007 from $463.5 million at June 30, 2006. Stockholder’s equity decreased $340,000 to $92.3 million at June 30, 2007 from $92.7 million at June 30, 2006 due to dividends paid to public stockholders and stock repurchases that exceeded net income.

          Loans. Our net loan portfolio increased $65.0 million, or 10.3%, to $699.1 million at June 30, 2007 from $634.1 million at June 30, 2006. This increase was primarily attributable to increases in one- to four-family real estate loans, which increased $32.5 million, or 7.4% to $469.5 million at June 30, 2007 from $437.0 million at June 30, 2006. Additional increases were experienced in commercial real estate loans, which increased $19.0 million, or 32.2% to $77.8 million at June 30, 2007 from $58.8 million at June 30, 2006. Consumer loans increased $14.9 million, or 28.7% to $66.6 million at June 30, 2007 from $51.7 million at June 30, 2006.  The overall loan mix remained relatively constant, with real estate loans comprising 90.5% of the total loan portfolio

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at June 30, 2007, compared with 91.9% at June 30, 2006. This growth in loans is consistent with our business strategy of utilizing deposits and other funding sources to expand our real estate loan portfolio.

          Investments. Our investment portfolio (including mortgage-backed securities) decreased $1.3 million, or 3.8% to $34.7 million at June 30, 2007 from $36.0 million at June 30, 2006 due to maturity of existing securities offset by new purchases.

          Interest earning deposits in other financial institutions was $3.0 million at June 30, 2007 compared to $9.0 million at June 30, 2006.

          Deposits. Our total deposits increased $30.6 million, or 6.6%, to $494.1 million at June 30, 2007 from $463.5 million at June 30, 2006. This increase was due to increased marketing efforts, a promotion to increase certificates of deposit in October 2006, establishment of new branches and our attractive rate structure.  The increase was primarily concentrated in higher yielding savings products and short-term certificates of deposit.

          Equity. Total stockholders’ equity decreased $340,000, or 0.4%, to $92.3 million at June 30, 2007, from $92.7 million at June 30, 2006. Our equity to assets ratio under generally accepted accounting principles (“GAAP”) was 11.55% at June 30, 2007 compared to 12.54% at June 30, 2006.   The decrease resulted from the repurchase of 279,845 of our outstanding common shares at an average price of $17.67 for a total cost of $4.9 million and cash payments of $1.8 million in dividends to stockholders of record, excluding shares held by K-Fed Mutual Holding Company, of $0.39 per share for the year ended June 30, 2007.  This decrease was offset by $4.7 million in income earned for the year ended June 30, 2007 in addition to the allocation of employee stock ownership plan shares, stock awards, and stock options earned during the same period totaling $1.4 million.

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Average Balances, Net Interest Income, Yields Earned and Rates Paid

          The following table sets forth certain information at June 30, 2007 and for the fiscal years ended June 30, 2007, 2006 and 2005, respectively. The average yields and costs are derived by dividing income or expense by the average balance of assets or liabilities, respectively, for the periods presented. Average balances are derived primarily from month-end balances. Management does not believe that the use of month-end balances rather than daily average balances has caused any material differences in the information presented.

	At June 30, 2007			For the year ended June 30,
				2007								2006								2005
	Yield/Cost			Average Balance			Interest		Average Yield/Cost			Average Balance			Interest		Average Yield/Cost			Average Balance			Interest		Average Yield/Cost
	(Dollars in thousands)
Interest-Earning Assets
Loans receivable (1) (4)		5.80	%	$	659,186		$	37,379		5.67	%	$	610,410		$	32,918		5.39	%	$	510,842		$	25,519		5.00	%
Securities(2)		4.37			33,788			1,365		4.04			44,188			1,611		3.65			55,432			1,935		3.49
Fed funds		5.21			31,357			1,604		5.12			16,696			637		3.82			15,472			362		2.34
Federal Home Loan Bank stock		5.06			9,111			480		5.27			7,121			280		3.93			3,863			151		3.91
Interest-earning deposits in other financial institutions		3.40			5,232			178		3.40			9,010			301		3.34			6,672			190		2.85
Other interest-earning assets		5.19			2,764			160		5.79			1,512			74		4.89			261			11		4.14
Total interest-earning assets		5.70			741,438			41,166		5.55			688,937			35,821		5.20			592,542			28,168		4.75
Noninterest earning assets					28,224								30,756								19,951
Total assets				$	769,662							$	719,693							$	612,493
Interest-Bearing Liabilities
Deposits:
Money market		2.84	%	$	95,113		$	2,700		2.84	%	$	111,487		$	2,343		2.10	%	$	107,274		$	1,396		1.30	%
Savings		2.05			116,150			1,925		1.66			94,809			395		0.42			96,740			405		0.42
Certificates of deposit		4.70			228,717			10,254		4.48			222,416			8,586		3.86			211,611			6,977		3.30
FHLB Advances		4.44			189,217			8,261		4.37			148,408			6,140		4.14			60,354			2,022		3.35
Total interest-bearing liabilities		3.86			629,197			23,140		3.68			577,120			17,464		3.03			475,979			10,800		2.27
Noninterest bearing liabilities					48,110								50,171								45,553
Total liabilities					677,307								627,291								521,532
Equity					92,355								92,402								90,961
Total liabilities and equity				$	769,662							$	719,693							$	612,493
Net interest/spread		1.84	%				$	18,026		1.87	%				$	18,357		2.17	%				$	17,368		2.48	%
Margin(3)		N/A								2.43	%							2.66	%							2.93	%
Ratio of interest-earning assets to interest-bearing liabilities					117.84	%							119.38	%							124.49	%

(1)	Calculated net of deferred fees, loan loss reserves and includes non-accrual loans.
(2)	Calculated based on amortized cost.
(3)	Net interest income divided by interest-earning assets
(4)	Interest income includes loan fees of $251,000, $276,000, and $299,000 for the fiscal years ended June 30, 2007, 2006, and 2005, respectively.

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Rate/Volume Analysis

          The following table presents the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (1) changes in volume, which are changes in volume multiplied by the old rate; (2) changes in rate, which are changes in rate multiplied by the old volume; and (3) changes in rate/volume, which are the changes in rate times the changes in volume.

	For the Year Ended June 30,												For the Year Ended June 30,
	2007 vs. 2006 Increase (Decrease) Due to												2006 vs. 2005 Increase (Decrease) Due to
	Volume			Rate			Rate/ Volume			Net			Volume			Rate			Rate/ Volume			Net
	(In thousands)
Interest-Earning Assets
Loans Receivable (1)	$	2,630		$	1,695		$	136		$	4,461		$	4,974		$	2,030		$	395		$	7,399
Securities		(379	)		174			(41	)		(246	)		(393	)		86			(17	)		(324	)
Fed Funds		559			217			191			967			29			228			18			275
Federal home Loan Bank stock		78			95			27			200			127			1			1			129
Interest-earning deposits in other financial institutions		(126	)		6			(3	)		(123	)		67			33			11			111
Other interest-earning assets		61			14			11			86			53			2			8			63
Total interest-earning assets	$	2,823		$	2,201		$	321		$	5,345		$	4,857		$	2,380		$	416		$	7,653
Interest-Bearing Liabilities
Deposits:
Money market	$	(344	)	$	822		$	(121	)	$	357		$	55		$	858		$	34		$	947
Savings		89			1,176			265			1,530			(8	)		(2	)		—			(10	)
Certificates of deposit		243			1,386			39			1,668			356			1,192			61			1,609
FHLB advances		1,688			339			94			2,121			2,950			475			693			4,118
Total interest-bearing liabilities		1,676			3,723			277			5,676			3,353			2,523			788			6,664
Change in net interest income/spread	$	1,147		$	(1,522	)	$	44		$	(331	)	$	1,504			(143	)	$	(372	)	$	989

(1) Total loans are net of deferred fees and costs.

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Comparison of Results of Operations for the Fiscal Years Ended June 30, 2007 and 2006.

          General. Net income for the year ended June 30, 2007 was $4.7 million, a decrease of $225,000, or 4.6%, from net income of $4.9 million for the year ended June 30, 2006 due to a decline in net interest income and an increase in non-interest expense. 

          Interest Income. Interest income increased $5.4 million, or 14.9%, to $41.2 million for the year ended June 30, 2007 from $35.8 million for the year ended June 30, 2006. The primary factor for the increase in the interest income was an increase in the average loans receivable balance of $48.8 million, or 8.0%, to $659.2 million for the year ended June 30, 2007 from $610.4 million for the year ended June 30, 2006. The increase was primarily due to increases in multifamily loans and purchases of one- to four-family real estate loans. The average yield on loans receivable increased 28 basis points to 5.67% for the year ended June 30, 2007 from 5.39% for the year ended June 30, 2006.

          Interest Expense. Interest expense increased $5.6 million, or 32.5%, to $23.1 million for the year ended June 30, 2007 from $17.5 million for the year ended June 30, 2006. The average interest rates on interest-bearing liabilities increased 65 basis points to 3.68% for the year ended June 30, 2007 from 3.03% for the year ended June 30, 2006. This increase was primarily attributable to the increased volume of average deposits, specifically certificates of deposit, and an increase in the average balance and interest rate on advances from the Federal Home Loan Bank of San Francisco.  

          The average balance of money market accounts decreased by $16.4 million, or 14.7% to $95.1 million for the year ended June 30, 2007 from $111.5 million for the year ended June 30, 2006.  The average cost of money market accounts increased 74 basis points to 2.84% for the year ended June 30, 2007 from 2.10% for the year ended June 30, 2006.  The average balance of savings accounts increased by $21.4 million, or 22.5% to $116.2 million for the year ended June 30, 2007 from $94.8 million for the year ended June 30, 2006.  The average cost of savings accounts increased 124 basis points to 1.66% for the year ended June 30, 2007 from .42% for the year ended June 30, 2006.  The average balance of certificate of deposit accounts increased by $6.3 million, or 2.8%, to $228.7 million for the year ended June 30, 2007 from $222.4 million for the year ended June 30, 2006. The average cost of certificate of deposits increased 62 basis points to 4.48% for the year ended June 30, 2007 from 3.86% for the year ended June 30, 2006.

          The average balance of advances from the Federal Home Loan Bank of San Francisco increased $40.8 million, or 27.5%, to $189.2 million for the year ended June 30, 2007 from $148.4 million for the year ended June 30, 2007. The average cost of advances increased 23 basis points to 4.37% for the year ended June 30, 2007 from 4.14% for the year ended June 30, 2006.

          The primary factor for the increase in the average balance and average interest rates on deposits and advances was to fund real estate loan purchases to better match our debt maturity schedule with the maturities and repricing terms of our interest-earning assets.

          Provision for Loan Losses. We maintain an allowance for loan losses to absorb probable incurred losses inherent in the loan portfolio. The allowance is based on ongoing, quarterly assessments of the probable losses inherent in the loan portfolio.

          Our provision for loan losses decreased $123,000 to $529,000 for the year ended June 30, 2007 as compared to $652,000 for the year ended June 30, 2006. The allowance for loan losses as a percent of total loans was 0.40% at June 30, 2007 as compared to 0.43% at June 30, 2006. The decrease in the provision was primarily attributable to reduced loan concentrations to higher-risk automobile loan borrowers coupled with a continued history of no losses in our real estate loan portfolio.  We used the

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same methodology and generally similar assumptions in assessing the adequacy of the allowance for consumer and real estate loans for both years.

          Noninterest Income. Noninterest income increased $833,000, or 24.3%, to $4.3 million for the year ended June 30, 2007 from $3.4 million for the year ended June 30, 2006. The increase was primarily the result of a $489,000 reduction in the loss on our equity investment in a California Affordable Housing Program tax credit fund, an $186,000 increase in service charges and fees from deposit accounts and a $131,000 increase in fee and transaction income related to the deployment of additional ATMs.

          We account for our equity investment in the California Affordable Housing program in accordance with APB 18 using the equity method of accounting.  The reduction in loss attributable to our equity investment was based upon the most recent financial statement information.

          Noninterest Expense. Our noninterest expense increased $1.0 million, or 7.7% to $14.5 million for the year ended June 30, 2007 from $13.5 million for the year ended June 30, 2006. The increase was primarily due to a $321,000 increase in salaries and benefits, a $316,000 increase in occupancy and equipment, a $162,000 increase in professional services and a $102,000 increase in other operating expenses.

          Salaries and benefits represented 52.5% and 54.2% of total noninterest expense for the years ended June 30, 2007 and 2006, respectively. Total salaries and benefits increased $321,000, or 4.4%, to $7.6 million for the year ended June 30, 2007 from $7.3 million for the year ended June 30, 2006. The increase was primarily due to compensation expense arising from general salary increases, increased staffing for new financial service centers and an increase in costs related to our employee stock ownership plan as a result of an increase in our average stock price.

          Occupancy and equipment expenses increased $316,000, or 17.8% to $2.1 million for the year ended June 30, 2007 from $1.8 million for the year ended June 30, 2006. The increase was primarily due to costs associated with the relocation of our Pasadena Branch and increased costs related to build-outs of financial service centers in Los Angeles and Riverside in addition to increased equipment maintenance expense.

          Professional services increased $162,000, or 21.6% to $913,000 for the year ended June 30, 2007 compared to $751,000 for the year ended June 30, 2006. The increase in professional services was primarily due to increased external and internal audit services as a result of complying with Sarbanes-Oxley Section 404 audit requirements. 

          Other operating expenses increased $102,000, or 7.0% to $1.6 million for the year ended June 30, 2007 from $1.5 million for the year ended June 30, 2006. The increase in other expense was primarily due to increased operational costs to support our continued growth.

          Income Tax Expense. Income tax expense for the year ended June 30, 2007 was $2.5 million as compared to $2.7 million for the year ended June 30, 2006. This decrease was primarily the result of a decline in pre-tax income of $417,000 for the year ended June 30, 2007. The effective tax rate was 35.0% and 35.6% for the years ended June 30, 2007 and 2006, respectively.

Comparison of Results of Operations for the Fiscal Years Ended June 30, 2006 and 2005.

          General. Net income for the year ended June 30, 2006 was $4.9 million, a decrease of $68,000, or 1.36%, from net income of $5.0 million for the year ended June 30, 2005.

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          Interest Income. Interest income increased $7.7 million, or 27.2%, to $35.8 million for the year ended June 30, 2006 from $28.2 million for the year ended June 30, 2005. The primary factor for the increase in the interest income was an increase in the average loans receivable balance of $99.6 million, or 19.5%, to $610.4 million for the year ended June 30, 2006 from $510.8 million for the year ended June 30, 2005. The increase was primarily due to purchases of one- to four-family and multi-family real estate loans. The average yield on loans receivable increased 39 basis points to 5.39% for the year ended June 30, 2006 from 5.00% for the year ended June 30, 2005.

          Interest Expense. Interest expense increased $6.7 million, or 61.7%, to $17.5 million for the year ended June 30, 2006 from $10.8 million for the year ended June 30, 2005. The average interest rates on interest-bearing liabilities increased 76 basis points to 3.03% for the year ended June 30, 2006 from 2.27% for the year ended June 30, 2005. This increase was primarily attributable to the increased volume of average deposits, specifically certificates of deposit, and an increase in the average balance and interest rate on advances from the Federal Home Loan Bank of San Francisco.  

          The average balance of money market accounts increased by $4.2 million, or 3.9% to $111.5 million for the year ended June 30, 2006 from $107.3 million for the year ended June 30, 2005.  The average balance of savings accounts decreased by $1.9 million, or 2.0% to $94.8 million for the year ended June 30, 2006 from $96.7 million for the year ended June 30, 2005.  The average balance of certificate of deposits increased by $10.8 million, or 5.1%, to $222.4 million for the year ended June 30, 2006 from $211.6 million for the year ended June 30, 2005.

          The average balance of advances from the Federal Home Loan Bank of San Francisco increased $88.0 million, or 145.9%, to $148.4 million for the year ended June 30, 2006 from $60.4 million for the year ended June 30, 2005. The average cost of advances increased 79 basis points to 4.14% for the year ended June 30, 2006 from 3.35% for the year ended June 30, 2005. The primary factor for the increase in the average balance and average interest rates on advances was due to new borrowings used to fund real estate loan purchases in order to better match our debt maturity schedule with the maturities and repricing terms of our interest-earning assets and other interest-bearing liabilities.

          Provision for Loan Losses. We maintain an allowance for loan losses to absorb probable incurred losses inherent in the loan portfolio. The allowance is based on ongoing, quarterly assessments of the probable losses inherent in the loan portfolio.

          Our provision for loan losses increased $246,000 to $652,000 for the year ended June 30, 2006 as compared to $406,000 for the year ended June 30, 2005. The allowance for loan losses as a percent of total loans was 0.43% at June 30, 2006 as compared to 0.45% at June 30, 2005. The increase in the provision was primarily attributable to an increase in real estate loans. We used the same methodology and generally similar assumptions in assessing the adequacy of the allowance for consumer and real estate loans for both years.

          Noninterest Income. Noninterest income increased $370,000, or 12.1%, to $3.4 million for the year ended June 30, 2006 from $3.1 million for the year ended June 30, 2005. The increase was primarily the result an increase of $337,000 from bank-owned life insurance purchased in April 2005 and a $126,000 increase in ATM fees and charges due to increased usage and deployment of additional ATM’s partially offset by an increase in the loss of $83,000 recognized from our investment in an affordable housing tax credit limited liability partnership.

          Noninterest Expense. Our noninterest expense increased $1.5 million, or 11.9% to $13.5 million for the year ended June 30, 2006 from $12.0 million for the year ended June 30, 2005. The increase was

52

primarily due to a $736,000 increase in salaries and benefits, a $316,000 increase in occupancy and equipment, and a $235,000 increase in other operating expenses.

          Salaries and benefits represented 54.2% and 54.5% of total noninterest expense for the years ended June 30, 2006 and 2005, respectively. Total salaries and benefits increased $736,000, or 11.2%, to $7.3 million for the year ended June 30, 2006 from $6.6 million for the year ended June 30, 2005. The increase was primarily due to an increase of $257,000 in compensation expense arising from general salary increases and additional full-time employees, an increase of $151,000 in stock award expense and the addition of $370,000 in stock option expense related to the to the adoption of FAS-123R partially offset by a reduction in fair market value costs related to our employee stock ownership plan.

          Occupancy and equipment expenses increased $316,000, or 21.7% to $1.8 million for the year ended June 30, 2006 from $1.5 million for the year ended June 30, 2005. The increase was primarily due to costs associated with the relocation of our Pasadena Branch and increased costs related to build-outs of financial service centers in Bellflower and Harbor City in addition to increased equipment maintenance expense.

          Other operating expenses increased $235,000, or 19.3% to $1.5 million for the year ended June 30, 2006 from $1.2 million for the year ended June 30, 2005. The increase in other expense was primarily due to increased operational costs to support our continued growth.

          Income Tax Expense. Income tax expense for the year ended June 30, 2006 was $2.7 million as compared to $3.0 million for the year ended June 30, 2005. This decrease was primarily the result of a decline in pre-tax income of $322,000, combined with an increase in non-taxable income from our bank-owned life insurance and tax credits from our affordable housing investment for the year ended June 30, 2006. The effective tax rate was 35.6% and 37.4% for the years ended June 30, 2006 and 2005, respectively.

Liquidity, Capital Resources and Commitments

          Liquidity may increase or decrease depending upon the availability of funds and comparative yields on investments in relation to the return on loans. Historically, we have maintained liquid assets at levels above the minimum requirements previously imposed by Office of Thrift Supervision regulations and above levels believed to be adequate to meet the requirements of normal operations, including potential deposit outflows. Cash flow projections are regularly reviewed and updated to assure that adequate liquidity is maintained.

          Our liquidity, represented by cash and cash equivalents and mortgage-backed and related securities, is a product of our operating, investing and financing activities. Our primary sources of funds are deposits, amortization, prepayments and maturities of outstanding loans and mortgage-backed and related securities, and other short-term investments and funds provided from operations. While scheduled payments from the amortization of loans and mortgage-backed related securities and maturing investment securities and short-term investments are relatively predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions and competition. In addition, we invest excess funds in short-term interest-earning assets, which provide liquidity to meet lending requirements. We also generate cash through borrowings. We utilize Federal Home Loan Bank advances to leverage our capital base and provide funds for our lending and investment activities, and enhance our interest rate risk management. 

          Liquidity management is both a daily and long-term function of business management. Excess liquidity is generally invested in short-term investments such as overnight deposits. On a longer-term

53

basis, we maintain a strategy of investing in various lending products as described in greater detail under “Business - - Lending Activities.”  We use our sources of funds primarily to meet ongoing commitments, to pay maturing certificate of deposits and savings withdrawals, to fund loan commitments and to maintain our portfolio of mortgage-backed and related securities. At June 30, 2007, the total approved loan commitments amounted to $13.9 million, which includes the unadvanced portion of loans of $6.4 million.  Certificates of deposit and advances from the Federal Home Loan Bank of San Francisco scheduled to mature in one year or less at June 30, 2007, totaled $174.7 million and $20.0 million, respectively. Based on historical experience, management believes that a significant portion of maturing deposits will remain with Kaiser Federal Bank and we anticipate that we will continue to have sufficient funds, through deposits and borrowings, to meet our current commitments.

          At June 30, 2007, we had available additional advances from the Federal Home Loan Bank of San Francisco in the amount of $101.4 million.

Contractual Obligations

          In the normal course of business, we enter into contractual obligations that meet various business needs. These contractual obligations include deposit account obligations to customers, borrowings from the Federal Home Loan Bank, lease obligations for facilities, and commitments to purchase and/or originate loans. The following table summarizes our long-term contractual obligations at June 30, 2007.

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Category of Contractual obligations	Total		Less than 1 year		1 – 3 Years		More than 3 – 5 Years		More than 5 years
	(In thousands)
FHLB advances	$	210,000	$	20,000	$	98,000	$	92,000	$	—
Operating lease obligations		3,441		845		1,645		528		423
Loan commitments to purchase residential mortgage loans		—		—		—		—		—
Loan commitments to originate residential mortgage loans		7,475		7,475		—		—		—
Available home equity and unadvanced lines of credit		6,415		6,415		—		—		—
Time Deposits		238,717		174,738		40,505		23,474		—
Commitments to fund equity investment in tax credit fund		193		129		64		—		—
Total commitments and contractual obligations	$	466,241	$	209,602	$	140,214	$	116,002	$	423

Off-Balance Sheet Arrangements

          As a financial services provider, we routinely are a party to various financial instruments with off-balance-sheet risks, such as commitments to extend credit and unused lines of credit.  While these contractual obligations represent our future cash requirements, a significant portion of commitments to extend credit may expire without being drawn upon.  Such commitments are subject to the same credit policies and approval process accorded to loans we make.  For additional information, see Note 14 of the notes to our consolidated financial statements.

Capital

          Consistent with our goal to operate a sound and profitable financial organization, we actively seek to maintain a “well capitalized” institution in accordance with regulatory standards. Total stockholders’ equity was $92.3 million at June 30, 2007 or 11.5%, of total assets on that date. As of June 30, 2007, we exceeded all regulatory capital requirements. Kaiser Federal Bank’s regulatory capital ratios at June 30, 2007 were as follows: core capital 8.32%; Tier I risk-based capital 12.76%; and total risk-based capital 13.30%. The regulatory capital requirements to be considered well capitalized are 5%, 6% and 10%, respectively. See “Supervision and Regulation- Capital Requirements.”

          For the year ended June 30, 2007, we repurchased 279,845 shares of our common stock at an average cost of $17.67. 

Impact of Inflation

          The consolidated financial statements presented herein have been prepared in accordance with GAAP. These principles require the measurement of financial position and operating results in terms of historical dollars, without considering changes in the relative purchasing power of money over time due to inflation.

          Our primary assets and liabilities are monetary in nature. As a result, interest rates have a more significant impact on our performance than the effects of general levels of inflation. Interest rates, however, do not necessarily move in the same direction or with the same magnitude as the price of goods and services, since such prices are affected by inflation. In a period of rapidly rising interest rates, the

55

liquidity and maturity structure of our assets and liabilities are critical to the maintenance of acceptable performance levels.

          The principal effect of inflation, as distinct from levels of interest rates, on earnings is in the area of non-interest expense. Such expense items as employee compensation, employee benefits and occupancy and equipment costs may be subject to increases as a result of inflation. An additional effect of inflation is the possible increase in the dollar value of the collateral securing loans that we have made. We are unable to determine the extent, if any, to which properties securing our loans have appreciated in dollar value due to inflation.

Recent Accounting Pronouncements

          Please refer to Note 1 of the consolidated financial statements.

Management of Market Risk

          How We Measure Our Risk of Interest Rate Changes. As part of our attempt to manage our exposure to changes in interest rates and comply with applicable regulations, we monitor our interest rate risk. In monitoring interest rate risk, we continually analyze and manage assets and liabilities based on their payment streams and interest rates, the timing of their maturities, and their sensitivity to actual or potential changes in market interest rates.

          In order to minimize the potential for adverse effects of material and prolonged increases in interest rates on our results of operations, we have adopted investment/asset and liability management policies to better match the maturities and repricing terms of our interest-earning assets and interest-bearing liabilities. The Board of Directors sets and recommends the asset and liability policies of Kaiser Federal Bank, which are implemented by the asset/liability management committee.

          The purpose of the asset/liability management committee is to communicate, coordinate and control asset/liability management consistent with our business plan and board approved policies. The committee establishes and monitors the volume and mix of assets and funding sources taking into account relative costs and spreads, interest rate sensitivity and liquidity needs. The objectives are to manage assets and funding sources to produce results that are consistent with liquidity, capital adequacy, growth, risk and profitability goals.

          The asset/liability management committee generally meets on a weekly basis to review, among other things, economic conditions and interest rate outlook, current and projected liquidity needs and capital position, anticipated changes in the volume and mix of assets and liabilities and interest rate risk exposure limits versus current projections pursuant to net present value of portfolio equity analysis and income simulations. The asset/liability management committee recommends appropriate strategy changes based on this review. The chairman or his designee is responsible for reviewing and reporting on the effects of the policy implementations and strategies to the Board of Directors at least monthly.

          In order to manage our assets and liabilities and achieve the desired liquidity, credit quality, interest rate risk, profitability and capital targets, we have focused our strategies on:

• Originating and purchasing adjustable rate loans;

• Originating a reasonable volume of short- and intermediate-term consumer loans;

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• Managing our deposits to establish stable deposit relationships; and

• Using Federal Home Loan Bank advances and pricing on fixed-term non-core deposits to align maturities and repricing terms.

          At times, depending on the level of general interest rates, the relationship between long- and short-term interest rates, market conditions and competitive factors, the asset/liability management committee may determine to increase our interest rate risk position somewhat in order to maintain our net interest margin.

          The asset/liability management committee regularly reviews interest rate risk by forecasting the impact of alternative interest rate environments on net interest income and market value of portfolio equity, which is defined as the net present value of an institution’s existing assets, liabilities and off-balance sheet instruments, and evaluating such impacts against the maximum potential changes in net interest income and market value of portfolio equity that are authorized by the Board of Directors of Kaiser Federal Bank.

          The Office of Thrift Supervision provides Kaiser Federal Bank with the information presented in the following tables, which is based on information provided to the Office of Thrift Supervision by Kaiser Federal Bank. It presents the change in Kaiser Federal Bank’s net portfolio value at June 30, 2007 and June 30, 2006 that would occur upon an immediate change in interest rates based on Office of Thrift Supervision assumptions but without giving effect to any steps that management might take to counteract that change.

Change in interest rates in basis points (“bp”) (Rate shock in rates)
	June 30, 2007
	Net portfolio value (NPV)								NPV as % of PV of assets
	$ amount		$ change			% change			NPV ratio			Change(bp)
		(Dollars in thousands)
+300 bp	$	39,973	$	(38,212	)		(49	)%		5.49	%		(445	)bp
+200 bp		54,079		(24,106	)		(31	)		7.22			(272	)
+100 bp		67,237		(10,498	)		(14	)		8.75			(119	)
0 bp		78,185		—			—			9.94			—
-100 bp		85,981		7,796			10			10.72			78
-200 bp		88,745		10,560			14			10.92			98

Change in interest rates in basis points (“bp”) (Rate shock in rates)
	June 30, 2006
	Net portfolio value (NPV)								NPV as % of PV of assets
	$ amount		$ change			% change			NPV ratio			Change(bp)
		(Dollars in thousands)
+300 bp	$	52,074	$	(31,435	)		(38	)%		7.79	%		(377	)bp
+200 bp		62,793		(20,716	)		(25	)		9.15			(241	)
+100 bp		73,459		(10,050	)		(12	)		10.43			(113	)
0 bp		83,509		—			—			11.56			—
-100 bp		90,540		7,031			8			12.27			71
-200 bp		89,698		6,189			7			12.03			47

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          The Office of Thrift Supervision uses certain assumptions in assessing the interest rate risk of savings associations. These assumptions relate to interest rates, loan prepayment rates, deposit decay rates, and the market values of certain assets under differing interest rate scenarios, among others.

          As with any method of measuring interest rate risk, shortcomings are inherent in the method of analysis presented in the foregoing tables. For example, although assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in the market interest rates. Also, 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. Additionally, certain assets, such as adjustable rate mortgage loans, have features, that restrict changes in interest rates on a short-term basis and over the life of the asset. Further, if interest rates change, expected rates of prepayments on loans and early withdrawals from certificates of deposit could deviate significantly from those assumed in calculating the table.

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BUSINESS OF K-FED BANCORP
AND KAISER FEDERAL FINANCIAL GROUP, INC.

Kaiser Federal Financial Group, Inc.

          Kaiser Federal Financial Group, Inc. is a Maryland corporation, organized on September 24, 2007.  Upon completion of the conversion and offering, Kaiser Federal Financial Group, Inc. will serve as the holding company for Kaiser Federal Bank and will succeed to all of the business and operations of K-Fed Bancorp and each of K-Fed Bancorp and K-Fed Mutual Holding Company will cease to exist. 

          Initially following the completion of the conversion and offering, Kaiser Federal Financial Group, Inc. will have no significant assets other than owning 100% of the outstanding common stock of Kaiser Federal Bank, the net proceeds it retains from the offering, part of which will be used to make a loan to the Kaiser Federal Bank Employee Stock Ownership Plan, and will have no significant liabilities.  See “How We Intend to Use the Proceeds From the Offering.”  Kaiser Federal Financial Group, Inc. intends to utilize the support staff and offices of Kaiser Federal Bank and will pay Kaiser Federal Bank for these services.  If Kaiser Federal Financial Group, Inc. expands or changes its business in the future, it may hire its own employees.

          Kaiser Federal Financial Group, Inc. intends to invest the net proceeds of the offering as discussed under “How We Intend to Use the Proceeds From the Offering.”  In the future, it may pursue other business activities, including mergers and acquisitions, investment alternatives and diversification of operations.  There are, however, no current understandings or agreements for these activities.

K-Fed Bancorp

          K-Fed Bancorp is a federally-chartered stock corporation that was formed in July 2003 as a wholly-owned subsidiary of K-Fed Mutual Holding Company, a federally-chartered mutual holding company, in connection with the mutual holding company reorganization of Kaiser Federal Bank, a federally chartered stock savings association. Upon completion of the mutual holding company reorganization in July 2003, K-Fed Bancorp acquired all of the capital stock of Kaiser Federal Bank. On March 30, 2004, K-Fed Bancorp completed a minority stock offering in which it sold 5,686,750 shares, or 39.09%, of its outstanding common stock to eligible depositors of Kaiser Federal Bank and the Kaiser Federal Bank employee stock ownership plan in a subscription offering. The remaining 8,861,750 outstanding shares of K-Fed Bancorp’s common stock are owned by K-Fed Mutual Holding Company. At June 30, 2007, K-Fed Mutual Holding Company owned 63.5%, or 8,861,750 shares, of the outstanding shares of common stock of K-Fed Bancorp, with the remaining 36.5%, or 5,087,195 shares held by public stockholders.  K-Fed Bancorp owns 100% of Kaiser Federal Bank’s outstanding common stock.

          At June 30, 2007, K-Fed Bancorp had consolidated assets of $799.6 million, deposits of $494.1 million and stockholders’ equity of $92.3 million.  K-Fed Bancorp has not engaged in any significant business to date.  Its primary activity is holding all of the outstanding shares of common stock of Kaiser Federal Bank.  K-Fed Bancorp does not maintain offices separate from those of Kaiser Federal Bank or utilize persons other than certain of Kaiser Federal Bank’s officers.  Our executive offices are located at 1359 North Grand Avenue, Covina, California 91724 and our telephone number is (626) 339-9663.

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BUSINESS OF KAISER FEDERAL BANK

General

          Kaiser Federal Bank is a community oriented financial institution offering a variety of financial services to meet the needs of the communities it serves. We are headquartered in Covina, California, with branches in Pasadena and Panorama City to serve Los Angeles County. We also have financial service centers in Fontana, Riverside and Santa Clara to serve the California Counties of San Bernardino Riverside and Santa Clara, respectively.  We also have financial service centers in Los Angeles, Bellflower and Harbor City in Los Angeles County, California.  We have a network of 54 ATMs located in Southern California and the San Francisco Metropolitan Area, primarily located at Kaiser Permanente Medical Centers.  We utilize financial service centers, ATMs and purchases of residential mortgage loans to more efficiently use our resources.

          We enjoy a strong and positive reputation with the customer base and the local market area. Dating back to our days as a credit union, we have a strong bond with our customers.  As a personal-service focused community financial institution, we focus on enhancing customer satisfaction with products and services that address customer needs and are consistent with our charter and risk profile.  We strive to offer high quality customer service in the most efficient way.  We consistently evaluate ways to broaden the products and services we offerwhich will enhance our market penetration in the communities we serve.

          Kaiser Federal Bank began operations as a credit union in 1953 to serve the employees of the Kaiser Foundation Hospital in Los Angeles, California.  On November 1, 1999, the Credit Union converted to a federal mutual savings association known as Kaiser Federal Bank which serves the general public as well as Kaiser Permanente employees. On July 1, 2003, we completed our conversion from a federal mutual savings association to a federal stock savings association in conjunction with the mutual holding company reorganization.  On March 30, 2004, K-Fed Bancorp completed its initial minority stock offering.

          Our principal business consists of attracting retail deposits from the general public and investing those funds primarily in permanent loans secured by first mortgages on owner-occupied, one- to four-family residences and to a lesser extent, multi-family residential loans and commercial real estate loans. We also originate automobile and other consumer loans. Historically, we have not made or purchased commercial business loans or commercial or residential real estate construction loans and have no current plans to do so. 

          Our revenues are derived principally from interest on loans and mortgage-backed and related securities. We also generate revenue from service charges and other income.

          We offer a variety of deposit accounts having a wide range of interest rates and terms, which generally include savings accounts, money market accounts, demand deposit accounts and certificate of deposit accounts with varied terms ranging from 90 days to five years. We solicit deposits in our primary market area of San Diego, Los Angeles, San Bernardino, Riverside, and Santa Clara Counties, California.

          Our website address is www.k-fed.com. Information on our website is not and should not be considered a part of this prospectus.

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Market Area

          Our California market area provides a large, increasing base of potential customers with per capita income levels favorable to the national average.  Los Angeles County is one of the largest counties in the United States and has the largest population of any county in the United States and is exceeded only by eight states.  Historically, the County’s economy was tied to the aerospace, entertainment and tourism industries.  In the early 1990’s, the area suffered recessionary conditions due to the downsizing of the United States military and the economic downturn affecting the national economy.  Los Angeles County’s economy has improved dramatically since the mid 1990’s as a result of extensive overhauling and restructuring of the region’s basic economic sectors from one formerly dominated by the aerospace, tourism and entertainment industries to a more diversified mix of high-technology commercial endeavors and by-products of the defense related industries, which capitalized on the highly educated and skilled labor force. The largest employers consist of the County of Los Angeles, the Los Angeles United School District and the City of Los Angeles.  Emerging growth areas include telecommunications, electronics, computers, software and biomedical technologies as well as international trade.

          The Counties of Riverside and San Bernadino are commonly referred to as the “Inland Empire.”  While the Inland Empire covers a vast geographic area extending to the Nevada border, Kaiser Federal Bank’s operations are concentrated in the western portion of these counties.  This area was also affected by the economic downtown of the early 1990’s, but has since recovered.  Many firms have moved from the congested and high priced regions of Los Angeles, Orange and San Diego Counties to the Inland Empire, a trend that is expected to continue.  The Pacific portion of San Bernardino and Riverside Counties are adjacent to higher housing cost areas of Los Angeles, Orange and San Diego Counties and are a magnet for new residents seeking affordable housing. Manufacturing, transportation and distribution companies provide thousands of jobs in this area.

          Santa Clara County is home to a number of leading technology and telecommunication companies and is located in the “Silicon Valley” where the per capita income well exceeds the state and national average. 

          The sales of new and existing one- to four-family homes in Southern California is at a 15 year low.  A decrease in home sales decreases lending opportunities and may negatively affect our income since a substantial portion of our loan portfolio consists of one- to four-family residential loans.  In addition, default rates statewide in California on one- to four-family loans in the second quarter of 2007 were also at the highest levels in a decade.  Despite these trends, real estate values have remained relatively stable through the second quarter.

Competition

          We face strong competition in originating real estate and other loans and in attracting deposits. Competition in originating real estate loans comes primarily from other savings institutions, commercial banks, credit unions and mortgage bankers. Other savings institutions, commercial banks, credit unions and finance companies provide vigorous competition in consumer lending. We also face competition from other lenders and investors with respect to loans that we purchase.

          We attract all of our deposits through our branch and ATM network. Competition for those deposits is principally from other savings institutions, commercial banks and credit unions, as well as mutual funds and other alternative investments. We compete for these deposits by offering superior service and a variety of deposit accounts at competitive rates.  We have less than a 1% market share of deposits in each of the markets in which we compete.

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Lending Activities

          General. We originate and purchase one- to four-family and multi-family residential loans and to a lesser extent we originate commercial real estate loans.  We do not originate or purchase residential or commercial construction loans.  We do not offer adjustable rate loans where the initial rate is below the otherwise applicable index rate (known as “teaser rates”).  We also originate consumer loans, primarily automobile loans. Our loans carry either a fixed or an adjustable rate of interest. Consumer loans are generally short term and amortize monthly or have interest payable monthly. Mortgage loans generally have a longer term amortization, with maturities up to 30 years, depending upon the type of property with principal and interest due each month. We also have loans in our portfolio that require only interest payments on a monthly basis. At June 30, 2007, our net loan portfolio totaled $699.1 million, which constituted 87.4% of our total assets. We generally underwrite each purchased loan individually in accordance with our underwriting standards. We utilize loan purchases to more efficiently use our resources by reducing operating costs such as staff and marketing.  In the Southern California market for an institution of our size, we have found it more efficient to purchase, rather than to originate loans, in order to supplement our lending platform.  The majority of the loans that we purchase are acquired with servicing released to allow us to build our portfolio without having to significantly increase our servicing and operations costs. We generally purchase these loans without recourse against the seller.

          At June 30, 2007, the maximum amount which we could have loaned to any one borrower and the borrower’s related entities under applicable regulations was $9.7 million, or 15% of Kaiser Federal Bank’s unimpaired capital. At June 30, 2007, we had no loans or group of loans to related borrowers with outstanding balances in excess of this amount. Our five largest lending relationships at June 30, 2007 were as follows:  (1) one loan to a limited partnership totaling $5.2 million, secured by an industrial facility located in Riverside County; (2) two loans to an individual totaling $4.8 million, secured by a 38 unit multi-family property located in Orange County and a medical office building located in Los Angeles County; (3) one loan to a limited partnership totaling $4.4 million, secured by six industrial buildings located in Los Angeles County; (4) one loan to a corporation totaling $4.0 million, secured by an office building located in Orange County; and (5) two loans to an individual totaling $3.8 million, secured by a 10 unit multi-family property and a 33 unit multi-family property located in Los Angeles County.  At June 30, 2007, these loans were performing in accordance with these terms.

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          The following table presents information concerning the composition of Kaiser Federal Bank’s loan portfolio in dollar amounts and in percentages as of the dates indicated.

	At June 30,
	2007					2006					2005					2004					2003
	Amount			Percent		Amount			Percent		Amount			Percent		Amount			Percent		Amount			Percent
	(Dollars in thousands)
Real estate
One- to four-family	$	469,459		66.88	%	$	437,024		68.63	%	$	372,134		69.04	%	$	341,776		68.82	%	$	259,563		66.64	%
Commercial		77,821		11.09			58,845		9.24			32,383		6.01			26,879		5.41			21,266		5.46
Multi-family		88,112		12.55			89,220		14.01			87,650		16.26			72,519		14.60			42,275		10.85
Total real estate loans		635,392		90.52			585,089		91.88			492,167		91.31			441,174		88.83			323,104		82.95
Other loans
Consumer:
Automobile		53,100		7.56			41,572		6.53			38,613		7.16			47,359		9.54			56,872		14.60
Home equity		1,446		0.21			1,787		0.28			601		0.11			437		0.08			664		0.17
Other		12,024		1.71			8,374		1.31			7,644		1.42			7,675		1.55			8,878		2.28
Total other loans		66,570		9.48			51,733		8.12			46,858		8.69			55,471		11.17			66,414		17.05
Total loans		701,962		100.00	%		636,822		100.00	%		539,025		100.00	%		496,645		100.00	%		389,518		100.00	%
Less:
Net deferred loan originations fees		(134	)				(202	)				(32	)				(332	)				(354	)
Net premiums on purchased loans		120					195					982					2,221					2,757
Allowance for loan losses		(2,805	)				(2,722	)				(2,408	)				(2,328	)				(2,281	)
Total loans receivable, net	$	699,143				$	634,093				$	537,567				$	496,206				$	389,640

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          Loan Maturity. The following schedule illustrates certain information at June 30, 2007 regarding the scheduled repayment of loans maturing in Kaiser Federal Bank’s portfolio based on their contractual terms-to-maturity, but does not include scheduled payments or potential prepayments. Demand loans, loans having no stated schedule of repayments and no stated maturity are reported as due in one year or less. Loan balances do not include undisbursed loan proceeds, unearned discounts, unearned income and allowance for loan losses.

	Real Estate						Consumer
	One- to Four-Family		Commercial		Multi-family		Automobile		Home Equity		Other		Total
	(In thousands)
At June 30, 2007
Within (1) year (1)	$	—	$	—	$	37	$	647	$	1,446	$	3,869	$	5,999
After 1 year:
After 1 year through 3 years		156		—		—		9,609		—		422		10,187
After 3 year through 5 years		568		1,167		—		41,831		—		512		44,078
After 5 year through 10 years		5,711		70,045		2,332		1,013		—		7,221		86,322
After 10 year through 15 years		65,775		6,609		57,502		—		—		—		129,886
After 15 years		397,249		—		28,241		—		—		—		425,490
Total due after 1 year		469,459		77,821		88,075		52,453		—		8,155		695,963
Total	$	469,459	$	77,821	$	88,112	$	53,100	$	1,446	$	12,024	$	701,962

(1) Includes demand loans and loans that have no stated maturity.

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          The following tables set forth the scheduled repayments of fixed and adjustable rate loans at June 30, 2007, that are contractually due after June 30, 2008.

	Due after June 30, 2008
	Fixed		Adjustable		Total
	(In thousands)
Real estate loans
One- to four-family	$	348,798	$	120,661	$	469,459
Commercial		—		77,821		77,821
Multi-family		—		88,075		88,075
Total real estate loans		348,798		286,557		635,355
Other Loans
Consumer:
Automobile		52,453		—		52,453
Home equity		—		—		—
Other loans		8,155		—		8,155
Total other loans		60,608		—		60,608
Total loans	$	409,406	$	286,557	$	695,963

          One- to Four-Family Residential Lending. At June 30, 2007, our first lien one- to four-family residential mortgage loans totaled $469.5 million, or 66.9%, of our gross loan portfolio, of which $391.9 million or 83.5% were purchased from large mortgage originators. We generally underwrite our one- to four-family loans based on the applicant’s employment and credit history and the appraised value of the subject property. With respect to purchased loans, we underwrite each loan based upon our underwriting standards prior to making the purchase. Presently, we lend up to 80% of the lesser of the appraised value or purchase price for one- to four-family residential loans. Should we grant a loan with a loan-to-value ratio in excess of 80%, we require private mortgage insurance in order to reduce our exposure below 80%. Properties securing our one- to four-family loans are generally appraised by independent state licensed fee appraisers approved by our Board of Directors. We require our borrowers to obtain title and hazard insurance, and flood insurance, if necessary, in an amount not less than the value of the property improvements. We currently retain in our portfolios all single-family loans we originate. We purchased $109.8 million in one- to four-family residential mortgage loans within the past fiscal year.

          We currently originate one- to four-family mortgage loans on a fixed rate and adjustable rate basis. Our pricing strategy for mortgage loans includes setting interest rates that are competitive with other local financial institutions and consistent with our internal needs. Adjustable-rate loans are tied to indices based on the one year London InterBank Offering Rate or U.S. Treasury securities adjusted to a constant maturity of one year.  A majority of our adjustable rate loans carry an initial fixed rate of interest for either three or five years which then converts to an interest rate that is adjusted annually based upon the applicable index. At June 30, 2007, $2.9 million, $9.3 million and $61.4 million of our adjustable rate one- to four-family loans will initially reprice in 2008, 2009 and 2010, respectively.  Our home mortgages are structured with a five to thirty year maturity, with amortization periods up to a 30-year period. All of our one- to four-family loans originated or purchased are secured by properties located in California.

          All our real estate loans contain a “due on sale” clause allowing us to declare the unpaid principal balance due and payable upon the sale of the security property. The loans originated or purchased by us are underwritten and documented pursuant to our underwriting guidelines. See “- Loan Originations, Purchases, Sales and Repayments.”  See “- Asset Quality - Non-Performing Assets” and “Asset Quality - Classified Assets.”

          Adjustable rate mortgage loans generally pose different credit risks than fixed-rate loan mortgages, primarily because as interest rates rise, the borrower’s payment rises, increasing the potential for default. We have not experienced significant delinquencies for these loans. However, the majority of

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these loans have been purchased or originated within the past three years.  See “ - Asset Quality – Non-Performing Assets” and “ - Classified Assets.”  At June 30, 2007, our one- to four-family adjustable rate mortgage loan portfolio totaled $120.7 million, or 17.2% of our gross loan portfolio. At that date, the fixed-rate one- to four-family mortgage loan portfolio totaled $348.8 million, or 49.7% of our gross loan portfolio.

          In addition, we have purchased interest-only one- to four-family mortgage loans. As of June 30, 2007, our one- to four-family interest-only mortgages loans totaled $100.4 million, or 14.3% of our gross loan portfolio, with $55.2 million of that amount consisting of adjustable rate loans.  We have no plans to significantly increase the number of interest-only loans held in our loan portfolio at this time.

          In late 2005, we began to underwrite interest-only loans assuming a fully amortized payment and for adjustable rate loans we qualify the borrower based upon the rate that would apply upon the first interest rate adjustment.  An interest-only loan typically provides for the payment of interest (rather than both principal and interest) for a fixed period of three, five or seven years, thereafter the loan payments adjust to include both principal and interest for the remaining term.  We believe those loans purchased under these additional underwriting standards should not present greater risk than other loans in our one-to four-family loan portfolio.

          The following table describes certain risk characteristics of our one-to four-family non-conforming mortgage loans held for investment as of June 30, 2007:

Category	Outstanding Balance		Weighted- Average Credit Score(1)		Weighted Average LTV(2)			Weighted- Average Seasoning(3)
	(Dollars in thousands)
Interest-only	$	100,424		737		70.89	%		1.79 years
Stated income(4)		118,842		741		66.42			2.06
Credit score less than or equal to 660		32,850		642		68.99			2.03

(1)	The credit score is one factor in determining the credit worthiness of a borrower based on the borrower’s credit history.
(2)	LTV (loan-to-value) is the ratio calculated by dividing the original loan balance by the appraised value of the real estate collateral.
(3)	Seasoning describes the number of years since the funding date of the loan.
(4)	Stated income is defined as a borrower provided level of income which is not subject to verification during the loan origination process through the borrower’s application, but the reasonableness of the borrower’s income is verified through other sources.  Included in interest-only loans are $42.4 million in stated-income loans.

          Multi-Family Residential Lending. We also offer multi-family residential loans. These loans are secured by real estate located in our primary market area. At June 30, 2007, multi-family residential loans totaled $88.1 million, or 12.6%, of our gross loan portfolio.

          Our multi-family residential loans are originated primarily with adjustable interest rates. We use a number of indices to set the interest rate, including a rate based on the constant maturity of one year U.S. Treasury securities.  Our adjustable rate loans carry an initial fixed rate of interest for either three or five years which then converts to an interest rate that is adjusted annually based upon the applicable index. Loan-to-value ratios on our multi-family residential loans do not exceed 75% of the appraised value of the property securing the loan. These loans require monthly payments, amortize over a period of up to 30 years and have maximum maturity of 30 years. These loans are secured by properties located in California. We originate these loans through our staff. We retain some of the multi-family loans we originate, while selling participations in others to manage our exposure to any one borrower.

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          Loans secured by multi-family residential real estate are underwritten based on the income producing potential of the property and the financial strength of the borrower. The net operating income, which is the income derived from the operation of the property less all operating expenses, must be sufficient to cover the payments related to the outstanding debt. We may require an assignment of rents or leases in order to be assured that the cash flow from the project will be used to repay the debt. Appraisals on properties securing multi-family residential loans are performed by independent state licensed fee appraisers approved by our Board of Directors. See “- Loan Originations, Purchases, Sales and Repayments.”

          Loans secured by multi-family residential properties are generally larger and involve a greater degree of credit risk than one- to four-family residential mortgage loans. Because payments on loans secured by multi-family residential properties are often dependent on the successful operation or management of the properties, repayment of such loans may be subject to adverse conditions in the real estate market or the economy. If the cash flow from the project is reduced, or if leases are not obtained or renewed, the borrower’s ability to repay the loan may be impaired. In order to monitor the adequacy of cash flows on income-producing properties, the borrowers are required to provide periodic financial information.  In addition, many of our multi-family real estate loans are not fully amortizing and contain large balloon payments upon maturity.  These balloon payments may require the borrower to either sell or refinance the underlying property in order to make the balloon payment.  If we foreclose on a multi-family real estate loan, our holding period for the collateral typically is longer than for one- to four-family residential mortgage loans because there are fewer potential purchasers of the collateral.  Further, our multi-family real estate loans generally have relatively large balances to single borrowers or related groups of borrowers.  Accordingly, if we make any errors in judgment in the collectibility of our multi-family real estate loans, any resulting charge-offs may be larger on a per loan basis than those incurred with our residential or consumer loan portfolios.  See “- Asset Quality - Non-Performing Assets.”

          Commercial Real Estate Lending. We offer commercial real estate loans. These loans are secured primarily by small retail establishments, rental properties and small office buildings located in our primary market area and are both owner and non-owner occupied. We originate commercial real estate loans through our own staff. We generally do not purchase commercial real estate loans. At June 30, 2007, commercial real estate loans totaled $77.8 million, or 11.1% of our gross loan portfolio, of which $28.3 million or 36.4% of our commercial real estate loan portfolio were to borrowers occupying the underlying collateral. Our largest commercial real estate loan at June 30, 2007 was a $5.2 million loan secured by an industrial facility located in Riverside County performing in accordance with its terms. We do not originate commercial construction loans.

          We originate only adjustable-rate commercial real estate loans. The interest rate on these loans is tied to a rate based on the constant maturity of one year U.S. Treasury securities. A majority of our adjustable rate loans carry an initial fixed rate of interest for either three or five years which then converts to an interest rate that is adjusted annually based upon the index. Loan-to-value ratios on our commercial real estate loans generally do not exceed 75% of the appraised value of the property securing the loan. These loans require monthly payments, amortize up to 30 years, have maturities of up to 15 years and carry prepayment penalties.

          Loans secured by commercial real estate are underwritten based on the income producing potential of the property, the financial strength of the borrower and any guarantors. The net operating income, which is the income derived from the operation of the property less all operating expenses, must be sufficient to cover the payments related to the outstanding debt. We may require an assignment of rents or leases in order to be assured that the cash flow from the project will be used to repay the debt. Appraisals on properties securing commercial real estate loans are performed by independent state licensed fee appraisers approved by the Board of Directors. All the properties securing our commercial

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real estate loans are located in California. In order to monitor the adequacy of cash flows on income producing properties, the borrowers are required to provide periodic financial information. See “- Loan Originations, Purchases, Sales and Repayments.”

          Loans secured by commercial real estate properties are generally larger and involve a greater degree of credit risk than one- to four-family residential mortgage loans. Because payments on loans secured by commercial real estate properties are often dependent on the successful operation or management of the properties, repayment of such loans may be subject to adverse conditions in the real estate market or the economy. If the cash flow from the project is reduced, or if leases are not obtained or renewed, the borrower’s ability to repay the loan may be impaired.  In addition, many of our commercial real estate loans are not fully amortizing and contain large balloon payments upon maturity.  These balloon payments may require the borrower to either sell or refinance the underlying property in order to make the balloon payment.  If we foreclose on a commercial real estate loan, our holding period for the collateral typically is longer than for one- to four-family residential mortgage loans because there are fewer potential purchasers of the collateral.  Further, our commercial real estate loans generally have relatively large balances to single borrowers or related groups of borrowers.  Accordingly, if we make any errors in judgment in the collectibility of our commercial real estate loans, any resulting charge-offs may be larger on a per loan basis than those incurred with our residential or consumer loan portfolios.  See “- Asset Quality - Non-Performing Loans.”

          Consumer Loans. We offer a variety of secured consumer loans, including home equity lines of credit, new and used auto loans, and loans secured by savings deposits. We also offer a limited amount of unsecured loans. Consumer loans generally have shorter terms to maturity, which reduces our exposure to changes in interest rates, and carry higher rates of interest than do one- to four-family residential mortgage loans. At June 30, 2007, our consumer loan portfolio, exclusive of automobile loans, totaled $13.5 million, or 1.9%, of our gross loan portfolio.

          The most significant component of our consumer lending is automobile loans. We originate automobile loans only on a direct basis with the borrower. Loans secured by automobiles totaled $53.1 million, or 7.6%, of our gross loan portfolio at June 30, 2007. Automobile loans may be written for up to seven years for new automobiles and a maximum of five years for used automobiles (with an age limit of five years) and have fixed rates of interest. Loan-to-value ratios for automobile loans are up to 100% of the sales price for new automobiles and up to 100% of value on used cars, based on valuation from official used car guides.

          Each automobile loan requires the borrower to keep the financed vehicle fully insured against loss or damage by fire, theft and collision.  In addition, we have the right to force place insurance coverage in the event the required physical damage insurance on the vehicle is not maintained by the borrower.  Our primary focus when originating automobile loans is on the ability of the borrower to repay the loan rather than the value of the underlying collateral.  The amount financed by us is generally up to the full sales price of the financed vehicle plus sales tax, dealer preparation, license, and title fees, plus the cost of a vehicle and warranty contract.

          Consumer loans may entail greater risk than do one- to four-family residential mortgage loans, particularly in the case of consumer loans which are secured by rapidly depreciable assets, such as automobiles. In these cases, any repossessed collateral for a defaulted loan may not provide an adequate source of repayment of the outstanding loan balance. As a result, consumer loan collections are dependent on the borrower’s continuing financial stability and, thus, are more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy.  Furthermore, the application of various federal and state laws, including federal and state bankruptcy and insolvency laws, may limit the amount that can be recovered on these loans.

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Loan Originations, Purchases, Sales and Repayments

          We originate loans through employees located at our offices. Walk-in customers and referrals from our current customer base, advertisements, real estate brokers and mortgage loan brokers are also important sources of loan originations.

          While we originate adjustable rate and fixed rate loans, our ability to originate loans is dependent upon customer demand for loans in our market area. Demand is affected by local competition and the interest rate environment. We also purchase real estate whole loans as well as participation interests in real estate loans. From time to time, we have sold participation interests in some of our larger real estate loans. At June 30, 2007, our real estate loan portfolio totaled $635.4 million or 90.5% of the gross loan portfolio. Purchased real estate loans at June 30, 2007 totaled $406.5 million, or 64.0% of the real estate loan portfolio. At June 30, 2006, our real estate loan portfolio totaled $585.1 million or 91.9% of the gross loan portfolio.  Purchased real estate loans at June 30, 2006 totaled $386.9 million or 66.1% of the real estate loan portfolio.

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          The following table shows the loan origination, purchase, sale and repayment activities of Kaiser Federal Bank for the periods indicated, and includes loans originated for both our own portfolio and for sale of participating interests.

	Year ended June 30,
	2007			2006			2005
	(In thousands)
Originations by type:
Adjustable rate:
Real estate-one to four-family	$	2,399		$	—		$	3,942
-commercial		23,432			32,154			6,200
-multi-family		13,740			14,771			17,750
Non-real estate – other consumer		3,542			5,694			4,445
Total adjustable rate		43,113			52,619			32,337
Fixed rate:
Real estate-one to four-family		20,574			14,238			10,446
Non-real estate - consumer automobile		35,654			26,318			18,453
- other consumer		11,841			8,591			8,617
Total fixed rate		68,069			49,147			37,516
Total loans originated		111,182			101,766			69,853
Purchases:
Adjustable rate:
Real estate- one to four-family		—			13,074			73,740
-commercial		—			—			3,993
-multi-family		—			2,430			10,152
Total adjustable rate		—			15,504			87,885
Fixed rate:
Real estate- one to four-family		109,830			145,771			62,825
Total fixed rate		109,830			145,771			62,825
Total loans purchased		109,830			161,275			150,710
Sales and repayments:
Sales and loan participations sold		—			—			—
Principal repayments		155,872			165,244			178,183
Total reductions		155,872			165,244			178,183
Decrease in other items, net		(90	)		(1,271	)		(1,019	)
Net increase	$	65,050		$	96,526		$	41,361

Asset Quality

          We do not originate, purchase or hold in our loan portfolio teaser option-ARM loans or negative amortizing loans.  We underwrite all real estate loans based on an applicant’s employment history, credit history and an appraised value of the subject property.  At June 30, 2007, one- to four-family residential mortgage loans totaled $469.5 million, or 66.9%, of our gross loan portfolio of which $348.8 million were fixed rate and $120.7 million were adjustable rate loans.  Adjustable rate mortgages generally pose different credit risks than fixed rate loan mortgages, primarily because as interest rates rise, the borrower’s payment rises, increasing the potential for default.  Beginning in 2005, we originated and purchased for portfolio more fixed rate loans than adjustable rate loans.  At June 30, 2005, one-to-four family fixed rate loans totaled $133.9 million compared to $238.3 million in adjustable rate loans.  At June 30, 2006, one-to-four family fixed rate loans totaled $258.9 million compared to $178.1 million in

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adjustable rate loans.  Although we have reduced the amount of adjustable rate loans held in portfolio, we have not experienced significant delinquencies for these loans.

          For one- to four-family residential, multi-family and commercial real estate loans serviced by us, a delinquency notice is sent to the borrower when the loan is eight days past due. When the loan is 20 days past due, we mail a subsequent delinquency notice to the borrower. Typically, before the loan becomes 30 days past due, contact with the borrower is made requesting payment of the delinquent amount in full, or the establishment of an acceptable repayment plan to bring the loan current. If an acceptable repayment plan has not been agreed upon, loan personnel will generally prepare a notice of intent to foreclose. The notice of intent to foreclose allows the borrower up to 10 days to bring the account current. Once the loan becomes 60 days delinquent, and an acceptable repayment plan has not been agreed upon, the servicing officer will turn over the account to the deed of trust trustee with instructions to initiate foreclosure.

          Real estate loans serviced by a third party are subject to the servicing institution’s collection policies. However, we track each purchased loan individually to ensure full payments are received as scheduled. Each month, third party servicers are required to provide delinquent loan status reports to our servicing officer, which are included in the month-end delinquent real estate report to management.

          When a borrower fails to make a timely payment on a consumer loan, a delinquency notice is sent when the loan is 10 days past due. When the loan is 20 days past due, we mail a subsequent delinquency notice to the borrower. Once a loan is 30 days past due, our staff contacts the borrower by telephone to determine the reason for delinquency and to request payment of the delinquent amount in full or the establishment of an acceptable repayment plan to bring the loan current. If the borrower is unable to make or keep payment arrangements, additional collection action is taken in the form of repossession of collateral for secured loans and small claims or legal action for unsecured loans.

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          Delinquent Loans.  The following table sets forth certain information with respect to our loan portfolio delinquencies at the dates indicated.

	Loans Delinquent:
	60-89 Days				90 Days or More				Total Delinquent Loans
	Number of Loans		Amount		Number of Loans		Amount		Number of Loans		Amount
	(Dollars in thousands)
At June 30, 2007
Real estate loans:
One- to four-family		—	$	—		2	$	1,115		2	$	1,115
Commercial		—		—		—		—		—		—
Multi-family		—		—		—		—		—		—
Other loans:
Automobile		7		111		2		19		9		130
Home equity		—		—		—		—		—		—
Other		5		8		4		7		9		15
Total loans		12	$	119		8	$	1,141		20	$	1,260
At June 30, 2006
Real estate loans:
One- to four-family		2	$	383		—	$	—		2	$	383
Commercial		—		—		—		—		—		—
Multi-family		—		—		—		—		—		—
Other loans:
Automobile		8		108		7		57		15		165
Home equity		—		—		—		—		—		—
Other		3		3		6		10		9		13
Total loans		13	$	494		13	$	67		26	$	561
At June 30, 2005
Real estate loans:
One- to four-family		—	$	—		2	$	757		2	$	757
Commercial		—		—		—		—		—		—
Multi-family		—		—		—		—		—		—
Other loans:
Automobile		6		50		2		28		8		78
Home equity		—		—		—		—		—		—
Other		10		10		1		2		11		12
Total loans		16	$	60		5	$	787		21	$	847
At June 30, 2004
Real estate loans:
One- to four-family		—	$	—		—	$	—		—	$	—
Commercial		—		—		—		—		—		—
Multi-family		—		—		—		—		—		—
Other loans:
Automobile		40		502		9		79		49		581
Home equity		—		—		—		—		—		—
Other		97		93		2		3		99		96
Total loans		137	$	595		11	$	82		148	$	677
At June 30, 2003
Real estate loans:
One- to four-family		—	$	—		—	$	—		—	$	—
Commercial		—		—		—		—		—		—
Multi-family		—		—		—		—		—		—
Other loans:
Automobile		7		129		1		13		8		142
Home equity		—		—		—		—		—		—
Other		60		92		3		13		63		105
Total loans		67	$	221		4	$	26		71	$	247

          Non-Performing Assets. The following table sets forth the amounts and categories of non-performing assets in our loan portfolio. Non-performing assets consist of non-accrual loans, and foreclosed assets. Loans to a customer whose financial condition has deteriorated are considered for non-accrual status whether or not the loan is 90 days and over past due. All loans past due 90 days and over are classified as non-accrual. On non-accrual loans, interest income is not recognized until actually

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collected. At the time the loan is placed on non-accrual status, interest previously accrued but not collected is reversed and charged against current income. Interest is not accrued on loans greater than 90 days or more delinquent. At each date presented we had no troubled debt restructurings (loans for which a portion of interest or principal has been forgiven and loans modified at an interest rate materially less than current market rate).

          Foreclosed assets consist of real estate and other assets which have been acquired through foreclosure on loans. At the time of foreclosure, assets are recorded at the lower of their estimated fair value less selling costs or the loan balance, with any write-down charged against the allowance for loan losses.

	At June 30,
	2007			2006			2005			2004			2003
	(Dollars in thousands)
Non-accrual loans:
Real estate loans:
One- to four-family	$	1,115		$	—		$	757		$	—		$	—
Commercial		—			—			—			—			—
Multi-family		—			—			—			—			—
Other loans:
Automobile		19			57			28			79			13
Home Equity		—			—			—			—			—
Other		7			10			2			3			13
Total		1,141			67			787			82			26
Real estate owned and Repossessed assets:
Real estate loans:
One- to four-family		238			—			—			—			—
Commercial		—			—			—			—			—
Multi-family		—			—			—			—			—
Other loans:
Automobile		74			69			35			62			26
Home equity		—			—			—			—			—
Other		—			—			—			—			—
Total		312			69			35			62			26
Total non-performing assets	$	1,453		$	136		$	822		$	144		$	52
Non-performing loans to total loans (1)		0.16	%		0.01	%		0.15	%		0.02	%		0.01	%
Non-performing assets to total assets		0.18	%		0.02	%		0.13	%		0.02	%		0.01	%
Non-accrued interest (2)	$	17		$	1		$	25		$	4		$	1

(1)	Total loans are net of deferred fees and costs.
(2)	If interest on the loans classified as non-performing had been accrued, interest income in these amounts would have been accrued.

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          Classified Assets. Federal regulations provide for the classification of loans and other assets, such as debt and equity securities considered by regulators to be of lesser quality, as “substandard,” “doubtful” or “loss.”  An asset is considered “substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. “Substandard” assets include those characterized by the “distinct possibility” that the insured institution will sustain “some loss” if the deficiencies are not corrected. Assets classified as “doubtful” have all of the weaknesses inherent in those classified “substandard,” with the added characteristic that the weaknesses present make “collection or liquidation in full,” on the basis of currently existing facts, conditions, and values, “highly questionable and improbable.”  Assets classified as “loss” are those considered “uncollectible” and of such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted.

          When an insured institution classifies problem assets as either substandard or doubtful, it may establish general allowances for loan losses in an amount deemed prudent by management and approved by the Board of Directors. General allowances represent loss allowances which have been established to recognize the inherent risk associated with lending activities, but which, unlike specific allowances, have not been allocated to particular problem assets. When an insured institution classifies problem assets as “loss,” it is required either to establish a specific allowance for losses equal to 100% of that portion of the asset so classified or to charge off such amount. An institution’s determination as to the classification of its assets and the amount of its valuation allowances is subject to review by the Office of Thrift Supervision and the FDIC, which may order the establishment of additional general or specific loss allowances.

          In connection with the filing of our periodic reports with the Office of Thrift Supervision and in accordance with our classification of assets policy, we regularly review the problem assets in our portfolio to determine whether any assets require classification in accordance with applicable regulations. The total amount of classified assets represented 6.2% of our equity capital and 0.7% of our total assets at June 30, 2007.

          The aggregate amount of our classified and special mention assets at the dates indicated were as follows:

	At June 30,
	2007		2006		2005
	(In thousands)
Classified Assets:
Loss	$	58	$	90	$	45
Doubtful		670		1,321		1,375
Substandard		2,010		1,134		1,459
Special Mention		3,495		2,497		1,793
Total	$	6,233	$	5,042	$	4,672

          With the exception of these classified and special mention loans, management is not aware of any loans as of June 30, 2007 where the known credit problems of the borrower would cause us to have serious doubts as to the ability of such borrowers to comply with their present loan repayment terms.

          Allowance for Loan Losses. We maintain an allowance for loan losses to absorb probable incurred losses inherent in the loan portfolio. The allowance is based on ongoing, quarterly assessments of the probable losses inherent in the loan portfolio. Our methodology for assessing the appropriateness of the allowance consists of several key elements, which include loss ratio analysis by type of loan and specific allowances for identified problem loans, including the results of measuring impaired loans as provided in Statement of Financial Accounting Standards (“SFAS”) No. 114, “Accounting by Creditors for Impairment of a Loan” and SFAS No. 118, “Accounting by Creditors for Impairment of a Loan – Income Recognition and Disclosures.”  These accounting standards prescribe the measurement methods, income recognition and disclosures related to impaired loans.

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          The loss ratio analysis component of the allowance is calculated by applying loss factors to outstanding loans based on the internal risk evaluation of the loans or pools of loans. Changes in risk evaluations of both performing and nonperforming loans affect the amount of the allowance. Loss factors are based both on our historical loss experience as well as on significant factors that, in management’s judgment, affect the collectibility of the portfolio as of the evaluation date.

          The appropriateness of the allowance is reviewed and established by management based upon its evaluation of then-existing economic and business conditions affecting our key lending areas and other conditions, such as credit quality trends (including trends in nonperforming loans expected to result from existing conditions), collateral values, loan volumes and concentrations, specific industry conditions within portfolio segments and recent loss experience in particular segments of the portfolio that existed as of the balance sheet date and the impact that such conditions were believed to have had on the collectibility of the loan. Senior management reviews these conditions quarterly in discussions with our senior credit officers. To the extent that any of these conditions is evidenced by a specifically identifiable problem credit or portfolio segment as of the evaluation date, management’s estimate of the effect of such condition may be reflected as a specific allowance applicable to such credit or portfolio segment. Where any of these conditions is not evidenced by a specifically identifiable problem credit or portfolio segment as of the evaluation date, management’s evaluation of the loss related to this condition is reflected in the general allowance. The evaluation of the inherent loss with respect to these conditions is subject to a higher degree of uncertainty because they are not identified with specific problem credits or portfolio segments.

          Management also evaluates the adequacy of the allowance for loan losses based on a review of individual loans, historical loan loss experience, the value and adequacy of collateral, and economic conditions in our market area. This evaluation is inherently subjective as it requires material estimates, including the amounts and timing of future cash flows expected to be received on impaired loans that may be susceptible to significant change. For all specifically reviewed loans for which it is probable that we will be unable to collect all amounts due according to the terms of the loan agreement, we determine impairment by computing a fair value either based on discounted cash flows using the loan’s initial interest rate or the fair value of the collateral if the loan is collateral dependent. Large groups of smaller balance homogenous loans that are collectively evaluated for impairment and are excluded from specific impairment evaluation, and their allowance for loan losses is calculated in accordance with the allowance for loan losses policy described above.

          Because the allowance for loan losses is based on estimates of losses inherent in the loan portfolio, actual losses can vary significantly from the estimated amounts. Our methodology as described permits adjustments to any loss factor used in the computation of the formula allowance in the event that, in management’s judgment, significant factors which affect the collectibility of the portfolio as of the evaluation date are not reflected in the loss factors. By assessing the estimated losses inherent in the loan portfolio on a quarterly basis, we are able to adjust specific and inherent loss estimates based upon any more recent information that has become available.

          At June 30, 2007, our allowance for loan losses was $2.8 million or 0.4% of the total loan portfolio and 245.8% of total non-performing loans. Assessing the adequacy of the allowance for loan losses is inherently subjective as it requires making material estimates, including the amount and timing of future cash flows expected to be received on impaired loans, which may be susceptible to significant change. In the opinion of management, the allowance, when taken as a whole, is at an amount that will absorb probable incurred loan losses inherent in our loan portfolios.

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          The following sets forth an analysis of our allowance for loan losses.

	Year Ended June 30,
	2007			2006			2005			2004			2003
	(Dollars in thousands)
Balance at beginning of period	$	2,722		$	2,408		$	2,328		$	2,281		$	1,744
Charge-offs:
One- to four-family		—			—			—			—			—
Commercial		—			—			—			—			—
Multi-family		—			—			—			—			—
Consumer – automobile		676			547			500			675			842
Consumer – other		92			33			48			62			58
		768			580			548			737			900
Recoveries:
One- to four-family		—			—			—			—			—
Commercial		—			—			—			—			—
Multi-family		—			—			—			—			—
Consumer – automobile		312			234			203			279			296
Consumer – other		10			8			19			22			17
		322			242			222			301			313
Net charge-offs		446			338			326			436			587
Provision for losses		529			652			406			483			1,124
Balance at end of period	$	2,805		$	2,722		$	2,408		$	2,328		$	2,281
Net charge-offs to average loans during this period(1)		0.07	%		0.06	%		0.06	%		0.11	%		0.19	%
Net charge-offs to average non-performing loans during this period		47.90	%		73.04	%		112.37	%		807.41	%		715.85	%
Allowance for loan losses to non-performing loans		245.84	%		4,062.69	%		305.97	%		2,839.02	%		8,773.08	%
Allowance as a percent of total loans (end of period) (1)		0.40	%		0.43	%		0.45	%		0.47	%		0.58	%

(1) Total loans are net of deferred fees and costs.

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          Allocation of Allowance for Loan Losses.  The distribution of the allowance for losses on loans at the dates indicated is summarized as follows.

	At June 30,
	2007					2006					2005					2004					2003
	Amount		Percent of Loans in Each Category to Total Loans			Amount		Percent of Loans in Each Category to Total Loans			Amount		Percent of Loans in Each Category to Total Loans			Amount		Percent of Loans in Each Category to Total Loans			Amount		Percent of Loans in Each Category to Total Loans
	(Dollars in thousands)
Real estate loans:
One- to four-family	$	1,626		66.88	%	$	1,322		68.63	%	$	1,037		69.04	%	$	932		68.82	%	$	703		66.64	%
Commercial		73		11.09			54		9.24			40		6.01			99		5.41			82		5.46
Multi-family		114		12.55			123		14.01			155		16.26			232		14.60			132		10.85
Other loans:
Automobile		922		7.56			1,184		6.53			1,143		7.16			1,008		9.54			1,289		14.60
Home equity		1		0.21			2		0.28			1		0.11			1		0.08			2		0.17
Other		69		1.71			37		1.31			32		1.42			56		1.55			73		2.28
Total allowance for loan losses	$	2,805		100.00	%	$	2,722		100.00	%	$	2,408		100.00	%	$	2,328		100.00	%	$	2,281		100.00	%

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Investment Activities

          General. We are required by federal regulations to maintain an amount of liquid assets in order to meet our liquidity needs. These assets consist of certain specified securities. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity, Capital Resources and Commitments.”  Cash flow projections are regularly reviewed and updated to assure that adequate liquidity is provided.

          We are authorized to invest in various types of liquid assets, including U.S. Treasury obligations, securities of various federal agencies, certain certificates of deposit of insured banks and savings institutions, certain bankers’ acceptances, repurchase agreements and federal funds. Subject to various restrictions, federal savings associations may also invest their assets in investment grade commercial paper and corporate debt securities and mutual funds whose assets conform to the investments that a federally chartered savings association is otherwise authorized to make directly. See “Supervision and Regulation” for a discussion of additional restrictions on our investment activities.

          Under the direction and guidance of the Investment/Asset and Liability Management Committee and board policy, our president has the basic responsibility for the management of our investment portfolio. Various factors are considered when making decisions, including the marketability, maturity and tax consequences of the proposed investment. The maturity structure of investments will be affected by various market conditions, including the current and anticipated short and long term interest rates, the level of interest rates, the trend of new deposit inflows, and the anticipated demand for funds via deposit withdrawals and loan originations and purchases.

          The current structure of our investment portfolio provides liquidity when loan demand is high, assists in maintaining earnings when loan demand is low and maximizes earnings while satisfactorily managing risk, including credit risk, reinvestment risk, liquidity risk and interest rate risk.  Management’s Discussion and Analysis of Financial Condition and Results of Operation–Management of Market Risk.”

          At June 30, 2007, our investment portfolio totaled $34.7 million and consisted principally of collateralized mortgage obligations, mortgage-backed securities, and U.S. government agency and government sponsored entity bonds. From time to time, investment levels may increase or decrease depending upon yields available on investment alternatives and management’s projected demand for funds for loan originations, deposits, and other activities. Our investment policy only permits us to buy investment grade securities.

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

	At June 30,
	2007					2006					2005
	Carrying Value		Percent of Total			Carrying Value		Percent of Total			Carrying Value		Percent of Total
	(Dollars in thousands)
Securities available-for-sale:
U.S. government and government sponsored entity bonds	$	2,994		8.63	%	$	5,392		14.96	%	$	10,864		21.87	%
Mortgage-backed securities:
Freddie Mac		4,827		13.92			5,897		16.37			7,984		16.07
Collateralized mortgage obligations:
Freddie Mac		5,758		16.61			—		—			—		—
Total securities available-for-sale	$	13,579		39.16	%	$	11,289		31.33	%	$	18,848		37.94	%
Securities held-to-maturity:
U.S. government and government sponsored entity bonds	$	12,000		34.61	%	$	12,000		33.31	%	$	10,000		20.13	%
Mortgage-backed securities:
Fannie Mae		303		0.87			408		1.13			541		1.09
Freddie Mac		217		0.63			269		0.75			335		0.67
Ginnie Mae		146		0.42			168		0.47			250		0.50
Collateralized mortgage obligations:
Fannie Mae		2,747		7.92			3,372		9.36			4,617		9.29
Freddie Mac		4,926		14.21			7,197		19.98			12,570		25.30
Ginnie Mae		757		2.18			1,324		3.67			2,521		5.08
Total securities held-to-maturity	$	21,096		60.84	%	$	24,738		68.67	%	$	30,834		62.06	%
Total securities	$	34,675		100.00	%	$	36,027		100.00	%	$	49,682		100.00	%
Other earning assets:
Interest-bearing deposits in other financial institutions	$	2,970		10.39	%	$	9,010		24.97	%	$	9,010		38.57	%
Fed Funds		15,750		55.09			18,335		50.80			10,325		44.20
FHLB stock		9,870		34.52			8,746		24.23			4,027		17.23
Total other earning assets	$	28,590		100.00	%	$	36,091		100.00	%	$	23,362		100.00	%
Total securities and other earning assets	$	63,265				$	72,118				$	73,044

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          While our collateralized mortgage-backed securities and mortgage-backed securities carry a reduced credit risk as compared to whole loans due to their issuance under government agency sponsored programs, they remain subject to the risk that a fluctuating interest rate environment, along with other factors like the geographic distribution of the underlying mortgage loans, may alter the prepayment rate of the mortgage loans and so affect both the prepayment speed, and value, of the investment securities. As a result of these factors, the estimated average lives of these securities will be shorter than the contractual maturities as shown on the following table.

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          Portfolio Maturities and Yields.  The composition and maturities of the investment securities portfolio at June 30, 2007 are summarized in the following table.  Maturities are based on the final contractual payment dates, and do not reflect the impact of prepayments or early redemptions that may occur.

	One year or less					More than One Year through Five Years					More than Five Years through Ten Years					More than Ten Years					Total Securities
	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)
Securities available-for-sale:
U.S. government and government sponsored entity bonds	$	—		—	%	$	3,000		5.30	%		—		—	%	$	—		—	%	$	3,000	$	2,994		5.30	%
Mortgage-backed securities:
Freddie Mac		—		—			3,836		3.26			1,130		3.86			—		—			4,966		4,827		3.40
Collateralized mortgage obligations
Freddie Mac		—		—			—		—			—		—			5,827		5.37			5,827		5,758		5.37
Total securities available-for-sale	$	—		—	%		6,836		4.16	%		1,130		3.86	%		5,827		5.37	%		13,793		13,579		4.65	%
Securities held-to-maturity:
U.S. government and government sponsored entity bonds	$	12,000		3.83			—		—			—		—			—		—			12,000		11,930		3.83
Mortgage-backed securities:
Fannie Mae		—		—			—		—			—		—			303		6.44			303		304		6.44
Freddie Mac		—		—			—		—			—		—			217		5.65			217		216		5.65
Ginnie Mae		—		—			—		—			—		—			146		6.05			146		146		6.05
Collateralized mortgage obligations
Fannie Mae		—		—			—		—			—		—			2,747		4.56			2,747		2,621		4.56
Freddie Mac		—		—			—		—			—		—			4,926		4.72			4,926		4,570		4.72
Ginnie Mae		—		—			—		—			—		—			757		3.45			757		727		3.45
Total securities held-to-maturity		12,000		3.83			—		—			—		—			9,096		4.67			21,096		20,514		4.19
Total securities	$	12,000		3.83			6,836		4.16	%		1,130		3.86	%	$	14,923		4.94	%	$	34,889	$	34,093		4.37	%

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          Interest Earning Deposits in Other Financial Institutions. Interest earning deposits in other financial institutions consists of certificates of deposits placed with multiple federally insured financial institutions in amounts that do not exceed the insurable limit of $100,000. These deposits are used as short-term investments as part of our overall asset/liability management. These certificates of deposit had a weighted-average yield of 3.4% and an average remaining life of four months at June 30, 2007.

          Federal Home Loan Bank Stock. As a member of the Federal Home Loan Bank of San Francisco, we are required to own capital stock in the Federal Home Loan Bank of San Francisco. The amount of stock we hold is based on percentages specified by the Federal Home Loan Bank of San Francisco on our outstanding advances and the requirements of their Mortgage Purchase Program. The redemption of any excess stock we hold is at the discretion of the Federal Home Loan Bank of San Francisco. The carrying value of Federal Home Loan Bank of San Francisco stock totaled $9.9 million and had a weighted-average-yield of 5.3% for the year ended June 30, 2007. The yield on the Federal Home Loan Bank of San Francisco stock is produced by stock dividends that are subject to the discretion of the Board of Directors of the Federal Home Loan Bank of San Francisco.

          Equity Investment. At June 30, 2007, we also had an investment in an affordable housing fund totaling $2.1 million with a commitment to fund an additional $193,000 for the purposes of obtaining tax credits and for Community Reinvestment Act purposes. The investment is being accounted for using the equity method of accounting. The investment is evaluated regularly for impairment based on the remaining allocable tax credits.

          Bank-Owned Life Insurance. In April 2005, we purchased $10.0 million in bank-owned life insurance, which covers certain key employees, to provide tax-exempt income to assist in offsetting costs associated with employee benefit plans offered by Kaiser Federal Bank. The bank-owned life insurance is recorded at its cash surrender value, or the amount that can be realized. At June 30, 2007, the cash surrender value was $11.0 million.

Sources of Funds

          General. Our sources of funds are deposits, payment of principal and interest on loans, interest earned on or maturation of other investment securities, borrowings, and funds provided from operations.

          Deposits. We offer a variety of deposit accounts to consumers with a wide range of interest rates and terms. Our deposits consist of certificate of deposit accounts, savings, money market and demand deposit accounts. We have historically paid competitive rates on our deposit accounts. We primarily rely on competitive pricing policies, marketing and customer service to attract and retain these deposits. At June 30, 2007, 39.5% of the dollar amount of our deposits were from customers who are employed by the Kaiser Permanente Medical Care Program, one of the largest employers in Southern California.  Our ATMs are located in branches and near Kaiser Permanente Medical Centers.  We currently do not accept brokered deposits.

          The flow of deposits is influenced significantly by general economic conditions, changes in money market and prevailing interest rates and bi-weekly direct deposits from Kaiser Permanente Medical Care Program payrolls. The variety of deposit accounts we offer has allowed us to be competitive in obtaining funds and to respond with flexibility to changes in consumer demand. We have become more susceptible to short-term fluctuations in deposit flows, as customers have become more interest rate conscious. We try to manage the pricing of our deposits in keeping with our asset/liability management, liquidity and profitability objectives, subject to competitive factors. Based on our experience, we believe that our deposits are a relatively stable sources of funds. Despite this stability, our ability to attract and maintain these deposits and the rates paid on them has been and will continue to be significantly affected by market conditions.

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          The following table shows the distribution of various types of deposits and certain other information relating to as of the dates indicated.

	At June 30,
	2007					2006					2005
	Amount		Percent of Total			Amount		Percent of Total			Amount		Percent of Total
	(Dollars in thousands)
Noninterest-bearing demand	$	43,169		8.74	%	$	43,137		9.31	%	$	43,744		9.19	%
Savings		136,643		27.65			91,199		19.68			99,730		20.96
Money Market		75,599		15.30			110,987		23.95			107,080		22.51
Certificates of deposit:
1.00% - 1.99%		13		0.01			55		.01			7,139		1.50
2.00% - 2.99%		939		0.19			4,911		1.06			49,332		10.37
3.00% - 3.99%		21,256		4.30			54,679		11.80			93,291		19.61
4.00% - 4.99%		119,952		24.27			150,843		32.54			55,168		11.59
5.00% - 5.99%		96,557		19.54			7,643		1.65			9,148		1.92
6.00% - 6.99%		—		—			—		—			5,021		1.06
7.00% - 7.99%		—		—			—		—			6,139		1.29
Total Certificates of deposit		238,717		48.31			218,131		47.06			225,238		47.34
Total	$	494,128		100.00	%	$	463,454		100.00	%	$	475,792		100.00	%

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          The following table sets forth our deposit flows during the periods indicated.

	Year Ended June 30,
	2007			2006			2005
	(Dollars in thousands)
Opening balance	$	463,454		$	475,792		$	422,953
Acquired deposits		—			—			61,177	(1)
Deposits, net of withdrawals		15,752			(23,721	)		(17,204	)
Interest credited		14,922			11,383			8,866
Ending balance	$	494,128		$	463,454		$	475,792
Net increase (decrease)	$	30,674		$	(12,338	)	$	52,839
Percent increase (decrease)		6.6	%		(2.6)	%		12.5	%

(1) In September 2004, we acquired $60 million in deposits from another financial institution in connection with a branch acquisition.

          The following table indicates the amount of Kaiser Federal Bank’s certificates of deposit by time remaining until maturity as of June 30, 2007.

	Less than or equal to one year		More than one to two years		More than two to three years		More than three to four years		More than four years		Total
	(Dollars in thousands)
1.00% - 1.99%	$	13	$	—	$	—	$	—	$	—	$	13
2.00% - 2.99%		913		26		—		—		—		939
3.00% - 3.99%		9,256		9,308		2,061		522		109		21,256
4.00% - 4.99%		74,834		10,811		17,886		12,883		3,538		119,952
5.00% - 5.99%		89,722		321		92		300		6,122		96,557
	$	174,738	$	20,466	$	20,039	$	13,705	$	9,769	$	238,717

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          As of June 30, 2007, the aggregate amount of outstanding certificates of deposit in amounts greater than or equal to $100,000 was $93.5 million.  At June 30, 2006, the amount of such deposits was $74.7 million. The following table sets forth the maturity of those certificates as of June 30, 2007. 

Maturity Period	Certificates of Deposit
	(In thousands)
Three months or less	$	16,161
Over three through six months		28,285
Over six through twelve months		22,270
Over twelve months		26,831
Total	$	93,547

          Borrowings. Although deposits are our primary source of funds, we may utilize borrowings when they are a less costly source of funds, and can be invested at a positive interest rate spread, when we desire additional capacity to purchase loans or to fund loan demand or when they meet our asset/liability management goals. Our borrowings historically have consisted of advances from the Federal Home Loan Bank of San Francisco.

          We may obtain advances from the Federal Home Loan Bank of San Francisco upon the security of our mortgage loans and mortgage-backed securities. These advances may be made pursuant to several different credit programs, each of which has its own interest rate, range of maturities and call features. At June 30, 2007, we had $210.0 million in Federal Home Loan Bank advances outstanding.

          The following table sets forth information as to our Federal Home Loan Bank advances for the periods indicated.

	Year Ended June 30,
	2007			2006			2005
	(Dollars in thousands)
Balance at end of period	$	210,016		$	179,948		$	70,777
Average balance outstanding		189,217			148,408			60,354
Maximum month-end balance		210,016			179,948			90,444
Weighted average interest rate during the period		4.37	%		4.14	%		3.35	%
Weighted average interest rate at end of period		4.44	%		4.20	%		3.40	%

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Properties

          At June 30, 2007, we had three full service offices and six financial service centers. Our financial service centers provide all the same services as a full service office except they do not dispense cash, but cash is available from an ATM located on site. The net book value of our investment in premises, equipment and fixtures, excluding computer equipment, was approximately $2.7 million at June 30, 2007.

          The following table provides a list of our main and branch offices, all of which are leased with the exception of our Riverside branch.

Location	Owned or Leased		Lease Expiration Date		Deposits June 30, 2007
					(In thousands)
Home and Executive Office
1359 North Grand Avenue Covina, CA 91724		Leased		April 2010	$	65,645
Branch Offices:
252 South Lake Avenue Pasadena, CA 91101		Leased		May 2015	$	46,396
3375 Scott Boulevard, Suite 312 Santa Clara, CA 95054		Leased		May 2009	$	55,455
9844 Sierra Avenue, Suite A Fontana, CA 92335		Leased		September 2011	$	41,041
8501 Van Nuys Boulevard Panorama City, CA 91402		Leased		March 2011	$	116,009
10105 Rosecrans Avenue Bellflower, CA 90706		Leased		March 2011	$	46,698
26640 Western Avenue, Suite N Harbor City, CA 90170		Leased		February 2011	$	22,047
1110 N. Virgil Avenue Los Angeles, CA 90029		Leased		March 2011	$	66,480
11810 Pierce Street, Suite 150 Riverside, CA 92505		Owned		N/A	$	34,357

          We believe that our current facilities are adequate to meet the present and immediately foreseeable needs of Kaiser Federal Bank and K-Fed Bancorp.

          We use an in-house system with support provided by a third-party vendor to maintain our data base of depositor and borrower customer information. The net book value of our data processing and computer equipment at June 30, 2007 was approximately $743,000.

Legal Proceedings

          From time to time, we are involved as plaintiff or defendant in various legal actions arising in the normal course of business. We do not anticipate incurring any material liability as a result of this litigation or any material impact on our financial position, results of operations or cash flows.

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          In March 2007, U.S. Mortgage converted its Chapter 11 bankruptcy proceeding to a Chapter 7 in the District Court of Nevada. U.S. Mortgage was responsible for servicing various commercial real estate participation loans totaling approximately $1.0 million that Kaiser Federal Bank purchased from the company. Through this transition period, all servicing functions of U.S. Mortgage are being handled by the Bankruptcy Trustee.

          During the course of these proceedings, U.S. Bank has asserted a claim against $1.0 million in loan principal being serviced by U.S. Mortgage on the basis that U.S. Bank has a priority right to the funds. Kaiser Federal Bank is vigorously contesting this claim and believes it has the priority ownership interest in these loans.

Employees

          At June 30, 2007, we had a total of 83 employees, and 15 part-time employees. Our employees are not represented by any collective bargaining group.  Management believes that we have good relations with our employees.

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SUPERVISION AND REGULATION

General

          As a federally chartered savings association, Kaiser Federal Bank is regulated and supervised by the Office of Thrift Supervision and the Federal Deposit Insurance Corporation.  This regulation and supervision establishes a comprehensive framework of activities in which we may engage, and is intended primarily for the protection of the Federal Deposit Insurance Corporation’s deposit insurance fund and depositors.  Under this system of federal regulation, financial institutions are periodically examined to ensure that they satisfy applicable standards with respect to their capital adequacy, assets, management, earnings, liquidity and sensitivity to market interest rates.  After completing an examination, the federal agency critiques the financial institution’s operations and assigns its rating (known as an institution’s CAMELS).  Under federal law, an institution may not disclose its CAMELS rating to the public.  Kaiser Federal Bank also is a member of, and owns stock in, the Federal Home Loan Bank of San Francisco, which is one of the 12 regional banks in the Federal Home Loan Bank System.  Kaiser Federal Bank also is regulated, to a lesser extent, by the Board of Governors of the Federal Reserve System, governing reserves to be maintained against deposits and other matters.  The Office of Thrift Supervision examines Kaiser Federal Bank and prepares reports for consideration by our Board of Directors on any operating deficiencies.  Kaiser Federal Bank’s relationship with our depositors and borrowers also is regulated to a great extent by both federal and state laws, especially in matters concerning the ownership of deposit accounts and the form and content of our loan documents.

          There can be no assurance that changes to existing laws, rules and regulations, or any other new laws, rules or regulations, will not be adopted in the future, which could make compliance more difficult or expensive or otherwise adversely affect our business, financial condition or prospects.  Any change in these laws or regulations, or in regulatory policy, whether by the Federal Deposit Insurance Corporation, the Office of Thrift Supervision or Congress, could have a material adverse impact on our business, financial condition or operations.

Federal Banking Regulation

          Business Activities.  A federal savings association derives its lending and investment powers from the Home Owners’ Loan Act, and the regulations of the Office of Thrift Supervision.  Under these laws and regulations, Kaiser Federal Bank may invest in mortgage loans secured by residential and commercial real estate, commercial business and consumer loans, certain types of debt securities and certain other loans and assets subject to applicable limits.  Kaiser Federal Bank also may establish subsidiaries that may engage in activities not otherwise permissible for Kaiser Federal Bank directly, including real estate investment, securities brokerage and insurance agency services subject to applicable registration and licensing requirements.

          Loans to One Borrower. A federal savings association generally may not make a loan or extend credit to a single or related group of borrowers in excess of 15% of unimpaired capital and surplus.  An additional amount may be loaned, not in excess of 10% of unimpaired capital and surplus, if the loan is secured by readily marketable collateral, which generally does not include real estate.  As of June 30, 2007, Kaiser Federal Bank was in compliance with the loans-to-one-borrower limitations.

          Qualified Thrift Lender Test.  As a federal savings association, Kaiser Federal Bank is subject to the qualified thrift lender, or “QTL,” test.  Under the QTL test, Kaiser Federal Bank must maintain at least 65% of its “portfolio assets” in “qualified thrift investments” in at least nine months of the most recent 12-month period.  “Portfolio assets” generally means total assets of a savings institution, less the

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sum of specified liquid assets up to 20% of total assets, goodwill and other intangible assets, and the value of property used in the conduct of the institution’s business.

          “Qualified thrift investments” include various types of loans made for residential and housing purposes, investments related to such purposes, including certain mortgage-backed and related securities, and loans for personal, family, household and certain other purposes up to a limit of 20% of portfolio assets.  “Qualified thrift investments” also include 100% of an institution’s credit card loans, education loans and small business loans.  Kaiser Federal Bank also may satisfy the QTL test by qualifying as a “domestic building and loan association” as defined in the Internal Revenue Code of 1986.

          A savings association that fails the QTL test must either convert to a bank charter or operate under specified restrictions.  At June 30, 2007, Kaiser Federal Bank maintained approximately 87.4% of its portfolio assets in qualified thrift investments, and therefore satisfied the QTL test.

          Capital Distributions.  Office of Thrift Supervision regulations govern capital distributions by a federal savings association, which include cash dividends, stock repurchases and other transactions charged to the institution’s capital account.  A savings association must file an application with the Office of Thrift Supervision for approval of a capital distribution if:

• the total capital distributions for the applicable calendar year exceed the sum of the savings association’s net income for that year to date plus the savings association’s retained net income for the preceding two years;

• the savings association would not be at least adequately capitalized following the distribution;

• the distribution would violate any applicable statute, regulation, agreement or Office of Thrift Supervision-imposed condition; or

• the savings association is not eligible for expedited treatment of its filings.

          Even if an application is not otherwise required, every savings association that is a subsidiary of a holding company must still file a notice with the Office of Thrift Supervision at least 30 days before the Board of Directors declares a dividend or approves a capital distribution.

          The Office of Thrift Supervision may disapprove a notice or application if:

• the savings association would be undercapitalized following the distribution;

• the proposed capital distribution raises safety and soundness concerns; or

• the capital distribution would violate a prohibition contained in any statute, regulation or agreement.

          Liquidity.  A federal savings association is required to maintain a sufficient amount of liquid assets to ensure its safe and sound operation. 

          Community Reinvestment Act and Fair Lending Laws.  All savings associations have a continuing responsibility under the Community Reinvestment Act and related regulations of the Office of Thrift Supervision to help meet the credit needs of their communities, including low- and moderate-income neighborhoods.  In connection with its examination of a federal savings association, the Office of

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Thrift Supervision is required to assess the savings association’s record of compliance with the Community Reinvestment Act.  In addition, the Equal Credit Opportunity Act and the Fair Housing Act prohibit lenders from discriminating in their lending practices on the basis of characteristics specified in those statutes.  A savings association’s failure to comply with the provisions of the Community Reinvestment Act could, at a minimum, result in regulatory restrictions on its activities.  The failure to comply with the Equal Credit Opportunity Act and the Fair Housing Act could result in enforcement actions by the Office of Thrift Supervision, as well as other federal regulatory agencies and the Department of Justice.  Kaiser Federal Bank received a “Satisfactory” Community Reinvestment Act rating in its most recent federal examination.  The Community Reinvestment Act requires all FDIC-insured institutions to publicly disclose their rating.

          Transactions with Related Parties.  A federal savings association’s authority to engage in transactions with its “affiliates” is limited by Office of Thrift Supervision regulations and Regulation W of the Federal Reserve Board, which implements Sections 23A and 23B of the Federal Reserve Act.  The term “affiliates” for these purposes generally means any company that controls or is under common control with an institution.  Kaiser Federal Financial Group, Inc. and its non-savings institution subsidiaries will be affiliates of Kaiser Federal Bank.  In general, transactions with affiliates must be on terms that are as favorable to the savings association as comparable transactions with non-affiliates.  In addition, certain types of these transactions are restricted to an aggregate percentage of the savings association’s capital.  Collateral in specified amounts must usually be provided by affiliates in order to receive loans from the savings association.  In addition, Office of Thrift Supervision regulations prohibit a savings association from lending to any of its affiliates that are engaged in activities that are not permissible for bank holding companies and from purchasing the securities of any affiliate, other than a subsidiary.

          Kaiser Federal Bank’s authority to extend credit to its directors, executive officers and 10% or greater stockholders, as well as to entities controlled by such persons, is currently governed by the requirements of Sections 22(g) and 22(h) of the Federal Reserve Act and Regulation O of the Federal Reserve Board and regulations of the Office of Thrift Supervision. Among other things, these provisions require that extensions of credit to insiders (i) be made on terms that are substantially the same as, and follow credit underwriting procedures that are not less stringent than, those prevailing for comparable transactions with unaffiliated persons and that do not involve more than the normal risk of repayment or present other unfavorable features, and (ii) not exceed certain limitations on the amount of credit extended to such persons, individually and in the aggregate, which limits are based, in part, on the amount of Kaiser Federal Bank’s capital.  In addition, extensions of credit in excess of certain limits must be approved by Kaiser Federal Bank’s Board of Directors.

          Enforcement.  The Office of Thrift Supervision has primary enforcement responsibility over federal savings associations and has the authority to bring enforcement actions against all “institution-affiliated parties,” including stockholders, attorneys, appraisers and accountants who knowingly or recklessly participate in wrongful action likely to have an adverse effect on an institution.  Formal enforcement action may range from the issuance of a capital directive or cease and desist order to removal of officers and/or directors of the savings association, receivership, conservatorship or the termination of deposit insurance.  Civil penalties cover a wide range of violations and actions, and range up to $25,000 per day, unless a finding of reckless disregard is made, in which case penalties may be as high as $1.0 million per day.  The Federal Deposit Insurance Corporation also has the authority to recommend to the Director of the Office of Thrift Supervision that enforcement action be taken with respect to a particular savings association.  If action is not taken by the Director of the Office of Thrift Supervision, the Federal Deposit Insurance Corporation has authority to take action under specified circumstances.

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          Standards for Safety and Soundness.  Federal law requires each federal banking agency to prescribe certain standards for all insured depository institutions.  These standards relate to, among other things, internal controls, information systems and audit systems, loan documentation, credit underwriting, interest rate risk exposure, asset growth, compensation, and other operational and managerial standards as the agency deems appropriate.  The federal banking agencies have adopted Interagency Guidelines Prescribing Standards for Safety and Soundness.  The guidelines set forth the safety and soundness standards that the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired.  The guidelines address internal controls and information systems, internal audit systems, credit underwriting, loan documentation, interest rate risk exposure, asset growth, compensation, fees and benefits.  If the appropriate federal banking agency determines that an institution fails to meet any standard prescribed by the guidelines, the agency may require the institution to submit to the agency an acceptable plan to achieve compliance with the standard.  If the institution fails to submit an acceptable plan or implement an accepted compliance plan, the agency may take further enforcement action against the institution, including the issuance of a cease and desist order or the imposition of civil money penalties.

          Capital Requirements.  Office of Thrift Supervision regulations require savings banks to meet three minimum capital standards:  a 1.5% tangible capital ratio, a 4% leverage ratio (3% for institutions receiving the highest CAMELS rating) and an 8% risk-based capital ratio. 

          The risk-based capital standard for savings associations requires the maintenance of Tier 1 (core) and total capital (which is defined as core capital and supplementary capital) to risk-weighted assets of at least 4% and 8%, respectively. In determining the amount of risk-weighted assets, all assets, including certain off-balance sheet assets, are multiplied by a risk-weight factor of 0% to 100%, assigned by the Office of Thrift Supervision capital regulation based on the risks inherent in the type of asset. Core capital is defined as common stockholders’ equity (including retained earnings), certain noncumulative perpetual preferred stock and related surplus and minority interests in equity accounts of consolidated subsidiaries, less intangibles other than certain mortgage servicing rights and credit card relationships. The components of supplementary capital currently include cumulative preferred stock, long-term perpetual preferred stock, mandatory convertible securities, subordinated debt and intermediate preferred stock, allowance for loan and lease losses up to a maximum of 1.25% of risk-weighted assets, and up to 45% of net unrealized gains on available-for-sale equity securities with readily determinable fair market values. Overall, the amount of supplementary capital included as part of total capital cannot exceed 100% of core capital.

          In assessing an association’s capital adequacy, the Office of Thrift Supervision takes into consideration not only these numeric factors but also qualitative factors as well, and has the authority to establish higher capital requirements for individual associations where necessary.  Kaiser Federal Bank, as a matter of prudent management, targets as its goal the maintenance of capital ratios which exceed these minimum requirements and that are consistent with Kaiser Federal Bank’s risk profile.  At June 30, 2007, Kaiser Federal Bank exceeded each of its capital requirements.

          The Office of Thrift Supervision and other federal banking agencies risk-based capital standards also take into account interest rate risk, concentration of risk and the risks of non-traditional activities.  The Office of Thrift Supervision monitors the interest rate risk of individual institutions through the Office of Thrift Supervision requirements for interest rate risk management, the ability of the Office of Thrift Supervision to impose individual minimum capital requirements on institutions that exhibit a high degree of interest rate risk, and the requirements of Thrift Bulletin 13a, which provides guidance on the management of interest rate risk and the responsibility of boards of directors in that area.

          The Office of Thrift Supervision continues to monitor the interest rate risk of individual institutions through analysis of the change in net portfolio value.  Net portfolio value is defined as the net

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present value of the expected future cash flows of an entity’s assets and liabilities and, therefore, hypothetically represents the value of an institution’s net worth.  The Office of Thrift Supervision has also used this net portfolio value analysis as part of its evaluation of certain applications or notices submitted by savings banks.  The Office of Thrift Supervision, through its general oversight of the safety and soundness of savings associations, retains the right to impose minimum capital requirements on individual institutions to the extent the institution is not in compliance with certain written guidelines established by the Office of Thrift Supervision regarding net portfolio value analysis.  The Office of Thrift Supervision has not imposed any such requirements on Kaiser Federal Bank.

          At June 30, 2007, Kaiser Federal Bank’s capital exceeded all applicable requirements.  See “Historical and Pro Forma Regulatory Capital Compliance.”

          Prompt Corrective Action Regulations.  Under the prompt corrective action regulations, the Office of Thrift Supervision is authorized and, under certain circumstances, required to take supervisory actions against undercapitalized savings associations. For this purpose, a savings association is placed in one of the following five categories based on the savings association’s capital:

• well-capitalized (at least 5% leverage capital, 6% tier 1 risk-based capital and 10% total risk-based capital);

• adequately capitalized (at least 4% leverage capital, 4% tier 1 risk-based capital and 8% total risk-based capital);

• undercapitalized (less than 3% leverage capital, 4% tier 1 risk-based capital or 8% total risk-based capital);

• significantly undercapitalized (less than 3% leverage capital, 3% tier 1 risk-based capital or 6% total risk-based capital); or

• critically undercapitalized (less than 2% tangible capital).

          Generally, the Office of Thrift Supervision is required to appoint a receiver or conservator for a savings association that is “critically undercapitalized.”  The regulation also provides that a capital restoration plan must be filed with the Office of Thrift Supervision within 45 days of the date a savings association receives notice that it is “undercapitalized,” “significantly undercapitalized” or “critically undercapitalized” or is deemed to have notice and the plan must be guaranteed by any parent holding company.  The aggregate liability of a parent holding company is limited to the lesser of:

• an amount equal to 5% of the savings association’s total assets at the time it became “undercapitalized”; and

• the amount that is necessary (or would have been necessary) to bring the association into compliance with all capital standards applicable with respect to such association as of the time it fails to comply withy a capital restoration plan.

          If a savings association fails to submit an acceptable plan, it is treated as if it were “significantly undercapitalized.”  In addition, numerous mandatory supervisory restrictions become immediately applicable to the savings association, including, but not limited to, restrictions on growth, investment activities, capital distributions and affiliate transactions.  The Office of Thrift Supervision may also take any one of a number of discretionary supervisory actions against undercapitalized savings associations, including the issuance of a capital directive and the replacement of senior executive officers and directors.

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          At June 30, 2007, Kaiser Federal Bank met the criteria for being considered “well-capitalized.”

          Deposit Insurance.  Kaiser Federal Bank is a member of the Deposit Insurance Fund, maintained by the FDIC, and Kaiser Federal Bank pays its deposit insurance assessments to the Deposit Insurance Fund.  The Deposit Insurance Fund was formed on March 31, 2006 following the merger of the Bank Insurance Fund and the Savings Association Insurance Fund in accordance with the Federal Deposit Insurance Reform Act of 2005 (the “Deposit Insurance Fund Act”).  In addition to merging the insurance funds, the Deposit Insurance Fund Act established a statutory minimum and maximum designated reserve ratio for the Deposit Insurance Fund and granted the FDIC greater flexibility in establishing the required reserve ratio.  In its regulations implementing the Deposit Insurance Fund Act, the FDIC has set the current annual designated reserve ratio for the Deposit Insurance Fund at 1.25%.

          In order to maintain the Deposit Insurance Fund, member institutions are assessed an insurance premium.  The amount of each institution’s premium is currently based on the balance of insured deposits and the degree of risk the institution poses to the Deposit Insurance Fund.  Under the assessment system, the FDIC assigns an institution to one of nine risk categories using a two-step process based first on capital ratios (the capital group assignment) and then on other relevant information (the supervisory subgroup assignment).  Each risk category is assigned an assessment rate.  Assessment rates currently range from .05% of deposits for an institution in the highest category (i.e., well-capitalized and financially sound, with no more than a few minor weaknesses) to 0.43% of deposits for an institution in the lowest category (i.e., undercapitalized and substantial supervisory concerns).  The FDIC is authorized to raise the assessment rates as necessary to maintain the Deposit Insurance Fund.  The Kaiser Federal Bank assessment rate at June 30, 2007 was .05% per $100 of deposits.  Any increase in insurance assessments could have an adverse effect on the earnings of insured institutions, including Kaiser Federal Bank.

          In addition, all FDIC -insured institutions are required to pay a pro rata portion of the interest due on obligations issued by the Financing Corporation to fund the closing and disposal of failed thrift institutions by the Resolution Trust Corporation.  At June 30, 2007, the FDIC assessed Deposit Insurance Fund-insured deposits 1.22 basis points (0.122%) per $100 of deposits to cover those obligations.  The Financing Corporation rate is adjusted quarterly to reflect changes in assessment bases of the Deposit Insurance Fund.  This obligation will continue until the Financing Corporation bonds mature in 2017.

          Assessments.  The Office of Thrift Supervision charges assessments to recover the cost of examining federal savings associations and their affiliates.  These assessments are based on three components: (i) the size of the institution on which the basic assessment is based; (ii) the institution’s supervisory condition, which results in an additional assessment based on a percentage of the basic assessment for any savings institution with a composite rating of 3, 4 or 5 in its most recent safety and soundness examination; and (iii) the complexity of the institution’s operations, which results in an additional assessment based on a percentage of the basic assessment for any savings institution that managed over $1 billion in trust assets, serviced for others loans aggregating more than $1 billion, or had certain off-balance sheet assets aggregating more than $1 billion. 

          The Office of Thrift Supervision also assesses fees against savings and loan holding companies, such as Kaiser Federal Financial Group, Inc.  The Office of Thrift Supervision semi-annual assessment for savings and loan holding companies includes a $3,000 base assessment with an additional assessment based on the holding company’s risk or complexity, organizational form and condition.

          Prohibitions Against Tying Arrangements.  Federal savings associations are prohibited, subject to some exceptions, from extending credit to or offering any other service, or fixing or varying the consideration for such extension of credit or service, on the condition that the customer obtain some

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additional service from the savings association or its affiliates or not obtain services of a competitor of the savings association.

          Federal Home Loan Bank System.  Kaiser Federal Bank is a member of the Federal Home Loan Bank System, which consists of 12 regional Federal Home Loan Banks each of which is subject to regulation and supervision of the Federal Housing Finance Board.  The Federal Home Loan Bank System provides a central credit facility primarily for member institutions as well as other entities involved in home mortgage lending.  It is funded primarily from proceeds derived from the sale of consolidated obligations of the Federal Home Loan Banks.  It makes loans or advances to members in accordance with policies and procedures, including collateral requirements, established by the respective boards of directors of the Federal Home Loan Banks.  These policies and procedures are subject to the regulation and oversight of the Federal Housing Finance Board.  All long-term advances are required to provide funds for residential home financing.  The Federal Housing Finance Board has also established standards of community or investment service that members must meet to maintain access to such long-term advances.  As a member of the Federal Home Loan Bank of San Francisco, Kaiser Federal Bank is required to acquire and hold shares of capital stock in the Federal Home Loan Bank.  As of June 30, 2007, Kaiser Federal Bank was in compliance with this requirement. 

Federal Reserve System

          Institutions must maintain a reserve of 3% against aggregate transaction accounts between $7.8 million and $48.3 million (subject to adjustment by the Federal Reserve Board) plus a reserve of 10% (subject to adjustment by the Federal Reserve Board between 8% and 14%) against that portion of total transaction accounts in excess of $48.3 million.  The first $7.8 million of otherwise reservable balances is exempt from the reserve requirements.  Kaiser Federal Bank is in compliance with the foregoing requirements.  Because required reserves must be maintained in the form of either vault cash, a non-interest-bearing account at a Federal Reserve Bank or a pass-through account as defined by the Federal Reserve Board, the effect of this reserve requirement is to reduce Kaiser Federal Bank’s interest-earning assets.  At June 30, 2007, Kaiser Federal Bank was in compliance with these reserve requirements.  The balances maintained to meet the reserve requirements imposed by the Federal Reserve Board may be used to satisfy liquidity requirements imposed by the Office of Thrift Supervision.

The USA PATRIOT Act

          The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 or the USA PATRIOT Act gives the federal government new powers to address terrorist threats through enhanced domestic security measures, expanded surveillance powers, increased information sharing and broadened anti-money laundering requirements.  Certain provisions of the Act impose affirmative obligations on a broad range of financial institutions, including federal savings associations, like Kaiser Federal Bank.  These obligations include enhanced anti-money laundering programs, customer identification programs and regulations relating to private banking accounts or correspondence accounts in the United States for non-United States persons or their representatives (including foreign individuals visiting the United States).

          Kaiser Federal Bank has established policies and procedures to ensure compliance with the USA PATRIOT Act’s provisions, and the impact of the USA PATRIOT Act on our operations has not been material.

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Privacy Requirements of the Gramm-Leach-Bliley Act

          The Gramm-Leach-Bliley Act of 1999 provided for sweeping financial modernization for commercial banks, savings banks, securities firms, insurance companies, and other financial institutions operating in the United States.  Among other provisions, the Gramm-Leach-Bliley Act places limitations on the sharing of consumer financial information with unaffiliated third parties.  Specifically, the Gramm-Leach-Bliley Act requires all financial institutions offering financial products or services to retail customers to provide such customers with the financial institution’s privacy policy and provide such customers the opportunity to “opt out” of the sharing of personal financial information with unaffiliated third parties.

Holding Company Regulation

          Upon completion of the conversion, Kaiser Federal Financial Group, Inc. will be a unitary savings and loan holding company, subject to regulation and supervision by the Office of Thrift Supervision.  The Office of Thrift Supervision will have enforcement authority over Kaiser Federal Financial Group, Inc. and its non-savings institution subsidiaries.  Among other things, this authority permits the Office of Thrift Supervision to restrict or prohibit activities that are determined to be a risk to Kaiser Federal Bank.

          Under federal law, unitary savings and loan holding companies not existing on, or applied for before, May 4, 1999, such as Kaiser Federal Financial Group, Inc., are limited to those activities permissible for financial holding companies or for multiple savings and loan holding companies.  A financial holding company may engage in activities that are financial in nature, including underwriting equity securities and insurance, incidental to financial activities or complementary to a financial activity.  A multiple savings and loan holding company is generally limited to activities permissible for bank holding companies under Section 4(c)(8) of the Bank Holding Company Act, subject to the prior approval of the Office of Thrift Supervision, and certain additional activities authorized by Office of Thrift Supervision regulations.

          Federal law prohibits a savings and loan holding company, directly or indirectly, or through one or more subsidiaries, from acquiring control of another savings institution or holding company thereof, without prior written approval of the Office of Thrift Supervision.  It also prohibits the acquisition or retention of, with specified exceptions, more than 5% of the equity securities of a company engaged in activities that are not closely related to banking or financial in nature or acquiring or retaining control of an institution that is not federally insured.  In evaluating applications by holding companies to acquire savings institutions, the Office of Thrift Supervision must consider the financial and managerial resources and future prospects of the savings institution involved, the effect of the acquisition on the risk to the insurance fund, the convenience and needs of the community and competitive factors.

Sarbanes-Oxley Act of 2002

          As a public company, Kaiser Federal Financial Group, Inc. is subject to the Sarbanes-Oxley Act, which implements a broad range of corporate governance and accounting measures for public companies designed to promote honesty and transparency in corporate America and better protect investors from corporate wrongdoing.  The Sarbanes-Oxley Act’s principal legislation and the derivative regulation and rule making promulgated by the SEC includes:

• the creation of an independent accounting oversight board;

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• auditor independence provisions which restrict non-audit services that accountants may provide to their audit clients;

• additional corporate governance and responsibility measures, including the requirement that the chief executive officer and chief financial officer certify financial statements;

• a requirement that companies establish and maintain a system of internal control over financial reporting and that a company’s management provide an annual report regarding its assessment of the effectiveness of such internal control over financial reporting to the company’s independent accountants and that such accountants provide an attestation report with respect to management’s assessment of the effectiveness of the company’s internal control over financial reporting;

• the forfeiture of bonuses or other incentive-based compensation and profits from the sale of an issuer’s securities by directors and senior officers in the twelve month period following initial publication of any financial statements that later require restatement;

• an increase in the oversight of, and enhancement of certain requirements relating to audit committees of public companies and how they interact with the company’s independent auditors;

• requirement that audit committee members must be independent and are absolutely barred from accepting consulting, advisory or other compensatory fees from the issuer;

• requirement that companies disclose whether at least one member of the committee is a “financial expert” (as such term is defined by the Securities and Exchange Commission) and if not, why not;

• expanded disclosure requirements for corporate insiders, including accelerated reporting of stock transactions by insiders and a prohibition  on insider  trading during pension blackout periods;

• a prohibition on personal loans to directors and officers, except certain loans made by insured financial institutions;

• disclosure of a code of ethics and filing a Form 8-K for a change or waiver of such code;

• mandatory disclosure by analysts of potential conflicts of interest; and

• a range of enhanced penalties for fraud and other violations.

          Section 402 of the Sarbanes-Oxley Act prohibits the extension of personal loans to directors and executive officers of issuers (as defined in Sarbanes-Oxley).  The prohibition, however, does not apply to loans made by an insured depository institution, such as Kaiser Federal Bank, that are subject to the insider lending restrictions of Regulation O of the Federal Reserve Board.

Federal Securities Laws

          Kaiser Federal Financial Group, Inc. has filed with the Securities and Exchange Commission a registration statement under the Securities Act of 1933, as amended, for the registration of the shares of common stock to be issued pursuant to the conversion and the offering. Upon completion of the

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conversion, shares of Kaiser Federal Financial Group, Inc. common stock will be registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended. Kaiser Federal Financial Group, Inc. will be subject to the information, proxy solicitation, insider trading restrictions and other requirements under the Securities Exchange Act of 1934.

          The registration under the Securities Act of 1933 of shares of common stock to be issued in the offering does not cover the resale of those shares. Shares of common stock purchased by persons who are not affiliates of Kaiser Federal Financial Group, Inc. may be resold without registration. Shares purchased by an affiliate of Kaiser Federal Financial Group, Inc. will be subject to the resale restrictions of Rule 144 under the Securities Act of 1933. If Kaiser Federal Financial Group, Inc. meets the current public information reporting requirements of Rule 144 under the Securities Act of 1933, each affiliate of Kaiser Federal Financial Group, Inc. that complies with the other conditions of Rule 144, including those that require the affiliate’s sale to be aggregated with those of other persons, would be able to sell in the public market, without registration, a number of shares not to exceed, in any three-month period, the greater of 1% of the outstanding shares of Kaiser Federal Financial Group, Inc., or the average weekly volume of trading in the shares during the preceding four calendar weeks.  In the future, Kaiser Federal Financial Group, Inc. may permit affiliates to have their shares registered for sale under the Securities Act of 1933.

TAXATION

Federal Taxation

          General.  Kaiser Federal Financial Group, Inc. and Kaiser Federal Bank are subject to federal income taxation in the same general manner as other corporations, with some exceptions discussed below.  The following discussion of taxation is intended only to summarize pertinent federal income tax matters and is not a comprehensive description of the tax rules applicable to K-Fed Bancorp or Kaiser Federal Bank.  Kaiser Federal Financial Group, Inc. has not yet filed a federal income tax return due to its recent organization.  Kaiser Federal Bank’s federal income tax returns have never been audited by the Internal Revenue Service.

          It is anticipated that Kaiser Federal Financial Group, Inc. and Kaiser Federal Bank will file separate federal and state income tax returns after completion of the offering.  It is anticipated that any cash distributions made by Kaiser Federal Financial Group, Inc. to its stockholders would be considered to be taxable dividends to the extent of current or accumulated earnings and profits.

          Method of Accounting.  For federal income tax purposes, Kaiser Federal Bank currently reports its income and expenses on the accrual method of accounting and uses a fiscal year ending on June 30, for filing its federal income tax return.

          Minimum Tax.  The Internal Revenue Code imposes an alternative minimum tax at a rate of 20% on a base of regular taxable income plus certain tax preferences, called alternative minimum taxable income.  The alternative minimum tax is payable to the extent such alternative minimum taxable income is in excess of an exemption amount.  Net operating losses can offset no more than 90% of alternative minimum taxable income.  Certain payments of alternative minimum tax may be used as credits against regular tax liabilities in future years.  Kaiser Federal Bank has not been subject to the alternative minimum tax, nor do we have any such amounts available as credits for carryover.

          Net Operating Loss Carryovers.  A financial institution may carryback net operating losses to the preceding two taxable years and forward to the succeeding 20 taxable years.  This provision applies to losses incurred in taxable years beginning after August 6, 1997.  At June 30, 2007, Kaiser Federal Bank had no net operating loss carryforwards for federal income tax purposes.

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          Corporate Dividends-Received Deduction.  K-Fed Bancorp may eliminate from its income dividends received from Kaiser Federal Bank as a wholly owned subsidiary of K-Fed Bancorp if it elects to file a consolidated return with Kaiser Federal Bank.  The corporate dividends-received deduction is 100% or 80%, in the case of dividends received from corporations with which a corporate recipient does not file a consolidated tax return, depending on the level of stock ownership of the payor of the dividend.  Corporations which own less than 20% of the stock of a corporation distributing a dividend may deduct 70% of dividends received or accrued on their behalf.

State Taxation

          K-Fed Bancorp and Kaiser Federal Bank are subject to the California Corporate (Franchise) tax which is assessed at the rate of 10.84%.  For this purpose, taxable income generally means federal taxable income subject to certain modifications provided for in California law.

          As a Maryland business corporation, Kaiser Federal Financial Group, Inc. will be required to file annual returns with the State of Maryland.

MANAGEMENT

Management of Kaiser Federal Financial Group, Inc.

          The Board of Directors of Kaiser Federal Financial Group, Inc. will consist of six individuals who currently serve as directors of K-Fed Bancorp, K-Fed Mutual Holding Company and Kaiser Federal Bank.  The Board of Directors of Kaiser Federal Financial Group, Inc. will be divided into three classes, as nearly equal as possible, with approximately one-third of the directors elected each year.  The directors will be elected by the stockholders of Kaiser Federal Financial Group, Inc. for three year terms, and until their successors are elected and have qualified.  The terms of the directors of each of Kaiser Federal Financial Group, Inc. and Kaiser Federal Bank are identical.  The executive officers of Kaiser Federal Financial Group, Inc. are also executive officers of K-Fed Bancorp. We expect that Kaiser Federal Financial Group, Inc. and Kaiser Federal Bank will continue to have common directors until there is a business reason to establish separate management structures.  

          The following individuals will serve as the executive officers of Kaiser Federal Financial Group, Inc. and hold the office set forth below opposite their name.

Executive	Position Held
Kay M. Hoveland	President and Chief Executive Officer
Dustin Luton	Senior Vice President and Chief Financial Officer

          Executive officers of Kaiser Federal Financial Group, Inc. are elected annually and hold office until their respective successors have been elected or until death, resignation or removal by the Board of Directors.

          Directors of Kaiser Federal Financial Group, Inc. initially will not be compensated by Kaiser Federal Financial Group, Inc. but will serve for and be compensated by Kaiser Federal Bank.  It is not anticipated that separate compensation will be paid to directors of Kaiser Federal Financial Group, Inc. until such time as these persons devote significant time to the separate management of Kaiser Federal Financial Group, Inc. affairs, which is not expected to occur until Kaiser Federal Financial Group, Inc. becomes actively engaged in additional businesses other than holding the stock of Kaiser Federal Bank.  Kaiser Federal Financial Group, Inc. may determine that such compensation is appropriate in the future.

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          The Business Background of K-Fed Bancorp Directors and Executive Officers.  The business experience for the past five years of each of our directors and executive officers is set forth below.  Unless otherwise indicated, directors and executive officers have held their positions for the past five years.

Directors

          The principal occupation during the past five years of each of our directors is set forth below.  All directors have held their present positions for five years unless otherwise stated. 

          James L. Breeden.  Mr. Breeden has served as chairman of the Board of Directors since November 2000.  He is a retired hospital administrator for the Kaiser Foundation Hospitals where he worked for 27 years.

          Kay M. Hoveland.  Ms. Hoveland has served as president and chief executive officer of Kaiser Federal Bank, including service with Kaiser Permanente Federal Credit Union, since 1987.  Ms. Hoveland has served as president and chief executive officer of K-Fed Bancorp since its formation in July 2003.

          Rita H. Zwern.  Ms. Zwern has been employed by Kaiser Foundation Health Plan since 1984 and currently is the manager of State Programs, located in Pasadena, California.  Ms. Zwern has served as secretary of K-Fed Bancorp since its formation in July 2003.

          Gerald A. Murbach.  Mr. Murbach is a retired human resources consultant who worked for the Universal Music Group during 2001 and the Times Mirror newspapers from 1992 to 2001.

          Robert C. Steinbach.  Mr. Steinbach has served as a manager for the Department of Building and Safety of the City of Los Angeles since 2002 and has been with the Department since 1985. 

Executive Officers Who Are Not Directors

          The business experience for at least the past five years for each of the three executive officers of Kaiser Federal Bank, including service with Kaiser Permanente Federal Credit Union, who do not serve as directors, is set forth below.

          Dustin Luton.  Mr. Luton became chief financial officer in November of 2006. Previously, he was the Partner in Charge of the Southern California office of the National Credit Union Division of the accounting firm, McGladrey & Pullen, LLP, which served as the former registered public accounting firm of the K-Fed Bancorp until 2004. He was employed by McGladrey & Pullen, LLP since 2000 and was responsible for supervising the professional staff and professional services provided to clients in the Southern California region. In addition, he was the National Assurance Leader of the National Credit Union Division.   

          Nancy J. Huber.  Ms. Huber has served as chief credit officer of Kaiser Federal Bank since 1999 and Community Reinvestment Act officer since 2002.  From 1995 until 1999, she served as vice president of credit.

          Jeanne R. Thompson.  Ms. Thompson has served as chief operating officer of Kaiser Federal Bank since 2001.  She served as senior vice president for branch operations of Indy Mac Bank, located in Pasadena, California from 1983 until 2001.

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Board Independence

          The Board of Directors consists of a majority of “independent directors” within the meaning of the Nasdaq corporate governance listing standards.  The Board of Directors has determined that directors Breeden, Murbach, ___________ and Zwern are each “independent” within the meaning of the Nasdaq corporate governance listing standards.  The Board of Directors has adopted a policy that the independent directors of the board shall meet in executive sessions periodically, which meetings may be held in conjunction with regularly scheduled board meetings.

Meetings and Committees of the Board of Directors

          Our business is conducted at regular and special meetings of the full Board of Directors and its standing committees.  The standing committees consist of the executive, audit, compensation and governance/nominating committees.  During the fiscal year ended June 30, 2007, the Board of Directors of K-Fed Bancorp held four regular meetings and one special meeting and the Board of Directors of Kaiser Federal Bank held 12 regular meetings and no special meetings.  No director attended fewer than 75% in the aggregate of the total number of board meetings held and the total number of committee meetings on which he or she served during fiscal 2007.

          Executive Committee.  The executive committee consists of directors Breeden, who serves as chairman, Hoveland, Zwern and Steinbach.  The executive committee meets as needed.  The executive committee is generally authorized to act on behalf of the full Board of Directors when certain business matters require prompt action.  The executive committee did not meet during the fiscal year ended June 30, 2007. 

          Audit Committee.  The audit committee consists of directors __________, who serves as chairman, Breeden and Zwern.  The audit committee meets as needed.  The audit committee meets with the internal auditor to review audit programs and the results of audits of specific areas as well as other regulatory compliance issues.  In addition, the audit committee meets with the independent registered public accounting firm on a quarterly basis to discuss the results of operations and on an annual basis to review the results of the annual audit and other related matters.  Each member of the audit committee is “independent” as defined in the Nasdaq corporate governance listing standards and Rule 10A-3 of the Securities and Exchange Commission.  The Board of Directors has determined that director ___________ qualifies as an “audit committee financial expert” as that term is used in the rules and regulations of the Securities and Exchange Commission.  The audit committee met four times during the fiscal year ended June 30, 2007.

          Compensation Committee.  The compensation committee is responsible for recommending to the full board the compensation of the chief executive officer and senior management, reviewing and administering overall compensation policy, including setting performance measures and goals, approving benefit programs, establishing compensation of the Board of Directors and other matters of personnel policy and practice and coordinating such actions with the human resources committee of Kaiser Federal Bank.  The compensation committee of K-Fed Bancorp is comprised of directors Breeden (Chairman), Murbach, ___________and Zwern.  Each member of the compensation committee is considered “independent” as defined in the Nasdaq corporate governance listing standards.  The compensation committee met twice during fiscal 2007.

          The role of the compensation committee is to review annually the compensation levels of the executive officers and recommend compensation changes to the Board of Directors. The compensation committee is composed entirely of outside, non-employee directors.  It is intended that the executive compensation program will enable us to attract, motivate and retain talented executive officers who are

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capable of achieving our growth strategy and enhancing long-term stockholder value. The compensation committee has adopted a compensation strategy that seeks to provide competitive, performance-based compensation strongly aligned with the financial and stock performance of K-Fed Bancorp.  The key elements of our compensation program for executives are: base salary, annual incentive compensation and stock based award compensation.  For a discussion of how the compensation committee evaluates compensation components in making its decisions, see “Compensation Discussion and Analysis.”

          Governance/Nominating Committee.  The governance/nominating committee consists of directors Murbach and Zwern.  Each member of the governance/nominating committee is considered “independent” as defined in the Nasdaq corporate governance listing standards.  The governance/nominating committee met one time during the fiscal year ended June 30, 2007.  

Executive Compensation

Compensation Discussion and Analysis

          We believe the most effective executive compensation program is one that is aligned with achievement of our long-term strategic goals and we intend for our compensation program to align executives’ interests with those of the stockholders by rewarding performance for implementing our various strategies with the ultimate objective of improving shareholder value. We evaluate both performance and compensation to ensure that we maintain our ability to attract and retain employees in key positions and to ensure that compensation provided to key employees keeps these employees focused on value creation.

          In this regard, we provide what we consider to be a competitive compensation package for the named executive officers comprised of a base salary, an annual incentive plan, a stock option plan, a recognition and retention plan, an employee stock ownership plan, a 401(k) Plan, and a deferred compensation program as well as health and welfare benefits.

          The compensation committee is responsible for all compensation and benefit matters relating to the executive officers, including the evaluation and compensation of our president and chief executive officer. The president and chief executive officer evaluates the performance of the other named executive officers and recommends to the compensation committee the named executive officers’ compensation levels for approval. The compensation committee regularly evaluates and approves all compensation practices applicable to the named executive officers, including the president and chief executive officer.

Base Salary

          It is our philosophy to maintain base salaries at levels comparable to the salaries paid by similar organizations. In establishing base salaries, we take into account each executive officer’s ability and experience as well as past and potential performance. On an annual basis, each executive officer is evaluated and their base salary may be adjusted based on market data as well as taking into account the above factors.

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Annual Incentive Plan

          The Annual Incentive Plan is an integral part of an executive’s total compensation package that recognizes the executive’s annual contribution to our success. The Plan is designed to: 1) support a business change to community-based banking; 2) support a culture change to pay-for-performance; 3) focus the executive team on annual goals to meet long-term goals; 4) reward executives for their effort; and 5) align compensation with the goals of the organization and marketplace practices.  The award is achieved only if Kaiser Federal Bank achieves a minimum return on average assets (ROA) which is set each year.  If our return on assets goal is achieved, each individual executive must also achieve certain personal performance objectives set by the president and chief executive officer or the Board of Directors.  One of these goals must address expense management. The president and chief executive officer is eligible to receive up to 30% of her annual base salary and the remaining named executive officers are eligible to receive up to 20% of their annual base salaries under this plan.

Equity Compensation

          The compensation committee uses the award of stock options and restricted stock under the recognition and retention plan to align the interests of the named executive officers with those of our stockholders. At the annual meeting of stockholders in 2004, stockholders approved our stock option plan and recognition and retention plan. Ms. Hoveland, Ms. Huber, and Ms. Thompson received both stock options and awards from the compensation committee under each of those equity compensation plans during 2004. Mr. Luton received his stock options and stock awards when he became chief financial officer in November 2006. Both the stock options and the stock awards vest at a rate of 20% per year over five years commencing on the first anniversary of the award.  The compensation committee believes that the five year vesting of stock options and restricted stock awards will focus senior management on long term performance and stock appreciation. Except for Mr. Luton, no additional options or awards were granted to any of the named executive officers in fiscal years ended June 30, 2006 and 2007.

          Information regarding the outstanding stock option grants and unvested recognition and retention plan awards is included in the section titled “- Outstanding Equity Awards at Year End,” below. For information regarding our expense related to the portion of each stock option and restricted stock plan award that vested during fiscal 2007, as calculated in accordance with Statement of Financial Accounting Standards No. 123(R), see “Summary Compensation Table.”

Benefit Plans

          The compensation committee annually reviews the expense and appropriateness of all benefit plans for the named executive officers and all other employees. The benefit plans include a 401(k) plan, deferred compensation plan, employee stock ownership plan, and other benefit plans such as medical, dental, life and disability insurance.

          The named executive officers are eligible to participate in a 401(k) Plan which includes a match of up to 50% of the participant’s eligible contributions up to 10% of the participant’s salary. The match and the investment options are identical to those available to all other participants. Under the terms of our employee stock ownership plan, all named executive officers receive an annual allocation of our common stock based upon the participant’s eligible compensation up to $210,000. Participation levels for named executive officers are identical to those of all other employee stock ownership plan participants.

          The named executive officers are eligible to participate in the nonqualified deferred retirement plan, which allows them to defer a portion of their compensation earned during the plan year. At our

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discretion, we have the ability to match the elective deferrals of the participants. However, we have not made any matching contributions to this plan since inception.  

Summary Compensation

          The following table sets forth for the fiscal year ended June 30, 2007, certain information as to the total remuneration paid by Kaiser Federal Bank to Ms. Hoveland, who serves as president and chief executive officer, Mr. Luton, who serves as chief financial officer and certain information as to the total remuneration paid by Kaiser Federal Bank to the other most highly compensated executive officers of Kaiser Federal Bank, other than Ms. Hoveland or Mr. Luton, who received total annual compensation in excess of $100,000.  Each of the individuals listed in the table below are referred to as a named executive officer.

Name and Principal Position	Year		Salary		Bonus		Stock awards(1)		Option awards(2)		Non-equity incentive plan compensation(3)		Change in pension value and non- qualified deferred compensation earnings(4)		All other compensation(5)		Total
Kay M. Hoveland, President and Chief Executive Officer		2007	$	280,851	$	100,800	$	112,800	$	102,000	$	—	$	40,835	$	105,734	$	743,020
Dustin Luton, Chief Financial Officer		2007		130,308		—		43,950		21,300		30,250		—		6,000		231,808
Jeanne R. Thompson, Chief Operating Officer		2007		145,830		—		28,200		22,440		5,000		—		55,949		257,419
Nancy J. Huber, Chief Credit Officer		2007		159,835		—		28,200		22,440		28,122		—		62,182		300,779

(1)	The amounts in this column reflect the dollar amount recognized for financial statement reporting purposes for the fiscal year ended June 30, 2007, in accordance with FAS 123(R), of restricted stock awards pursuant to the 2004 Recognition and Retention Plan and thus may include amounts from awards granted in and prior to 2007.  Assumptions used in the calculation of these amounts are included in footnote 10 to our audited consolidated financial statements included in this prospectus.
(2)	The amounts in this column reflect the dollar amount recognized for financial statement reporting purposes, for the fiscal year ended June 30, 2007, in accordance with FAS 123(R), of stock option awards pursuant to the 2004 Stock Option Plan and thus include amounts from awards granted in and prior to 2007. Assumptions used in the calculation of this amount are included in footnote 10 to our audited consolidated financial statements included in this prospectus.  Pursuant to SEC rules, the amounts shown exclude the impact of estimated forfeitures related to service-based conditions.
(3)	All cash incentive plan awards are reported for the fiscal year for which they were earned. These awards are traditionally paid during the first quarter of the following fiscal year.
(4)	Kaiser Federal Bank maintains an executive deferral program for the benefit of senior executive officers.  Ms. Hoveland is currently the only executive officer who has chosen to participate.  The amount represents the change in net present value of accrued benefits under the plan during fiscal 2007.
(5)	Amounts shown include (a) the market value as of June 30, 2007 of ESOP awards allocated to each named executive officer for fiscal 2007; (b) the amount of dividends earned on the unvested portion of previously awarded shares of common stock under our 2004 Recognition and Retention Plan; and (c) the matching contributions made to the 401(k) Plan on behalf of the named executive officers.  The following table lists all the amounts included in “All Other Compensation” column for each named executive officer.
(6)	Mr. Luton joined Kaiser Federal Bank effective November 15, 2006.

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All Other Compensation

Name	Perquisites(1)		Contributions to 401(k) Plan		RRP Dividends(2)		ESOP Shares Granted(3)		Directors Fees(4)		Total
Kay M. Hoveland	$	—	$	7,524	$	10,880	$	65,030	$	22,300	$	105,734
Dustin Luton		—		—		6,000		—		—		6,000
Jeanne R. Thompson		—		6,373		2,720		46,856		—		55,949
Nancy J. Huber		—		4,295		2,720		55,167		—		62,182

(1)	For the fiscal year ended June 30, 2007, no named executive officer received perquisites or personal benefits which exceeded $10,000.
(2)	Represents dividends on unearned restricted stock awards.
(3)	Market value of shares granted under the ESOP. See Note 11 - Employee Stock Ownership Plan to our financial statements in this prospectus.
(4)	Ms. Hoveland, the president and chief executive officer, is also a director.

          Outstanding Equity Awards at Year End.  The following table sets forth information with respect to our outstanding equity awards as of June 30, 2007 for our named executive officers.

Outstanding Equity Awards at Fiscal Year-End
	Option Awards							Stock Awards
Name	Grant Date	Number of securities underlying unexercised options (#) exercisable	Number of securities underlying unexercised options (#) unexercisable	Equity incentive plan awards: number of securities underlying unexercised earned options (#)	Option exercise price ($)		Option expiration date(1)	Number of shares or units of stock that have not vested (#)	Market value of shares or units of stock that have not vested ($)(2)		Equity incentive plan awards: number of unearned shares, units or other rights that have not vested (#)	Equity incentive plan awards: market or payout value of unearned shares, units or other rights that have not vested ($)
Kay M. Hoveland, President and Chief Executive Officer	11/14/2004	40,000	60,000	—	$	14.50	11/14/2014	24,000	$	376,560	—	—
Dustin Luton, Chief Financial Officer	11/15/2006	—	40,000	—		17.40	11/15/2016	20,000		313,800	—	—
Jeanne R. Thompson, Chief Operating Officer	11/14/2004	8,800	13,200	—		14.50	11/14/2014	6,000		94,140	—	—
Nancy J. Huber, Chief Credit Officer	11/14/2004	8,800	13,200	—		14.50	11/14/2014	6,000		94,140	—	—

(1)	Stock options expire 10 years after the grant date.
(2)	This amount is based on the fair market value of K-Fed Bancorp common stock on June 29, 2007 of $15.69.

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Benefits

          General.  Kaiser Federal Bank currently provides health and welfare benefits to its employees, including hospitalization and comprehensive medical insurance, life insurance, subject to deductibles and co-payments by employees.

          401(k) Plan.  Kaiser Federal Bank provides its employees with a qualified profit sharing plan under the applicable provisions of the Internal Revenue Code of 1986, as amended.

          Employees who are age 21 or older are eligible to begin making salary deferral contributions beginning in the first calendar quarter on or after they become an employee.  This is their earliest entry date.  Employees are eligible to receive contributions other than salary deferral contributions beginning in the first calendar quarter on or after they are an employee, are age 21 or older, and have completed one year of entry service.

          Eligible employees may contribute up to 15% of their compensation each pay period to the 401(k) Plan on a pre-tax basis, not to exceed $15,500 for the calendar year 2007.  The maximum deferral percentage and/or dollar amount may also be limited by Internal Revenue Service regulations.  For eligible employees, we currently match 50% of the first 10% of the compensation an employee defers each pay period.

          Employees are always 100% vested in the contributions they choose to defer, whereas vesting in Kaiser Federal Bank contributions is based on years of vesting service in which an employee works at least 1,000 hours.  Vesting in Kaiser Federal Bank contributions begins after two years of vesting service and increases for each year of vesting service until an employee becomes fully vested after six years of vesting service.

          Employees may receive money from their vested accounts at retirement (age 65), early retirement (age 55 and ten years of vesting service), age 59 ½ and still working, death, disability, or termination of employment.  Employees may obtain loans from their vested account balances or withdraw all or part of their vested accounts (not earnings) if they can prove financial hardship and are unable to meet their financial needs another way.

          Kaiser Federal Bank may amend the 401(k) Plan at any time, except that no amendment may be made which would reduce the interest of any participant in or beneficiary of the 401(k) Plan trust fund or divert any of the assets of the 401(k) Plan trust fund to purposes other than the benefit of participants or their beneficiaries unless necessary to comply with any law or regulation issued by any governmental agency to which the 401(k) Plan is subject.

          Employee Stock Ownership Plan.  In connection with our minority stock offering, we adopted the K-Fed Bancorp Employee Stock Ownership Plan or ESOP for eligible employees of K-Fed Bancorp and any subsidiary, including Kaiser Federal Bank.  Employees of K-Fed Bancorp and Kaiser Federal Bank who have been credited with at least 1,000 hours of service during a twelve month period are eligible to participate in the ESOP.

          The ESOP borrowed funds from K-Fed Bancorp to purchase 454,940 shares of the common stock sold in our stock offering.  The shares of common stock were purchased with proceeds of a $4.5 million loan from K-Fed Bancorp.  The loan to the ESOP bears interest at 4.0% and will be repaid principally from Kaiser Federal Bank’s contributions to the ESOP over a period of ten years.  The collateral for the loan is the shares of common stock of K-Fed Bancorp purchased by the ESOP.  Shares purchased by the ESOP are held in a suspense account and are released to participants’ accounts as debt service payments

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are made.  Shares released from the ESOP are allocated to each eligible participant’s ESOP account based on the ratio of each such participant’s compensation to the total compensation of all eligible participants.  Forfeitures are reallocated among remaining participating employees and may reduce any amount K-Fed Bancorp might otherwise have contributed to the ESOP.  A participant vests in 100% of his or her account balance after six years of credited service.  In the case of a “change in control,” as defined in the ESOP, which triggers a termination of the ESOP, participants will become immediately fully vested in their account balances.  Benefits are payable upon retirement or other separation from service.  K-Fed Bancorp’s contributions to the ESOP are not fixed, so benefits payable under the ESOP cannot be estimated.

          Annual Incentive Plan.  Kaiser Federal Bank maintains an Annual Incentive Plan for our key employees.  Participants are awarded a percentage of their base salary, based upon their position with Kaiser Federal Bank that is tied to achieving a minimum return on assets and the attainment of personal performance goals established by the employee and his or her supervisor.

K-Fed Bancorp 2004 Stock Benefit Plans

          Outside directors and key employees of Kaiser Federal Bank, K-Fed Bancorp or their affiliates are eligible to participate in and receive awards of stock options and restricted stock under the K-Fed Bancorp 2004 Stock Option Plan, and the K-Fed Bancorp 2004 Recognition and Retention Plan, respectively.  A total of 568,675 shares of our common stock is reserved for the 2004 Stock Option Plan and 227,470 shares of our common stock is reserved for the 2004 Recognition and Retention Plan.  On November 16, 2004, directors Murbach, Nicewicz (who resigned on September 18, 2007), Steinbach and Zwern each were granted non-qualified stock options to purchase 14,000 shares of our common stock. Chairman Breeden was granted non-qualified stock options to purchase 28,000 shares of our common stock.  Additionally, incentive stock options to purchase 100,000, 22,000 and 22,000 shares of our common stock were each granted to Ms. Hoveland, Ms. Huber and Ms. Thompson, respectively.  On November 16, 2004, a total of 373,600 stock options were granted to directors and employees.  All of the stock options granted to the directors and key employees on November 16, 2004 were granted at an exercise price of $14.50 per share, the fair market value of our common stock on the grant date.  On November 15, 2006, incentive stock options to purchase 40,000 shares of our common stock was granted to Mr. Luton, the chief financial officer, with an exercise price of $17.40 per share, the fair market value of our common stock on the grant date.

          On November 16, 2004, directors Murbach, Nicewicz, Steinbach and Zwern were granted a restricted stock award of 7,200 shares of our common stock. Chairman Breeden was granted a restricted stock award of 11,300 shares of our common stock.  Additionally, restricted stock awards of 40,000, 10,000 and 10,000 shares of our common stock were granted to Ms. Hoveland, Ms. Huber and Ms. Thompson, respectively.  On November 16, 2006, Mr. Luton was granted a restricted stock award of 20,000 shares of our common stock.

          All stock options and restricted stock awards vest in 20% increments over a five-year period, beginning on the first anniversary of the award date.  Stock options will vest and become immediately exercisable and restricted stock awards will vest upon the grantee’s death, disability or following a change in control of K-Fed Bancorp.

Effect on Existing Compensation Plans

          Under the plan of conversion and reorganization, the existing 2004 Stock Option Plan and 2004 Recognition and Retention Plan of K-Fed Bancorp will become stock benefit plans of Kaiser Federal Financial Group, Inc. and shares of Kaiser Federal Financial Group, Inc. common stock will be issued (or

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reserved for issuance) pursuant to such benefit plans and not shares of K-Fed Bancorp common stock.  Upon consummation of the conversion, the common stock currently reserved for or held by these benefit plans will be converted into options or Kaiser Federal Financial Group, Inc. common stock based upon the exchange ratio.  Upon completion of the conversion, (i) all rights to purchase, sell or receive K-Fed Bancorp common stock currently under any agreement between K-Fed Bancorp and Kaiser Federal Bank and any director, officer or employee of Kaiser Federal Bank or under any plan or program of K-Fed Bancorp or Kaiser Federal Bank (including, without limitation, the 2004 Recognition and Retention Plan), shall automatically, by operation of law, be converted into and shall become an identical right to purchase, sell or receive Kaiser Federal Financial Group, Inc. common stock and an identical right to make payment in common stock under any such agreement between K-Fed Bancorp or Kaiser Federal Bank and any director, officer or employee or under such plan or program of K-Fed Bancorp or Kaiser Federal Bank, and (ii) rights outstanding under the 2004 Stock Option Plan shall be assumed by Kaiser Federal Financial Group, Inc. and thereafter shall be rights only for shares of Kaiser Federal Financial Group, Inc. common stock, with each such right being for a number of shares of Kaiser Federal Financial Group, Inc. common stock based upon the exchange ratio and the number of shares of K-Fed Bancorp that were available thereunder immediately prior to consummation of the conversion, with the price adjusted to reflect the exchange ratio but with no change in any other term or condition of such right.

          Options Exercised and Stock Vested.  The following table sets forth information with respect to option exercises and common stock awards that have vested during the year ended June 30, 2007.

Option Exercises and Stock Vested for the Fiscal Year
	Option awards				Stock awards
Name	Number of shares acquired on exercise (#)		Value realized on exercise ($)		Number of shares acquired on vesting (#)		Value realized on vesting ($)(1)
Kay M. Hoveland, President and Chief Executive Officer		—	$	—		8,000	$	140,640
Dustin Luton, Chief Financial Officer		—		—		—		—
Jeanne R. Thompson, Chief Operating Officer		—		—		2,000		35,160
Nancy H. Huber, Chief Credit Officer		—		—		2,000		35,160

⁽¹⁾ The value realized on vesting represents the market value on the day the stock vested.

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          Nonqualified Deferred Compensation.  The following table sets forth information with respect to the Executive Nonqualified Retirement Plan at and for the year ended June 30, 2007 for the named executive officers.

Nonqualified Deferred Compensation
Name	Executive Contributions in Last FY ($)		Registrant Contributions in Last FY ($)		Aggregate Earnings in Last FY ($)		Aggregate Withdrawals/ Distributions ($)		Aggregate Balance at Last FYE ($)
Kay M. Hoveland, President and Chief Executive Officer	$	—	$	—	$	40,835	$	—	$	1,013,464
Dustin Luton, Chief Financial Officer		—		—		—		—		—
Jeanne R. Thompson, Chief Operating Officer		—		—		—		—		—
Nancy H. Huber, Chief Credit Officer		—		—		—		—		—

          Kaiser Federal Bank Executive Non-Qualified Retirement Plan.  Kaiser Federal Bank also maintains an executive deferral program for the benefit of certain senior executives that have been designated to participate in the program.  The program allows an additional opportunity for key executives to defer a portion of their compensation into a non-qualified deferral program to supplement their retirement earnings.  Ms. Hoveland, currently the only participant in the program, had $1.0 million in compensation deferred pursuant to this program as of June 30, 2007.

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          Potential Payments Upon Termination or Change in Control. The following table shows, as of June 30, 2007, in all cases, potential payments following a termination of employment or a change in control of K-Fed Bancorp.

	Voluntary Resignation		Early Retirement		Normal Retirement		Involuntary Termination		Involuntary Termination for cause		Involuntary Termination after change in control		Disability		Death
Kay M. Hoveland
2004 Stock Option Plan(1)	$	—	$	—	$	—	$	—	$	—	$	119,000	$	119,000	$	119,000
2004 Recognition and Retention Plan(1)	$	—	$	—	$	—	$	—	$	—	$	376,560	$	376,560	$	376,560
Executive Nonqualified Retirement Plan(2)	$	1,013,464	$	1,013,464	$	1,013,464	$	1,013,464	$	1,013,464	$	1,013,464	$	1,013,464	$	1,013,464
Dustin Luton
2004 Stock Option Plan(3)	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
2004 Recognition and Retention Plan(3)	$	—	$	—	$	—	$	—	$	—	$	313,800	$	313,800	$	313,800
Jeanne R. Thompson
2004 Stock Option Plan(4)	$	—	$	—	$	—	$	—	$	—	$	26,180	$	26,180	$	26,180
2004 Recognition and Retention Plan(4)	$	—	$	—	$	—	$	—	$	—	$	94,140	$	94,140	$	94,140
Nancy J. Huber
2004 Stock Option Plan(5)	$	—	$	—	$	—	$	—	$	—	$	26,180	$	26,180	$	26,180
2004 Recognition and Retention Plan(5)	$	—	$	—	$	—	$	—	$	—	$	94,140	$	94,140	$	94,140

(1)	As of June 30, 2007, 16,000 restricted shares have vested and 40,000 stock options have vested and not been exercised.  At June 30, 2007, the restricted shares of common stock granted under the plan were valued at $15.69 per share. At the same date, the “in-the-money” value of 40,000 vested and unexercised stock options granted on November 16, 2004 was $1.19 per share, based on an exercise price of $14.50 per option and a share value of $15.69.  As of June 30, 2007, 24,000 unvested shares of restricted stock and 60,000 unvested stock options granted to the executive will vest in the event of a change in control of K-Fed Bancorp, or the executive’s death or disability.
(2)	Represents the amount of Ms. Hoveland’s deferred compensation plan as of June 30, 2007.
(3)	As of June 30, 2007, no restricted shares have vested and no stock options have vested or been exercised.  At June 30, 2007, the restricted shares of common stock granted under the plan were valued at $15.69 per share. As of June 30, 2007, 20,000 unvested shares of restricted stock and 40,000 unvested stock options granted to the executive will vest in the event of a change in control of K-Fed Bancorp, or the executive’s death or disability.  As of June 30, 2007, none of Mr. Luton’s stock options were in the money.
(4)	As of June 30, 2007, 4,000 restricted shares have vested and 8,800 stock options have vested and not been exercised.  At June 30, 2007, the restricted shares of common stock granted under the plan were valued at $15.69 per share. At the same date, the “in-the-money” value of 8,800 vested and unexercised stock options granted on November 16, 2004 was $1.19 per share, based on an exercise price of $14.50 per option and a share value of $15.69.  As of June 30, 2007, 6,000 unvested shares of restricted stock and 13,200 unvested stock options granted to the executive will vest in the event of a change in control of K-Fed Bancorp, or the executive’s death or disability.
(5)	As of June 30, 2007, 4,000 restricted shares have vested and 8,800 stock options have vested and not been exercised.  At June 30, 2007, the restricted shares of common stock granted under the plan were valued at $15.69 per share. At the same date, the “in-the-money” value of 8,800 vested and unexercised stock options granted on November 16, 2004 was $1.19 per share, based on an exercise price of $14.50 per option and a share value of $15.69.  As of June 30, 2007, 6,000 unvested shares of restricted stock and 13,200 unvested stock options granted to the executive will vest in the event of a change in control of K-Fed Bancorp, or the executive’s death or disability.

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Directors Compensation

          Members of the Board of Directors and the committees of K-Fed Bancorp do not receive separate compensation for their service on the Board of Directors or the committees of K-Fed Bancorp. 

          For the fiscal year ended June 30, 2007, members of the Board of Directors of Kaiser Federal Bank received an annual stipend of $10,000 plus an annual fee of $7,500 for Board of Directors meetings.  The chairman of the Board of Directors received an annual stipend of $25,000 plus an annual fee of $7,500 for Board of Directors meetings.  Each member of Kaiser Federal Bank’s executive committee received an annual fee of $4,800.  Each member of Kaiser Federal Bank’s other committees received an annual fee of $1,200 with the committee chairman receiving $1,600.  The Board Chairman received annual fees of $15,000 for attending weekly credit committee and asset/liability management committee meetings. 

          Directors’ Summary Compensation Table.  Set forth below is summary compensation for each of our non-employee directors. 

Director Compensation
Name(1)	Fees earned or paid in cash		Stock awards(2)		Option awards(3)		Non-equity incentive plan compensation		Change in pension value and non-qualified deferred compensation earnings		All other compensation(4)		Total
James C. Breeden	$	67,300	$	31,866	$	28,560	$	—	$	—	$	3,074	$	130,800
Frank G. Nicewicz (5)		19,100		20,304		14,280		—		—		1,958		55,642
Rita H. Zwern		23,500		20,304		14,280		—		—		1,958		60,042
Gerald A. Murbach		19,100		20,304		14,280		—		—		1,958		55,642
Robert C. Steinbach		23,500		20,304		14,280		—		—		1,958		60,042

(1)	Ms. Hoveland, the president and chief executive officer, is also a director.  Ms. Hoveland receives compensation for serving on the board, however, her compensation has been omitted from this table and is reported in the Summary Compensation table.
(2)	The amounts in this column reflect the dollar amount recognized for financial statement reporting purposes for the fiscal year ended June 30, 2007, in accordance with FAS 123(R), of restricted stock awards pursuant to the 2004 Recognition and Retention Plan and thus may include amounts from awards granted in and prior to 2007.  Assumptions used in the calculation of these amounts are included in footnote 10 to our audited financial statements for the fiscal year ended June 30, 2007 included in this prospectus.
(3)	The amounts in this column reflect the dollar amount recognized for financial statement reporting purposes, for the fiscal year ended June 30, 2007, in accordance with FAS 123(R), of stock option awards pursuant to the 2004 Stock Option Plan and thus include amounts from awards granted in and prior to 2007. Assumptions used in the calculation of this amount are included in footnote 10 to our audited financial statements for the fiscal year ended June 30, 2007 included in this prospectus.  Pursuant to SEC rules, the amounts shown exclude the impact of estimated forfeitures related to service-based conditions.
(4)	This amount represents dividends received on unvested stock awards in 2007. For the year ended June 30, 2007, no director received perquisites or personal benefits, which exceeded $10,000.
(5)	Mr. Nicewicz resigned from the Board of Directors effective September 18, 2007.

Transactions with Certain Related Persons

          Kaiser Federal Bank has a policy of granting loans to officers and directors, which fully complies with all applicable federal regulations.  Loans to directors and executive officers are made in the ordinary course of business and on the same terms and conditions as those of comparable transactions with unaffiliated third parties prevailing at the time, in accordance with our underwriting guidelines, and do not involve more than the normal risk of collectibility or present other unfavorable features.  In addition, all loans to directors and executive officers are approved by at least a majority of the independent, disinterested members of the board.

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          All loans Kaiser Federal Bank makes to its directors and executive officers are subject to regulations restricting loans and other transactions with affiliated persons of Kaiser Federal Bank.  Loans to all directors and executive officers and their associates totaled approximately $813,000 at June 30, 2007, which was 0.1% of our stockholders’ equity at that date.  All loans to directors and executive officers were performing in accordance with their terms at June 30, 2007.

Indemnification of Directors and Officers

          The officers, directors, agents and employees of Kaiser Federal Financial Group, Inc. are indemnified with respect to certain actions pursuant to Kaiser Federal Financial Group, Inc.’s articles of incorporation and Maryland law. Maryland law allows Kaiser Federal Financial Group, Inc. to indemnify any person for expenses, liabilities, settlements, judgments and fines in suits in which such person has been made a party by reason of the fact that he or she is or was a director, officer or employee of Kaiser Federal Financial Group, Inc.  No such indemnification may be given (i) to the extent that it is proved that the person actually received an improper benefit or profit in money, property or services for the amount of the benefit or profit in money, property or services actually received; (ii) to the extent that a judgment or other final adjudication adverse to the person is entered in a proceeding based on a finding that the person’s action, or failure to act, was the result of active and deliberate dishonesty and was material to the cause of action adjudicated; or (iii) to the extent otherwise provided by Maryland law.  The right to indemnification includes the right to be paid the expenses incurred in advance of final disposition of a proceeding.

          Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to our directors, officers and controlling persons by our bylaws or otherwise, we have been advised that, in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable.

Benefits to be Considered Following Completion of the Conversion

          Stock-Based Incentive Plan.  Following the stock offering, we intend to adopt a new stock-based incentive plan that will provide for grants of stock options and restricted common stock awards.  The number of options granted or shares awarded under the plan may not exceed 3.7% and 9.3%, respectively, of the shares sold in the stock offering if the stock-based incentive plan is adopted within one year after the stock offering, in accordance with Office of Thrift Supervision policy. 

          The stock-based incentive plan will not be established sooner than six months after the stock offering and if adopted within one year after the stock offering would require the approval by stockholders owning a majority of the outstanding shares of Kaiser Federal Financial Group, Inc. common stock eligible to be cast.  If the stock-based incentive plan is established after one year after the stock offering, it would require the approval of our stockholders by a majority of votes cast.  The following additional restrictions would apply to our stock-based incentive plan if the plan is adopted within one year after the stock offering:

• non-employee directors in the aggregate may not receive more than 30% of the options and restricted stock awards authorized under the plan;

• any one non-employee director may not receive more than 5% of the options and restricted stock awards authorized under the plan;

• any officer or employee may not receive more than 25% of the options and restricted stock awards authorized under the plan;

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• any tax-qualified employee stock benefit plans and management stock benefit plans, in the aggregate, may not hold more than 10% of the shares sold in the offering, unless Kaiser Federal Bank has tangible capital of 10% or more, in which case any tax-qualified employee stock benefit plans and management stock benefit plans, may be increased to up to 12% of the shares sold in the offering;

• the options and restricted stock awards may not vest more rapidly than 20% per year, beginning on the first anniversary of the grant;

• accelerated vesting is not permitted except for death, disability or upon a change in control of Kaiser Federal Bank or Kaiser Federal Financial Group, Inc.; and

• our executive officers or directors must exercise or forfeit their options in the event that Kaiser Federal Bank becomes critically undercapitalized, is subject to enforcement action or receives a capital directive.

          In the event either federal or state regulators change their regulations or policies regarding stock-based incentive plans, including any regulations or policies restricting the size of awards and vesting of benefits as described above, the restrictions described above may not be applicable.

          Employment Agreements.  Following completion of the conversion and offering, Kaiser Federal Bank plans to enter into an employment agreement with Ms. Hoveland for a three-year term with an initial salary of $350,000.  In addition to the base salary, the agreement provides for, among other things, participation in bonus programs and other employee pension benefit and fringe benefit plans applicable to executive employees.  Upon each anniversary date of the agreement, the term will be extended for an additional year unless Kaiser Federal Bank notifies Ms. Hoveland at least 30 days prior to such date that it intends to not extend the term.  Under the agreement, Ms. Hoveland’s employment may be terminated for cause at an time, in which event she would have no right to receive compensation or other benefits for any period after termination.

          Certain events resulting in Ms. Hoveland’s termination or resignation will entitle her to payments of severance benefits following termination of employment.  Ms. Hoveland will be entitled to severance benefits under the employment agreement in the event (A) her employment is involuntarily terminated (for reasons other than cause, death, disability or retirement) or (B) she resigns during the term of the agreement within two years after any of the following events (i) a requirement that she report to a corporate officer instead of the Board of Directors, (ii) a material change in her functions, duties or responsibilities, which change would cause her position to become of lesser responsibility, importance or scope of authority, (iii) a material reduction in her base salary, or the budget over which she has authority (iv) a relocation of her principal place of employment by more than 25 miles from the location as of the date of the agreement, or (v) a material breach of the agreement by Federal Kaiser Bank, then she would be entitled to a severance payment equal to three times her highest annual rate of base salary at any time during the term of the agreement and three times her highest annual bonus received during the latest three calendar years prior to the termination.  In addition, she would be entitled, at no expense to her, to the continuation of substantially comparable life, medical and disability coverage for such period.  Notwithstanding any provision to the contrary in the agreement, payments under the agreement following a change in control are limited so that they will not constitute an excess parachute payment under Section 280G of the Internal Revenue Code.

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          In addition, Kaiser Federal Bank plans to enter into employment agreements with Mr. Luton, Ms. Thompson and Ms. Huber upon completion of the conversion that contain similar terms as the agreement for Ms. Hoveland.  The agreement for each of Mr. Luton, Ms. Thompson and Ms. Huber provide for a term of two years with an initial salary of $226,600, $144,664 and $156,000, respectively.  In addition, the agreement for each of Mr. Luton, Ms. Thompson and Ms. Huber provide for a severance payment equal to two times their highest annual rate of base salary at any time during the term of the agreement and two times their highest annual bonus received during the latest three calendar years prior to the termination.

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Beneficial Ownership of Common Stock

          The following table provides the positions, ages and terms of office as applicable to our directors and executive officers along with the beneficial ownership of our common stock held by our directors and executive officers, individually and as a group, and all individuals known to management to own more than 5% of our common stock as of August 14, 2007. 

Name (1)	Age(2)		Positions Held with K-Fed Bancorp		Director Since (3)		Current Term to Expire		Shares of Common Stock Beneficially Owned (4)(5)			Percent of Class
DIRECTORS
James L. Breeden		64		Chairman of the Board		1987		2007		55,637	(6)		*
Frank G. Nicewicz		51		Director		1995		2007		27,800	(7)		*
Kay M. Hoveland		60		Director, President and Chief Executive Officer		2000		2008		151,130	(8)		*
Rita H. Zwern		59		Director and Secretary		1987		2008		27,800	(9)		*
Gerald A. Murbach		59		Director		2000		2009		42,800	(10)		*
Robert C. Steinbach		54		Director		2000		2009		46,200	(11)		*
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
Dustin Luton		37		Chief Financial Officer		N/A		N/A		20,135	(12)		*
Nancy J. Huber**		44		Chief Credit Officer		N/A		N/A		42,765	(13)		*
Jeanne R. Thompson**		60		Chief Operating Officer		N/A		N/A		38,509	(14)		*
All directors and executive officers as a group (9 persons)										452,776			3.2	%
K-Fed Mutual Holding Company 1359 North Grand Avenue Covina, California 91724										8,861,750			63.5	%
Hovde Capital Advisors LLC 1826 Jefferson Place, N.W. Washington, D.C. 20036(15)										910,611			6.5	%
K-Fed Mutual Holding Company, and all directors and executive officers as a group										9,314,526			66.3	%

*	Less than 1%.
**	Ms. Huber and Ms. Thompson are officers of Kaiser Federal Bank only.
(1)	The mailing address for each person listed is 1359 North Grand Avenue, Covina, California 91724.
(2)	As of August 14, 2007.
(3)	Reflects initial appointment to the Board of Directors of Kaiser Permanente Federal Credit Union, the predecessor to Kaiser Federal Bank, with the exception of Directors Steinbach, Murbach and Hoveland.  Each director of K-Fed Bancorp is also a director of Kaiser Federal Bank and K-Fed Mutual Holding Company, which owns the majority of the issued and outstanding shares of common stock of K-Fed Bancorp.
(4)	In accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as amended, a person is deemed to be the beneficial owner for purposes of this table, of any shares of common stock if he has shared voting or investment power with respect to such security, or has a right to acquire beneficial ownership at any time within 60 days from the dates as of which beneficial ownership is being determining. As used herein, “voting power” is the power to vote or direct the voting of shares and “investment power” is the power to dispose or  direct the disposition of shares, and includes all shares held directly as well as by spouses and minor children, in trust and other indirect ownership, over which shares the named individuals effectively exercise sole or shared voting or investment power.
(5)	Includes 4,320 unvested shares of restricted stock for each of directors Murbach, Nicewicz, Steinbach and Zwern, 6,780 unvested shares of restricted stock for Chairman Breeden, and 24,000, 20,000, 6,000 and 6,000 unvested shares of restricted stock for Ms. Hoveland, Mr. Luton, Ms. Huber and Ms. Thompson, respectively, granted under the K-Fed Bancorp 2004 Recognition and Retention Plan.  Includes 10,610, 0, 8,965 and 8,362 shares of common stock allocated to the accounts of Ms. Hoveland, Mr. Luton, Ms. Huber and Ms. Thompson, respectively, under the K-Fed Bancorp employee stock ownership plan.
(6)	Includes 2,637 shares of common stock held by Mr. Breeden’s spouse and 15,500 shares of common stock held in an IRA for Mr. Breeden. Includes 11,200 stock option shares that have vested.

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(7)	Includes 5,600 stock option shares that have vested. Mr. Nicewicz resigned as a director effective September 18, 2007.
(8)	Includes 56,000 shares of common stock held in a trust for Ms. Hoveland, 1,100 shares of common stock held in a Keogh plan for Ms. Hoveland’s spouse and 19,420 shares of common stock held in the Kaiser Federal Bank 401(k) Plan. Includes 40,000 stock option shares that have vested.
(9)	Includes 5,600 stock option shares that have vested. Ms. Zwern has pledged 10,000 shares of our common stock as security for a loan.
(10)	Includes 15,000 shares of common stock held by Mr. Murbach’s spouse. Includes 5,600 stock option shares that have vested.
(11)	Includes 15,000 shares of common stock held by Mr. Steinbach’s spouse. Includes 5,600 stock option shares that have vested.
(12)	Includes 135 shares of common stock held in the Kaiser Federal Bank 401(k) Plan.
(13)	Includes 8,800 stock option shares that have vested. Ms. Huber has pledged 15,000 shares of our common stock as security for a loan.
(14)	Includes 1,172 shares of common stock held by Ms. Thompson’s spouse, 1,400 shares of common stock held in a trust for Ms. Thompson and 4,381 shares of common stock held in the Kaiser Federal Bank 401(k) Plan. Includes 8,800 stock option shares that have vested. Ms. Thompson has pledged 15,000 shares of our common stock as security for a loan.
(15)	Based on a Schedule 13G filed with the Securities and Exchange Commission on February 14, 2007, Hovde Capital Advisors LLC claims shared voting and dispositive ownership over all shares reported. Hovde Capital Advisors LLC is an investment manager whose managed accounts are the direct owners of the shares of common stock. This reported amount of shares of common stock does not reflect any changes in those shareholdings that may have occurred since the date of such filing.

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SUBSCRIPTIONS BY DIRECTORS AND EXECUTIVE OFFICERS

          The table below sets forth, for each of Kaiser Federal Financial Group, Inc.’s directors and executive officers and for all of the directors and executive officers as a group, the following information:

(i)	the number of exchange shares to be held upon consummation of the conversion, based upon their beneficial ownership of K-Fed Bancorp common stock as of August 14, 2007;
(ii)	the proposed purchases of subscription shares, assuming sufficient shares of common stock are available to satisfy their subscriptions; and
(iii)	the total amount of Kaiser Federal Financial Group, Inc. common stock to be held upon consummation of the conversion.

          In each case, it is assumed that subscription shares are sold at the maximum of the offering range. See “The Conversion and Offering—Limitations on Common Stock Purchases.”  Regulations of the Office of Thrift Supervision prohibit our directors and officers from selling the shares they purchase in the offering for one year after the date of purchase.

			Proposed Purchases of Stock in the Offering (1)				Total Common Stock to be Held
	Number of Exchange Shares to be Held (2)
Name of Beneficial Owner			Number of Shares		Amount		Number of Shares		Percentage of Total Outstanding
Directors:
James L. Breeden		93,859		5,000	$	50,000		98,859		*
Kay M. Hoveland		254,956		20,000		200,000		274,956		1.3	%
Rita H. Zwern		46,898		100		1,000		46,998		*
Gerald A. Murbach		72,203		—		—		72,203		*
Robert C. Steinbach		77,939		1,000		10,000		78,939		*
Executive Officers who are not Directors:
Dustin Luton		33,967		5,000		50,000		38,967		*
Nancy J. Huber		72,144		5,000		50,000		77,144		*
Jeanne R. Thompson		64,964		10,500		105,000		75,464		*
Total for Directors and Executive Officers		716,930		46,600		466,000		763,530		3.7	%

*	Less than 1%.
(1)	Includes proposed subscriptions, if any, by associates.
(2)	Based on information presented in “Beneficial Ownership of Common Stock” and assumes an exchange ratio of 1.6870 shares for each share of K-Fed Bancorp.

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THE CONVERSION AND OFFERING

          The Boards of Directors of K-Fed Bancorp and K-Fed Mutual Holding Company have approved the plan of conversion and reorganization.  The plan of conversion and reorganization must also be approved by the members of K-Fed Mutual Holding Company (depositors of Kaiser Federal Bank) and the stockholders of K-Fed Bancorp.  A special meeting of members and a special meeting of stockholders have been called for this purpose. The Office of Thrift Supervision has conditionally approved the plan of conversion and reorganization; however, such approval does not constitute a recommendation or endorsement of the plan of conversion and reorganization by that agency.

General

          The respective Boards of Directors of K-Fed Mutual Holding Company and K-Fed Bancorp adopted the plan of conversion and reorganization on June 26, 2007.  Pursuant to the plan of conversion and reorganization, our organization will convert from the mutual holding company form of organization to the fully stock form.  K-Fed Mutual Holding Company, the mutual holding company parent of K-Fed Bancorp, will be merged into Kaiser Federal Bank, and K-Fed Mutual Holding Company will no longer exist.  K-Fed Bancorp, which owns 100% of Kaiser Federal Bank, will be succeeded by a new Maryland corporation named Kaiser Federal Financial Group, Inc.  As part of the conversion, the ownership interest in K-Fed Bancorp of K-Fed Mutual Holding Company will be offered for sale in the offering by K-Fed Bancorp.  When the conversion is completed, all of the outstanding common stock of Kaiser Federal Bank will be owned by Kaiser Federal Financial Group, Inc., and all of the outstanding common stock of Kaiser Federal Financial Group, Inc. will be owned by public stockholders.  A diagram of our corporate structure before and after the conversion is set forth in the “Summary” section of this prospectus.

          Under the plan of conversion and reorganization, at the conclusion of the conversion and offering, each share of K-Fed Bancorp common stock owned by persons other than K-Fed Mutual Holding Company will be canceled and converted automatically into new shares of Kaiser Federal Financial Group, Inc. common stock determined pursuant to an exchange ratio.  The exchange ratio will ensure that immediately after the exchange of existing shares of K-Fed Bancorp for new shares, the public stockholders will own the same percentage of shares of common stock of Kaiser Federal Financial Group, Inc. that they owned in K-Fed Bancorp immediately prior to the conversion, excluding any shares they purchased in the offering and cash paid in lieu of fractional shares.

          Kaiser Federal Financial Group, Inc. intends to retain between $46.5 million and $62.6 million of the net proceeds, or $71.9 million if the offering range is increased by 15% (excluding the portion of the net proceeds loaned to our employee stock ownership plan), and to contribute the balance of the net proceeds to Kaiser Federal Bank.  The conversion will be consummated only upon the issuance of at least the minimum number of shares of our common stock offered pursuant to the plan of conversion and reorganization.

          The plan of conversion and reorganization provides that we will offer shares of common stock in a “subscription offering” in the following descending order of priority:

(i)	First, to depositors with accounts at Kaiser Federal Bank with aggregate balances of at least $50.00 at the close of business on March 31, 2006.
(ii)	Second, to our tax-qualified employee benefit plans, including our employee stock ownership plan and 401(k) plan which will receive nontransferable subscription rights to purchase in the aggregate up to 10% of the shares of common stock sold in the offering.

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	(iii)	Third, to depositors with accounts at Kaiser Federal Bank with aggregate balances of at least $50.00 at the close of business on September 30, 2007.
	(iv)	Fourth, to depositors of Kaiser Federal Bank at the close of business on _____, 2007.
If all shares are not subscribed for in the subscription offering, we may, at our discretion, offer shares of common stock for sale in a community offering to members of the general public, with a preference given in the following order:
	(i)	Natural persons residing in Los Angeles, San Bernardino, Riverside and Santa Clara Counties, California; and
	(ii)	K-Fed Bancorp’s public stockholders as of _______, 2007.

          We have the right to accept or reject, in whole or in part, any orders to purchase shares of the common stock received in the community offering. The community offering, if any, may begin at the same time as, during, or after the subscription offering and must be completed within 45 days after the completion of the subscription offering unless otherwise extended by the Office of Thrift Supervision. See “—Community Offering.”

          We determined the number of shares of common stock to be offered in the offering based upon an independent valuation appraisal of the estimated pro forma market value of Kaiser Federal Financial Group, Inc.  All shares of common stock to be sold in the offering will be sold at $10.00 per share. Investors will not be charged a commission to purchase shares of common stock in the offering.  The independent valuation will be updated and the final number of the shares of common stock to be issued in the offering will be determined at the completion of the offering. See “—Stock Pricing and Number of Shares to be Issued” for more information as to the determination of the estimated pro forma market value of the common stock.

          The following is a brief summary of the conversion and is qualified in its entirety by reference to the provisions of the plan of conversion and reorganization. A copy of the plan of conversion and reorganization is available for inspection at each branch office of Kaiser Federal Bank and at the West Regional and the Washington, D.C. offices of the Office of Thrift Supervision. The plan of conversion and reorganization is also filed as an exhibit to K-Fed Mutual Holding Company’s application to convert from mutual to stock form, of which this prospectus is a part, copies of which may be obtained from the Office of Thrift Supervision.  The plan of conversion and reorganization is also an exhibit to Kaiser Federal Financial Group, Inc.’s Registration Statement on Form S-1, which is accessible on the Securities and Exchange Commission website, www.sec.gov.  See “Where You Can Find Additional Information.”

Reasons for the Conversion and Offering

          The primary reasons for the conversion and offering are to:

• support internal growth through loan purchases and lending in the communities we serve;

• enhance existing products and services, and support the development of new products and services;

• build or lease new branch facilities or acquire branches from other financial institutions;

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• finance the acquisition of financial institutions, or other financial service companies primarily in Southern California, although we do not currently have any understandings or agreements regarding any specific acquisition transaction;

• improve the liquidity of our shares of common stock and enhance stockholder returns through higher earnings and more flexible capital management strategies; and

• use the additional capital for other general corporate purposes.

          As a fully converted stock holding company, we will have greater flexibility in structuring mergers and acquisitions, including the form of consideration that we can use to pay for an acquisition.  Our current mutual holding company structure limits our ability to offer shares of our common stock as consideration for a merger or acquisition since K-Fed Mutual Holding Company is required to own a majority of our shares of common stock.  Potential sellers often want stock for at least part of the purchase price.  Our new stock holding company structure will enable us to offer stock or cash consideration, or a combination of stock and cash, and will therefore enhance our ability to compete with other bidders when acquisition opportunities arise.  We do not currently have any agreement or understanding as to any specific acquisition.

Approvals Required

          The affirmative vote of a majority of the total eligible votes of the members of K-Fed Mutual Holding Company as of _____, 2007 is required to approve the plan of conversion and reorganization. By their approval of the plan of conversion and reorganization, the members of K-Fed Mutual Holding Company will also be approving the merger of K-Fed Mutual Holding Company into Kaiser Federal Bank. The affirmative vote of the holders of at least two-thirds of the outstanding shares of common stock of K-Fed Bancorp, including shares held by K-Fed Mutual Holding Company, and the affirmative vote of the holders of a majority of the outstanding shares of common stock of K-Fed Bancorp held by the public stockholders of K-Fed Bancorp as of _______, 2007 are also required to approve the plan of conversion and reorganization. The plan of conversion and reorganization also must be approved by the Office of Thrift Supervision, which has given its conditional approval; however, such approval does not constitute a recommendation or endorsement of the plan of conversion and reorganization by such agency.

Share Exchange Ratio for Current Stockholders

          Office of Thrift Supervision regulations provide that in a conversion of a mutual holding company to fully stock form, the public stockholders will be entitled to exchange their shares for common stock of the new holding company, provided that the mutual holding company demonstrates to the satisfaction of the Office of Thrift Supervision that the basis for the exchange is fair and reasonable.  Each publicly held share of K-Fed Bancorp common stock will, on the effective date of the conversion, be automatically converted into the right to receive a number of shares of Kaiser Federal Financial Group, Inc. common stock.  The number of shares of common stock will be determined pursuant to the exchange ratio, which ensures that the public stockholders will own approximately the same percentage of common stock in Kaiser Federal Financial Group, Inc. after the conversion as they held in K-Fed Bancorp immediately prior to the conversion, exclusive of their purchase of additional shares of common stock in the offering and their receipt of cash in lieu of fractional exchange shares. The exchange ratio is not dependent on the market value of our currently outstanding K-Fed Bancorp common stock.  The exchange ratio is based on the percentage of K-Fed Bancorp common stock held by the public, the independent valuation of Kaiser Federal Financial Group, Inc. prepared by RP Financial, LC. and the number of shares of common stock issued in the offering. The exchange ratio is expected to range from approximately 1.2469 exchange shares for each publicly held share of K-Fed Bancorp at the minimum of

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the offering range to 1.9401 exchange shares for each publicly held share of K-Fed Bancorp at the adjusted maximum of the offering range.

          If you are a stockholder of K-Fed Bancorp, at the conclusion of the conversion and offering, your shares will be exchanged for shares of Kaiser Federal Financial Group, Inc. The number of shares you receive will be based on the number of shares of common stock you own and the final exchange ratio determined as of the conclusion of the conversion. 

          The following table shows how the exchange ratio will adjust, based on the number of shares of common stock issued in the offering.  The table also shows how many whole shares of Kaiser Federal Financial Group, Inc. a hypothetical owner of K-Fed Bancorp common stock would receive in the exchange for 100 shares of K-Fed Bancorp common stock owned at the consummation of the conversion, depending on the number of shares issued in the offering. 

											Total Shares of Common Stock to be Outstanding After the Conversion and Offering		Exchange Ratio		Equivalent Per Share Current Market Price(1)		New Shares That Would be Received for 100 Existing Shares
	New Shares to be Sold in This Offering					New Shares to be Exchanged for Existing Shares of K-Fed Bancorp
	Amount		Percent			Amount		Percent
Minimum		11,050,000		63.5	%		6,343,386		36.5	%		17,393,386		1.2469	$	12.47		124
Midpoint		13,000,000		63.5	%		7,462,808		36.5	%		20,462,808		1.4670		14.67		146
Maximum		14,950,000		63.5	%		8,582,229		36.5	%		23,532,229		1.6870		16.87		168
15% above Maximum		17,192,500		63.5	%		9,869,563		36.5	%		27,062,063		1.9401		19.40		194

⁽¹⁾ Represents the value of shares of Kaiser Federal Financial Group, Inc. received in the conversion by a holder of one share of K-Fed Bancorp at the exchange ratio, assuming the market price of $10.00 per share.

Effects of Conversion on Depositors, Borrowers and Members

          Continuity. While the conversion is being accomplished, the normal business of Kaiser Federal Bank of accepting deposits and making loans will continue without interruption. Kaiser Federal Bank will continue to be a federally chartered savings association and will continue to be regulated by the Office of Thrift Supervision. After the conversion, Kaiser Federal Bank will continue to offer existing services to depositors, borrowers and other customers.  The directors serving K-Fed Bancorp at the time of the conversion will be the directors of Kaiser Federal Financial Group, Inc. after the conversion.

          Effect on Deposit Accounts.  Pursuant to the plan of conversion and reorganization, each depositor of Kaiser Federal Bank at the time of the conversion will automatically continue as a depositor after the conversion, and the deposit balance, interest rate and other terms of such deposit accounts will not change as a result of the conversion. Each such account will be insured by the Federal Deposit Insurance Corporation to the same extent as before the conversion. Depositors will continue to hold their existing certificates, passbooks and other evidences of their accounts.

          Effect on Loans. No loan outstanding from Kaiser Federal Bank will be affected by the conversion, and the amount, interest rate, maturity and security for each loan will remain as it was contractually fixed prior to the conversion.

          Effect on Voting Rights of Members. At present, all depositors of Kaiser Federal Bank are members of, and have voting rights in, K-Fed Mutual Holding Company as to all matters requiring membership action. Upon completion of the conversion, depositors will cease to be members of K-Fed Mutual Holding Company and will no longer have voting rights, unless they purchase shares of Kaiser

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Federal Financial Group, Inc.’s common stock. Upon completion of the conversion, all voting rights in Kaiser Federal Bank will be vested in Kaiser Federal Financial Group, Inc. as the sole stockholder of Kaiser Federal Bank.  The stockholders of Kaiser Federal Financial Group, Inc. will possess exclusive voting rights with respect to Kaiser Federal Financial Group, Inc. common stock.

          Tax Effects. We will receive an opinion of counsel or tax advisor with regard to the federal and state income tax consequences of the conversion to the effect that the conversion will not be a taxable transaction for federal or state income tax purposes to K-Fed Mutual Holding Company, K-Fed Bancorp, the public stockholders of K-Fed Bancorp (except for cash paid for fractional shares), members of K-Fed Mutual Holding Company, eligible account holders, supplemental eligible account holders, or Kaiser Federal Bank. See “—Material Income Tax Consequences.”

          Effect on Liquidation Rights.  Each depositor in Kaiser Federal Bank has both a deposit account in Kaiser Federal Bank and a pro rata ownership interest in the net worth of K-Fed Mutual Holding Company based upon the deposit balance in his or her account. This ownership interest is tied to the depositor’s account and has no tangible market value separate from the deposit account. This interest may only be realized in the event of a complete liquidation of K-Fed Mutual Holding Company and Kaiser Federal Bank. Any depositor who opens a deposit account obtains a pro rata ownership interest in K-Fed Mutual Holding Company without any additional payment beyond the amount of the deposit. A depositor who reduces or closes his or her account receives a portion or all of the balance in the deposit account but nothing for his or her ownership interest in the net worth of K-Fed Mutual Holding Company, which is lost to the extent that the balance in the account is reduced or closed.

          Consequently, depositors in a stock subsidiary of a mutual holding company normally have no way of realizing the value of their ownership interest, which has realizable value only in the unlikely event that K-Fed Mutual Holding Company and Kaiser Federal Bank are liquidated. If this occurs, the depositors of record at that time, as owners, would share pro rata in any residual surplus and reserves of K-Fed Mutual Holding Company after other claims, including claims of depositors to the amounts of their deposits, are paid.

          In the unlikely event that Kaiser Federal Bank were to liquidate after the conversion, all claims of creditors, including those of depositors, would be paid first, followed by distribution of the “liquidation account” to depositors as of March 31, 2006 and September 30, 2007 who continue to maintain their deposit accounts as of the date of liquidation, with any assets remaining thereafter distributed to Kaiser Federal Financial Group, Inc. as the holder of Kaiser Federal Bank’s capital stock. Pursuant to the rules and regulations of the Office of Thrift Supervision, a post-conversion merger, consolidation, sale of bulk assets or similar combination or transaction with another insured savings institution would not be considered a liquidation and, in such a transaction, the liquidation account would be assumed by the surviving institution.  See “—Liquidation Rights.”

Stock Pricing and Number of Shares to be Issued

          The plan of conversion and reorganization and federal regulations require that the aggregate purchase price of the common stock sold in the offering must be based on the appraised pro forma market value of the common stock, as determined by an independent valuation. Kaiser Federal Bank and K-Fed Mutual Holding Company have retained RP Financial, LC. to prepare an independent valuation appraisal. For its services in preparing the initial valuation, RP Financial, LC. will receive a fee of $110,000 and $10,000 for expenses. Kaiser Federal Bank and K-Fed Mutual Holding Company have agreed to indemnify RP Financial, LC. and its employees and affiliates against specified losses, including any losses in connection with claims under the federal securities laws, arising out of its services as independent appraiser, except where such liability results from its negligence or bad faith.

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          The independent valuation appraisal considered the pro forma impact of the offering. Consistent with the Office of Thrift Supervision appraisal guidelines, the appraisal applied three primary methodologies: the pro forma price-to-book value approach applied to both reported book value and tangible book value; the pro forma price-to-earnings approach applied to reported and core earnings; and the pro forma price-to-assets approach. The market value ratios applied in the three methodologies were based upon the current market valuations of the peer group companies, subject to valuation adjustments applied by RP Financial, LC. to account for differences between K-Fed Bancorp and the peer group. RP Financial, LC. placed the greatest emphasis on the price-to-earnings and price-to-book approaches in estimating pro forma market value.

          The independent valuation was prepared by RP Financial, LC. in reliance upon the information contained in this prospectus, including the consolidated financial statements of K-Fed Bancorp.  RP Financial, LC. also considered the following factors, among others:

• the present results and financial condition of K-Fed Bancorp and the projected results and financial condition of Kaiser Federal Financial Group, Inc.;

• the economic and demographic conditions in K-Fed Bancorp’s existing market area;

• certain historical, financial and other information relating to K-Fed Bancorp;

• a comparative evaluation of the operating and financial characteristics of K-Fed Bancorp with those of other similarly situated publicly traded savings institutions located in its market area and the western regions of the United States;

• the impact of the conversion and offering on K-Fed Bancorp’s stockholders’ equity and earnings potential;

• the proposed dividend policy of Kaiser Federal Financial Group, Inc.; and

• the trading market for securities of comparable institutions and general conditions in the market for such securities.

          Included in RP Financial, LC.’s independent valuation were certain assumptions as to the pro forma earnings of Kaiser Federal Financial Group, Inc. after the conversion that were utilized in determining the appraised value.  These assumptions included estimated expenses, an assumed after-tax rate of return on the net offering proceeds and purchases in the open market of 2.9% of the common stock issued in the offering by the stock-based incentive plan at the $10.00 per share purchase price. See “Pro Forma Data” for additional information concerning these assumptions. The use of different assumptions may yield different results.

          The independent valuation states that as of August 31, 2007, the estimated pro forma market value, or valuation range, of Kaiser Federal Financial Group, Inc. ranged from a minimum of $173.9 million to a maximum of $235.3 million, with a midpoint of $204.6 million and an adjusted maximum of $270.6 million.  The Board of Directors of Kaiser Federal Financial Group, Inc. decided to offer the shares of common stock for a price of $10.00 per share. The aggregate offering price of the shares of common stock will be equal to the valuation range multiplied by the percentage of K-Fed Bancorp common stock owned by K-Fed Mutual Holding Company.  The number of shares offered will be equal to the aggregate offering price of the shares of common stock divided by the price per share. Based on the valuation range, the percentage of K-Fed Bancorp common stock owned by K-Fed Mutual Holding

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Company and the $10.00 price per share, the minimum of the offering range will be 11,050,000 shares, the midpoint of the offering range will be 13,000,000 shares and the maximum of the offering range will be 14,950,000 shares of common stock, with an adjusted maximum of 17,192,500 shares.

          The Board of Directors of Kaiser Federal Financial Group, Inc. reviewed the independent valuation and, in particular, considered the following:

• K-Fed Bancorp’s financial condition and results of operations;

• comparison of financial performance ratios of K-Fed Bancorp to those of other financial institutions of similar size;

• market conditions generally and in particular for financial institutions; and

• the historical trading price of the publicly held shares of K-Fed Bancorp common stock.

          All of these factors are set forth in the independent valuation. The Board of Directors also reviewed the methodology and the assumptions used by RP Financial, LC. in preparing the independent valuation and believes that such assumptions were reasonable. The offering range may be amended with the approval of the Office of Thrift Supervision, if required, as a result of subsequent developments in the financial condition of K-Fed Bancorp or Kaiser Federal Bank or market conditions generally. In the event the independent valuation is updated to amend the pro forma market value of Kaiser Federal Financial Group, Inc. to less than $173.9 million or more than $270.6 million the appraisal will be filed with the Securities and Exchange Commission by a post-effective amendment to Kaiser Federal Financial Group, Inc.’s registration statement.

          The independent valuation is not intended, and must not be construed, as a recommendation of any kind as to the advisability of purchasing our shares of common stock. RP Financial, LC. did not independently verify our consolidated financial statements and other information that we provided to them, nor did RP Financial, LC. independently value our assets or liabilities. The independent valuation considers Kaiser Federal Bank as a going concern and should not be considered as an indication of the liquidation value of Kaiser Federal Bank. Moreover, because the independent valuation is necessarily based upon estimates and projections of a number of matters, all of which may change from time to time, no assurance can be given that persons purchasing our common stock in the offering will thereafter be able to sell their shares of common stock at prices at or above the $10.00 price per share.

          Following commencement of the subscription offering, the maximum of the valuation range may be increased by up to 15%, or up to $270.6 million, without resoliciting purchasers, which will result in a corresponding increase of up to 15% in the maximum of the offering range to up to 17,192,500 shares, to reflect changes in the market and financial conditions, demand for the shares of common stock or regulatory considerations.  We will not decrease the minimum of the valuation range and the minimum of the offering range without a resolicitation of purchasers.  The subscription price of $10.00 per share of common stock will remain fixed.  See “—Limitations on Common Stock Purchases” as to the method of distribution of additional shares of common stock to be issued in the event of an increase in the offering range of up to 17,192,500 shares.

          If the update to the independent valuation at the conclusion of the offering results in an increase in the maximum of the valuation range to more than $171.9 million and a corresponding increase in the offering range to more than 17,192,500 shares, or a decrease in the minimum of the valuation range to less than $110.5 million and a corresponding decrease in the offering range to fewer than 11,050,000

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shares, then, after consulting with the Office of Thrift Supervision, we may terminate the plan of conversion and reorganization, cancel deposit account withdrawal authorizations and promptly return by check all funds received with interest at Kaiser Federal Bank’s passbook savings rate of interest.  Alternatively, we may hold a new offering, establish a new offering range, extend the offering period and commence a resolicitation of purchasers or take other actions as permitted by the Office of Thrift Supervision in order to complete the conversion and offering.  In the event that we extend the offering and conduct a resolicitation, purchasers would have the opportunity to maintain, change or cancel their stock orders within a specified period.  If a purchaser does not respond during the period, his or her stock order will be cancelled and payment will be returned promptly, with interest at Kaiser Federal Bank’s passbook savings rate, and deposit account withdrawal authorizations will be cancelled.  Any single offering extension will not exceed 90 days; aggregate extensions may not conclude beyond [Extension Date #2], two years after the special meeting of depositors to vote on the conversion.

          An increase in the number of shares of common stock to be issued in the offering would decrease both a purchaser’s ownership interest and Kaiser Federal Financial Group, Inc.’s pro forma earnings and stockholders’ equity on a per share basis while increasing pro forma earnings and stockholders’ equity on an aggregate basis. A decrease in the number of shares to be issued in the offering would increase both a purchaser’s ownership interest and Kaiser Federal Financial Group, Inc.’s pro forma earnings and stockholders’ equity on a per share basis, while decreasing pro forma earnings and stockholders’ equity on an aggregate basis. For a presentation of the effects of these changes, see “Pro Forma Data.”

          Copies of the independent valuation appraisal report prepared by RP Financial, LC. and the detailed memorandum setting forth the method and assumptions used in the appraisal report are available for inspection at the main office of Kaiser Federal Bank and as specified under “Where You Can Find Additional Information.”

Exchange of Existing Stockholders’ Stock Certificates

          The conversion of existing outstanding shares of K-Fed Bancorp common stock into the right to receive shares of Kaiser Federal Financial Group, Inc. common stock will occur automatically on the effective date of the conversion. As soon as practicable after the effective date of the conversion, our exchange agent, will send a transmittal form to each public stockholder of K-Fed Bancorp who holds stock certificates.  The transmittal forms are expected to be mailed within five business days after the effective date of the conversion and will contain instructions on how to exchange stock certificates of K-Fed Bancorp common stock for stock certificates of Kaiser Federal Financial Group, Inc. common stock.  We expect that stock certificates evidencing shares of Kaiser Federal Financial Group, Inc. common stock will be distributed within five business days after the exchange agent receives properly executed transmittal forms, K-Fed Bancorp stock certificates and other required documents.  You should not forward your stock certificates until you have received transmittal forms, which will include forwarding instructions.  Shares held by public stockholders through a brokerage account in “street name” will be exchanged automatically upon the conclusion of the conversion; no transmittal forms will be mailed relating to these shares. 

          No fractional shares of Kaiser Federal Financial Group, Inc. common stock will be issued to any public stockholder of K-Fed Bancorp when the conversion is completed. For each fractional share that would otherwise be issued to a stockholder who holds a stock certificate, we will pay by check an amount equal to the product obtained by multiplying the fractional share interest to which the holder would otherwise be entitled by the $10.00 offering purchase price per share. Payment for fractional shares will be made as soon as practicable after the receipt by the exchange agent of the transmittal forms and the surrendered K-Fed Bancorp stock certificates.  If your shares of common stock are held in street name

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(such as a brokerage account), you will automatically receive cash in lieu of fractional shares in your brokerage account.

          After the conversion, K-Fed Bancorp stockholders who hold stock certificates will not receive shares of Kaiser Federal Financial Group, Inc. common stock and will not be paid dividends on the shares of Kaiser Federal Financial Group, Inc. common stock until existing certificates representing shares of K-Fed Bancorp common stock are surrendered for exchange in compliance with the terms of the transmittal form. When stockholders surrender their certificates, any unpaid dividends will be paid without interest. For all other purposes, however, each certificate that represents shares of K-Fed Bancorp common stock outstanding at the effective date of the conversion will be considered to evidence ownership of shares of Kaiser Federal Financial Group, Inc. common stock into which those shares have been converted by virtue of the conversion.

          If a certificate for K-Fed Bancorp common stock has been lost, stolen or destroyed, our exchange agent will issue a new stock certificate upon receipt of appropriate evidence as to the loss, theft or destruction of the certificate, appropriate evidence as to the ownership of the certificate by the claimant, and appropriate and customary indemnification, which is normally effected by the purchase of a bond from a surety company at the stockholder’s expense.

          All shares of Kaiser Federal Financial Group, Inc. common stock that we issue in exchange for existing shares of K-Fed Bancorp common stock will be considered to have been issued in full satisfaction of all rights pertaining to such shares of common stock, subject, however, to our obligation to pay any dividends or make any other distributions with a record date prior to the effective date of the conversion that may have been declared by us on or prior to the effective date, and which remain unpaid at the effective date.

Subscription Offering and Subscription Rights

          In accordance with the plan of conversion and reorganization, rights to subscribe for shares of common stock in the subscription offering have been granted in the following descending order of priority.  The filling of all subscriptions that we receive will depend on the availability of common stock after satisfaction of all subscriptions of all persons having prior rights in the subscription offering and subject to the minimum, maximum and overall purchase and ownership limitations set forth in the plan of conversion and reorganization and as described below under “—Limitations on Common Stock Purchases.”

          Priority 1: Eligible Account Holders. Each Kaiser Federal Bank depositor with aggregate deposit account balances of $50.00 or more (a “Qualifying Deposit”) at the close of business on March 31, 2006 (an “Eligible Account Holder”) will receive, without payment therefor, nontransferable subscription rights to purchase up to the greater of (i) five percent (5%) of the shares of common stock sold in the offering, (ii) one-tenth of one percent of the total offering of common stock; or (iii) 15 times the product, rounded down to the nearest whole number, obtained by multiplying the total number of shares of common stock to be sold by a fraction, the numerator of which is the amount of the qualifying deposit of the eligible account holder and the denominator is the total amount of qualifying deposits of all eligible account holders subject to the overall purchase and ownership limitations.  See “—Limitations on Common Stock Purchases.”  If there are not sufficient shares available to satisfy all subscriptions, shares will first be allocated so as to permit each Eligible Account Holder to purchase a number of shares sufficient to make his or her total allocation equal to the lesser of 100 shares or the number of shares for which he or she subscribed. Thereafter, unallocated shares will be allocated to each Eligible Account Holder whose subscription remains unfilled in the proportion that the amount of his or her Qualifying Deposit bears to the total amount of Qualifying Deposits of all subscribing Eligible Account Holders

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whose subscriptions remain unfilled. If an amount so allocated exceeds the amount subscribed for by any one or more Eligible Account Holders, the excess shall be reallocated among those Eligible Account Holders whose subscriptions are not fully satisfied until all available shares have been allocated.

          To ensure proper allocation of our shares of common stock, each Eligible Account Holder must list on his or her stock order form all deposit accounts in which he or she had an ownership interest on March 31, 2006.  In the event of oversubscription, failure to list an account could result in fewer shares being allocated than if all accounts had been disclosed. In the event of an oversubscription, the subscription rights of Eligible Account Holders who are also directors or executive officers of K-Fed Bancorp or their associates will be subordinated to the subscription rights of other Eligible Account Holders to the extent attributable to increased deposits in the twelve months preceding March 31, 2006.

          Priority 2: Tax-Qualified Plans.  Our tax-qualified employee plans, consisting of our employee benefit plans, will receive, without payment therefor, nontransferable subscription rights to purchase up to 10% of the shares of common stock issued in the offering, although our employee benefit plans intends to purchase 6.0% of the shares of common stock issued in the offering.  If market conditions warrant, in the judgment of its trustees, the employee benefit plans may elect to fill its subscription rights, in whole or in part, through open-market purchases.

          Priority 3: Supplemental Eligible Account Holders.  To the extent that there are sufficient shares of common stock remaining after satisfaction of subscriptions by Eligible Account Holders and our tax-qualified employee stock benefit plans, each Kaiser Federal Bank depositor with a Qualifying Deposit at the close of business on September 30, 2007 who is not an Eligible Account Holder (“Supplemental Eligible Account Holder”) will receive, without payment therefore, nontransferable subscription rights to purchase up to the greater of (i) five percent (5%) of the shares of common stock sold in the offering, (ii) one-tenth of one percent of the total offering of common stock; or (iii) 15 times the product, rounded down to the nearest whole number, obtained by multiplying the total number of shares of common stock to be sold by a fraction, the numerator of which is the amount of the qualifying deposit of the Supplemental Eligible Account Holder and the denominator is the total amount of qualifying deposits of all  Supplemental Eligible Account Holders subject to the overall purchase and ownership limitations. See “—Limitations on Common Stock Purchases.” If there are not sufficient shares available to satisfy all subscriptions, shares will be allocated so as to permit each Supplemental Eligible Account Holder to purchase a number of shares sufficient to make his or her total allocation equal to the lesser of 100 shares of common stock or the number of shares for which he or she subscribed. Thereafter, unallocated shares will be allocated to each Supplemental Eligible Account Holder whose subscription remains unfilled in the proportion that the amount of his or her Qualifying Deposit bears to the total amount of Qualifying Deposits of all Supplemental Eligible Account Holders whose subscriptions remain unfilled.

          To ensure proper allocation of common stock, each Supplemental Eligible Account Holder must list on the stock order form all deposit accounts in which he or she had an ownership interest at September 30, 2007.  In the event of oversubscription, failure to list an account could result in fewer shares being allocated than if all accounts had been disclosed.

          Priority 4: Other Members. To the extent that there are shares of common stock remaining after satisfaction of subscriptions by Eligible Account Holders, our tax-qualified employee stock benefit plans, and Supplemental Eligible Account Holders, each depositor of Kaiser Federal Bank as of the close of business on the voting record date of _____, 2007 who is not an Eligible Account Holder or Supplemental Eligible Account Holder (“Other Members”) will receive, without payment therefor, nontransferable subscription rights to purchase up to five percent (5%) of the shares of common stock sold in the offering, subject to the overall purchase and ownership limitations. See “—Limitations on Common Stock Purchases.” If there are not sufficient shares available to satisfy all subscriptions, available shares will be

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allocated in the proportion that the amount of the subscription of each Other Member whose subscription remains unsatisfied bears to the total amount of the subscriptions of all Other Members whose subscriptions remain unsatisfied.  To ensure proper allocation of common stock, each Other Member must list on the stock order form all deposit accounts in which he or she had an ownership interest at ______, 2007.  In the event of oversubscription, failure to list an account could result in fewer shares being allocated than if all accounts had been disclosed.

          Expiration Date. The subscription offering will expire at 12:00 Noon, Pacific Time, on [Expiration Date], unless extended by us for up to 45 days. Such extension may be made without notice to you.  Extensions beyond [Extension Date #1] will require the approval of the Office of Thrift Supervision and a resolicitation of subscribers in the offering. Subscription rights will expire whether or not each eligible depositor can be located.  We may decide to extend the expiration date of the subscription offering for any reason, whether or not subscriptions have been received for shares at the minimum, midpoint or maximum of the offering range. Subscription rights which have not been exercised prior to the expiration date will become void.

Community Offering

          To the extent that shares of common stock remain available for purchase after satisfaction of all subscriptions of Eligible Account Holders, our tax-qualified employee stock benefit plans, Supplemental Eligible Account Holders and Other Members, we may offer shares pursuant to the plan of conversion and reorganization to members of the general public in a community offering.  Shares may be offered with the following preferences:

(i)	Natural persons residing in Los Angeles, San Bernardino, Riverside and Santa Clara Counties, California;
(ii)	K-Fed Bancorp’s public stockholders as of _______ 2007; and
(iii)	Other members of the general public.

          Purchasers in the community offering may purchase up to five percent (5%) of the shares of common stock sold in the offering, subject to the overall purchase and ownership limitations. See “—Limitations on Common Stock Purchases.” The minimum purchase is 25 shares. The opportunity to purchase shares of common stock in the community offering category is subject to our right, in our sole discretion, to accept or reject any such orders in whole or in part either at the time of receipt of an order or as soon as practicable following the expiration date of the offering.

          If we do not have sufficient shares of common stock available to fill the orders of natural persons residing in Los Angeles, San Bernardino, Riverside and Santa Clara Counties, California, we will allocate the available shares among those persons in a manner that permits each of them, to the extent possible, to purchase the lesser of 100 shares or the number of shares subscribed for by such person.  Thereafter, unallocated shares will be allocated among natural persons residing in those counties whose orders remain unsatisfied on an equal number of shares basis per order.  If an oversubscription occurs due to the orders of public stockholders of K-Fed Bancorp as of _________, 2007, the allocation procedures described above will apply to the stock orders of such persons. In the event of an oversubscription among members of the general public, these same allocation procedures will also apply.  In addition, orders received for Kaiser Federal Financial Group, Inc. common stock in the community offering will first be filled up to a maximum of two percent (2%) of the shares sold in the offering, and thereafter any remaining shares will be allocated on an equal number of shares basis per order until all shares have been allocated.

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          The term “residing” or “resident” as used in this prospectus means any person who occupies a dwelling within Los Angeles, San Bernardino, Riverside and Santa Clara Counties, California has a present intent to remain within this community for a period of time, and manifests the genuineness of that intent by establishing an ongoing physical presence within the community, together with an indication that this presence within the community is something other than merely transitory in nature.  We may utilize deposit or loan records or other evidence provided to us to decide whether a person is a resident. In all cases, however, the determination shall be in our sole discretion.

          Expiration Date.  The community offering, if any, may begin during or after the subscription offering, and is currently expected to terminate at the same time as the subscription offering. Kaiser Federal Financial Group, Inc. may decide to extend the community offering for any reason and is not required to give purchasers notice of any such extension unless such period extends beyond [Extension Date #1], in which case we will resolicit purchasers in the offering. 

Syndicated Community Offering

          As a final step in the conversion, the plan of conversion and reorganization provides that, if feasible, all shares of common stock not purchased in the subscription offering and direct community offering may be offered for sale to selected members of the general public in a syndicated community offering through a syndicate of registered broker-dealers managed by Keefe, Bruyette & Woods as agent of Kaiser Federal Financial Group, Inc.  We call this the syndicated community offering.  We expect that the syndicated community offering will begin as soon as practicable after termination of the subscription offering and the direct community offering, if any.  We, in our sole discretion, have the right to reject orders in whole or in part received in the syndicated community offering.  Neither Keefe, Bruyette & Woods nor any registered broker-dealer shall have any obligation to take or purchase any shares of common stock in the syndicated community offering; however, Keefe, Bruyette & Woods has agreed to use its best efforts in the sale of shares in any syndicated community offering.

          The price at which common stock is sold in the syndicated community offering will be the same price at which shares are offered and sold in the subscription offering and direct community offering.  No person, acting alone, or with an associate or group of persons acting in concert, may purchase more than five percent (5%) of the shares of common stock in the syndicated community offering, subject to the overall purchase and ownership limitations.  See “– Limitations on Stock Purchases.”

          Keefe, Bruyette & Woods may enter into agreements with broker-dealers to assist in the sale of the shares in the syndicated community offering, although no such agreements currently exist.  No orders may be placed or filled by or for a selected dealer during the subscription offering.  After the close of the subscription offering, Keefe, Bruyette & Woods will instruct selected dealers as to the number of shares to be allocated to each dealer.  Only after the close of the subscription offering and upon allocation of shares to selected dealers may selected dealers take orders from their customers.  During the subscription offering and direct community offering, selected dealers may only solicit indications of interest from their customers to place orders as of a certain order date for the purchase of shares of Kaiser Federal Financial Group, Inc. common stock.  When, and if, Keefe, Bruyette & Woods and Kaiser Federal Financial Group, Inc. believe that enough indications of interest and orders have not been received in the subscription offering and direct community offering to consummate the conversion, Keefe, Bruyette & Woods will request, as of the order date, selected dealers to submit orders to purchase shares for which they have previously received indications of interest from their customers.  The dealers will send confirmations of the orders to their customers on the next business day after the order date.  The dealers will debit the accounts of their customers on the settlement date, which will be three business days from the order date.  Customers who authorize selected dealers to debit their brokerage accounts are required to have the funds for payment in their account on but not before the settlement date.  On the settlement date, the dealers will

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deposit funds to the account established by Kaiser Federal Financial Group, Inc. for each dealer.  Each customer’s funds forwarded to Kaiser Federal Bank, along with all other accounts held in the same title, will be insured by the Federal Deposit Insurance Corporation up to $100,000 in accordance with applicable Federal Deposit Insurance Corporation regulations.  After payment has been received by Kaiser Federal Bank from the dealers, funds will earn interest at Kaiser Federal Bank’s passbook (statement savings) account rate until the completion or termination of the conversion.  Funds will be promptly returned, with interest, in the event the conversion is not consummated as described above. Notwithstanding the foregoing, any checks received by Keefe, Bruyette & Woods or any selected dealer specifically for payment for the shares will be forwarded to Kaiser Federal Financial Group, Inc. by noon of the day following receipt for deposit to the account established by Kaiser Federal Financial Group, Inc. for each dealer.  Keefe, Bruyette & Woods shall also have the right, in its sole discretion, to permit investors to submit irrevocable orders together with legally binding commitments for payment for shares for which they subscribe at any time prior to the closing of the offering.

          The syndicated community offering will be completed within 45 days after the termination of the subscription offering, unless extended by Kaiser Federal Financial Group, Inc. with the approval of the Office of Thrift Supervision.  The syndicated community offering may not be extended past _________, 2009.  See “– How We Determined Our Price and the Number of Shares to Be Issued in the Stock Offering” above for a discussion of rights of subscribers, if any, in the event an extension is granted.

Limitations on Common Stock Purchases

          The plan of conversion and reorganization includes the following limitations on the number of shares of common stock that may be purchased in the offering:

(i)	No person may purchase fewer than 25 shares of common stock or more than five percent (5%) of the shares of common stock sold in the offering;
(ii)	No person exercising subscription rights through one deposit account may purchase more than five percent (5%) of the shares of common stock sold in the offering. No person exercising subscription rights through one or more similarly titled individual deposit accounts, and no group of persons exercising subscription rights though one deposit account, may purchase more than five percent (5%) of the shares of common stock sold in the offering;
(iii)	Tax qualified employee benefit plans, including our employee stock ownership plan and 401(k) plan, may purchase in the aggregate up to 10% of the shares of common stock sold in the offering, including shares issued in the event of an increase in the offering range of up to 15%;
(iv)	Except for tax qualified employee benefit plans, including our employee stock ownership plan, as described above, no person or entity, together with associates or persons acting in concert with such person or entity, may purchase more than five percent (5%) of the shares of common stock sold in the offering in all categories of the offering combined;
(v)	Current stockholders of K-Fed Bancorp are subject to an ownership limitation.  As previously described, current stockholders of K-Fed Bancorp will receive shares of Kaiser Federal Financial Group, Inc. common stock in exchange for their existing shares of K-Fed Bancorp common stock at the conclusion of the conversion and offering. The number of shares of common stock that a stockholder may purchase in the offering, together with associates or persons acting in concert with such stockholder, when

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	combined with the shares that the stockholder and his or her associates will receive in exchange for existing K-Fed Bancorp common stock, may not exceed 5% of the shares of common stock of Kaiser Federal Financial Group, Inc. to be issued and outstanding at the completion of the conversion; and
(vi)	The maximum number of shares of common stock that may be purchased in all categories of the offering by executive officers and directors of Kaiser Federal Bank and their associates, in the aggregate, when combined with shares of common stock issued in exchange for existing shares, may not exceed 25% of the shares issued in the conversion.

          Depending upon market or financial conditions, our Board of Directors, with the approval of the Office of Thrift Supervision and without further approval of members of K-Fed Mutual Holding Company, may decrease or increase the purchase and ownership limitations.  If a purchase limitation is increased, subscribers in the subscription offering who ordered the maximum amount will be given, and, in our sole discretion, some other large subscribers who through their subscriptions evidence a desire to purchase the maximum allowable number of shares may be given, the opportunity to increase their subscriptions up to the then applicable limit.  The effect of this type of resolicitation will be an increase in the number of shares of common stock owned by subscribers who choose to increase their subscriptions. The maximum purchase limitation of five percent (5%) of the shares sold in the offering may be further increased to 9.99%, provided that orders for Kaiser Federal Financial Group, Inc. common stock exceeding five percent (5%) of the shares sold in the offering shall not exceed in the aggregate ten (10%) of the total shares sold in the offering.

          In the event of an increase in the offering range of up to 17,192,500 shares of common stock, shares will be allocated in the following order of priority in accordance with the plan of conversion and reorganization:

(i)	to fill the tax-qualified employee benefit plans, including the employee stock ownership plan’s, subscription for up to 10% of the total number of shares of common stock issued in the offering;
(ii)	in the event that there is an oversubscription at the Eligible Account Holder, Supplemental Eligible Account Holder or Other Member levels, to fill unfulfilled subscriptions of these subscribers according to their respective priorities; and
(iii)	to fill unfulfilled subscriptions in the community offering, with preference given first to natural persons residing in Los Angeles, San Bernardino, Riverside and Santa Clara Counties, California, then to K-Fed Bancorp’s public stockholders as of______, 2007 and then to members of the general public.
The term “associate” of a person means:
(i)	any corporation or organization, other than K-Fed Bancorp, Kaiser Federal Bank or a majority-owned subsidiary of Kaiser Federal Bank, of which the person is a senior officer, partner or 10% beneficial stockholder;
(ii)	any trust or other estate in which the person has a substantial beneficial interest or serves as a trustee or in a similar fiduciary capacity; provided, however, it does not include any employee stock benefit plan of Kaiser Federal Bank in which the person has a substantial beneficial interest or serves as trustee or in a similar fiduciary capacity; and

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(iii)	any blood or marriage relative of the person, who either has the same home as the person or who is a director or officer of K-Fed Bancorp or Kaiser Federal Bank.
The term “acting in concert” means:
(i)	knowing participation in a joint activity or interdependent conscious parallel action towards a common goal whether or not pursuant to an express agreement; or
(ii)	a combination or pooling of voting or other interests in the securities of an issuer for a common purpose pursuant to any contract, understanding, relationship, agreement or other arrangement, whether written or otherwise.

          A person or company which acts in concert with another person or company shall also be deemed to be acting in concert with any person or company who is also acting in concert with that other party, except that any tax-qualified employee stock benefit plan will not be deemed to be acting in concert with its trustee or a person who serves in a similar capacity solely for the purpose of determining whether common stock held by the trustee and common stock held by the employee stock benefit plan will be aggregated.

          We have the sole discretion to determine whether prospective purchasers are “associates” or “acting in concert.”  Persons having the same address, and persons exercising subscription rights through qualifying deposits registered at the same address, whether or not related, will be deemed to be acting in concert unless we determine otherwise.

          Our directors are not treated as associates of each other solely because of their membership on the Board of Directors. Common stock purchased in the offering will be freely transferable except for shares purchased by executive officers and directors of Kaiser Federal Financial Group, Inc. or Kaiser Federal Bank and except as described below.  Any purchases made by any associate of Kaiser Federal Financial Group, Inc. or Kaiser Federal Bank for the explicit purpose of meeting the minimum number of shares of common stock required to be sold in order to complete the offering shall be made for investment purposes only and not with a view toward redistribution.  In addition, under National Association of Securities Dealers, Inc. guidelines, members of the National Association of Securities Dealers, Inc. and their associates are subject to certain restrictions on transfer of securities purchased in accordance with subscription rights and to certain reporting requirements upon purchase of these securities.  For a further discussion of limitations on purchases of our shares of common stock at the time of conversion and thereafter, see “—Certain Restrictions on Purchase or Transfer of Our Shares after Conversion” and “Restrictions on Acquisition of Kaiser Federal Financial Group, Inc.”

Marketing Arrangements

          To assist in the marketing of our common stock, we have retained Keefe Bruyette & Woods, which is a broker-dealer registered with the National Association of Securities Dealers, Inc.  Keefe Bruyette & Woods will assist us on a best efforts basis in the offering by, among other things:

(i)	acting as our financial advisor and marketing agent for the conversion and offering;
(ii)	managing the Stock Information Center;
(iii)	providing administrative services;
(iv)	targeting our sales efforts, including assisting in the preparation of marketing materials;

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(v)	soliciting orders for common stock; and
(vi)	assisting in soliciting proxies of our members.

          For these services, Keefe Bruyette & Woods will receive an advisory and administrative fee of $50,000 and a sales fee equal to 1.0% of the dollar amount of all shares of common stock sold in the subscription and community offering.  The sales fee will be reduced by the advisory and administrative fee.  No sales fee will be payable to Keefe Bruyette & Woods with respect to shares purchased by officers, directors and employees or their immediate families, shares purchased by our tax-qualified and non-qualified employee benefit plans.  In the event that Keefe Bruyette & Woods sells common stock through a group of broker-dealers in a syndicated community offering, it will be paid a fee equal to 5.5% of the dollar amount of total shares sold in the syndicated community offering, which fee along with the fee payable to selected dealers (which may include Keefe Bruyette & Woods). Keefe Bruyette & Woods also will be reimbursed for allocable expenses in an amount not to exceed $30,000, and for attorneys’ fees and allocable expenses in an amount not to exceed $55,000.

          We will indemnify Keefe Bruyette & Woods against liabilities and expenses, including legal fees, incurred in connection with certain claims or litigation arising out of or based upon untrue statements or omissions contained in the offering materials for the common stock, including liabilities under the Securities Act of 1933, as amended and will contribute to payments Keefe, Bruyette & Woods may be required to make in connection with any such claims or liabilities.

          Some of our directors and executive officers may participate in the solicitation of offers to purchase common stock. These persons will be reimbursed for their reasonable out-of-pocket expenses incurred in connection with the solicitation. Other regular employees of Kaiser Federal Bank may assist in the offering, but only in ministerial capacities, and may provide clerical work in effecting a sales transaction.  No offers or sales may be made by tellers or at the teller counters.  All sales activity will be conducted in a segregated or separately identifiable area of Kaiser Federal Bank’s main office apart from the area accessible to the general public.  Other questions of prospective purchasers will be directed to executive officers or registered representatives of Keefe Bruyette & Woods  Our other employees have been instructed not to solicit offers to purchase shares of common stock or provide advice regarding the purchase of common stock.  We will rely on Rule 3a4-1 under the Securities Exchange Act of 1934, as amended, and sales of common stock will be conducted within the requirements of Rule 3a4-1, so as to permit officers, directors and employees to participate in the sale of common stock. None of our officers, directors or employees will be compensated in connection with their participation in the offering.

Offering Deadline

          The offering will expire at 12:00 Noon, Pacific Time, on [Expiration Date], unless we extend it, without notice to you, for up to 45 days. Any extension of the subscription and/or community offering beyond [Extension Date #1] would require the Office of Thrift Supervision’s approval.  In such event, we would conduct a resolicitation.  Purchasers would have the opportunity to maintain, change or cancel their stock orders within a specified period.  If a purchaser does not respond during the resolicitation period, his or her stock order will be cancelled and payment will be returned promptly, with interest calculated at Kaiser Federal Bank’s passbook savings rate, and deposit account withdrawal authorizations will be cancelled.  We will not execute orders until at least the minimum number of shares offered has been sold.  If we have not sold the minimum by the expiration date or any extension thereof, we will terminate the offering and cancel all orders, as described above.  Any single offering extension will not exceed 90 days; aggregate extensions may not conclude beyond [Extension Date #2], which is two years after the special meeting of depositors to vote on the conversion.  We reserve the right in our sole discretion to terminate the offering at any time and for any reason, in which case we will cancel any deposit account withdrawal

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orders and promptly return all funds submitted, with interest calculated at Kaiser Federal Bank’s passbook savings rate from the date of receipt.

Prospectus Delivery

          To ensure that each purchaser receives a prospectus at least 48 hours before the expiration date of the offering in accordance with Rule 15c2-8 of the Securities Exchange Act of 1934, we may not mail a prospectus any later than five days prior to the expiration date or hand deliver any later than two days prior to the expiration date. Execution of an order form will confirm receipt of delivery in accordance with Rule 15c2-8. Order forms will only be distributed with or preceded by a prospectus.

          We have the right to reject any order submitted in the offering by a person who we believe is making false representations or who we otherwise believe, either alone or acting in concert with others, is violating, evading, circumventing, or intends to violate, evade or circumvent the terms and conditions of the plan of conversion.

Procedure for Purchasing Shares in the Subscription and Community Offerings

          Use of Stock Order Forms. In order to purchase shares of common stock in the subscription offering and community offering, you must submit a properly completed original stock order form and remit full payment.  Incomplete stock order forms or stock order forms that are not signed are not required to be accepted. We are not required to accept stock orders submitted on photocopied or facsimiled stock order forms. All stock order forms must be received (not postmarked) prior to 12:00 Noon Pacific Time, on [Expiration Date] at our Stock Information Center. We are not required to accept stock order forms that are not received by that time, are executed defectively or are received without full payment or without appropriate withdrawal instructions. We are not required to notify purchasers of incomplete or improperly executed stock order forms, and we have the right to waive or permit the correction of incomplete or improperly executed stock order forms.  We do not represent, however, that we will do so, and we have no affirmative duty to notify any prospective purchaser of any such defects.  You may submit your stock order form and payment by mail using the stock order reply envelope provided, by bringing your stock order form to our Stock Information Center, or by overnight delivery to the indicated address on the order form. Our Stock Information Center is located in our main office at 1359 North Grand Avenue, Covina, California. Stock order forms may not be delivered to our other Kaiser Federal Bank offices.  Once tendered, a stock order form cannot be modified or revoked without our consent.  We reserve the absolute right, in our sole discretion, to reject orders received in the community offering, in whole or in part, at the time of receipt or at any time prior to completion of the offering. 

          If you are ordering shares in the subscription offering, by signing the stock order form you are representing that you are purchasing shares for your own account and that you have no agreement or understanding with any person for the sale or transfer of the shares.  Our interpretation of the terms and conditions of the plan of conversion and reorganization and of the acceptability of the stock order forms will be final.

          By signing the stock order form, you will be acknowledging that the common stock is not a deposit or savings account and is not federally insured or otherwise guaranteed by Kaiser Federal Bank or the federal government, and that you received a copy of this prospectus. However, signing the stock order form will not result in you waiving your rights under the Securities Act of 1933 or the Securities Exchange Act of 1934.

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          Payment for Shares. Payment for all shares of common stock will be required to accompany all completed order forms for the purchase to be valid.  You may not submit cash or wire transfers.  Payment for shares may be made by:

(i)	personal check, bank check or money order, made payable to Kaiser Federal Financial Group, Inc.; or
(ii)	authorization of withdrawal from the types of Kaiser Federal Bank deposit accounts designated on the stock order form.

          Appropriate means for designating withdrawals from deposit accounts at Kaiser Federal Bank are provided on the order forms. The funds designated must be available in the account(s) at the time the stock order form is received. A hold will be placed on these funds, making them unavailable to the depositor. Funds authorized for withdrawal will continue to earn interest within the account at the contract rate until the offering is completed, at which time the designated withdrawal will be made. Interest penalties for early withdrawal applicable to certificate accounts will not apply to withdrawals authorized for the purchase of shares of common stock; however, if a withdrawal results in a certificate account with a balance less than the applicable minimum balance requirement, the certificate will be canceled at the time of withdrawal without penalty and the remaining balance will earn interest calculated at the current passbook savings rate subsequent to the withdrawal.  In the case of payments made by check or money order, these funds must be available in the account(s) and will be immediately cashed and placed in a segregated account at Kaiser Federal Bank or another depository institution and will earn interest calculated at Kaiser Federal Bank’s passbook savings rate from the date payment is received until the offering is completed or terminated.

          You may not remit Kaiser Federal Bank line of credit checks, and we will not accept third-party checks, including those payable to you and endorsed over to Kaiser Federal Financial Group, Inc.  You may not designate on your stock order form a direct withdrawal from an Kaiser Federal Bank individual retirement account.  See “—Using Individual Retirement Funds to Purchase Shares” for information on using such funds.  Additionally, you may not designate on your stock order form a direct withdrawal from Kaiser Federal Bank deposit accounts with check-writing privileges.  Please provide a check instead. Once we receive your executed order form, it may not be modified, amended or rescinded without our consent, unless the offering is not completed by the expiration date, in which event purchasers may be given the opportunity to increase, decrease or rescind their orders for a specified period of time.

          Regulations prohibit Kaiser Federal Bank from lending funds or extending credit to any persons to purchase shares of common stock in the offering.

          We shall have the right, in our sole discretion, to permit institutional investors to submit irrevocable orders together with the legally binding commitment for payment and to thereafter pay for the shares of common stock for which they subscribe in the community offering at any time prior to 48 hours before the completion of the conversion.  This payment may be made by wire transfer.

          If our employee stock ownership plan purchases shares in the offering, it will not be required to pay for such shares until consummation of the offering, provided that there is a loan commitment from an unrelated financial institution or Kaiser Federal Financial Group, Inc. to lend to the employee stock ownership plan the necessary amount to fund the purchase.

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Using Individual Retirement Funds to Purchase Shares

          If you are interested in using your individual retirement account funds to purchase shares of common stock, you must do so through a self-directed individual retirement account such as a brokerage firm individual retirement account.  By regulation, Kaiser Federal Bank’s individual retirement accounts are not self-directed, so they cannot be invested in our shares of common stock.  Therefore, if you wish to use your funds that are currently in a Kaiser Federal Bank individual retirement account, you may not designate on the stock order form that you wish funds to be withdrawn from the account for the purchase of common stock. The funds you wish to use for the purchase of common stock will have to be transferred to a brokerage account before you place your stock order. There will be no early withdrawal or interest penalties for these transfers.  The new trustee will hold the shares of common stock in a self-directed account in the same manner as we now hold the depositor’s individual retirement account funds.  An annual administrative fee may be payable to the new trustee.  Assistance on how to transfer individual retirement accounts maintained at Kaiser Federal Bank can be obtained from the Stock Information Center.  Depositors interested in using funds in an individual retirement account or any other retirement account at Kaiser Federal Bank or elsewhere to purchase shares of common stock should contact our Stock Information Center as soon as possible, preferably at least two weeks prior to the [Expiration Date] offering deadline, because processing such transactions takes additional time, and whether such funds can be used may depend on limitations imposed by the institutions where such funds are currently held. We cannot guarantee that you will be able to use such funds.

          Delivery of Stock Certificates. Certificates representing shares of common stock issued in the offering will be mailed to the persons entitled thereto at the certificate registration address noted by them on the stock order form, as soon as practicable following consummation of the conversion. Any certificates returned as undeliverable will be held by our transfer agent until claimed by persons legally entitled thereto or otherwise disposed of in accordance with applicable law. Until certificates for the shares of common stock are available and delivered to purchasers, purchasers may not be able to sell the shares of common stock which they ordered, even though the common stock will have begun trading.

          Other Restrictions. Notwithstanding any other provision of the plan of conversion and reorganization, no person is entitled to purchase any shares of common stock to the extent the purchase would be illegal under any federal or state law or regulation, including state “blue sky” regulations, or would violate regulations or policies of the National Association of Securities Dealers, Inc., particularly those regarding free riding and withholding. We may ask for an acceptable legal opinion from any purchaser as to the legality of his or her purchase and we may refuse to honor any purchase order if an opinion is not timely furnished.  In addition, we are not required to offer shares of common stock to any person who resides in a foreign country, or in a State of the United States with respect to which any of the following apply: (a) a small number of persons otherwise eligible to subscribe for shares under the plan of conversion reside in such state; (b) the issuance of subscription rights or the offer or sale of shares of common stock to such persons would require us, under the securities laws of such state, to register as a broker, dealer, salesman or agent or to register or otherwise qualify our securities for sale in such state; (c) such registration or qualification would be impracticable for reasons of cost or otherwise.

Restrictions on Transfer of Subscription Rights and Shares

          Office of Thrift Supervision regulations prohibit any person with subscription rights, including the Eligible Account Holders, Supplemental Eligible Account Holders and Other Members, from transferring or entering into any agreement or understanding to transfer the legal or beneficial ownership of the subscription rights issued under the plan of conversion and reorganization or the shares of common stock to be issued upon their exercise. These rights may be exercised only by the person to whom they are

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granted and only for his or her account.  When registering your stock purchase on the stock order form, you should not add the name(s) of persons who do not have subscription rights or who qualify only in a lower purchase priority than you do.  Doing so may jeopardize your subscription rights.  Each person exercising subscription rights will be required to certify that he or she is purchasing shares solely for his or her own account and that he or she has no agreement or understanding regarding the sale or transfer of such shares. The regulations also prohibit any person from offering or making an announcement of an offer or intent to make an offer to purchase subscription rights or shares of common stock to be issued upon their exercise prior to completion of the offering.

          We will pursue any and all legal and equitable remedies in the event we become aware of the transfer of subscription rights, and we will not honor orders that we believe involve the transfer of subscription rights.

Stock Information Center

          Our banking office personnel may not, by law, assist with investment-related questions about the offering. If you have any questions regarding the conversion or offering, please call or visit our Stock Information Center, located in our main office at 1359 North Grand Avenue, Covina, California. The Stock Information Center is open Monday 12:00 Noon until 4:00 p.m., Tuesday-Thursday 8:30 a.m. until 4:00 p.m. and Friday 8:30 a.m. until 12:00 Noon, Pacific Time. The Stock Information Center will be closed weekends and bank holidays. Employees of other Kaiser Federal Bank branch offices will not accept stock order forms or proxy cards.

Liquidation Rights

          In the unlikely event of a complete liquidation of K-Fed Bancorp prior to the conversion, all claims of creditors of K-Fed Bancorp, including those of depositors of Kaiser Federal Bank (to the extent of their deposit balances), would be paid first. Thereafter, if there were any assets of K-Fed Bancorp remaining, these assets would be distributed to stockholders, including K-Fed Mutual Holding Company.  In the unlikely event that K-Fed Mutual Holding Company and K-Fed Bancorp liquidated prior to the conversion, all claims of creditors would be paid first. Then, if there were any assets of K-Fed Mutual Holding Company remaining, members of K-Fed Mutual Holding Company would receive those remaining assets, pro rata, based upon the deposit balances in their deposit account in Kaiser Federal Bank immediately prior to liquidation. In the unlikely event that Kaiser Federal Bank were to liquidate after the conversion, all claims of creditors, including those of depositors, would be paid first, followed by distribution of the “liquidation account” to certain depositors, with any assets remaining thereafter distributed to Kaiser Federal Financial Group, Inc. as the holder of Kaiser Federal Bank capital stock. Pursuant to the rules and regulations of the Office of Thrift Supervision, a post-conversion merger, consolidation, sale of bulk assets or similar combination or transaction with another insured savings institution would not be considered a liquidation and, in these types of transactions, the liquidation account would be assumed by the surviving institution.

          The plan of conversion and reorganization provides for the establishment, upon the completion of the conversion, of a special “liquidation account” for the benefit of Eligible Account Holders and Supplemental Eligible Account Holders in an amount equal to the greater of:

(i)	K-Fed Mutual Holding Company’s ownership interest in the retained earnings of K-Fed Bancorp as of the date of its latest balance sheet contained in this prospectus; or
(ii)	the retained earnings of Kaiser Federal Bank as of the date of the latest financial statements set forth in the prospectus used by Kaiser Federal Bank’s mutual predecessor when it reorganized into K-Fed Mutual Holding Company in July, 2003.

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          The purpose of the liquidation account is to provide Eligible Account Holders and Supplemental Eligible Account Holders who maintain their deposit accounts with Kaiser Federal Bank after the conversion with a liquidation interest in the unlikely event of the complete liquidation of Kaiser Federal Bank after the conversion. Each Eligible Account Holder and Supplemental Eligible Account Holder who continues to maintain his or her deposit account at Kaiser Federal Bank, would be entitled, on a complete liquidation of Kaiser Federal Bank after the conversion, to an interest in the liquidation account prior to any payment to the stockholders of Kaiser Federal Financial Group, Inc.  Each Eligible Account Holder and Supplemental Eligible Account Holder would have an initial interest in the liquidation account for each deposit account, including savings accounts, transaction accounts such as negotiable order of withdrawal accounts, money market deposit accounts, and certificates of deposit, with a balance of $50 or more held in Kaiser Federal Bank on March 31, 2006, or September 30, 2007.  Each Eligible Account Holder and Supplemental Eligible Account Holder would have a pro rata interest in the total liquidation account for each such deposit account, based on the proportion that the balance of each such deposit account on March 31, 2006, or September 30, 2007 bears to the balance of all deposit accounts in Kaiser Federal Bank on such dates.

          If, however, on any December 31 annual closing date commencing after the effective date of the conversion, the amount in any such deposit account is less than the amount in the deposit account on March 31, 2006 or September 30, 2007 or any other annual closing date, then the interest in the liquidation account relating to such deposit account would be reduced from time to time by the proportion of any such reduction, and such interest will cease to exist if such deposit account is closed. In addition, no interest in the liquidation account would ever be increased despite any subsequent increase in the related deposit account. Payment pursuant to liquidation rights of Eligible Account Holders and Supplemental Eligible Account Holders would be separate and apart from the payment of any insured deposit accounts to such depositor. Any assets remaining after the above liquidation rights of Eligible Account Holders and Supplemental Eligible Account Holders are satisfied would be distributed to Kaiser Federal Financial Group, Inc. as the sole stockholder of Kaiser Federal Bank.

Material Income Tax Consequences

          Consummation of the conversion is subject to the prior receipt of an opinion of counsel or tax advisor with respect to federal and state income taxation that the conversion will not be a taxable transaction to K-Fed Mutual Holding Company, K-Fed Bancorp, Kaiser Federal Bank, Eligible Account Holders, Supplemental Eligible Account Holders, Other Members of K-Fed Mutual Holding Company and stockholders of K-Fed Bancorp. Unlike private letter rulings, opinions of counsel or tax advisors are not binding on the Internal Revenue Service or any state taxing authority, and such authorities may disagree with such opinions. In the event of such disagreement, there can be no assurance that K-Fed Bancorp or Kaiser Federal Bank would prevail in a judicial proceeding.

          K-Fed Mutual Holding Company and K-Fed Bancorp have received an opinion of counsel, Luse Gorman Pomerenk & Schick, P.C., regarding all of the material federal income tax consequences of the conversion, which includes the following:

1.	The conversion of K-Fed Bancorp to a federally chartered interim stock savings bank will qualify as a tax-free reorganization within the meaning of Section 368(a)(1)(F) of the Internal Revenue Code, and the merger of K-Fed Bancorp with and into Kaiser Federal Bank qualifies as a tax-free reorganization within the meaning of Section 368(a)(1)(A) of the Internal Revenue Code.
2.	Neither K-Fed Bancorp, Kaiser Federal Bank, nor the stockholders of K-Fed Bancorp will recognize any gain or loss upon the transfer of assets of K-Fed Bancorp to Kaiser

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	Federal Bank in exchange for shares of common stock of Kaiser Federal Bank, which will be constructively received by Kaiser Federal Financial Group, Inc.’s stockholders. (Sections 361 and 1032(a) of the Internal Revenue Code.)
3.	The basis of the assets of K-Fed Bancorp and the holding period of such assets to be received by Kaiser Federal Bank will be the same as the basis and holding period in such assets in the hands of K-Fed Bancorp immediately before the exchange.  (Sections 362(b) and 1223(2) of the Internal Revenue Code).
4.	The conversion of K-Fed Mutual Holding Company, to a federally chartered interim stock savings bank will qualify as a tax-free reorganization within the meaning of Section 368(a)(1)(F) of the Internal Revenue Code and the merger of K-Fed Mutual Holding Company with and into Kaiser Federal Bank qualifies as a tax-free reorganization within the meaning of Section 368(a)(1)(A) of the Internal Revenue Code.
5.	The exchange of Eligible Account Holders’ and Supplemental Account Holders’ interests in K-Fed Mutual Holding Company for interests in a liquidation account established in Kaiser Federal Bank will satisfy the continuity of interest requirement of Section 1.368-1(b) of the Federal Income Tax Regulations.
6.	None of K-Fed Mutual Holding Company, K-Fed Bancorp, Kaiser Federal Bank, nor Eligible Account Holders, Supplemental Eligible Account Holders or Other Members, will recognize any gain or loss on the transfer of the assets of K-Fed Mutual Holding Company to Kaiser Federal Bank in exchange for an interest in a liquidation account established in Kaiser Federal Bank for the benefit of eligible account holders and supplemental eligible account holders who remain depositors of Kaiser Federal Bank.
7.	Current stockholders of K-Fed Bancorp will not recognize any gain or loss upon their constructive exchange of K-Fed Bancorp common stock for shares of Kaiser Federal Bank which will in turn be exchanged for new shares of Kaiser Federal Financial Group, Inc. common stock.
8.	Each stockholder’s aggregate basis in shares of Kaiser Federal Financial Group, Inc. common stock (including fractional share interests) received in the exchange will be the same as the aggregate basis of K-Fed Bancorp common stock surrendered in exchange therefore.
9.	Each stockholder’s holding period in his or her Kaiser Federal Financial Group, Inc. common stock received in the exchange will include the period during which K-Fed Bancorp common stock surrendered was held, provided that the K-Fed Bancorp common stock surrendered is a capital asset in the hands of the stockholder on the date of the exchange.
10.	Cash received by any current stockholder of K-Fed Bancorp in lieu of a fractional share interest in shares of Kaiser Federal Financial Group, Inc. common stock will be treated as having been received as a distribution in full payment in exchange for a fractional share interest of Kaiser Federal Financial Group, Inc. common stock, which such stockholder would otherwise be entitled to receive.  Accordingly, a stockholder will recognize gain or loss equal to the difference between the cash received and the basis of the fractional share.  If the common stock is held by the stockholder as a capital asset, the gain or loss will be capital gain or loss.

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11.	It is more likely than not that the fair market value of the nontransferable subscription rights to purchase Kaiser Federal Financial Group, Inc. common stock is zero.  Accordingly, no gain or loss will be recognized by Eligible Account Holders, Supplemental Eligible Account Holders or Other Members upon distribution to them of nontransferable subscription rights to purchase shares of Kaiser Federal Financial Group, Inc. common stock.  Eligible Account Holders, Supplemental Eligible Account Holders and Other Members will not realize any taxable income as the result of the exercise by them of the nontransferable subscriptions rights.
12.	It is more likely than not that the basis of the shares of Kaiser Federal Financial Group, Inc. common stock purchased in the offering by the exercise of nontransferable subscription rights will be the purchase price.  The holding period of the Kaiser Federal Financial Group, Inc. common stock purchased pursuant to the exercise of nontransferable subscription rights will commence on the date on which the right to acquire such stock was exercised.
13.	No gain or loss will be recognized by Kaiser Federal Financial Group, Inc. on the receipt of money in exchange for Kaiser Federal Financial Group, Inc. common stock sold in the offering.

          The opinion addresses all material federal income tax consequences of the conversion and reorganization.  The tax opinion as to items 11 and 12 above is based on the position that subscription rights to be received by Eligible Account Holders, Supplemental Eligible Account Holders and Other Members do not have any economic value at the time of distribution or the time the subscription rights are exercised.  In this regard, Luse Gorman Pomerenk & Schick, P.C. noted that the subscription rights will be granted at no cost to the recipients, are legally non-transferable and of short duration, and will provide the recipient with the right only to purchase shares of common stock at the same price to be paid by members of the general public in any community offering.  The firm also noted that the Internal Revenue Service has not in the past concluded that subscription rights have value.  Based on the foregoing, Luse Gorman Pomerenk & Schick, P.C. believes that it is more likely than not that the nontransferable subscription rights to purchase shares of common stock have no value.  However, the issue of whether or not the nontransferable subscription rights have value is based on all the facts and circumstances.  If the nontransferable subscription rights granted to eligible subscribers are subsequently found to have an ascertainable value greater than zero, income may be recognized by various recipients of the nontransferable subscription rights (in certain cases, whether or not the rights are exercised) and we could recognize gain on the distribution of the nontransferable subscription rights. 

                The opinion of Luse Gorman Pomerenk & Schick, P.C., unlike a letter ruling issued by the Internal Revenue Service, are not binding on the Internal Revenue Service and the conclusions expressed therein may be challenged at a future date. The Internal Revenue Service has issued favorable rulings for transactions substantially similar to the proposed reorganization and stock offering, but any such ruling may not be cited as precedent by any taxpayer other than the taxpayer to whom the ruling is addressed.  We do not plan to apply for a letter ruling concerning the transactions described herein.

          The federal tax opinion has been filed with the Securities and Exchange Commission as an exhibit to Kaiser Federal Financial Group, Inc.’s registration statement.  Advice regarding the California state income tax consequences consistent with the federal tax opinion has been issued by Crowe Chizek and Company LLP, tax advisors to K-Fed Mutual Holding Company and K-Fed Bancorp.

          We also have received a letter from RP Financial, LC. stating its belief that the subscription rights do not have any ascertainable fair market value and that the price at which the subscription rights are

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exercisable will not be more or less than the fair market value of the shares on the date of the exercise. This position is based on the fact that these rights are acquired by the recipients without cost, are nontransferable and of short duration, and afford the recipients the right only to purchase the common stock at the same price as will be paid by members of the general public in any community offering.

          If the subscription rights granted to Eligible Account Holders, Supplemental Eligible Account Holders and Other Members are deemed to have an ascertainable value, receipt of these rights could result in taxable gain to those Eligible Account Holders, Supplemental Eligible Account Holders and Other Members who exercise the subscription rights in an amount equal to the ascertainable value, and we could recognize gain on a distribution. Eligible Account Holders, Supplemental Eligible Account Holders and Other Members are encouraged to consult with their own tax advisors as to the tax consequences in the event that subscription rights are deemed to have an ascertainable value.

Certain Restrictions on Purchase or Transfer of Our Shares after the Conversion

          All shares of common stock purchased in the offering by a director or an executive officer of Kaiser Federal Bank generally may not be sold for a period of one year following the closing of the conversion, except in the event of the death of the director or executive officer. Each certificate for restricted shares will bear a legend giving notice of this restriction on transfer, and instructions will be issued to the effect that any transfer within this time period of any certificate or record ownership of the shares other than as provided above is a violation of the restriction. Any shares of common stock issued at a later date as a stock dividend, stock split, or otherwise, with respect to the restricted stock will be similarly restricted. The directors and executive officers of Kaiser Federal Financial Group, Inc. also will be restricted by the insider trading rules promulgated pursuant to the Securities Exchange Act of 1934.

          Purchases of shares of our common stock by any of our directors, executive officers and their associates, during the three-year period following the closing of the conversion may be made only through a broker or dealer registered with the Securities and Exchange Commission, except with the prior written approval of the Office of Thrift Supervision. This restriction does not apply, however, to negotiated transactions involving more than 1% of our outstanding common stock or to purchases of our common stock by our stock-based incentive plan or any of our tax-qualified employee stock benefit plans or non-tax-qualified employee stock benefit plans.

          Office of Thrift Supervision regulations prohibit Kaiser Federal Financial Group, Inc. from repurchasing its shares of common stock during the first year following conversion unless compelling business reasons exist for such repurchases. After one year, the Office of Thrift Supervision does not impose any repurchase restrictions.

COMPARISON OF STOCKHOLDERS’ RIGHTS FOR EXISTING STOCKHOLDERS OF K-FED BANCORP

          General. As a result of the conversion, existing stockholders of K-Fed Bancorp will become stockholders of Kaiser Federal Financial Group, Inc. There are differences in the rights of stockholders of K-Fed Bancorp and stockholders of Kaiser Federal Financial Group, Inc. caused by differences between federal and Maryland law and regulations and differences in K-Fed Bancorp’s federal stock charter and bylaws and Kaiser Federal Financial Group, Inc.’s Maryland articles of incorporation and bylaws.

          This discussion is not intended to be a complete statement of the differences affecting the rights of stockholders, but rather summarizes the material differences and similarities affecting the rights of stockholders. This discussion is qualified in its entirety by reference to the articles of incorporation and bylaws of Kaiser Federal Financial Group, Inc. and the Maryland General Corporation Law. See “Where

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You Can Find Additional Information” for procedures for obtaining a copy of Kaiser Federal Financial Group, Inc.’s articles of incorporation and bylaws.

          Authorized Capital Stock. K-Fed Bancorp’s authorized capital stock currently consists of 18,000,000 shares of common stock, par value $0.01 per share, and 2,000,000 shares of preferred stock. After the conversion, Kaiser Federal Financial Group, Inc.’s authorized capital stock will consist of 100,000,000 shares of common stock, $0.01 par value per share, and 25,000,000 shares of serial preferred stock, par value $0.01 per share. We authorized more capital stock than that which will be issued in the conversion in order to provide our Board of Directors with flexibility to effect, among other transactions, financings, acquisitions, stock dividends, stock splits and stock option grants. These additional authorized shares may also be used by our Board of Directors, consistent with its fiduciary duty, to deter future attempts to gain control of Kaiser Federal Financial Group, Inc.  Our Board of Directors also has sole authority to determine the terms of any one or more series of preferred stock, including voting rights, conversion rates and liquidation preferences. As a result of the ability to fix voting rights for a series of preferred stock, our Board of Directors has the power, to the extent consistent with its fiduciary duty, to issue a series of preferred stock to persons friendly to management in order to attempt to block a hostile tender offer, merger or other transaction by which a third party seeks control, and thereby assist management to retain its position. We currently have no plans for the issuance of additional shares, other than the issuance of additional shares through our stock benefit plans.

          Issuance of Capital Stock. Pursuant to applicable laws and regulations, K-Fed Mutual Holding Company is required to own not less than a majority of the outstanding shares of K-Fed Bancorp common stock. K-Fed Mutual Holding Company will no longer exist following consummation of the conversion.

          Kaiser Federal Financial Group, Inc.’s articles of incorporation do not contain restrictions on the issuance of shares of capital stock to directors, officers or controlling persons, whereas K-Fed Bancorp’s stock charter restricts such issuances to general public offerings, or to directors for qualifying shares, unless the share issuance or the plan under which they would be issued has been approved by a majority of the total votes eligible to be cast at a legal stockholders’ meeting. However, stock-based compensation plans, such as stock option plans and restricted stock plans, would have to be submitted for approval by Kaiser Federal Financial Group, Inc. stockholders due to requirements of the Nasdaq Stock Market and in order to qualify stock options for favorable federal income tax treatment.  The Office of Thrift Supervision regulations also require stockholder approval of stock-based compensation plans within one year of the completion of the conversion.

          Voting Rights. Neither K-Fed Bancorp’s stock charter or bylaws nor Kaiser Federal Financial Group, Inc.’s articles of incorporation or bylaws provide for cumulative voting for the election of directors. For additional information regarding voting rights, see “—Limitations on Voting Rights of Greater-than-10% Stockholders” below.

          Payment of Dividends. The ability of K-Fed Bancorp to pay dividends on its capital stock is restricted by Office of Thrift Supervision regulations and by federal income tax considerations related to federal savings associations such as Kaiser Federal Bank. See “Supervision and Regulation—Federal Banking Regulation—Capital Distributions.” Although Kaiser Federal Financial Group, Inc. is not subject to these restrictions as a Maryland corporation, such restrictions will indirectly affect Kaiser Federal Financial Group, Inc. because dividends from Kaiser Federal Bank will be the primary source of funds of Kaiser Federal Financial Group, Inc. for the payment of dividends to its stockholders.

          Certain restrictions generally imposed on Maryland corporations may also have an impact on Kaiser Federal Financial Group, Inc.’s ability to pay dividends.  Maryland law generally provides that Kaiser Federal Financial Group, Inc. is limited to paying dividends in an amount equal to our capital

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surplus over payments that would be owed upon dissolution to stockholders whose preferential rights upon dissolution are superior to those receiving the dividend, and to an amount that would not make us insolvent.

          Board of Directors. K-Fed Bancorp’s stock charter and bylaws and Kaiser Federal Financial Group, Inc.’s articles of incorporation and bylaws each require the Board of Directors to be divided into three classes and that the members of each class shall be elected for a term of three years and until their successors are elected and qualified, with one class being elected annually.

          Under K-Fed Bancorp’s bylaws, any vacancies on the Board of Directors of K-Fed Bancorp may be filled by the affirmative vote of a majority of the remaining directors although less than a quorum of the Board of Directors. Persons elected by the Board of Directors of K-Fed Bancorp to fill vacancies may only serve until the next annual meeting of stockholders. Under Kaiser Federal Financial Group, Inc.’s articles of incorporation, any vacancy occurring on the Board of Directors, including any vacancy created by reason of an increase in the number of directors, may be filled only by a majority of the remaining directors, and any director so chosen shall hold office for the remainder of the term to which the director has been elected and until his or her successor is elected and qualified.

          Under K-Fed Bancorp’s bylaws, any director may be removed for cause by the holders of a majority of the outstanding voting shares.  Kaiser Federal Financial Group, Inc.’s articles of incorporation provide that any director may be removed for cause by the holders of at least 80% of the outstanding voting shares of Kaiser Federal Financial Group, Inc.

          Limitations on Liability. The charter and bylaws of K-Fed Bancorp do not limit the personal liability of directors.

          Kaiser Federal Financial Group, Inc.’s articles of incorporation provide that directors will not be personally liable for monetary damages to Kaiser Federal Financial Group, Inc. for certain actions as directors, except for (i) receipt of an improper personal benefit from their positions as directors, or (ii) actions or omissions that are determined to have involved active and deliberate dishonesty, or (iii) to the extent allowed by Maryland law. These provisions might, in certain instances, discourage or deter stockholders or management from bringing a lawsuit against directors for a breach of their duties even though such an action, if successful, might benefit Kaiser Federal Financial Group, Inc.

          Indemnification of Directors, Officers, Employees and Agents. K-Fed Bancorp’s bylaws provide indemnification to directors, officers and employees to the fullest extent allowed by law. Under current Office of Thrift Supervision regulations, K-Fed Bancorp shall indemnify its directors, officers and employees for any costs incurred in connection with any litigation involving such person’s activities as a director, officer or employee if such person obtains a final judgment on the merits in his or her favor. In addition, indemnification is permitted in the case of a settlement, a final judgment against such person, or final judgment other than on the merits, if a majority of disinterested directors determines that such person was acting in good faith within the scope of his or her employment as he or she could reasonably have perceived it under the circumstances and for a purpose he or she could reasonably have believed under the circumstances was in the best interests of K-Fed Bancorp or its stockholders. K-Fed Bancorp also is permitted to pay ongoing expenses incurred by a director, officer or employee if a majority of disinterested directors concludes that such person may ultimately be entitled to indemnification. Before making any indemnification payment, K-Fed Bancorp is required to notify the Office of Thrift Supervision of its intention, and such payment cannot be made if the Office of Thrift Supervision objects to such payment.

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          The officers, directors, agents and employees of Kaiser Federal Financial Group, Inc. are indemnified with respect to certain actions pursuant to Kaiser Federal Financial Group, Inc.’s articles of incorporation and Maryland law. Maryland law allows Kaiser Federal Financial Group, Inc. to indemnify any person for expenses, liabilities, settlements, judgments and fines in suits in which such person has been made a party by reason of the fact that he or she is or was a director, officer or employee of Kaiser Federal Financial Group, Inc.  No such indemnification may be given if the acts or omissions of the person are adjudged to be in bad faith and materials to the matter giving rise to the proceeding, if such person is liable to the corporation for an unlawful distribution, or if such person personally received a benefit to which he or she was not entitled.  The right to indemnification includes the right to be paid the expenses incurred in advance of final disposition of a proceeding.

          Special Meetings of Stockholders. K-Fed Bancorp’s bylaws provide that special meetings of K-Fed Bancorp’s stockholders may be called by the Chairman, the president, a majority of the members of the Board of Directors or the holders of not less than one-tenth of the outstanding capital stock of K-Fed Bancorp entitled to vote at the meeting. Kaiser Federal Financial Group, Inc.’s bylaws provide that special meetings of the stockholders of Kaiser Federal Financial Group, Inc. may be called by the president, by a majority vote of the total authorized directors, or upon the written request of stockholders entitled to cast at least a majority of all votes entitled to vote at the meeting.

          Stockholder Nominations and Proposals. K-Fed Bancorp’s bylaws generally provide that stockholders may submit nominations for election of directors at an annual meeting of stockholders and may propose any new business to be taken up at such a meeting by filing the proposal in writing with K-Fed Bancorp at least five days before the date of any such meeting.

          Kaiser Federal Financial Group, Inc.’s bylaws generally provide that any stockholder desiring to make a nomination for the election of directors or a proposal for new business at a meeting of stockholders must submit written notice to Kaiser Federal Financial Group, Inc. at least 90 days prior and not earlier than 120 days prior to the anniversary date of the mailing of proxy materials by Kaiser Federal Financial Group, Inc. in connection with the immediately preceding annual meeting of stockholders.  However, if the date of the annual meeting is advanced more than 20 days prior to or delayed by more than 60 days after the anniversary of the preceding year’s annual meeting, stockholders must submit such written notice no earlier than the 120^th day, and not later than the 90^th day, prior to the annual meeting, or alternatively, not later than the 10th day following the date on which notice of the meeting is mailed to stockholders or such public disclosure was made. Failure to comply with these advance notice requirements will preclude such nominations or new business from being considered at the meeting.

          Management believes that it is in the best interests of Kaiser Federal Financial Group, Inc. and its stockholders to provide sufficient time to enable management to disclose to stockholders information about a dissident slate of nominations for directors. This advance notice requirement may also give management time to solicit its own proxies in an attempt to defeat any dissident slate of nominations, should management determine that doing so is in the best interests of stockholders generally. Similarly, adequate advance notice of stockholder proposals will give management time to study such proposals and to determine whether to recommend to the stockholders that such proposals be adopted.  In certain instances, such provisions could make it more difficult to oppose management’s nominees or proposals, even if stockholders believe such nominees or proposals are in their best interests.

          Stockholder Action Without a Meeting. The bylaws of K-Fed Bancorp provide that any action to be taken or which may be taken at any annual or special meeting of stockholders may be taken if a consent in writing, setting forth the actions so taken, is given by the holders of all outstanding shares entitled to vote. Kaiser Federal Financial Group, Inc.’s bylaws provide similar authority of stockholders to act without a meeting.

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          Stockholder’s Right to Examine Books and Records. A federal regulation, which is applicable to K-Fed Bancorp, provides that stockholders may inspect and copy specified books and records after proper written notice for a proper purpose. Maryland law provides that a stockholder may inspect a company’s bylaws, stockholder minutes, annual statement of affairs and any voting trust agreements. However, only a stockholder or group of stockholders who together, for at least six months, hold at least 5% of the company’s total shares, have the right to inspect a company’s stock ledger, list of stockholders and books of accounts.

          Limitations on Voting Rights of Greater-than-10% Stockholders.  K-Fed Bancorp’s charter provides that no record or beneficial owner, directly or indirectly, of more than 10% of the outstanding shares of common stock will be permitted to vote any shares in excess of such 10% limit.  Kaiser Federal Financial Group, Inc.’s articles of incorporation also has a similar provision.

          Mergers, Consolidations and Sales of Assets. A federal regulation applicable to K-Fed Bancorp generally requires the approval of two-thirds of the Board of Directors of K-Fed Bancorp and the holders of two-thirds of the outstanding stock of K-Fed Bancorp entitled to vote thereon for mergers, consolidations and sales of all or substantially all of K-Fed Bancorp’s assets. Such regulation permits K-Fed Bancorp to merge with another corporation without obtaining the approval of its stockholders if:

(i)	it does not involve an interim savings institution;
(ii)	K-Fed Bancorp’s federal stock charter is not changed;
(iii)	each share of K-Fed Bancorp’s stock outstanding immediately prior to the effective date of the transaction will be an identical outstanding share or a treasury share of K-Fed Bancorp after such effective date; and
(iv)	either:

(a)	no shares of voting stock of K-Fed Bancorp and no securities convertible into such stock are to be issued or delivered under the plan of combination; or
(b)	the authorized but unissued shares or the treasury shares of voting stock of K-Fed Bancorp to be issued or delivered under the plan of combination, plus those initially issuable upon conversion of any securities to be issued or delivered under such plan, do not exceed 15% of the total shares of voting stock of K-Fed Bancorp outstanding immediately prior to the effective date of the transaction.

          Kaiser Federal Financial Group, Inc.’s articles of incorporation require the approval of the holders of at least 80% of Kaiser Federal Financial Group, Inc.’s outstanding shares of voting stock to approve certain “Business Combinations” involving an “Interested Stockholder” except where:

(i)	the proposed transaction has been approved by a majority of the members of the Board of Directors who are unaffiliated with the Interested Stockholder and who were directors prior to the time when the Interested Stockholder became an Interested Stockholder; or
(ii)	certain “fair price” provisions are complied with.
(iii)	The term “Interested Stockholder” includes any person or entity, other than Kaiser Federal Financial Group, Inc. or its subsidiary, which owns beneficially or controls, directly or indirectly, 10% or more of the outstanding shares of voting stock of Kaiser Federal Financial Group, Inc. This provision of the articles of incorporation applies to any “Business Combination,” which is defined to include, among other things, any merger or consolidation of Kaiser Federal Financial Group, Inc. or transfer, or other

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disposition of 25% or more of the assets of Kaiser Federal Financial Group, Inc. with an Interested Stockholder;

          Under Maryland law, absent this provision, business combinations, including mergers, consolidations and sales of substantially all of the assets of a corporation must, subject to certain exceptions, be approved by the vote of the holders of two-thirds of the corporation’s outstanding shares of common stock and any other affected class of stock. One exception under Maryland law to the two-thirds approval requirement applies to stockholders owning 10% or more of the common stock of a corporation for a period of less than five years. Such 10% stockholder, in order to obtain approval of a business combination, must obtain the approval of 80% of all outstanding stock and two-thirds of the outstanding stock excluding the stock owned by such 10% stockholder, or satisfy other requirements under Maryland law relating to Board of director approval of his or her acquisition of the shares of the corporation. The increased stockholder vote required to approve a business combination may have the effect of preventing mergers and other business combinations which a majority of stockholders deem desirable and placing the power to prevent such a merger or combination in the hands of a minority of stockholders.

          Kaiser Federal Financial Group, Inc.’s articles of incorporation provide that the Board of Directors may consider certain factors in addition to the amount of consideration to be paid when evaluating certain business combinations or a tender or exchange offer. These additional factors include the social and economic effects of the transaction on its customers and employees and the communities served by Kaiser Federal Financial Group, Inc.

          Dissenters’ Rights of Appraisal.  Office of Thrift Supervision regulations generally provide that a stockholder of a federally chartered corporation that engages in a merger, consolidation or sale of all or substantially all of its assets shall have the right to demand from such institution payment of the fair or appraised value of his or her stock in the corporation, subject to specified procedural requirements.   The regulations also provide, however, that a stockholder of a federally chartered corporation whose shares are listed on a national securities exchange or quoted on the Nasdaq stock market are not entitled to dissenters’ rights in connection with a merger if the stockholder is required to accept only “qualified consideration” for his or her stock, which is defined to include cash, shares of stock of any institution or corporation that at the effective date of the merger will be listed on a national securities exchange or quoted on the Nasdaq stock market, or any combination of such shares of stock and cash.

          Under Maryland law, stockholders of Kaiser Federal Financial Group, Inc. will not have dissenters’ appraisal rights in connection with a plan of merger or consolidation to which Kaiser Federal Financial Group, Inc. is a party as long as the common stock of Kaiser Federal Financial Group, Inc. trades on the Nasdaq Stock Market.   

          Amendment of Governing Instruments. No amendment of K-Fed Bancorp’s stock charter may be made unless it is first proposed by the Board of Directors of K-Fed Bancorp, then preliminarily approved by the Office of Thrift Supervision, and thereafter approved by the holders of a majority of the total votes eligible to be cast at a legal meeting. Kaiser Federal Financial Group, Inc.’s articles of incorporation may be amended by the vote of the holders of a majority of the outstanding shares of common stock if at least two-thirds of the members of the Board of Directors approves such amendment, except that the provisions of the articles of incorporation governing preferred stock, no cumulative voting, stockholder nominations and proposals, limitations on voting rights of 10% stockholders, the number and staggered terms of directors, vacancies on the Board of Directors and removal of directors, approval of certain business combinations, indemnification of officers and directors, limitations on the liability of directors and officers and the manner of amending the articles of incorporation and bylaws, may not be repealed, altered, amended or rescinded except by the vote of the holders of at least 80% of the outstanding shares common stock.

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          The bylaws of K-Fed Bancorp may be amended by a majority vote of the full Board of Directors of K-Fed Bancorp or by a majority of the votes cast by the stockholders of K-Fed Bancorp at any legal meeting. Kaiser Federal Financial Group, Inc.’s bylaws may be amended only by a majority vote of the Board of Directors of Kaiser Federal Financial Group, Inc. or by the holders of at least 80% of the outstanding common stock.

          Residency Requirement for Directors.  Kaiser Federal Financial Group, Inc.’s bylaws provide that only persons who reside or work in California will be qualified to be appointed or elected to the Board of Directors of Kaiser Federal Financial Group, Inc. K-Fed Bancorp’s federal bylaws have no similar provision. 

          Purpose and Anti-Takeover Effects of Kaiser Federal Financial Group, Inc.’s Articles of Incorporation and Bylaws.  Our Board of Directors believes that the provisions described above or below are prudent and will reduce our vulnerability to takeover attempts and certain other transactions that have not been negotiated with and approved by our Board of Directors. These provisions also will assist us in the orderly deployment of the offering proceeds into productive assets during the initial period after the conversion. Our Board of Directors believes these provisions are in the best interests of Kaiser Federal Financial Group, Inc. and its stockholders. Our Board of Directors believes that it will be in the best position to determine the true value of Kaiser Federal Financial Group, Inc. and to negotiate more effectively for what may be in the best interests of its stockholders. Accordingly, our Board of Directors believes that it is in the best interests of Kaiser Federal Financial Group, Inc. and its stockholders to encourage potential acquirers to negotiate directly with the Board of Directors and that these provisions will encourage such negotiations and discourage hostile takeover attempts. It is also the view of our Board of Directors that these provisions should not discourage persons from proposing a merger or other transaction at a price reflective of the true value of Kaiser Federal Financial Group, Inc. and that is in the best interests of all stockholders.

          Takeover attempts that have not been negotiated with and approved by our Board of Directors present the risk of a takeover on terms that may be less favorable than might otherwise be available. A transaction that is negotiated and approved by our Board of Directors, on the other hand, can be carefully planned and undertaken at an opportune time in order to obtain maximum value of Kaiser Federal Financial Group, Inc. for our stockholders, with due consideration given to matters such as the management and business of the acquiring corporation and maximum strategic development of Kaiser Federal Financial Group, Inc.’s assets.

          Although a tender offer or other takeover attempt may be made at a price substantially above the current market price, such offers are sometimes made for less than all of the outstanding shares of a target company.  As a result, stockholders may be presented with the alternative of partially liquidating their investment at a time that may be disadvantageous, or retaining their investment in an enterprise that is under different management and whose objectives may not be similar to those of the remaining stockholders.

          Despite our belief as to the benefits to stockholders of these provisions of Kaiser Federal Financial Group, Inc.’s articles of incorporation and bylaws, these provisions may also have the effect of discouraging a future takeover attempt that would not be approved by our Board of Directors, but pursuant to which stockholders may receive a substantial premium for their shares over then current market prices. As a result, stockholders who might desire to participate in such a transaction may not have any opportunity to do so. Such provisions will also make it more difficult to remove our Board of Directors and management. Our Board of Directors, however, has concluded that the potential benefits outweigh the possible disadvantages.

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          Following the conversion, pursuant to applicable law and, if required, following the approval by stockholders, we may adopt additional anti-takeover provisions in our articles of incorporation or other devices regarding the acquisition of our equity securities that would be permitted for a Maryland business corporation.

          The cumulative effect of the restrictions on acquisition of Kaiser Federal Financial Group, Inc. contained in our articles of incorporation and bylaws and in Maryland law may be to discourage potential takeover attempts and perpetuate incumbent management, even though certain stockholders of Kaiser Federal Financial Group, Inc. may deem a potential acquisition to be in their best interests, or deem existing management not to be acting in their best interests.

RESTRICTIONS ON ACQUISITION OF KAISER FEDERAL FINANCIAL GROUP, INC.

          Although the Board of Directors of Kaiser Federal Financial Group, Inc. is not aware of any effort that might be made to obtain control of Kaiser Federal Financial Group, Inc. after the conversion, the Board of Directors believes that it is appropriate to include certain provisions as part of Kaiser Federal Financial Group, Inc.’s articles of incorporation to protect the interests of Kaiser Federal Financial Group, Inc. and its stockholders from takeovers which our Board of Directors might conclude are not in the best interests of Kaiser Federal Bank, Kaiser Federal Financial Group, Inc. or Kaiser Federal Financial Group, Inc.’s stockholders. 

          The following discussion is a general summary of the material provisions of Kaiser Federal Financial Group, Inc.’s articles of incorporation and bylaws, Kaiser Federal Bank’s charter and bylaws and certain other regulatory provisions that may be deemed to have an “anti-takeover” effect.  The following description of certain of these provisions is necessarily general and, with respect to provisions contained in Kaiser Federal Financial Group, Inc.’s articles of incorporation and bylaws and Kaiser Federal Bank’s stock charter and bylaws, reference should be made in each case to the document in question, each of which is part of K-Fed Mutual Holding Company’s application for conversion with the Office of Thrift Supervision and Kaiser Federal Financial Group, Inc.’s registration statement filed with the Securities and Exchange Commission.  See “Where You Can Find Additional Information.”

Kaiser Federal Financial Group, Inc.’s Articles of Incorporation and Bylaws

          Kaiser Federal Financial Group, Inc.’s articles of incorporation and bylaws contain a number of provisions relating to corporate governance and rights of stockholders that might discourage future takeover attempts.  As a result, stockholders who might desire to participate in such transactions may not have an opportunity to do so. In addition, these provisions will also render the removal of the Board of Directors or management of Kaiser Federal Financial Group, Inc. more difficult.

          Directors. The Board of Directors will be divided into three classes.  The members of each class will be elected for a term of three years and only one class of directors will be elected annually.  Thus, it would take at least two annual elections to replace a majority of our Board of Directors.  Further, the bylaws impose notice and information requirements in connection with the nomination by stockholders of candidates for election to the Board of Directors or the proposal by stockholders of business to be acted upon at an annual meeting of stockholders.

          Restrictions on Call of Special Meetings.  The articles of incorporation and bylaws provide that special meetings of stockholders can be called by the president, by a majority of the whole Board or upon the written request of stockholders entitled to cast at least a majority of all votes entitled to vote at the meeting.

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          Prohibition of Cumulative Voting.  The articles of incorporation prohibit cumulative voting for the election of directors. 

          Limitation of Voting Rights.   The articles of incorporation provide that in no event will any person who beneficially owns more than 10% of the then-outstanding shares of common stock, be entitled or permitted to vote any of the shares of common stock held in excess of the 10% limit.

          Restrictions on Removing Directors from Office.  The articles of incorporation provide that directors may be removed only for cause, and only by the affirmative vote of the holders of at least 80% of the voting power of all of our then-outstanding common stock entitled to vote (after giving effect to the limitation on voting rights discussed above in “—Limitation of Voting Rights.”)

          Authorized but Unissued Shares.  After the conversion, Kaiser Federal Financial Group, Inc. will have authorized but unissued shares of common and preferred stock.  See “Description of Capital Stock of Kaiser Federal Financial Group, Inc. Following the Conversion.”  The articles of incorporation authorize 25 million shares of serial preferred stock.  Kaiser Federal Financial Group, Inc. is authorized to issue preferred stock from time to time in one or more series subject to applicable provisions of law, and the Board of Directors is authorized to fix the designations, and relative preferences, limitations, voting rights, if any, including without limitation, offering rights of such shares (which could be multiple or as a separate class).  In the event of a proposed merger, tender offer or other attempt to gain control of Kaiser Federal Financial Group, Inc. that the Board of Directors does not approve, it might be possible for the Board of Directors to authorize the issuance of a series of preferred stock with rights and preferences that would impede the completion of the transaction.  An effect of the possible issuance of preferred stock therefore may be to deter a future attempt to gain control of Kaiser Federal Financial Group, Inc.  The Board of Directors has no present plan or understanding to issue any preferred stock.

          Amendments to Articles of Incorporation and Bylaws. Amendments to the articles of incorporation must be approved by our Board of Directors and also by at least a majority of the outstanding shares of our voting stock; provided, however, that approval by at least 80% of the outstanding voting stock is generally required to amend the following provisions:

(i)	The limitation on voting rights of persons who directly or indirectly beneficially own more than 10% of the outstanding shares of common stock;
(ii)	Preferred stock;
(iii)	Prohibition of cumulative voting;
(iv)	The division of the Board of Directors into three staggered classes;
(v)	The ability of the Board of Directors to fill vacancies on the Board;
(vi)	The inability to deviate from the manner prescribed in the bylaws by which stockholders nominate directors and bring other business before meetings of stockholders;
(vii)	The requirement that at least 80% of stockholders must vote to remove directors, and can only remove directors for cause;
(viii)	The ability of the Board of Directors to amend and repeal the bylaws; and

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(ix) The ability of the Board of Directors to evaluate a variety of factors in evaluating offers to purchase or otherwise acquire Kaiser Federal Financial Group, Inc.

          The bylaws may be amended by the affirmative vote of a majority of our directors or the affirmative vote of at least 80% of the total votes eligible to be voted at a duly constituted meeting of stockholders.

Conversion Regulations

          Office of Thrift Supervision regulations prohibit any person from making an offer, announcing an intent to make an offer or participating in any other arrangement to purchase stock or acquiring stock or subscription rights in a converting institution or its holding company from another person prior to completion of its conversion. Further, without the prior written approval of the Office of Thrift Supervision, no person may make an offer or announcement of an offer to purchase shares or actually acquire shares of a converted institution or its holding company for a period of three years from the date of the completion of the conversion if, upon the completion of such offer, announcement or acquisition, the person would become the beneficial owner of more than 10% of the outstanding stock of the institution or its holding company. The Office of Thrift Supervision has defined “person” to include any individual, group acting in concert, corporation, partnership, association, joint stock company, trust, unincorporated organization or similar company, a syndicate or any other group formed for the purpose of acquiring, holding or disposing of securities of an insured institution.  However, offers made exclusively to a bank or its holding company, or an underwriter or member of a selling group acting on the converting institution’s or its holding company’s behalf for resale to the general public are excepted. The regulation also provides civil penalties for willful violation or assistance in any such violation of the regulation by any person connected with the management of the converting institution or its holding company or who controls more than 10% of the outstanding shares or voting rights of a converted institution or its holding company.

Change in Control Regulations

          Under the Change in Bank Control Act, no person may acquire control of an insured federal savings bank or its parent holding company unless the Office of Thrift Supervision has been given 60 days’ prior written notice and has not issued a notice disapproving the proposed acquisition. In addition, Office of Thrift Supervision regulations provide that no company may acquire control of a savings bank without the prior approval of the Office of Thrift Supervision. Any company that acquires such control becomes a “savings and loan holding company” subject to registration, examination and regulation by the Office of Thrift Supervision.

          Control, as defined under federal law, means ownership, control of or holding irrevocable proxies representing more than 25% of any class of voting stock, control in any manner of the election of a majority of the institution’s directors, or a determination by the Office of Thrift Supervision that the acquiror has the power to direct, or directly or indirectly to exercise a controlling influence over, the management or policies of the institution. Acquisition of more than 10% of any class of a savings bank’s voting stock, if the acquiror is also subject to any one of eight “control factors,” constitutes a rebuttable determination of control under the regulations. Such control factors include the acquiror being one of the two largest stockholders. The determination of control may be rebutted by submission to the Office of Thrift Supervision, prior to the acquisition of stock or the occurrence of any other circumstances giving rise to such determination, of a statement setting forth facts and circumstances which would support a finding that no control relationship will exist and containing certain undertakings. The regulations provide that persons or companies which acquire beneficial ownership exceeding 10% or more of any class of a savings bank’s stock who do not intend to participate in or seek to exercise control over a savings bank’s

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management or policies may qualify for a safe harbor by filing with the Office of Thrift Supervision a certification form that states, among other things, that the holder is not in control of such institution, is not subject to a rebuttable determination of control and will take no action which would result in a determination or rebuttable determination of control without prior notice to or approval of the Office of Thrift Supervision, as applicable. There are also rebuttable presumptions in the regulations concerning whether a group “acting in concert” exists, including presumed action in concert among members of an “immediate family.”

          The Office of Thrift Supervision may prohibit an acquisition of control if it finds, among other things, that:

(i)	the acquisition would result in a monopoly or substantially lessen competition;
(ii)	the financial condition of the acquiring person might jeopardize the financial stability of the institution; or
(iii)	the competence, experience or integrity of the acquiring person indicates that it would not be in the interest of the depositors or the public to permit the acquisition of control by such person.

DESCRIPTION OF CAPITAL STOCK OF KAISER FEDERAL FINANCIAL GROUP, INC. FOLLOWING THE CONVERSION

General

          At the effective date, Kaiser Federal Financial Group, Inc. is authorized to issue 100 million shares of common stock, par value of $0.01 per share, and 25 million shares of preferred stock, par value $0.01 per share. Kaiser Federal Financial Group, Inc. currently expects to issue in the offering up to 14,950,000 shares of common stock, subject to adjustment, and up to 8,582,229 shares, subject to adjustment, in exchange for the publicly held shares of K-Fed Bancorp.  Kaiser Federal Financial Group, Inc. will not issue shares of preferred stock in the conversion. Each share of Kaiser Federal Financial Group, Inc. common stock will have the same relative rights as, and will be identical in all respects to, each other share of common stock. Upon payment of the subscription price for the common stock, in accordance with the plan of conversion and reorganization, all of the shares of common stock will be duly authorized, fully paid and nonassessable.

          The shares of common stock of Kaiser Federal Financial Group, Inc. will represent nonwithdrawable capital, will not be an account of an insurable type, and will not be insured by the Federal Deposit Insurance Corporation or any other government agency.

Common Stock

          Dividends. Kaiser Federal Financial Group, Inc. may pay dividends to an amount equal to the excess of our capital surplus over payments that would be owed upon dissolution to stockholders whose preferential rights upon dissolution are superior to those receiving the dividend, and to an amount that would not make us insolvent, as and when declared by our Board of Directors. The payment of dividends by Kaiser Federal Financial Group, Inc. is subject to limitations that are imposed by law and applicable regulation. The holders of common stock of Kaiser Federal Financial Group, Inc. will be entitled to receive and share equally in dividends as may be declared by our Board of Directors out of funds legally available therefor. If Kaiser Federal Financial Group, Inc. issues shares of preferred stock, the holders thereof may have a priority over the holders of the common stock with respect to dividends.

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          Voting Rights. Upon consummation of the conversion, the holders of common stock of Kaiser Federal Financial Group, Inc. will have exclusive voting rights in Kaiser Federal Financial Group, Inc.  They will elect Kaiser Federal Financial Group, Inc.’s Board of Directors and act on other matters as are required to be presented to them under Maryland law or as are otherwise presented to them by the Board of Directors. Generally, each holder of common stock will be entitled to one vote per share and will not have any right to cumulate votes in the election of directors.  Any person who beneficially owns more than 10% of the then-outstanding shares of Kaiser Federal Financial Group, Inc.’s common stock, however, will not be entitled or permitted to vote any shares of common stock held in excess of the 10% limit.  If Kaiser Federal Financial Group, Inc. issues shares of preferred stock, holders of the preferred stock may also possess voting rights. Certain matters require an 80% stockholder vote.

          As a federal stock savings association, corporate powers and control of Kaiser Federal Bank are vested in its Board of Directors, who elect the officers of Kaiser Federal Bank and who fill any vacancies on the Board of Directors. Voting rights of Kaiser Federal Bank are vested exclusively in the owners of the shares of capital stock of Kaiser Federal Bank, which will be Kaiser Federal Financial Group, Inc., and voted at the direction of Kaiser Federal Financial Group, Inc.’s Board of Directors.  Consequently, the holders of the common stock of Kaiser Federal Financial Group, Inc. will not have direct control of Kaiser Federal Bank.

          Liquidation. In the event of any liquidation, dissolution or winding up of Kaiser Federal Bank, Kaiser Federal Financial Group, Inc., as the holder of 100% of Kaiser Federal Bank’s capital stock, would be entitled to receive all assets of Kaiser Federal Bank available for distribution, after payment or provision for payment of all debts and liabilities of Kaiser Federal Bank, including all deposit accounts and accrued interest thereon, and after distribution of the balance in the liquidation account to Eligible Account Holders and Supplemental Eligible Account Holders. In the event of liquidation, dissolution or winding up of Kaiser Federal Financial Group, Inc., the holders of its common stock would be entitled to receive, after payment or provision for payment of all its debts and liabilities, all of the assets of Kaiser Federal Financial Group, Inc. available for distribution. If preferred stock is issued, the holders thereof may have a priority over the holders of the common stock in the event of liquidation or dissolution.

          Preemptive Rights. Holders of the common stock of Kaiser Federal Financial Group, Inc. will not be entitled to preemptive rights with respect to any shares that may be issued. The common stock is not subject to redemption.

Preferred Stock

          None of the shares of Kaiser Federal Financial Group, Inc.’s authorized preferred stock will be issued as part of the offering or the conversion. Preferred stock may be issued with preferences and designations as our Board of Directors may from time to time determine. Our Board of Directors may, without stockholder approval, issue shares of preferred stock with voting, dividend, liquidation and conversion rights that could dilute the voting strength of the holders of the common stock and may assist management in impeding an unfriendly takeover or attempted change in control.

TRANSFER AGENT

          The transfer agent and registrar for Kaiser Federal Financial Group, Inc.’s common stock is Registrar and Transfer Company, Cranford, New Jersey.

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EXPERTS

          The consolidated financial statements of K-Fed Bancorp as of June 30, 2007 and 2006, and for each of the years in the three-year period ended June 30, 2007 included in this registration statement, have been audited by Crowe Chizek and Company, LLP, independent registered public accounting firm, as stated in their report, which is included and has been so included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.

          RP Financial, LC. has consented to the publication herein of the summary of its report to Kaiser Federal Financial Group, Inc. setting forth its opinion as to the estimated pro forma market value of the shares of common stock upon completion of the conversion and offering and its letter with respect to subscription rights.

LEGAL MATTERS

          Luse Gorman Pomerenk & Schick, P.C., Washington, D.C., counsel to Kaiser Federal Financial Group, Inc., K-Fed Mutual Holding Company, K-Fed Bancorp and Kaiser Federal Bank, will issue to Kaiser Federal Financial Group, Inc. its opinion regarding the legality of the common stock and the federal income tax consequences of the conversion. Certain matters relating to state taxation will be passed upon for us by Crowe Chizek and Company LLP.  Certain legal matters will be passed upon for Keefe Bruyette & Woods by Breyer & Associates PC.

WHERE YOU CAN FIND ADDITIONAL INFORMATION

          Kaiser Federal Financial Group, Inc. has filed with the Securities and Exchange Commission a registration statement under the Securities Act of 1933 with respect to the shares of common stock offered hereby. As permitted by the rules and regulations of the Securities and Exchange Commission, this prospectus does not contain all the information set forth in the registration statement.  Such information, including the appraisal report which is an exhibit to the registration statement, can be examined without charge at the public reference facilities of the Securities and Exchange Commission located at 100 F Street, N.E., Washington, D.C. 20549, and copies of such material can be obtained from the Securities and Exchange Commission at prescribed rates.  The Securities and Exchange Commission telephone number is 1-800-SEC-0330.  In addition, the Securities and Exchange Commission maintains a web site (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Securities and Exchange Commission, including Kaiser Federal Financial Group, Inc.  The statements contained in this prospectus as to the contents of any contract or other document filed as an exhibit to the registration statement are, of necessity, brief descriptions of the material terms of, and should be read in conjunction with, such contract or document.

          K-Fed Mutual Holding Company has filed with the Office of Thrift Supervision an Application on Form AC with respect to the conversion. This prospectus omits certain information contained in the application. The application may be examined at the principal office of the Office of Thrift Supervision, 1700 G Street, N.W., Washington, D.C. 20552, and at the West Regional Office of the Office of Thrift Supervision, 2001 Junipero Serra Boulevard, Suite 650, Daly City, California 94014. Our plan of conversion and reorganization is available, upon request, at each of our banking offices.

          In connection with the offering, Kaiser Federal Financial Group, Inc. will register its common stock under Section 12(b) of the Securities Exchange Act of 1934 and, upon such registration, Kaiser Federal Financial Group, Inc. and the holders of its common stock will become subject to the proxy solicitation rules, reporting requirements and restrictions on common stock purchases and sales by directors, officers and greater than 10% stockholders, the annual and

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periodic reporting and certain other requirements of the Securities Exchange Act of 1934.  Under the plan of conversion and reorganization, Kaiser Federal Financial Group, Inc. has undertaken that it will not terminate such registration for a period of at least three years following the offering.

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K-Fed Bancorp

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page
Management’s Report on Internal Control	F-2
Reports of Independent Registered Public Accounting Firm	F-3
Consolidated Statements of Financial Condition at June 30, 2007 and 2006	F-4
Consolidated Statements of Income for the Years Ended June 30, 2007, 2006, and 2005	F-5
Consolidated Statements of Stockholders’ Equity and Comprehensive Income for the Years Ended June 30, 2007, 2006, and 2005	F-6
Consolidated Statements of Cash Flows for the Years Ended June 30, 2007, 2006, and 2005	F-7
Notes to Consolidated Financial Statements	F-8 – F-39

The consolidated financial statements of Kaiser Federal Financial Group Inc. have been omitted because Kaiser Federal Financial Group Inc. has not conducted any business other than that of an organizational nature.

      

        F - 1       

    

MANAGEMENT’S REPORT ON INTERNAL CONTROL

The management of K-Fed Bancorp, Inc. (the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with generally accepted accounting principles. The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. All internal control systems, no matter how well designed, have inherent limitations, including the possibility of human error and the circumvention of overriding controls. Accordingly, even an effective system of internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that degree of compliance with the policies or procedures may deteriorate.

Management has assessed the effectiveness of the Company’s internal control over financial reporting as of June 30, 2007, based on the framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework. Based on that assessment, management concluded that, as of June 30, 2007, the Company’s internal control over financial reporting was effective.

The effectiveness of the Company’s internal control over financial reporting as of June 30, 2007, has been audited by Crowe Chizek and Company LLP, an independent registered public accounting firm. As stated in their attestation report, they express an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting as of June 30, 2007. See “Report of Independent Registered Public Accounting Firm.”

/s/ Kay M. Hoveland	/s/ Dustin Luton
Kay M. Hoveland	Dustin Luton
President and Chief Executive Officer	Chief Financial Officer

      

        F - 2      

    

REPORT OF INDEPENDENT

REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors

K-Fed Bancorp

Covina, California

We have audited the accompanying consolidated statements of financial condition of K-Fed Bancorp as of June 30, 2007 and 2006, and the related statements of income, stockholders' equity and comprehensive income, and cash flows for each of the years in the three-year period ended June 30, 2007.  We also have audited K-Fed Bancorp’s internal control over financial reporting as of June 30, 2007, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)."  K-Fed Bancorp's management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for it’s assessment of the effectiveness of internal control over financial reporting in the accompanying Management’s Report on Internal Control.  Our responsibility is to express an opinion on these financial statements and an opinion on the effectiveness of the company's internal control over financial reporting based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects.  Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation.  Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.  Our audits also included performing such other procedures as we considered necessary in the circumstances.  We believe that our audits provide a reasonable basis for our opinions.

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of K-Fed Bancorp as of June 30, 2007 and 2006, and the results of its operations and its cash flows for each of the years in the three-year period ended June 30, 2007 in conformity with accounting principles generally accepted in the United States of America.  Also, in our opinion, K-Fed Bancorp maintained, in all material respects, effective internal control over financial reporting as of June 30, 2007, based on criteria established in InternalControl—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

/s/ Crowe Chizek and Company LLP

Oak Brook, Illinois                                                    Crowe Chizek and Company LLP

August 25, 2007

      

        F - 3      

    

K-FED BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Dollars in thousands, except per share data)

	June 30 2007			June 30 2006
ASSETS
Cash and due from banks	$	10,982		$	7,244
Federal funds sold		15,750			18,335
Total cash and cash equivalents		26,732			25,579
Interest earning deposits in other financial institutions		2,970			9,010
Securities available-for-sale		13,579			11,289
Securities held-to-maturity, fair value of $20,514 and $23,939 at June 30, 2007 and June 30, 2006, respectively		21,096			24,738
Federal Home Loan Bank stock, at cost		9,870			8,746
Loans receivable		701,962			636,822
Deferred net loan origination fees		(134	)		(202	)
Net premium on purchased loans		120			195
Allowance for loan losses		(2,805	)		(2,722	)
Loans receivable, net		699,143			634,093
Accrued interest receivable		3,259			2,767
Premises and equipment, net		3,484			3,416
Core deposit intangible		323			437
Goodwill		3,950			3,950
Bank-owned life insurance		10,954			10,514
Other assets		4,265			4,360
Total assets	$	799,625		$	738,899
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities
Deposits
Noninterest bearing	$	43,169		$	43,137
Interest bearing		450,959			420,317
Total deposits		494,128			463,454
Federal Home Loan Bank advances, short-term		20,000			10,000
Federal Home Loan Bank advances, long-term		190,016			169,948
Accrued expenses and other liabilities		3,164			2,840
Total liabilities		707,308			646,242
Commitments and contingent liabilities		—			—
Stockholders’ equity
Nonredeemable serial preferred stock, $.01 par value; 2,000,000 shares authorized; issued and outstanding — none		—			—
Common stock, $0.01 par value; 18,000,000 authorized; June 30, 2007 — 14,724,760 shares issued. June 30, 2006 — 14,702,040 shares issued.		147			147
Additional paid-in capital		57,626			56,456
Retained earnings		49,084			46,224
Accumulated other comprehensive loss, net of tax		(126	)		(247	)
Unearned employee stock ownership plan shares		(3,071	)		(3,526	)
Treasury stock, at cost (June 30, 2007 — 775,815 shares; June 30, 2006 —495,970 shares)		(11,343	)		(6,397	)
Total stockholders’ equity		92,317			92,657
Total liabilities and stockholders’ equity	$	799,625		$	738,899

      

        The accompanying notes are an integral part of these financial statements      

      

        F- 4      

    

K-FED BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

(Dollars in thousands, except per share data)

	Years Ended June 30
	2007			2006			2005
Interest income
Interest and fees on loans	$	37,379		$	32,918		$	25,519
Interest on securities, taxable		1,365			1,611			1,935
Federal Home Loan Bank dividends		480			280			151
Other interest		1,942			1,012			563
Total interest income		41,166			35,821			28,168
Interest Expense
Interest on Federal Home Loan Bank advances		8,261			6,140			2,022
Interest on deposits		14,879			11,324			8,778
Total interest expense		23,140			17,464			10,800
Net interest income		18,026			18,357			17,368
Provision for loan losses		529			652			406
Net interest income after provision for loan losses		17,497			17,705			16,962
Noninterest income
Service charges and fees		2,013			1,827			1,845
ATM fees and charges		1,612			1,481			1,355
Referral commissions		259			238			207
Loss on equity investment		(99	)		(588	)		(505	)
Bank-owned life insurance		439			426			89
Other noninterest income		35			42			65
Total noninterest income		4,259			3,426			3,056
Noninterest expense
Salaries and benefits		7,619			7,298			6,562
Occupancy and equipment		2,091			1,775			1,459
ATM expense		1,249			1,135			1,049
Advertising and promotional		316			407			401
Professional services		913			751			754
Postage		315			295			268
Telephone		461			363			331
Other operating expense		1,554			1,452			1,217
Total noninterest expense		14,518			13,476			12,041
Income before income tax expense		7,238			7,655			7,977
Income tax expense		2,534			2,726			2,980
Net income	$	4,704		$	4,929		$	4,997
Earnings per common share:
Basic	$	0.35		$	0.36		$	0.36
Diluted	$	0.34		$	0.36		$	0.36

      

        The accompanying notes are an integral part of these financial statements      

      

        F- 5      

    

K-FED BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

AND COMPREHENSIVE INCOME

(Dollars in thousands, except per share data)

				Common Stock																			Treasury Stock
	Comprehensive Income			Shares		Amount		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss, net			Unearned ESOP Shares			Unearned Stock Awards			Shares		Amount			Total
Balance, June 30, 2004				14,548,500			146		55,083			38,513			(190	)		(4,436	)		—		—			—			89,116
Comprehensive income
Net income for the year ended June 30, 2005	$	4,997		—			—		—			4,997			—			—			—		—			—			4,997
Other comprehensive income – unrealized gain on securities, net of tax		22		—			—		—			—			22			—			—		—			—			22
Total comprehensive income	$	5,019
Dividends declared ($0.16 per share) *				—			—		—			(821	)		—			—			—		—			—			(821	)
Issuance of stock awards				166,300			1		2,344			—			—			—			(2,345	)	—			—			—
Purchase of treasury stock				—			—		—			—			—			—			—		(278,470	)		(3,453	)		(3,453	)
Allocation of stock awards				—			—		—			—			—			—			288		—			—			288
Forfeiture of stock awards				(3,000	)		—		(42	)		—			—			—			42		—			—			—
Allocation of ESOP common stock				—			—		156			—			—			455			—		—			—			611
Balance, June 30, 2005				14,711,800			147		57,541			42,689			(168	)		(3,981	)		(2,015	)	(278,470	)		(3,453	)	$	90,760
Comprehensive income
Net income for the year ended June 30, 2006	$	4,929		—			—		—			4,929			—			—			—		—			—			4,929
Other comprehensive income – unrealized loss on securities, net of tax		(79	)	—			—		—			—			(79	)		—			—		—			—			(79	)
Total comprehensive income	$	4,850
Dividends declared ($0.28 per share) *				—			—		—			(1,394	)		—			—			—		—			—			(1,394	)
Purchase of treasury stock				—			—		—			—			—			—			—		(217,500	)		(2,944	)		(2,944	)
Stock options earned				—			—		370			—			—			—			—		—			—			370
Allocation of stock awards				—			—		439			—			—			—			—		—			—			439
Forfeiture of stock awards				(9,760	)		—		—			—			—			—			—		—			—			—
Transfer due to adoption of SFAS 123R				—			—		(2,015	)		—			—			—			2,015		—			—			—
Allocation of ESOP common stock				—			—		121			—			—			455			—		—			—			576
Balance, June 30, 2006				14,702,040		$	147	$	56,456		$	46,224		$	(247	)	$	(3,526	)	$	—		(495,970	)	$	(6,397	)	$	92,657
Comprehensive income
Net income for the year ended June 30, 2007	$	4,704		—			—		—			4,704			—			—			—		—			—			4,704
Other comprehensive income – unrealized gain on securities, net of tax		121		—			—		—			—			121			—			—		—			—			121
Total comprehensive income	$	4,825
Dividends declared ($0.39 per share) *				—			—		—			(1,844	)		—			—			—		—			—			(1,844	)
Purchase of treasury stock				—			—		—			—			—			—			—		(279,845	)		(4,946	)		(4,946	)
Stock options earned				—			—		259			—			—			—			—		—			—			259
Allocation of stock awards				—			—		366			—			—			—			—		—			—			366
Issuance of stock awards				35,000			—		—			—			—			—			—		—			—			—
Forfeiture of stock awards				(24,000	)		—		—			—			—			—			—		—			—			—
Exercise of stock options				11,720			—		170			—			—			—			—		—			—			170
Tax benefit of stock awards and options				—			—		40			—			—			—			—		—			—			40
Allocation of ESOP common stock				—			—		335			—			—			455			—		—			—			790
Balance, June 30, 2007				14,724,760		$	147	$	57,626		$	49,084		$	(126	)	$	(3,071	)	$	—		(775,815	)	$	(11,343	)	$	92,317
* K-Fed Mutual Holding Company waived its receipt of dividends on the 8,861,750 shares it owns.

      

        The accompanying notes are an integral part of these financial statements      

      

        F - 6      

    

K-FED BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands, except per share data)

	Years Ended June 30
	2007			2006			2005
OPERATING ACTIVITIES
Net income	$	4,704		$	4,929		$	4,997
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of net premium on securities		248			94			164
Amortization of net premiums on loan purchases		39			547			1,357
Accretion of net loan origination fees		(51	)		(29	)		(53	)
Accretion of net premiums on purchased certificates of deposit		(43	)		(63	)		(99	)
Provision for loan losses		529			652			406
Federal Home Loan Bank stock dividend		(480	)		(280	)		(151	)
Depreciation and amortization		742			507			459
Amortization of core deposit intangible		114			131			108
Loss on equity investment		99			588			505
Increase in cash surrender value of bank-owned life insurance		(439	)		(426	)		(89	)
Amortization of debt exchange costs		68			171			250
Allocation of ESOP common stock		790			576			611
Allocation of stock awards		366			439			288
Stock options earned		259			370			—
Provision for deferred income taxes		85			54			(258	)
Net change in accrued interest receivable		(492	)		(457	)		(267	)
Net change in other assets		191			(519	)		(19	)
Net change in accrued expenses and other liabilities		324			(34	)		198
Net cash provided by operating activities		7,053			7,250			8,407
INVESTING ACTIVITIES
Purchases of held-to-maturity securities		—			(2,000	)		(5,000	)
Proceeds from maturities of held-to-maturity securities		3,425			8,051			15,428
Purchases of available-for-sale securities		(8,860	)		—			—
Proceeds from maturities of available-for-sale securities		6,745			7,375			2,127
Net change in interest bearing deposits with other financial institutions		6,040			—			(6,040	)
Purchases of loans		(109,794	)		(161,071	)		(151,145	)
Net change in loans, excluding loan purchases		43,989			63,375			108,098
Purchase of FHLB stock		(644	)		(4,439	)		(1,547	)
Redemption of FHLB stock		—			—			961
Purchase of equity investment		(128	)		(232	)		(229	)
Purchase of bank-owned life insurance		—			—			(10,000	)
Net cash received from branch acquisition		—			—			56,491
Purchases of premises and equipment		(810	)		(2,432	)		(408	)
Net cash (used in) provided by investing activities		(60,037	)		(91,373	)		8,736
FINANCING ACTIVITIES
Proceeds from FHLB advances		40,000			128,000			208,416
Repayment of FHLB advances		(10,000	)		(19,000	)		(207,416	)
Debt exchange costs		—			—			(473	)
Net change in deposits		30,717			(12,275	)		(8,239	)
Exercise of stock options		170			—			—
Tax benefit of stock awards and options		40			—			—
Dividends paid on common stock		(1,844	)		(1,394	)		(821	)
Purchase of treasury stock		(4,946	)		(2,944	)		(3,453	)
Net cash provided by (used in) financing activities		54,137			92,387			(11,986	)
NET CHANGE IN CASH AND CASH EQUIVALENTS		1,153			8,264			5,157
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR		25,579			17,315			12,158
CASH AND CASH EQUIVALENTS AT END OF YEAR	$	26,732		$	25,579		$	17,315
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid on deposits and FHLB advances	$	23,115		$	17,352		$	10,638
Income taxes paid		2,760			3,271			2,942
SUPPLEMENTAL NONCASH DISCLOSURES
Transfers from loans to real estate owned	$	238		$	—		$	—

      

        The accompanying notes are an integral part of these financial statements      

      

        F - 7      

    

      

        K-FED BANCORP AND SUBSIDIARY      

      

        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS      

      

        JUNE 30, 2007, 2006 AND 2005      

                  

1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

Nature of Business: K-Fed Bancorp (the Company) is a majority-owned subsidiary of K-Fed Mutual Holding Company (the Parent). The Company and its Parent are holding companies. The Company’s sole subsidiary, Kaiser Federal Bank (the Bank), is a federally chartered stock savings association, which provides retail and commercial banking services to individual and business customers from its nine branches throughout California. While the Bank originates many types of retail, and commercial real estate loans, the majority of its residential real estate loans have been purchased from other financial institutions. The accounting and reporting policies of the Company and the Bank conform to U.S. generally accepted accounting principles (GAAP) and general industry practices.

The Company’s business activities generally are limited to passive investment activities and oversight of its investment in the Bank. Unless the context otherwise requires, all references to the Company include the Bank and the Company on a consolidated basis.

Change in Reporting Entity: On July 1, 2003, the Bank consummated its reorganization into a federally chartered mutual holding company form of organization, whereby the Bank became the wholly owned subsidiary of the newly formed Company with the Company becoming a wholly owned subsidiary of the newly formed Parent. In accordance with Statement of Financial Accounting Standards No. 141, “Business Combinations,” when accounting for a transfer of assets or exchange of shares between entities under common control, the entity that receives the net assets or the equity interests shall initially recognize the assets and liabilities transferred at their carrying amounts in the accounts of the transferring entity at the date of transfer. Therefore, K-Fed Bancorp recorded the acquisition of the Bank at historical cost.

Execution of Plan of Stock Issuance:  On November 22, 2003, and amended on February 9, 2004, the Board of Directors adopted a plan of stock issuance to sell a minority interest of its common stock to eligible depositors of the Bank in a subscription offering, with the majority of the common stock owned by K-Fed Mutual Holding Company. The plan was accomplished through the sale to eligible depositors on March 30, 2004 of 5,686,750 shares (including shares allocated to the Employee Stock Ownership Plan), representing 39.09% of the Company’s stock.

The issued shares resulted in gross proceeds of $56.9 million. In connection with the offering, the Company loaned $4.5 million to the Bank’s Employee Stock Ownership Plan to purchase stock and incurred $1.7 million of expenses associated with the offering resulting in net proceeds of $50.7 million to the Company. The aggregate purchase price was determined by an independent appraisal. Consistent with the Company’s stated intent for use of the stock offering proceeds, one-half of the total proceeds less offering expenses ($27.6 million) was invested in the Bank and placed in the Bank’s general funds for general corporate purposes. In addition to the 5,686,750 shares issued to eligible depositors, the Company issued 8,861,750 additional shares to K-Fed Mutual Holding Company. As a result of the offering, purchasers in the offering owned 39.09% of K-Fed Bancorp’s common stock, and K-Fed Mutual Holding Company owned 60.91%.

Principles of Consolidation and Basis of Presentation:  The consolidated financial statements include the accounts of the Company and the Bank. All material intercompany balances and transactions have been eliminated in consolidation.

      

        F - 8      

    

      

        K-FED BANCORP AND SUBSIDIARY      

      

        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS      

      

        JUNE 30, 2007, 2006 AND 2005      

                  

Use of Estimates in the Preparation of Consolidated Financial Statements: The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of income and expenses during the reporting period. Changes in these estimates and assumptions are considered reasonably possible and may have a material impact on the consolidated financial statements and thus actual results could differ from the amounts reported and disclosed herein. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, the valuation of financial instruments, and mortgage-loan prepayment assumptions used to determine the effective interest amortization of loan premiums and discounts.

Cash and Cash Equivalents: Cash and cash equivalents consist of vault and ATM cash, daily federal funds sold, demand deposits due from other banks, and other certificates of deposit that have an original maturity of less than 90 days. For purposes of the Statement of Cash Flows, the Company reports net cash flows for customer loan transactions (excluding loan purchases) and deposit transactions, as well as transactions involving interest bearing deposits in other financial institutions.

Interest Bearing Deposits in Other Financial Institutions: Interest bearing deposits in other financial institutions consist of interest-bearing time deposits in depository institutions with an original maturity equal to or greater than 90 days and are carried at cost and have a weighted average life of less than one year.

Securities:  Securities available-for-sale represent securities that may be sold prior to maturity. These securities are stated at fair value, and any unrealized net gains and losses are reported as a separate component of equity until realized, net of any tax effect. Estimated fair values for investments are obtained from quoted market prices where available. Where quoted market prices are not available, estimated fair values are based on quoted market prices of comparable instruments. Premiums or discounts are recognized in interest income using the effective interest method over the estimated life of the investment. Gains and losses on sales are recorded on the trade date and determined using the specific identification method.

Securities available-for-sale may be sold in response to changes in market interest rates, repayment rates, the need for liquidity, and changes in the availability and the yield on alternative investments. Declines in the fair value of securities below their cost that are other than temporary are reflected as realized losses. In estimating other-than temporary losses, management considers:  (1) the length of time and extent that fair value has been less than cost, (2) the financial condition and near term prospectus of the issuer, and (3) the Company’s ability and intent to hold the security for a period sufficient to allow for any anticipated recovery in fair value.

Securities for which the Company has the positive intent and ability to hold until maturity are classified as securities held-to-maturity and are recorded at cost, adjusted for unamortized premiums or discounts.

Federal Home Loan Bank Stock: The Bank, as a member of the Federal Home Loan Bank of San Francisco (FHLB) system, is required to maintain an investment in capital stock of the FHLB in an amount equal to the greater of 1% of its outstanding mortgage loans or 4.7% of advances from the FHLB. No ready market exists for the FHLB stock, and it has no quoted market value. The Bank carries FHLB stock at cost.  Cash and stock dividends are reported as income.

      

        F - 9      

    

      

        K-FED BANCORP AND SUBSIDIARY      

      

        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS      

      

        JUNE 30, 2007, 2006 AND 2005      

                  

Loans: Loans are stated at the amount of unpaid principal, reduced by an allowance for loan losses and deferred net loan origination fees, and increased by net premiums on purchased loans. Interest on loans is recognized over the terms of the loans and is accrued as earned, using the effective interest method. Net premiums on purchased loans are recognized in interest income as a yield adjustment over the estimated lives of the loan pools using the effective interest method. The estimated lives of these loan pools are re-evaluated periodically based on actual prepayments. The current estimated lives of these loan pools range from two to eight years. Loan fees and certain direct loan origination costs are deferred, and the net fee or cost is recognized as an adjustment to interest income using the effective interest method over the estimated lives of the related loans.

We underwrite purchased loans in accordance with our underwriting standards. The majority of the loans that we purchase are acquired with servicing released to allow for greater investments in real-estate lending without having to significantly increase our servicing and operations costs.

A loan is considered to be delinquent when payments have not been made according to contractual terms, typically evidenced by non-payment of a monthly installment by the due date. Accrual of interest on loans is discontinued when the loan becomes past due 90 days as to either principal or interest. All interest accrued but not collected for loans that are placed on non-accrual status or subsequently charged off is reversed against interest income. Income is subsequently recognized on the cash basis until, in management’s judgment, the borrower’s ability to make periodic interest and principal payments is back to normal and future payments are reasonably assured, in which case the loan is returned to accrual status.

Allowance for Loan Losses:The allowance for loan losses is established through a provision for loan losses charged to expense. Loans are charged off against the allowance for loan losses when management believes that collectibility of the principal is unlikely. Subsequent recoveries, if any, are credited to the allowance.

The allowance is an amount that management believes will absorb probable incurred losses relating to specifically identified loans, as well as probable incurred credit losses inherent in the balance of the loan portfolio, based on an evaluation of the collectibility of existing loans and prior loss experience. This evaluation also takes into consideration such factors as changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans, and current economic conditions that may affect the borrower’s ability to pay. This evaluation does not include the effects of expected losses on specific loans or groups of loans that are related to future events or expected changes in economic conditions. While management uses the best information available to make its evaluation, future adjustments to the allowance may be necessary if there are significant changes in economic conditions. In addition, regulatory agencies, as an integral part of their examination process, periodically review the allowance for loan losses, and may require adjustments to the allowance based on their judgment about information available to them at the time of their examinations.

The allowance consists of specific and general components. The specific component relates to loans that are classified as doubtful, substandard, or special mention. For such loans that are also classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers non-classified loans and is based on historical loss experience for consumer loans and peer group loss experience for real estate loans adjusted for qualitative factors.

      

        F - 10      

    

      

        K-FED BANCORP AND SUBSIDIARY      

      

        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS      

      

        JUNE 30, 2007, 2006 AND 2005      

                  

A loan is impaired when it is probable, based on current information and events, the Bank will be unable to collect all contractual principal and interest payments due in accordance with the terms of the loan agreement. Commercial real estate loans are evaluated for impairment based on their past due status and are measured on an individual basis based on the present value of expected future cash flows discounted at the loan’s effective interest rate or, as a practical expedient, at the loan’s observable market price or the fair value of the collateral if the loan is collateral dependent. The amount of impairment, if any, and any subsequent changes are included in the allowance for loan losses.

Large groups of smaller balance homogenous loans are collectively evaluated for impairment. Accordingly, the Bank does not separately identify individual consumer and residential loans for impairment disclosures.

Transfers of Financial Assets:  Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

Premises and Equipment: Leasehold improvements and furniture and equipment are carried at cost, less accumulated depreciation and amortization.  Buildings are depreciated using the straight-line method with a useful live of 25 years. Furniture and equipment are depreciated using the straight-line method over the estimated useful lives of the assets, which is usually 3 to 5 years. The cost of leasehold improvements is amortized using the straight-line method over the lesser of the terms of the related leases or their useful life, which is usually 5 to 10 years.

Real Estate Owned:Real estate acquired in settlement of loans ("REO") consists of property acquired through foreclosure proceedings or by deed in lieu of foreclosure. Generally, all loans greater than 90 days delinquent are processed for foreclosure and, if necessary, a specific valuation allowance is established. The Bank acquires title to the property in most foreclosure actions that are not reinstated by the borrower. Once real estate is acquired in settlement of a loan, the property is recorded as REO at the lower of carrying value or fair market value, less estimated selling costs. Fair value is determined by an appraisal obtained at the of time foreclosure. The REO balance is reduced for any subsequent declines in fair value.

Bank-Owned Life Insurance:  The Bank has purchased life insurance policies on certain key employees. Bank-owned life insurance is recorded at its cash surrender value, or the amount that can be realized.

Investment in Limited Liability Partnership:  The Company has an investment in an affordable housing fund totaling $2,087,000 and $2,187,000 at June 30, 2007 and 2006, respectively, with a commitment to fund an additional $193,000 at June 30, 2007, for the purposes of obtaining tax credits and for Community Reinvestment Act purposes. The investment is recorded in other assets on the balance sheet and is accounted for using the equity method of accounting. Under the equity method of accounting, the Company recognizes its ownership share of the profits and losses of the fund. This investment is regularly evaluated for impairment by comparing the carrying value to the remaining tax credits and future tax benefit expected to be received. Tax credits received from the fund are accounted for in the period earned (the flow-through method) and are included in income as a reduction of income tax expense.

      

        F - 11      

    

      

        K-FED BANCORP AND SUBSIDIARY      

      

        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS      

      

        JUNE 30, 2007, 2006 AND 2005      

                  

Goodwill and Other Intangible Assets:  Goodwill results from business acquisitions and represents the excess of the purchase price over the fair value of acquired tangible assets and liabilities and identifiable intangible assets. Goodwill is assessed at least annually for impairment and any such impairment will be recognized in the period identified.

Other intangible assets consist of core deposit intangible assets arising from a branch acquisition. They are initially measured at fair value and then are amortized on an accelerated method over their estimated useful lives, which was determined to be 8 years.

Long-Term Assets:  Premises and equipment, core deposit and other long-term assets are reviewed for impairment when events indicate their carrying amount may not be recoverable from future undiscounted cash flows. If impaired, the assets are recorded at fair value.

Loan Commitments and Related Financial Instruments:  Financial instruments include off-balance-sheet credit instruments, such as commitments to make or purchase loans. 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.

Stock-Based Compensation: In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123R (FAS-123R), Share-Based Payment, which is a revision of Statement of Financial Accounting Standards No. 123 (FAS-123), Accounting for Stock-Based Compensation.

FAS-123R eliminates accounting for share-based compensation transactions using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25 (APB-25), Accounting for Stock Issued to Employees, and requires instead that such transactions be accounted for using a fair-value-based method. FAS-123R is effective as of the first interim or annual reporting period that begins after June 15, 2005. The Company adopted FAS-123R effective July 1, 2005 applying the modified prospective transition method. Under the modified prospective transition method, the financial statements will not reflect restated amounts.  The options become exercisable in equal installments over a five-year period beginning one year from the date of grant.  The options expire ten years from the date of grant and are subject to certain restrictions and limitations.  The Company assumes 10% on ISO stock options and 5% on NQSO options in forfeitures as a component for determining expense related to the Stock Option Plan.  The effect of this pronouncement on future operations will depend on the fair value of future options issued and accordingly, cannot be determined at this time.

      

        F - 12      

    

      

        K-FED BANCORP AND SUBSIDIARY      

      

        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS      

      

        JUNE 30, 2007, 2006 AND 2005      

                  

The following table illustrates the pro forma effect on net income and net income per share if the Company had applied the fair value recognition provisions of SFAS 123 and SFAS 148 to stock-based employee compensation for the year ended June 30, 2005 prior to the Company’s adoption of SFAS 123(R) (Dollars in thousands):

Net income as reported	$	4,997
Add: Stock-based compensation recorded, net of tax		—
Less: Total stock-based compensation costs determined under the fair value based method, net of tax		(206	)
Net income, pro forma	$	4,791
Earnings per share – as reported
Basic	$	0.36
Diluted	$	0.36
Earnings per share – pro forma
Basic	$	0.34
Diluted	$	0.34

Income Taxes: Deferred taxes are provided on an asset and liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

Employee Stock Ownership Plan (ESOP):  The cost of shares issued to the ESOP but not yet allocated to participants is shown as a reduction of stockholders’ equity. Compensation expense is based on the market price of shares as they are committed to be released to participant accounts. Dividends on allocated ESOP shares reduce retained earnings; dividends on unearned ESOP shares are used to service the debt.

Earnings per Common Share:  Basic earnings per common share is net income divided by the weighted average number of common shares outstanding during the period. ESOP shares are considered outstanding for this calculation unless unearned. Diluted earnings per common share includes the dilutive effect of additional potential common shares issuable under stock options and stock awards.

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 which are also recognized as separate components of equity.

Newly Issued But Not Yet Effective Accounting Standards: In June 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”) which supplements SFAS No. 109, Accounting for Income Taxes, by defining the confidence level that a tax position must meet in order to be recognized in the financial statements. The Interpretation requires that the

      

        F - 13      

    

      

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        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS      

      

        JUNE 30, 2007, 2006 AND 2005      

                  

 tax effects of a position be recognized only if it is “more-likely-than-not” to be sustained based solely on its technical merits as of the reporting date. The more-likely-than-not threshold represents a positive assertion by management that a company is entitled to economic benefits of a tax position. If a tax position is not considered more-likely-than-not to be sustained based solely on its technical merits, no benefits of the position are to be recognized. Moreover, the more-likely-than-not threshold must continue to be met in each reporting period to support continued recognition of a benefit.  At adoption, companies must adjust their financial statements to reflect only those tax positions that are more-likely-than-not to be sustained as of the adoption date. Any necessary adjustment would be recorded directly to retained earnings in the period of adoption and reported as a change in accounting principle.  FIN 48 is effective for fiscal years beginning after December 15, 2006.  The adoption of this standard on July 1, 2007 did not have a significant impact on our financial condition or results of operations.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” which clarifies the principle that fair value should be based on  the  assumptions market participants would use when pricing an asset or liability  and  establishes  a  fair  value  hierarchy that prioritizes the information  used  to  develop  those assumptions. Under the standard, fair value measurement would be separately disclosed by level within the fair value hierarchy. SFAS 157 is effective for financial statements issued for fiscal  years  beginning  after November 15, 2007 (July 1, 2008 for us), and  interim  periods  within  those  fiscal  years,  with  early  adoption permitted.  We do not expect the adoption of this standard will have a significant impact on the Company’s financial condition or results of operations.

In  September  2006, the SEC issued Staff Accounting Bulletin No. 108 “Considering  the  Effects  of  Prior  Year  Misstatements when Quantifying Misstatements  in  Current  Year Financial Statements” (“SAB 108”). SAB 108 requires the evaluation of prior-year misstatements using both the balance sheet approach and the income statement approach. In the initial year of adoption should either approach result in quantifying an error that is material in light of quantitative and qualitative factors, SAB 108 guidance allows for a one-time cumulative-effect adjustment to beginning retained earnings.  In years subsequent to adoption, previously undetected misstatements deemed material shall result in the restatement of previously issued financial statements in accordance with FAS 154.  SAB 108 is effective for fiscal years ending on or after November 15, 2006.  The adoption of this standard on July 1, 2007 did not have a significant impact on the Company’s financial condition or results of operations.

Under  Emerging  Issues  Task  Force  (“EITF”)  06-4:  Accounting for deferred  compensation  and  postretirement  benefit aspects of endorsement split dollar life insurance arrangements, the EITF reached a consensus that requires  the  recognition  of  a  liability  related to the postretirement benefits covered by an endorsement split-dollar life insurance arrangement.  The consensus highlights that the employer who is the policy holder has a liability for the benefit it is providing to the employee. If the employer has agreed to maintain the insurance policy in force for the employee's benefit during retirement, then the liability recognized during the employee's active service period should be based on the future cost of insurance to be incurred during the employee's retirement. Also, if the employer has agreed to provide the employee with a death benefit, then the liability for the future death benefit should be recognized under SFAS 106. As of September 20, 2006, this FASB board ratified the above. It is applicable for fiscal years beginning after December 15, 2006. We do not expect the adoption of this standard will have a significant impact on the Company’s financial condition or results of operations.

Under EITF 06-5: Accounting for Purchases of Life Insurance - Determining the Amount That Could be Realized in Accordance with FASB Technical Bulletin No. 85-4, "Accounting for Purchases of

      

        F - 14      

    

      

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        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS      

      

        JUNE 30, 2007, 2006 AND 2005      

                  

 Life Insurance", the Task Force reached a consensus that a policyholder should consider any additional amounts included in the contractual terms of the policy in determining the amount that could be realized under the insurance contract.  The task forces agreed that contractual limitations should be considered when determining the realizable amounts. Those amounts that are recoverable by the policyholder at the discretion of the insurance company should be excluded from the amount that could be realized. The task force also agreed that fixed amounts that are recoverable by the policyholder in future periods in excess of one year from the surrender of the policy should be recognized at their present value. The task force also reached a consensus that a policyholder should determine the amount that could be realized under the life insurance contract assuming the surrender of an individual life by individual life policy. The Task force also noted that any amount that is ultimately realized by the policyholder upon the assumed surrender of the final policy shall be included in the amount that could be realized under the insurance contract. The issue is effective for fiscal years beginning after December 15, 2006, but early adoption is permitted. This was ratified at the Task Force, September 20, 2006 meeting.  We do not expect the adoption of this standard to have a significant impact on the Company’s financial condition or results of operations.

In February 2007, the Financial Accounting Standards Board (the “FASB”) issued Statement No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities-Including an amendment of FASB Statement No. 115”, (“FAS 159”). FAS 159 provide companies with an option to report selected financial assets and liabilities at fair value. Most of the provisions of this statement apply only to entities that elect the fair value option. However, the amendment to FASB Statement No. 115, “Accounting for Certain Investments in Debt and Equity Securities”, applies to all entities with available-for-sale and trading securities. FAS 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. This statement is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the entity makes that election within the first 120 days of that fiscal year and also elects to apply the provisions of FASB Statement No. 157, “Fair Value Measurements”. We do not believe adoption of this Statement will have a material effect on the Company’s consolidated financial statements.

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.

Restrictions on Cash:  The Company is required to maintain reserve balances in cash or on deposit with the Federal Reserve Bank, based on a percentage of deposits. The total of those reserve balances was $1,174,000 and $1,101,000 at June 30, 2007 and 2006, respectively.

Fair Value of Financial Instruments:  Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in a separate note. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the estimates.

Operating Segments:  While the chief decision-makers monitor the revenue streams of the various products and services, the identifiable segments are not material and operations are managed and financial performance is evaluated on a Company-wide basis. Accordingly, all of the financial service operations are considered by management to be aggregated in one reportable operating segment.

      

        F - 15      

    

      

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        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS      

      

        JUNE 30, 2007, 2006 AND 2005      

                  

2. INVESTMENTS

The fair value of available for sale securities and the related gross unrealized gains and losses recognized in  accumulated other comprehensive loss were as follows:

	Fair Value		Gross Unrealized Gains		Gross Unrealized Losses
	(In thousands)
June 30, 2007
U.S. government agency and government sponsored entity bonds	$	2,994	$	─	$	(6	)
Mortgage-backed:
Freddie Mac		4,827		─		(139	)
Collateralized mortgage obligations:
Freddie Mac		5,758		─		(69	)
Total	$	13,579	$	─	$	(214	)
June 30, 2006
U.S. government agency and government sponsored entity bonds	$	5,392	$	─	$	(108	)
Mortgage-backed:
Freddie Mac		5,897		─		(313	)
Total	$	11,289	$	─	$	(421	)

      

        F - 16      

    

      

        K-FED BANCORP AND SUBSIDIARY      

      

        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS      

      

        JUNE 30, 2007, 2006 AND 2005      

                  

The carrying amount, unrecognized gains and losses, and fair value of securities held to maturity were as follows: 

	Carrying Amount		Gross Unrecognized Gains		Gross Unrecognized Losses			Fair Value
	(In thousands)
June 30, 2007
U.S. government agency and government sponsored entity bonds	$	12,000	$	─	$	(70	)	$	11,930
Mortgage-backed
Fannie Mae		303		1		─			304
Freddie Mac		217		─		(1	)		216
Ginnie Mae		146		─		─			146
Collateralized mortgage obligations
Fannie Mae		2,747		─		(126	)		2,621
Freddie Mac		4,926		─		(356	)		4,570
Ginnie Mae		757		─		(30	)		727
Total	$	21,096	$	1	$	(583	)	$	20,514
June 30, 2006
U.S. government agency and government sponsored entity bonds	$	12,000	$	─	$	(267	)	$	11,733
Mortgage-backed
Fannie Mae		408		2		─			410
Freddie Mac		269		1		─			270
Ginnie Mae		168		1		─			169
Collateralized mortgage obligations
Fannie Mae		3,372		1		(162	)		3,211
Freddie Mac		7,197		─		(374	)		6,823
Ginnie Mae		1,324		─		(1	)		1,323
Total	$	24,738	$	5	$	(804	)	$	23,939

There were no sales of securities during the years ending June 30, 2007, 2006, and 2005.

The fair value of debt securities and carrying amount, if different, at June 30, 2007 by contractual maturity were as follows:

	Held-to-Maturity				Available-for-Sale
	Carrying Amount		Fair Value		Fair Value
	(In thousands)
Due within one year	$	12,000	$	11,930	$	─
Due from one year to five years		─		─		2,994
Due from five years to ten years		─		─		─
Due after ten years		─		─		─
Mortgage-backed securities and Collateralized mortgage obligations		9,096		8,584		10,585
	$	21,096	$	20,514	$	13,579

      

        F - 17      

    

      

        K-FED BANCORP AND SUBSIDIARY      

      

        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS      

      

        JUNE 30, 2007, 2006 AND 2005      

                  

Securities not due at a single maturity date, primarily mortgage-backed securities, are shown separately.

Expected 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 with unrealized losses at June 30, 2007 and 2006, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, are as follows:

	Less than 12 months					12 months or more					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Loss			Value		Loss			Value		Loss
	(In thousands)
June 30, 2007
Description of Securities
U.S. government agency	$	─	$	─		$	14,924	$	(76	)	$	14,924	$	(76	)
Mortgage-backed		216		(1)			4,827		(139	)		5,043		(140	)
Collateralized mortgage obligations		972		(2	)		12,163		(579	)		13,135		(581	)
Total temporarily impaired	$	1,188	$	(3	)	$	31,914	$	(794	)	$	33,102	$	(797	)
June 30, 2006
Description of Securities
U.S. government agency	$	1,982	$	(18	)	$	15,143	$	(357	)	$	17,125	$	(375	)
Mortgage-backed		─		─			5,898		(312	)		5,898		(312	)
Collateralized mortgage obligations		2,914		(114	)		8,402		(424	)		11,316		(538	)
Total temporarily impaired	$	4,896	$	(132	)	$	29,443	$	(1,093	)	$	34,339	$	(1,225	)

The Company evaluates securities for other-than-temporary impairment-at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to the length of time and the extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer, and the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. In analyzing an issuer’s financial condition, the Company may consider whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuer’s financial condition.

At June 30, 2007, fifteen debt securities had unrealized losses with aggregate depreciation of 2.3% for the Company’s amortized cost basis.  At June 30, 2006, thirteen debt securities had unrealized losses with aggregate depreciation of 3.4% for the Company’s amortized cost basis. The unrealized losses

      

        F - 18      

    

      

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        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS      

      

        JUNE 30, 2007, 2006 AND 2005      

                  

 relate principally to the general change in interest rate levels that has occurred since the securities purchase dates, and such unrecognized losses or gains will continue to vary with general interest rate level fluctuations in the future. As management has the ability to hold debt securities until maturity, or for the foreseeable future if classified as available for sale, and fully expects to recover their value, no declines are deemed to be other than temporary.

3. LOANS

The composition of loans consists of the following:

	June 30,
	2007			2006
	(In thousands)
Real Estate:
One- to four-family residential, fixed rate	$	348,798		$	258,918
One- to four-family residential, variable rate		120,661			178,106
Multi-family residential, variable rate		88,112			89,220
Commercial real estate, variable rate		77,821			58,845
		635,392			585,089
Consumer:
Automobile		53,100			41,572
Home equity		1,446			1,787
Other consumer loans, primarily unsecured		12,024			8,374
		66,570			51,733
Total loans		701,962			636,822
Deferred net loan origination fees		(134	)		(202	)
Net premiums on purchased loans		120			195
Allowance for loan losses		(2,805	)		(2,722	)
	$	699,143		$	634,093

In addition to the above, the Company participates with other financial institutions in certain loans they have originated. The Company continues to service the participants’ balance, which at June 30, 2007 totaled $1.3 million and represented 2 loans. The Company receives a servicing fee of 25 basis points on these participated loans.

The Company has purchased real-estate loan participations originated by other financial institutions. All of these loan participations were purchased without recourse and are secured by real property. The originating financial institution performs all servicing functions on these loans.

The Company’s one- to four-family interest-only mortgages loans totaled $100,424,000 and $90,327,000 at June 30, 2007 and June 30, 2006, respectively.

      

        F - 19      

    

      

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        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS      

      

        JUNE 30, 2007, 2006 AND 2005      

                  

The following is an analysis of the changes in the allowance for loan losses:

	Years Ended June 30
	2007			2006			2005
	(In thousands)
Balance, beginning of year	$	2,722		$	2,408		$	2,328
Provision for loan losses		529			652			406
Recoveries		322			242			222
Loans charged off		(768	)		(580	)		(548	)
Balance, end of year	$	2,805		$	2,722		$	2,408

There were no loans individually classified as impaired during the periods or as of June 30, 2007 and 2006.

Loans on which accrual of interest has been discontinued or reduced amounted to $1,141,000, $67,000 and $787,000 at June 30, 2007, 2006, and 2005 respectively. If interest on those loans had been accrued, such income would have been $17,000, $1,000, and $25,000 for the years ended June 30, 2007, 2006, and 2005 respectively. The effects of troubled debt restructurings are not considered material to the Company’s financial position and results of operations.

4. CONCENTRATIONS OF CREDIT RISK

The Kaiser Permanente Medical Care Program employs a large percentage of the Bank’s account holders. Further, a significant concentration of the Bank’s borrowers resides in California. Although the Bank has a diversified loan portfolio, borrowers’ ability to repay loans may be affected by the economic climate of either the health care industry or the overall geographic region in which borrowers reside.

5. PREMISES AND EQUIPMENT

Premises and equipment are summarized as follows:

	June 30,
	2007			2006
	(In thousands)
Building	$	1,214		$	998
Leasehold improvements		915			827
Furniture and equipment		4,505			4,034
		6,634			5,859
Accumulated depreciation and amortization		(3,150	)		(2,443	)
	$	3,484		$	3,416

Depreciation expense on premises and equipment totaled $742,000, $507,000, and $459,000 for the years ended June 30, 2007, 2006, and 2005, respectively.

The Company leases office space in eight buildings. The operating leases contain renewal options and provisions requiring the Company to pay property taxes and operating expenses over base period amounts. All rental payments are dependent only upon the lapse of time.

      

        F - 20      

    

      

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        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS      

      

        JUNE 30, 2007, 2006 AND 2005      

                  

Minimum rental payments under operating leases with initial or remaining terms of one year or more at June 30, 2007 are as follows (in thousands):

Years ended June 30,
2008	$	845
2009		861
2010		784
2011		381
2012		147
Thereafter		423
	$	3,441

Rental expense, including property taxes and common area maintenance for the years ended June 30, 2007, 2006, and 2005 for all facilities leased under operating leases totaled $967,000, $874,000, and $683,000, respectively.

6. GOODWILL AND INTANGIBLE ASSETS

Goodwill

The activity in balance for goodwill during the year is as follows (in thousands):

	Year Ended June 30, 2007			Year Ended June 30, 2006
Beginning of year	$	3,950	$	3,950
Acquired goodwill		─		─
Impairment		─		─
End of year	$	3,950	$	3,950

Acquired Intangible Assets

Acquired intangible assets were as follows as of year end (in thousands):

	Year Ended June 30, 2007				Year Ended June 30, 2006
	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Core deposit intangibles	$	676	$	353	$	676	$	239

Aggregate amortization expense was $114,000, $131,000 and $108,000 for the years ended June 30, 2007, 2006, and 2005, respectively.

      

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        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS      

      

        JUNE 30, 2007, 2006 AND 2005      

                  

Estimated amortization expense for each of the next five years is as follows (in thousands):

Years ended June 30,
2008	$	97
2009		80
2010		62
2011		45
2012		27

7. DEPOSITS

The following table shows the distribution of, and certain other information relating to, deposits by type of deposit, as of the dates indicated.

	June 30,
	2007		2006
	(In thousands)
Noninterest-bearing demand	$	43,169	$	43,137
Savings		136,643		91,199
Money Market		75,599		110,987
Certificates of deposit		238,717		218,131
Total deposits	$	494,128	$	463,454

Deposits by maturity are summarized as follows:

	June 30,
	2007		2006
	(In thousands)
No contractual maturity	$	255,411	$	245,323
0-1 year maturity		174,738		122,766
Over 1-2 year maturity		20,466		32,169
Over 2-3 year maturity		20,039		18,861
Over 3-4 year maturity		13,705		23,252
Over 4-5 year maturity		9,769		21,083
Total deposits	$	494,128	$	463,454

      

        F - 22      

    

      

        K-FED BANCORP AND SUBSIDIARY      

      

        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS      

      

        JUNE 30, 2007, 2006 AND 2005      

                  

The aggregate amount of certificates of deposit in denominations of $100,000 or more at June 30, 2007 and 2006 was $93,547,000 and $74,697,000, respectively.

Interest expense by major category is summarized as follows:

	Years Ended June 30
	2007		2006		2005
	(In thousands)
Savings	$	1,925	$	395	$	405
Money Market		2,700		2,343		1,396
Certificates of deposit		10,254		8,586		6,977
Total	$	14,879	$	11,324	$	8,778

8. FEDERAL HOME LOAN BANK ADVANCES

At June 30, 2007, the stated interest rates on the Bank’s advances from the FHLB ranged from 3.18% to 5.28%, with a weighted average stated rate of 4.44%.  At June 30, 2006, the stated interest rates on the Bank’s advances from the FHLB ranged from 2.74% to 4.77%, with a weighted average stated rate of 4.20%. The contractual maturities by year of the Bank’s advances are as follows:

	June 30,
	2007		2006
	(In thousands)
Years ended June 30,
2007	$	─	$	10,000
2008		20,000		20,000
2009		28,000		28,000
2010		70,000		70,000
2011		52,000		52,000
2012		40,000		─
Total advances		210,000		180,000
Deferred debt exchange costs		16		(52	)
Total	$	210,016	$	179,948

The Bank’s advances from the FHLB were collateralized by certain real estate loans of an aggregate unpaid principal balance of $623,792,000 and $597,051,000 as of the most recent notification date for June 30, 2007 and 2006, respectively. At June 30, 2007 and June 30, 2006, the amount available to borrow under this agreement was $101,407,000 and $109,455,000, respectively. Each advance is payable at its maturity date.  At June 30, 2007, the Bank had a $20,000,000 FHLB putable advance scheduled to mature on June 28, 2012.  The advance has a below-market, fixed initial coupon rate of 4.93% in exchange for the Bank selling FHLB the option to require repayment of the advance quarterly after June 28, 2009.  FHLB advances are subject to a prepayment penalty if repaid before the maturity date.

      

        F - 23      

    

      

        K-FED BANCORP AND SUBSIDIARY      

      

        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS      

      

        JUNE 30, 2007, 2006 AND 2005      

                  

The average balance of FHLB advances for the years ended June 30, 2007 and June 30, 2006 were $189,217,000 and $148,408,000 with average costs of 4.37% and 4.14%, respectively.

In August 2004, the Bank paid-off and replaced a $50 million advance from the Federal Home Loan Bank of San Francisco with five $10 million advances. The prepayment penalty of $473,000 assessed by the Federal Home Loan Bank of San Francisco is being amortized over the life of the new advances using the interest method in accordance with EITF 96-19, issued by the Financial Accounting Standards Board in 1996.

9. EMPLOYEE BENEFITS

401(k) Plan:  The Company has a 401(k) pension plan that allows eligible employees to defer a portion of their salary into the 401(k) plan. The Company matches 50% of the first 10% of employees’ wage reductions. The Company contributed $120,000, $145,000, and $136,000 respectively, to the plan for the years ended June 30, 2007, 2006, and 2005.

Deferred Compensation Plan:  The Company has an executive salary deferral program for the benefit of certain senior executives that have been designated to participate in the program. The program allows an additional opportunity for key executives to defer a portion of their compensation into a non-qualified deferral program to supplement their retirement earnings. At June 30, 2007 and 2006 the Company has accrued a liability for executive deferrals of $1,013,000 and $973,000, respectively.

Incentive Plan:  The Company maintains an Annual Incentive Plan for key employees. Participants are awarded a percentage of their base salary for attaining certain personal performance goals. The compensation expense related to these plans for the year ended June 2007, 2006, and 2005 totaled $71,000, $227,000 and $191,000 respectively.

10. EMPLOYEE STOCK COMPENSATION

Recognition and Retention Plan (“RRP”): The Company’s RRP provides for issue of shares to directors, officers, and employees.  Compensation expense is recognized over the vesting period of the shares based on the market value at date of grant.  These shares vest over a five year period.  Pursuant to the Company’s 2004 RRP, 227,470 shares of the Company’s common stock may be awarded.  There were 107,660 restricted shares outstanding and the Company had an aggregate of 62,930 restricted shares available for future issuance under the RRP at June 30, 2007.

A summary of changes in the Company’s RRP shares for the year follows:

	Shares			Weighted Average Grant Date Fair Value
RRP shares at July 1, 2006	120,880		$	14.10
Granted	35,000			17.58
Vested	(24,220	)		14.10
Forfeited	(24,000	)		14.10
RRP shares at June 30, 2007	107,660		$	15.23

      

        F - 24      

    

      

        K-FED BANCORP AND SUBSIDIARY      

      

        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS      

      

        JUNE 30, 2007, 2006 AND 2005      

                  

As of June 30, 2007, there was $1,349,000 of total unrecognized compensation cost related to nonvested shares under the plan.  The cost is expected to be recognized over a weighted average period of 3.1 years.  The total fair value of shares vested during the years ended June 30, 2007, 2006 and 2005 was $342,000, $461,000 and $0.

Stock Option Plan (“SOP”): The Company’s SOP provides for issue of options to directors, officers and employees.  Pursuant to the Company’s 2004 SOP, 568,675 shares of the Company’s common stock may be awarded.  The Company implemented the SOP to promote the long-term interest of the Company and its shareholders by providing an incentive to those key employees who contribute to the operational success of the Company.  The options become exercisable in equal installments over a five-year period beginning one year from the date of grant.  The options expire ten years from the date of grant and are subject to certain restrictions and limitations.  Compensation expense, net of tax effects related to the SOP was $228,000 and $329,000 for years ended June 30, 2007 and June 30, 2006, respectively.  A summary of the status of the Company’s stock option plan and changes is presented below:

	June 30, 2007
	Shares			Weighted Average Exercise Price	Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding at beginning of period	350,720		$	14.50
Granted	62,000			16.77
Exercised	(11,720	)		14.50
Forfeited or expired	(52,600	)		14.50
Outstanding at end of period	348,400		$	14.90	7.72 years	$	342,136
Options exercisable at end of period	114,560		$	14.50	7.38 years	$	136,326

Information related to the stock option plan during each year follows:

	June 30,  2007		June 30,  2006
	(In thousands)
Intrinsic value of stock options exercised	$	28	$	—
Cash received from options exercised		170		—
Tax benefit realized from option exercises		5		—
Weighted average fair value of stock options granted	$	4.25	$	—

      

        F - 25      

    

      

        K-FED BANCORP AND SUBSIDIARY      

      

        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS      

      

        JUNE 30, 2007, 2006 AND 2005      

                  

There were no options granted in the year ended June 30, 2006.  Stock options granted during the years ended June 30, 2007 and June 30, 2005 were computed using the Black-Scholes option pricing model to determine the fair value of options with the following assumptions as of the date of grant:

		June 30, 2007			June 30, 2006		June 30, 2005
Risk-free interest rate		4.67	%		—	%	3.54	%
Expected option life		6.52 years			—		5 Years
Expected price volatility		23.35	%		—	%	39.18	%
Expected dividend yield		2.33	%		—	%	1.33	%
Estimated fair value of stock options granted	$	4.25		$	—		5.10

At June 30, 2007, the Company had an aggregate of 208,555 options available for future issuance under the SOP.

As of June 30, 2007, there was $878,000 of unrecognized compensation cost related to nonvested stock options.  The cost is expected to be recognized over a weighted average period of 7.7 years.  Expense will vary based on actual forfeitures.

11. EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)

During 2004, the Company implemented the Employee Stock Ownership Plan (ESOP), which covers substantially all of its employees. In connection with the stock offering, the Company issued 454,940 shares of common stock for allocation under the ESOP in exchange for a ten-year note in the amount of $4.5 million. The $4.5 million for the ESOP purchase was borrowed from the Company. The ESOP shares initially were pledged as collateral for the loan.

The loan is secured by shares purchased with the loan proceeds and will be repaid by the ESOP with funds from the Company’s contributions to the ESOP and earnings on ESOP assets. Shares issued to the ESOP are allocated to ESOP participants based on the proportion of debt service paid in the year. Principal and interest payments are scheduled to occur over a ten-year period. Contributions to the ESOP were $417,000, $442,000, and $481,000 for the years ended June 30, 2007, 2006, and 2005, respectively.

During the year ended June 30, 2007, 45,494 shares of stock with an average fair value of $17.36 per share were committed to be released, resulting in ESOP compensation expense of $790,000.  During the year ended 2006, 45,494 shares of stock with an average fair value of $12.66 per share were committed to be released, resulting in ESOP compensation expense of $576,000. Shares held by the ESOP at June 30, 2007 and 2006 are as follows:

	2007		2006
Allocated shares		147,856		102,362
Unearned shares		307,084		352,578
Total ESOP shares		454,940		454,940
Fair value of unearned shares (in thousands)	$	4,818	$	5,109

      

        F - 26      

    

      

        K-FED BANCORP AND SUBSIDIARY      

      

        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS      

      

        JUNE 30, 2007, 2006 AND 2005      

                  

12. INCOME TAXES

The components of income tax expense are as follows:

	June 30
	2007		2006		2005
	(In thousands)
Current
Federal	$	1,674	$	1,941	$	2,375
State		775		731		863
		2,449		2,672		3,238
Deferred
Federal		62		49		(210	)
State		23		5		(48	)
		85		54		(258	)
Income tax expense	$	2,534	$	2,726	$	2,980

The income tax provision differs from the amount of income tax determined by applying the United States federal income tax rate to pretax income due to the following:

	June 30
	2007			2006			2005
	(Dollars in thousands)
Federal income tax at statutory rate	$	2,460		$	2,603		$	2,712
State taxes, net of federal tax benefit		525			487			532
Bank-owned life insurance		(149	)		(145	)		(30	)
ESOP expenses		117			41			53
General business credit		(311	)		(335	)		(295	)
Stock options		63			93			─
RRP expenses		─			(26	)		─
Other, net		(171	)		8			8
Total	$	2,534		$	2,726		$	2,980
Tax expense as a percentage of income before tax		35.0	%		35.6	%		37.4	%

      

        F - 27      

    

      

        K-FED BANCORP AND SUBSIDIARY      

      

        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS      

      

        JUNE 30, 2007, 2006 AND 2005      

                  

The Company’s total net deferred tax assets are as follows:

	June 30
	2007			2006
	(In thousands)
Deferred tax assets:
Allowance for loan losses	$	1,051		$	913
Accrued expenses		436			429
Accrued state income tax		276			268
Unrealized loss on securities available-for-sale		88			173
RRP Plan		85			110
Total deferred tax assets		1,936			1,893
Deferred tax liabilities:
Premises and equipment		(174	)		(221	)
Goodwill and other intangibles		(204	)		(124	)
Federal Home Loan Bank Stock dividends		(487	)		(290	)
Other		(34	)		(51	)
Total deferred tax liabilities		(899	)		(686	)
Net deferred tax asset, included in other assets	$	1,037		$	1,207

13. CAPITAL REQUIREMENTS AND RESTRICTIONS ON RETAINED EARNINGS

The Bank is subject to various regulatory capital requirements administered by federal banking agencies. 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 Bank’s financial statements. The regulations require the Bank to meet specific capital adequacy guidelines that involve quantitative measures of Bank’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank’s capital classification is also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the following table) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined) and Tier 1 capital to total assets (as defined). Management’s opinion, as of June 30, 2007, is that the Bank meets all capital adequacy requirements to which it is subject.

      

        F - 28      

    

      

        K-FED BANCORP AND SUBSIDIARY      

      

        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS      

      

        JUNE 30, 2007, 2006 AND 2005      

                  

As of June 30, 2007 and 2006, the most recent notification from the Office of Thrift Supervision, categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, an institution must maintain minimum total risk-based, Tier 1 risk based and Tier 1 leverage ratios as set forth in the table below. There are no conditions or events since the notification that management believes have changed the Bank’s category. The Bank’s actual capital amounts and ratios are presented in the following table.

	Actual			Minimum Capital Adequacy Requirements			Minimum Required to be Well Capitalized Under Prompt Corrective Actions Provisions
	Amount	Ratio		Amount	Ratio		Amount	Ratio
	(Dollars in thousands)
June 30, 2007:
Total capital (to risk-weighted assets)	$67,622	13.30	%	$40,660	8.00	%	$50,825	10.00	%
Tier 1 capital (to risk-weighted assets)	64,875	12.76		20,330	4.00		30,495	6.00
Tier 1 (core) capital (to adjusted tangible assets)	64,875	8.32		31,191	4.00		38,989	5.00
June 30, 2006:
Total capital (to risk-weighted assets)	$71,632	16.03	%	$35,741	8.00	%	$44,676	10.00	%
Tier 1 capital (to risk-weighted assets)	68,910	15.42		17,870	4.00		26,806	6.00
Tier 1 (core) capital (to adjusted tangible assets)	68,910	9.58		28,771	4.00		35,964	5.00

The following is a reconciliation of the Bank’s equity under accounting principles generally accepted in the United States of America (“GAAP”) to regulatory capital.

	June 30
	2007			2006
	(In thousands)
GAAP Equity	$	69,148		$	73,297
Goodwill and other intangibles		(4,273	)		(4,387	)
Tier 1 Capital		64,875			68,910
General allowance for loan losses		2,747			2,722
Total regulatory capital	$	67,622		$	71,632

Office of Thrift Supervision regulations impose various restrictions on savings institutions with respect to their ability to make distributions of capital, which include dividends, stock redemptions or repurchases, cash-out mergers and other transactions charged to the capital account.

Generally, savings institutions, such as Kaiser Federal Bank, that before and after the proposed distribution are well-capitalized, may make capital distributions during any calendar year up to 100% of net income for the year-to-date plus retained net income for the two preceding years. However, an institution deemed to be in need of more than normal supervision by the Office of Thrift Supervision

      

        F - 29      

    

      

        K-FED BANCORP AND SUBSIDIARY      

      

        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS      

      

        JUNE 30, 2007, 2006 AND 2005      

                  

 may have its dividend authority restricted by the Office of Thrift Supervision.  The amount of retained earnings available for dividends was $3.8 million at June 30, 2007.   Kaiser Federal Bank may pay dividends to K-Fed Bancorp in accordance with this general authority.

K-Fed Bancorp is not currently subject to prompt corrective action regulations.

14. LOAN COMMITMENTS AND OTHER RELATED ACTIVITIES

The Company is a party to various legal actions normally associated with collections of loans and other business activities of financial institutions, the aggregate effect of which, in management’s opinion, would not have a material adverse effect on the financial condition or results of operations of the Company.

At June 30, 2007 and 2006, there were was $14,285,000 and $15,466,000, respectively, in cash and cash equivalents with balances in excess of insured limits.

Outstanding mortgage loan commitments at June 30, 2007 and 2006 amounted to $7.5 million and $1.3 million, respectively.  As of June 30, 2007, $595,000 of commitments were issued at a fixed rate of 6.375%. There were no commitments to purchase mortgage loans at June 30, 2007 and 2006, respectively.

Available credit on home equity and unsecured lines of credit is summarized as follows:

	June 30
	2007		2006
	(In thousands)
Home equity	$	1,930	$	2,372
Other consumer		4,485		4,693
	$	6,415	$	7,065

Commitments for home equity and unsecured lines of credit may expire without being drawn upon. Therefore, the total commitment amount does not necessarily represent future cash requirements of the Company. These commitments are not reflected in the financial statements.

15. FAIR VALUE OF FINANCIAL INSTRUMENTS

The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is necessarily required to interpret market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize in a market exchange. The use of different assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

      

        F - 30      

    

      

        K-FED BANCORP AND SUBSIDIARY      

      

        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS      

      

        JUNE 30, 2007, 2006 AND 2005      

                  

The following methods and assumptions were used to estimate fair value of each class of financial instruments for which it is practicable to estimate fair value:

Investments

Estimated fair values for investments are obtained from quoted market prices where available. Where quoted market prices are not available, estimated fair values are based on quoted market prices of comparable instruments.

Loans

The estimated fair value for all fixed rate loans and variable rate loans with an initial fixed rate feature is determined by discounting the estimated cash flows using the current rate at which similar loans would be made to borrowers with similar credit ratings and maturities.

The estimated fair value for variable rate loans with no initial fixed rate feature is the carrying amount.

Deposits

The estimated fair value of deposit accounts (savings, non interest bearing demand and money market accounts) is the carrying amount. The fair value of fixed-maturity time certificates of deposit is estimated by discounting the estimated cash flows using the current rate at which similar certificates would be issued.

FHLB Advances

The fair values of the FHLB advances are estimated using discounted cash flow analyses, based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements.

Other On-Balance-Sheet Financial Instruments

Other on-balance-sheet financial instruments include cash and cash equivalents, accrued interest receivable, FHLB stock and accrued expenses and other liabilities. The carrying value of each of these financial instruments is a reasonable estimation of fair value.

Off-Balance-Sheet Financial Instruments

The fair values for the Company’s off-balance sheet loan commitments are estimated based on fees charged to others to enter into similar agreements taking into account the remaining terms of the agreements and credit standing of the Company’s customers. The estimated fair value of these commitments is not significant.

      

        F - 31      

    

      

        K-FED BANCORP AND SUBSIDIARY      

      

        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS      

      

        JUNE 30, 2007, 2006 AND 2005      

                  

The estimated fair values of the Company’s financial instruments are summarized as follows:

	June 30, 2007				June 30, 2006
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
	(In thousands)
Financial assets:
Cash and cash equivalents	$	26,732	$	26,732	$	25,579	$	25,579
Interest bearing deposits in other financial institutions		2,970		2,954		9,010		8,865
Securities available-for-sale		13,579		13,579		11,289		11,289
Securities held-to-maturity		21,096		20,514		24,738		23,939
Federal Home Loan Bank Stock		9,870		9,870		8,746		8,746
Loans, net		699,143		680,196		634,093		613,105
Accrued interest receivable		3,259		3,259		2,767		2,767
Financial liabilities:
Deposits		494,128		493,329		463,454		459,917
FHLB advances		210,016		204,745		179,948		172,372

      

        F - 32      

    

      

        K-FED BANCORP AND SUBSIDIARY      

      

        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS      

      

        JUNE 30, 2007, 2006 AND 2005      

                  

16. BUSINESS COMBINATION

On September 24, 2004, the Bank acquired the Panorama City branch of Pan American Bank. The acquisition was accounted for as a purchase and accordingly was included in the results of operations from the date of acquisition. The following table summarizes the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition (in thousands).

Assets acquired:
Teller and vault cash	$	128
Loans		23
Other assets / prepayment credits		38
Core deposit intangible		676
Total assets acquired		865
Liabilities assumed:
Deposit accounts		60,971
Discount on certificates of deposit		206
Accrued interest payable		1
Total liabilities assumed (net of assets acquired)		60,313
Cash received from Pan American Bank		56,363
Goodwill	$	3,950

The core deposit intangible is being amortized over 8 years on an accelerated basis and is deducted for tax purposes over 15 years using the straight line method. In accordance with Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, goodwill is not amortizable but is subject to annual impairment testing and is deducted for tax purposes over 15 years using the straight line method.

The Bank acquired the branch at this premium to further solidify its market share in the Los Angeles County market, expand its customer base to enhance deposit fee income, provide an opportunity to market additional products and services to new customers, and improve customer convenience by adding a new location.

      

        F - 33      

    

      

        K-FED BANCORP AND SUBSIDIARY      

      

        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS      

      

        JUNE 30, 2007, 2006 AND 2005      

                  

17. EARNINGS PER COMMON SHARE

The factors used in the earnings per share computation follow (dollars in thousands).

	June 30
	2007		2006		2005
	(In thousands, except per share data)
Basic
Net income	$	4,704	$	4,929	$	4,997
Weighted average common shares outstanding		13,627,566		13,867,645		14,071,992
Basic earnings per share	$	0.35	$	0.36	$	0.36
Diluted
Net income	$	4,704	$	4,929	$	4,997
Weighted average common shares outstanding for basic earnings per common share		13,627,566		13,867,645		14,071,992
Add:  Dilutive effects of stock awards		23,028		─		─
Add:  Dilutive effects of stock options		1,657		─		─
Average shares and dilutive potential common shares		13,652,251		13,867,645		14,071,992
Diluted earnings per common share	$	0.34	$	0.36	$	0.36

The effect of stock awards and stock options was not included in the calculation of diluted earnings per share for the years ended June 30, 2006 and June 30, 2005 because to do so would have been anti-dilutive.  For the years ended June 30, 2007, there were no antidilutive options or awards.

18. OTHER COMPREHENSIVE LOSS (INCOME)

Other comprehensive (loss) income components and related taxes were as follows:

	June 30
	2007			2006			2005
	(In thousands)
Unrealized holding gain (loss) on securities available-for-sale	$	207		$	(135	)	$	37
Tax effect		(86	)		56			(15	)
Other comprehensive income (loss)	$	121		$	(79	)	$	22

      

        F - 34      

    

      

        K-FED BANCORP AND SUBSIDIARY      

      

        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS      

      

        JUNE 30, 2007, 2006 AND 2005      

                  

19. CONDENSED CONSOLIDATED QUARTERLY RESULTS OF OPERATIONS (Unaudited)

The following table sets forth our Company’s unaudited results of operations for the four quarters ended 2007 and 2006.  The sum of the quarterly data may not be equal to the annual data.

	Three months ended
	September 30		December 31		March 31		June 30
	(In thousands, except share data)
Fiscal Year 2007
Interest income	$	9,725	$	10,245	$	10,468	$	10,728
Interest expense		5,153		5,859		5,938		6,190
Net interest income		4,572		4,386		4,530		4,538
Provision for loan losses		122		180		116		111
Noninterest income		1,076		1,009		1,093		1,081
Noninterest expense		3,427		3,533		3,851		3,707
Income before income tax		2,099		1,682		1,656		1,801
Income tax expense		784		537		543		670
Net income	$	1,315	$	1,145	$	1,113	$	1,131
Basic and Diluted earnings per share	$	0.10	$	0.08	$	0.08	$	0.08
Fiscal Year 2006
Interest income	$	7,686	$	9,013	$	9,474	$	9,648
Interest expense		3,316		4,429		4,772		4,947
Net interest income		4,370		4,584		4,702		4,701
Provision for loan losses		165		195		128		164
Noninterest income		745		951		873		857
Noninterest expense		3,307		3,251		3,369		3,549
Income before income tax		1,643		2,089		2,078		1,845
Income tax expense		589		767		723		647
Net income	$	1,054	$	1,322	$	1,355	$	1,198
Basic and Diluted earnings per share	$	0.08	$	0.10	$	0.10	$	0.09

      

        F - 35      

    

      

        K-FED BANCORP AND SUBSIDIARY      

      

        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS      

      

        JUNE 30, 2007, 2006 AND 2005      

                  

20.  PARENT COMPANY ONLY CONDENSED FINANCIAL STATEMENTS

Condensed financial information of K-Fed Bancorp follows:

CONDENSED BALANCE SHEET

(In thousands)

	June 30 2007		June 30 2006
Assets
Cash and cash equivalents	$	6,036	$	4,087
Securities available for sale		13,579		11,289
ESOP Loan		3,264		3,678
Investment in bank subsidiary		69,148		73,297
Accrued income receivable		78		50
Other assets		226		308
	$	92,331	$	92,709
Liabilities & Stockholders’ Equity
Accrued expenses and other liabilities	$	14	$	52
Stockholders’ equity		92,317		92,657
	$	92,331	$	92,709

      

        F - 36      

    

      

        K-FED BANCORP AND SUBSIDIARY      

      

        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS      

      

        JUNE 30, 2007, 2006 AND 2005      

                  

CONDENSED STATEMENT OF INCOME

 (Dollars in thousands)

	June 30
	2007			2006			2005
	(In thousands)
Income
Interest on ESOP Loan	$	3		$	46	$		102
Dividend from subsidiary		10,000			─			─
Interest on investment securities, taxable		405			513			604
Other interest and dividend income		351			44			39
Total income		10,759			603			745
Expenses
Other operating expenses		291			250			276
Income before income taxes and equity in undistributed earnings of bank subsidiary		10,468			353			469
Income taxes		160			145			182
Income before equity in undistributed earnings of bank subsidiary		10,308			208			287
Equity in undistributed earnings of bank subsidiary (dividends in excess of earnings)		(5,604	)		4,721			4,710
Net income	$	4,704		$	4,929	$		4,997

      

        F - 37      

    

      

        K-FED BANCORP AND SUBSIDIARY      

      

        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS      

      

        JUNE 30, 2007, 2006 AND 2005      

                  

CONDENSED STATEMENT OF CASH FLOWS

 (Dollars in thousands)

	June 30
	2007			2006			2005
	(In thousands)
OPERATING ACTIVITIES
Net income	$	4,704		$	4,929		$	4,997
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed earnings of bank subsidiary		5,604			(4,721	)		(4,710	)
Amortization of net premiums on investments		31			49			65
Net change in accrued income receivable		(28	)		26			7
Net change in other assets		(3	)		(74	)		(45	)
Net change in accrued expenses and other liabilities		(38	)		37			(90	)
Net cash provided by operating activities		10,270			246			224
INVESTING ACTIVITIES
Purchases of securities available-for-sale		(8,860	)		─			─
Proceeds from maturities of available-for-sale investments		6,745			7,375			2,127
Net change in ESOP loan receivable		414			397			382
Net cash (used in) provided by investing activities		(1,701	)		7,772			2,509
FINANCING ACTIVITIES
Dividends paid on common stock		(1,844	)		(1,394	)		(821	)
Exercise of stock options		170			─			─
Purchase of treasury stock		(4,946	)		(2,944	)		(3,453	)
Net cash used in financing activities		(6,620	)		(4,338	)		(4,274	)
NET CHANGE IN CASH AND CASH EQUIVALENTS		1,949			3,680			(1,541	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR		4,087			407			1,948
CASH AND CASH EQUIVALENTS AT END OF YEAR	$	6,036		$	4,087		$	407

      

        F - 38      

    

      

        K-FED BANCORP AND SUBSIDIARY      

      

        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS      

      

        JUNE 30, 2007, 2006 AND 2005      

                  

21.  STOCK CONVERSION

On June 26, 2007, the Board of Directors of K-Fed Mutual Holding Company approved a plan to convert the Mutual Holding Company from the mutual to stock form of organization. The Mutual Holding Company is a federally chartered mutual holding company and currently owns approximately 63.5% of the outstanding shares of common stock of K-Fed Bancorp, which owns 100% of the issued and outstanding shares of the capital stock of Kaiser Federal Bank (the “Bank”). Pursuant to the terms of K-Fed Mutual Holding Company’s plan of conversion and reorganization, K-Fed Mutual Holding Company will convert from the mutual holding company to the stock holding company corporate structure. As part of the conversion, we are offering for sale in a subscription offering, and possibly in a community and/or a syndicated community offering, the majority ownership interest of K-Fed Bancorp that is currently owned by K-Fed Mutual Holding Company. Upon the completion of the conversion and offering, K-Fed Mutual Holding Company will cease to exist, and we will complete the transition from partial to full public stock ownership. Upon completion of the conversion, existing public stockholders of K-Fed Bancorp will receive shares of common stock of Kaiser Federal Financial Group in exchange for their shares of K-Fed Bancorp common stock in order to maintain the public stockholders’ existing percentage ownership in our organization (excluding any new shares purchased by them in the offering).

In connection with the conversion, shares of common stock of a new successor holding company, representing the ownership interest of the Mutual Holding Company, will be offered for sale to depositors of the Bank. The following persons and employee benefit plan have subscription rights to purchase shares of common stock of the new holding company in the following order of priority: (1) depositors of record as of March 31, 2006; (2) the Bank’s employee stock ownership plan; (3) depositors of record as of the end of the calendar quarter preceding the commencement of the offering; and (4) depositors entitled to vote on the conversion proposal. If necessary, shares will be offered to the general public. In addition, upon completion of the conversion of the Mutual Holding Company, shares of the Company’s common stock held by public stockholders will be exchanged for shares of a new corporation, which will become the Bank’s new parent holding company. As a result of the conversion and offering, the Mutual Holding Company and Company will cease to exist.

The conversion is subject to approval of the Office of Thrift Supervision as well as the approval of the Mutual Holding Company’s members (depositors of the Bank) and the Company’s stockholders. Proxy materials setting forth information relating to the conversion and offering will be sent to the members of the Mutual Holding Company and stockholders of the Company for their consideration. The offering will be made only by means of a prospectus in accordance with federal law and all applicable state securities laws. The conversion and offering are expected to be completed in the fourth quarter of 2007.

      

        F - 39      

    

K-FED BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2007, 2006 AND 2005

21.	STOCK CONVERSION
	On June 26, 2007, the Board of Directors of K-Fed Mutual Holding Company approved a plan to convert the Mutual Holding Company from the mutual to stock form of organization. The Mutual Holding Company is a federally chartered mutual holding company and currently owns approximately 63.5% of the outstanding shares of common stock of K-Fed Bancorp, which owns 100% of the issued and outstanding shares of the capital stock of Kaiser Federal Bank (the “Bank”). Pursuant to the terms of K-Fed Mutual Holding Company’s plan of conversion and reorganization, K-Fed Mutual Holding Company will convert from the mutual holding company to the stock holding company corporate structure. As part of the conversion, we are offering for sale in a subscription offering, and possibly in a community and/or a syndicated community offering, the majority ownership interest of K-Fed Bancorp that is currently owned by K-Fed Mutual Holding Company. Upon the completion of the conversion and offering, K-Fed Mutual Holding Company will cease to exist, and we will complete the transition from partial to full public stock ownership. Upon completion of the conversion, existing public stockholders of K-Fed Bancorp will receive shares of common stock of Kaiser Federal Financial Group in exchange for their shares of K-Fed Bancorp common stock in order to maintain the public stockholders’ existing percentage ownership in our organization (excluding any new shares purchased by them in the offering).
	In connection with the conversion, shares of common stock of a new successor holding company, representing the ownership interest of the Mutual Holding Company, will be offered for sale to depositors of the Bank. The following persons and employee benefit plan have subscription rights to purchase shares of common stock of the new holding company in the following order of priority: (1) depositors of record as of March 31, 2006; (2) the Bank’s employee stock ownership plan; (3) depositors of record as of the end of the calendar quarter preceding the commencement of the offering; and (4) depositors entitled to vote on the conversion proposal. If necessary, shares will be offered to the general public. In addition, upon completion of the conversion of the Mutual Holding Company, shares of the Company’s common stock held by public stockholders will be exchanged for shares of a new corporation, which will become the Bank’s new parent holding company. As a result of the conversion and offering, the Mutual Holding Company and Company will cease to exist.
	The conversion is subject to approval of the Office of Thrift Supervision as well as the approval of the Mutual Holding Company’s members (depositors of the Bank) and the Company’s stockholders. Proxy materials setting forth information relating to the conversion and offering will be sent to the members of the Mutual Holding Company and stockholders of the Company for their consideration. The offering will be made only by means of a prospectus in accordance with federal law and all applicable state securities laws. The conversion and offering are expected to be completed in the fourth quarter of 2007.

F-40

No person has been authorized to give any information or to make any representation other than as contained in this prospectus and, if given or made, such other information or representation must not be relied upon as having been authorized by Kaiser Federal Financial Group, Inc. or Kaiser Federal Bank.  This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any of the securities offered hereby to any person in any jurisdiction in which such offer or solicitation is not authorized or in which the person making such offer or solicitation is not qualified to do so, or to any person to whom it is unlawful to make such offer or solicitation in such jurisdiction.  Neither the delivery of this prospectus nor any sale hereunder shall under any circumstances create any implication that there has been no change in the affairs of Kaiser Federal Financial Group, Inc. or Kaiser Federal Bank since any of the dates as of which information is furnished herein or since the date hereof.

Up to 14,950,000 Shares

(Subject to Increase to up to 17,192,500 Shares)

Kaiser Federal Financial Group, Inc.

(Proposed Holding Company for
Kaiser Federal Bank)

COMMON STOCK
par value $0.01 per share

PROSPECTUS

KEEFE BRUYETTE & WOODS

November____, 2007

These securities are not deposits or savings accounts and are not federally insured or guaranteed.

Until the later of _________, 2007 or 25 days after the commencement of the syndicated community offering, all dealers effecting transactions in the registered securities, whether or not participating in this distribution, may be required to deliver a prospectus.  This is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

PROSPECTUS OF KAISER FEDERAL FINANCIAL GROUP, INC.
PROXY STATEMENT/PROSPECTUS OF K-FED BANCORP

          K-Fed Bancorp, Kaiser Federal Bank and K-Fed Mutual Holding Company are proposing to convert from the mutual holding company structure to a fully public ownership structure. Currently, K-Fed Mutual Holding Company owns 63.5% of the outstanding shares of K-Fed Bancorp’s common stock. The remaining 36.5% of K-Fed Bancorp’s outstanding shares of common stock is owned by public stockholders. As a result of the conversion, Kaiser Federal Financial Group, Inc., a Maryland corporation, which was recently formed by Kaiser Federal Bank, would become the parent holding company for Kaiser Federal Bank.

          If we complete the conversion, shares of K-Fed Bancorp’s common stock owned by the public will be exchanged for between 6,343,386 and 8,582,229 shares of common stock of Kaiser Federal Financial Group, Inc. so that K-Fed Bancorp’s existing public stockholders will own approximately the same percentage of Kaiser Federal Financial Group, Inc. common stock as they owned of K-Fed Bancorp’s common stock immediately prior to the conversion (not including their purchases of new shares of common stock in the offering). The number of Kaiser Federal Financial Group, Inc. shares to be issued in the exchange offer may be increased to 9,869,563 shares as a result of regulatory considerations, demand for the shares of common stock or changes in financial market conditions. The actual number of shares that you will receive will depend on the exchange ratio, which will depend on the percentage of K-Fed Bancorp’s common stock held by public stockholders at the completion of the conversion and offering, the final independent appraisal of Kaiser Federal Financial Group, Inc. and the number of shares of Kaiser Federal Financial Group, Inc. common stock sold in the offering. It will not depend on the market price of K-Fed Bancorp’s common stock. Based on the $________ per share closing price of K-Fed Bancorp’s common stock as of the last trading day prior to the date of this proxy statement/prospectus, unless at least ________ shares of Kaiser Federal Financial Group, Inc. are sold in the offering (close to the ____________ of the offering range), the initial value of the Kaiser Federal Financial Group, Inc. common stock you receive in the share exchange would be less than the market value of the K-Fed Bancorp common stock that you currently own. See “Risk Factors – The Market Value Of Kaiser Federal Financial Group, Inc. Common Stock Received In The Share Exchange May Be Less Than The Market Value Of K-Fed Bancorp Common Stock Exchanged.” 

          Concurrently with the exchange offer, we are offering up to 14,950,000 shares of common stock of Kaiser Federal Financial Group, Inc., representing the 63.5% ownership interest of K-Fed Mutual Holding Company in K-Fed Bancorp, for sale to eligible Kaiser Federal Bank depositors and the public at a price of $10.00 per share. We may increase the maximum number of shares that we sell in the offering, without notice to persons who have subscribed for shares, by up to 15%, to 17,192,500 shares, as a result of regulatory considerations, demand for the shares of common stock or changes in financial market conditions. If the conversion and offering are completed, Kaiser Federal Bank would become a wholly owned subsidiary of Kaiser Federal Financial Group, Inc., and 100% of the common stock of Kaiser Federal Financial Group, Inc. would be owned by public stockholders. As a result of the conversion and offering, K-Fed Mutual Holding Company and K-Fed Bancorp would cease to exist.

          K-Fed Bancorp’s common stock is currently listed on the Nasdaq Global Market under the symbol “KFED.” Upon completion of the conversion and offering, the shares of common stock of Kaiser Federal Financial Group, Inc. will replace K-Fed Bancorp’s shares of common stock. We expect that Kaiser Federal Financial Group, Inc.’s shares of common stock will trade on the Nasdaq Global Market under the trading symbol “KFFG.”

          The conversion and offering cannot be completed unless the stockholders of K-Fed Bancorp approve the plan of conversion and reorganization. Your vote is important.  Whether or not you plan to attend our annual meeting, please take the time to vote by completing and returning the enclosed proxy card.  If you sign, date and mail your proxy card without indicating how you want to vote, your proxy will be counted as a vote for the proposals described in this proxy statement/prospectus.

          This document serves as the proxy statement for the annual meeting of stockholders of K-Fed Bancorp and the prospectus for the shares of Kaiser Federal Financial Group, Inc.’s common stock to be issued in exchange for shares of K-Fed Bancorp’s common stock.  We urge you to read this entire document carefully.  You can also obtain information about our companies from documents that we have filed with the Securities and Exchange Commission and the Office of Thrift Supervision.  This document does not serve as the prospectus relating to the offering by

Kaiser Federal Financial Group, Inc. of its shares of common stock in the subscription offering and any community offering or syndicated community offering, which is made pursuant to a separate prospectus.

          Shares of Kaiser Federal Financial Group, Inc. common stock not purchased by eligible depositors of Kaiser Federal Bank may be available for sale to the public. If you are interested in receiving a prospectus and stock order form, please call our Stock Information Center. The toll-free telephone number is (___) ___-_____.

          For assistance with voting, please contact _______________ at (___) ___-_____ from _______ __.m. to _______ __.m., Monday through Friday and Saturday from _______ __.m. to _______ __.m., Pacific Time.

          This investment involves a degree of risk, including the possible loss of principal.  Please read “Risk Factors” beginning on page __.

          These securities are not deposits or savings accounts and are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.

          Neither the Securities and Exchange Commission, the Office of Thrift Supervision nor any state securities commission has approved or disapproved of these securities or determined if this proxy statement/prospectus is truthful or complete.  Any representation to the contrary is a criminal offense.

          The date of this proxy statement/prospectus is ______, 2007, and is first being mailed to stockholders of K-Fed Bancorp on or about _____, 2007.

REFERENCE TO ADDITIONAL INFORMATION

          For additional information, please see the section entitled “Where You Can Find More Information” beginning on page [__] of this proxy statement/prospectus.  A copy of the plan of conversion and reorganization is available for inspection at each of Kaiser Federal Bank’s offices.

          For information on voting your proxy card, please refer to the instructions on the enclosed proxy card.

          You should rely only on the information contained in this proxy statement/prospectus or to which we have referred you. We have not authorized anyone to provide you with information that is different.  This proxy statement/prospectus does not constitute an offer to sell, or the solicitation of an offer to buy, any of the securities offered hereby to any person in any jurisdiction in which such offer or solicitation would be unlawful.  The affairs of K-Fed Bancorp, K-Fed Mutual Holding Company, Kaiser Federal Financial Group, Inc. and Kaiser Federal Bank and their subsidiaries may change after the date of this proxy statement/prospectus.  Delivery of this proxy statement/prospectus and the exchange of shares of Kaiser Federal Financial Group, Inc. common stock made hereunder does not mean otherwise.

3

K-FED BANCORP
1359 North Grand Avenue
Covina, California 91724
(626) 339-9663

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

          On ____________, 2007, K-Fed Bancorp will hold an annual meeting of stockholders at the _________________________________________________________.  The meeting will begin at _____, Pacific Time.  At the meeting, stockholders will consider and act on the following:

1.	The election of two directors of K-Fed Bancorp.
2.	The ratification of the appointment of Crowe Chizek and Company, LLP as the independent registered public accounting firm for K-Fed Bancorp for the fiscal year ending June 30, 2008;
3.	A plan of conversion and reorganization pursuant to which K-Fed Mutual Holding Company will be merged into Kaiser Federal Bank, and K-Fed Bancorp will be succeeded by Kaiser Federal Financial Group, Inc., a new Maryland corporation.  Pursuant to the plan of conversion and reorganization, shares of common stock representing K-Fed Mutual Holding Company’s current 63.5% ownership interest in K-Fed Bancorp will be offered for sale in an offering. Common stock of K-Fed Bancorp currently held by public stockholders will be converted into shares of Kaiser Federal Financial Group, Inc. common stock pursuant to an exchange ratio meant to maintain public stockholders’ existing percentage ownership exclusive of their purchases of additional shares of common stock in the offering;
4.	The approval of the adjournment of the annual meeting, if necessary, to solicit additional proxies in the event that there are not sufficient votes at the time of the annual meeting to approve the plan of conversion and reorganization;
5.	The following informational proposals:

5a.	Approval of an increase in the authorized shares of capital stock;
5b.	Approval of a provision in Kaiser Federal Financial Group, Inc.’s articles of incorporation to limit the ability of stockholders to remove directors;
5c.	Approval of a provision in Kaiser Federal Financial Group, Inc.’s articles of incorporation to limit business combinations with interested stockholders;
5d.	Approval of a provision in Kaiser Federal Financial Group, Inc.’s articles of incorporation requiring a super-majority vote to approve certain amendments to Kaiser Federal Financial Group, Inc.’s articles of incorporation;
5e.	Approval of a Provision in Kaiser Federal Financial Group, Inc.’s Bylaws Requiring a Super-Majority Vote of Stockholders to Approve Stockholder Proposed Amendments to Kaiser Federal Financial Group, Inc.’s Bylaws;

5f. Approval of a provision in Kaiser Federal Financial Group, Inc.’s articles of incorporation to limit the voting rights of shares beneficially owned in excess of 10% of Kaiser Federal Financial Group, Inc.’s outstanding voting stock; and

6. Such other business that may properly come before the meeting.

          NOTE:  The Board of Directors is not aware of any other business to come before the meeting.

          The provisions of Kaiser Federal Financial Group, Inc.’s articles of incorporation and bylaws which are summarized as informational proposals 5a through 5f were approved as part of the process in which the board of directors of K-Fed Bancorp approved the plan of conversion and reorganization.  These proposals are informational in nature only, because the Office of Thrift Supervision’s regulations governing mutual-to-stock conversions do not provide for votes on matters other than the plan of conversion and reorganization.  While we are asking you to vote with respect to each of the informational proposals listed above, the proposed provisions for which an informational vote is requested will become effective if stockholders approve the plan of conversion and reorganization, regardless of whether stockholders vote to approve any or all of the informational proposals. 

          The Board of Directors has fixed __________, 2007, as the record date for the determination of stockholders entitled to notice of and to vote at the annual meeting and at an adjournment or postponement thereof.

          Upon written request addressed to the Corporate Secretary of K-Fed Bancorp at the address given above, stockholders may obtain an additional copy of this proxy statement/prospectus and/or a copy of the plan of conversion and reorganization.  In order to assure timely receipt of the additional copy of the proxy statement/prospectus and/or the plan of conversion and reorganization, the written request should be received by K-Fed Bancorp by _______________ __, 2007. 

          Please complete and sign the enclosed proxy, which is solicited by the Board of Directors, and mail it promptly in the enclosed envelope.  The proxy will not be used if you attend the meeting and vote in person.

	BY ORDER OF THE BOARD OF DIRECTORS
	Rita H. Zwern
	Corporate Secretary
Covina, California
____________, 2007

TABLE OF CONTENTS

REFERENCE TO ADDITIONAL INFORMATION	3
QUESTIONS AND ANSWERS FOR STOCKHOLDERS OF K-FED BANCORP REGARDING THE PLAN OF CONVERSION AND REORGANIZATION	7
SUMMARY	11
RISK FACTORS	33
INFORMATION ABOUT THE ANNUAL MEETING	43
PROPOSAL 1 — ELECTION OF DIRECTORS	48
PROPOSAL 2 — RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM	67
PROPOSAL 3 — APPROVAL OF THE PLAN OF CONVERSION AND REORGANIZATION	68
PROPOSAL 4 - ADJOURNMENT OF THE ANNUAL MEETING	92
PROPOSALS 5a THROUGH 5f - INFORMATIONAL PROPOSALS RELATED TO THE  ARTICLES OF INCORPORATION OF KAISER FEDERAL FINANCIAL GROUP, INC.	92
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA OF K-FED BANCORP AND SUBSIDIARIES	99
FORWARD-LOOKING STATEMENTS	101
HOW WE INTEND TO USE THE PROCEEDS FROM THE OFFERING	102
OUR POLICY REGARDING DIVIDENDS	104
MARKET FOR THE COMMON STOCK	104
HISTORICAL AND PRO FORMA REGULATORY CAPITAL COMPLIANCE	106
CAPITALIZATION	107
PRO FORMA DATA	109
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	113
BUSINESS OF K-FED BANCORP AND KAISER FEDERAL FINANCIAL GROUP, INC.	128
BUSINESS OF KAISER FEDERAL BANK	129
SUPERVISION AND REGULATION	157
TAXATION	166
MANAGEMENT	167
SUBSCRIPTIONS BY DIRECTORS AND EXECUTIVE OFFICERS	170
COMPARISON OF STOCKHOLDERS’ RIGHTS FOR EXISTING STOCKHOLDERS OF  K-FED BANCORP	171
RESTRICTIONS ON ACQUISITION OF KAISER FEDERAL FINANCIAL GROUP, INC.	177
DESCRIPTION OF CAPITAL STOCK OF KAISER FEDERAL FINANCIAL GROUP, INC. FOLLOWING THE CONVERSION	180
TRANSFER AGENT	182
EXPERTS	182
LEGAL MATTERS	182
WHERE YOU CAN FIND ADDITIONAL INFORMATION	182
ADVANCE NOTICE OF BUSINESS TO BE CONDUCTED AT AN ANNUAL MEETING	183
STOCKHOLDER PROPOSALS	183
OTHER MATTERS	184
MISCELLANEOUS
HOUSEHOLDING OF PROXY STATEMENTS AND ANNUAL REPORTS	184
K-FED BANCORP INDEX TO CONSOLIDATED FINANCIAL STATEMENTS	F-1

QUESTIONS AND ANSWERS
FOR STOCKHOLDERS OF K-FED BANCORP
REGARDING THE PLAN OF CONVERSION AND REORGANIZATION

You should read this document for more information about the conversion and reorganization.  The plan of conversion and reorganization, described herein, has been conditionally approved by our regulator, the Office of Thrift Supervision; however, such approval does not constitute a recommendation or endorsement of the plan of conversion and reorganization by that agency.

Q.	WHAT ARE STOCKHOLDERS BEING ASKED TO APPROVE?
A.	K-Fed Bancorp stockholders as of ____________, 2007 are being asked to vote on the plan of conversion and reorganization of K-Fed Mutual Holding Company and K-Fed Bancorp.  Pursuant to the plan of conversion and reorganization, K-Fed Mutual Holding Company will convert from the mutual holding company form to the stock form of organization. As part of the conversion, our newly formed Maryland corporation, Kaiser Federal Financial Group, Inc. is currently conducting an offering of common stock to eligible depositors of Kaiser Federal Bank, eligible stockholders and to the public. The shares offered represent K-Fed Mutual Holding Company’s current ownership interest in K-Fed Bancorp. Voting for approval of the plan of conversion and reorganization will also include approval of the exchange ratio, the articles of incorporation and bylaws of Kaiser Federal Financial Group, Inc. (including the anti-takeover/limitations on stockholder rights provisions) and the amendment to the Kaiser Federal Bank’s charter.  Your vote is important. Without sufficient votes “FOR” its adoption, we cannot implement the plan of conversion and reorganization or related stock offering.
	In addition, K-Fed Bancorp stockholders are being asked to approve the adjournment of the annual meeting, if necessary, to solicit additional proxies in the event that there are not sufficient votes at the time of the annual meeting to approve the plan of conversion and reorganization.
	Stockholders also are asked to vote on the following informational proposals with respect to the articles of incorporation of Kaiser Federal Financial Group, Inc.:

• Approval of an increase in the authorized shares of capital stock;

• Approval of a provision in Kaiser Federal Financial Group, Inc.’s articles of incorporation to limit the ability of stockholders to remove directors;

• Approval of a provision in Kaiser Federal Financial Group, Inc.’s articles of incorporation to limit business combinations with interested stockholders;

• Approval of a provision in Kaiser Federal Financial Group, Inc.’s articles of incorporation requiring a super-majority vote to approve certain amendments to Kaiser Federal Financial Group, Inc.’s articles of incorporation;

• Approval of a provision in Kaiser Federal Financial Group, Inc.’s bylaws requiring a super-majority vote of stockholders to approve stockholder proposed amendments to Kaiser Federal Financial Group, Inc.’s bylaws; and

• Approval of a provision in Kaiser Federal Financial Group, Inc.’s articles of incorporation to limit the voting rights of shares beneficially owned in excess of 10% of Kaiser Federal Financial Group, Inc.’s outstanding voting stock.

7

	The provisions of Kaiser Federal Financial Group, Inc.’s articles of incorporation and bylaws, which are summarized as informational proposals were approved as part of the process in which the board of directors of K-Fed Bancorp approved the plan of conversion and reorganization. These proposals are informational in nature only, because the Office of Thrift Supervision’s regulations governing mutual-to-stock conversions do not provide for votes on matters other than the plan of conversion and reorganization.  While we are asking you to vote with respect to each of the informational proposals listed above, the proposed provisions for which an informational vote is requested will become effective if stockholders approve the plan of conversion and reorganization, regardless of whether stockholders vote to approve any or all of the informational proposals.  The provisions of Kaiser Federal Financial Group, Inc.’s articles of incorporation and bylaws which are summarized as informational proposals may have the effect of deterring or rendering more difficult attempts by third parties to obtain control of Kaiser Federal Financial Group, Inc., if such attempts are not approved by the Board of Directors, or may make the removal of the board of directors or management, or the appointment of new directors, more difficult.
	Your vote is important. Without sufficient votes “FOR” adoption, we cannot implement the plan of conversion and reorganization or related stock offering.
Q.	WHAT ARE REASONS FOR THE CONVERSION AND RELATED OFFERING?
A.	The primary reasons for the conversion and offering are to (1) support internal growth through loan purchases and lending in the communities we serve; (2) enhance existing products and services, and support the development of new products and services; (3) build or lease new branch facilities or acquire branches from other financial institutions; (4) finance the acquisition of financial institutions or other financial service companies primarily in southern California, although we do not currently have any understandings or agreements regarding any specific acquisition transaction; (5) improve the liquidity of our shares of common stock and enhance stockholder returns through higher earnings and more flexible capital management strategies; and (6) use the additional capital for other general corporate purposes.
Q.	WHAT WILL STOCKHOLDERS RECEIVE FOR THEIR EXISTING K-FED BANCORP SHARES?
A.	As more fully described in “Proposal 3 – Approval of the Plan of Conversion and Reorganization – Share Exchange Ratio,” depending on the number of shares sold in the offering, each share of common stock that you own at the time of the completion of the conversion will be exchanged for between 1.2469 shares at the minimum and 1.9401 shares at the adjusted maximum of the offering range of Kaiser Federal Financial Group, Inc. common stock (cash will be paid in lieu of any fractional shares). For example, if you own 100 shares of K-Fed Bancorp common stock, and the exchange ratio is 1.4670 (at the midpoint of the offering range), after the conversion you will receive 146 shares of K-Fed Bancorp common stock and $7.00 in cash, the value of the fractional share, based on the $10.00 per share purchase price of stock in the offering. Stockholders who hold shares in street-name at a brokerage firm do not need to take any action to exchange their shares of common stock. Your shares will be automatically exchanged within your brokerage account. Stockholders with stock certificates will receive a transmittal form with instructions on how to surrender stock certificates after completion of the conversion. You should not submit a stock certificate until you receive a transmittal form.

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Q.	WHY WILL THE SHARES THAT I RECEIVE BE BASED ON A PRICE OF $10.00 PER SHARE RATHER THAN THE TRADING PRICE OF THE COMMON STOCK PRIOR TO COMPLETION OF THE CONVERSION?
A.	The amount of common stock Kaiser Federal Financial Group, Inc. will issue in the offering and the exchange is based on an independent appraisal of the estimated market value of Kaiser Federal Financial Group, Inc., assuming the conversion and offering are completed.  RP Financial, LC., an appraisal firm experienced in appraisal of financial institutions, has estimated that, as of August 31, 2007, this market value ranged from $173.9 million to $235.3 million, with a midpoint of $204.6 million.  Based on this valuation, the 63.5% ownership interest of K-Fed Mutual Holding Company being sold in the offering and the $10.00 per share purchase price, the number of shares of common stock being offered for sale by Kaiser Federal Financial Group, Inc. will range from 11,050,000 shares to 14,950,000 shares.  The $10.00 per share price was selected primarily because it is a commonly selected per share price for mutual-to-stock conversion offerings. The independent appraisal is based in part on K-Fed Bancorp’s financial condition and results of operations, the pro forma impact of the additional capital raised by the sale of shares of common stock in the offering, and an analysis of a peer group of ten publicly traded savings bank and thrift holding companies that RP Financial, LC. considered comparable to K-Fed Bancorp.
Q.	SHOULD I SUBMIT MY STOCK CERTIFICATES NOW?
A.	No.  If you hold stock certificate(s), instructions for exchanging the shares will be sent to you after completion of the conversion.  If your shares are held in “street name” (e.g., in a brokerage account) rather than in certificate form, the share exchange will be reflected automatically in your account upon completion of the conversion.
Q.	IF MY SHARES ARE HELD IN STREET NAME, WILL MY BROKER AUTOMATICALLY VOTE ON THE PLAN ON MY BEHALF?
A.	No.  Your broker will not be able to vote your shares without instructions from you.  You should instruct your broker to vote your shares, using the directions that your broker provides to you.
Q.	WHAT IF I DO NOT GIVE VOTING INSTRUCTIONS TO MY BROKER?
A.	Your vote is important.  If you do not instruct your broker to vote your shares, the unvoted proxy will have the same effect as a vote against the plan of conversion and reorganization.
Q.	MAY I PLACE AN ORDER TO PURCHASE SHARES IN THE OFFERING, IN ADDITION TO THE SHARES THAT I WILL RECEIVE IN THE EXCHANGE?
A.	Yes. Eligible depositors of Kaiser Federal Bank have priority subscription rights allowing them to purchase common stock in a subscription offering.  Shares not purchased in the subscription offering may be available for sale to the public, including K-Fed Bancorp stockholders, in a community offering, as described herein.  In the event orders for Kaiser Federal Financial Group, Inc. common stock in a community offering exceed the number of shares available for sale, shares may be allocated (to the extent shares remain available) first to cover orders of natural persons residing in the California Counties of Los Angeles, San Bernardino, Riverside and Santa Clara, next to cover orders of K-Fed Bancorp stockholders as of ____________, 2007, and thereafter to cover orders of other members of the general public. Stockholders of K-Fed Bancorp are subject to an ownership limitation.  Shares of common stock purchased in the offering by a stockholder and his or her associates or individuals acting in concert with the stockholder, plus any shares a

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stockholder and these individuals receive in the exchange for existing shares of K-Fed Bancorp common stock, may not exceed 5% of the total shares of common stock of Kaiser Federal Financial Group, Inc. to be issued and outstanding after the completion of the conversion.  If you would like to receive a prospectus and stock order form, you must call our Stock Information Center at (___) ___-_____ from _______ __.m. to _______ __.m., Pacific Time, Monday through Friday.  The Stock Information Center is closed weekends and bank holidays.

Please note that properly completed and signed stock order forms, with full payment, must be received (not postmarked) by the Stock Information Center no later than _____ Noon, Pacific Time on ____________2007.

Other Questions?

For answers to other questions, please read the proxy statement/prospectus. Questions about voting on the plan of conversion and reorganization may be directed to _______________ at (___) ___-_____.

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INFORMATION ABOUT THE ANNUAL MEETING

To Be Held on ____________, 2007

General

          This proxy statement/prospectus is being furnished to you in connection with the solicitation by the board of directors of K-Fed Bancorp of proxies to be voted at the annual meeting of stockholders to be held at _______________________________________on ____________, 2007 at _____, Pacific Time, and any adjournment or postponement thereof.

          The purpose of the annual meeting is to consider and vote upon the election of directors, the ratification of the appointment of our independent registered public accounting firm, the Plan of Conversion and Reorganization of K-Fed Mutual Holding Company and K-Fed Bancorp.  In addition, stockholders will vote on a proposal to approve the adjournment of the annual meeting, if necessary, to solicit additional proxies in the event that there are not sufficient votes at the time of the annual meeting to approve the proposal to approve the plan of conversion and reorganization.  Stockholders will vote on the following informational proposals with respect to the articles of incorporation of Kaiser Federal Financial Group, Inc.:

• Approval of an increase in the authorized shares of capital stock;

• Approval of a provision in Kaiser Federal Financial Group, Inc.’s articles of incorporation to limit the ability of stockholders to remove directors;

• Approval of a provision in Kaiser Federal Financial Group, Inc.’s articles of incorporation to limit business combinations with interested stockholders;

• Approval of a provision in Kaiser Federal Financial Group, Inc.’s articles of incorporation requiring a super-majority vote to approve certain amendments to Kaiser Federal Financial Group, Inc.’s articles of incorporation;

• Approval of a provision in Kaiser Federal Financial Group, Inc.’s bylaws requiring a super-majority vote of stockholders to approve stockholder proposed amendments to Kaiser Federal Financial Group, Inc.’s bylaws; and

• Approval of a provision in Kaiser Federal Financial Group, Inc.’s articles of incorporation to limit the voting rights of shares beneficially owned in excess of 10% of Kaiser Federal Financial Group, Inc.’s outstanding voting stock.

          The plan of conversion and reorganization provides for a series of transactions, referred to as the conversion and offering, which will result in the elimination of the mutual holding company.  The plan of conversion and reorganization will also result in the creation of a new stock holding company which will own all of the outstanding shares of Kaiser Federal Bank, the exchange of shares of common stock of K-Fed Bancorp by stockholders other than K-Fed Mutual Holding Company, who are referred to as the “public stockholders,” for shares of the new stock holding company, Kaiser Federal Financial Group, Inc., and the issuance and the sale of additional shares to depositors of Kaiser Federal Bank and others in an offering. 

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          Pursuant to Office of Thrift Supervision regulations, consummation of the conversion (including the offering of common stock in the offering, as described below) is conditioned upon the approval of the plan of conversion and reorganization by (1) the Office of Thrift Supervision, (2) at least a majority of the total number of votes eligible to be cast by members of K-Fed Mutual Holding Company at the annual meeting of members, (3) holders of at least two-thirds of the shares of the outstanding K-Fed Bancorp common stock at the annual meeting of stockholders, and (4) the holders of at least a majority of the shares of outstanding common stock of K-Fed Bancorp, excluding shares held by K-Fed Mutual Holding Company, at the annual meeting of stockholders.

          This proxy statement/prospectus, together with the accompanying proxy card, is first being mailed or delivered to stockholders of K-Fed Bancorp on or about __________ __, 2007.

          Voting in favor of or against the Plan of Conversion and Reorganization includes a vote for or against the conversion of K-Fed Mutual Holding Company to a stock holding company as contemplated by the Plan of Conversion and Reorganization.  Voting in favor of the Plan of Conversion and Reorganization will not obligate you to purchase any shares of common stock in the offering and will not affect the balance, interest rate or federal deposit insurance of any deposits at Kaiser Federal Bank.

Who Can Vote at the Meeting

          You are entitled to vote your K-Fed Bancorp common stock if our records show that you held your shares as of the close of business on ____________, 2007.  If your shares are held in a stock brokerage account or by a bank or other nominee, you are considered the beneficial owner of shares held in street name and these proxy materials are being forwarded to you by your broker or nominee.  As the beneficial owner, you have the right to direct your broker or nominee how to vote.

          As of the close of business on ____________, 2007, there were _________ shares of K-Fed Bancorp common stock outstanding.  Each share of common stock has one vote.

Attending the Meeting

          If you are a stockholder as of the close of business on _________, 2007, you may attend the meeting.  However, if you hold your shares in street name, you will need proof of ownership to be admitted to the meeting.  A recent brokerage statement or a letter from a bank or broker are examples of proof of ownership.  If you want to vote your shares of K-Fed Bancorp common stock held in street name in person at the meeting, you will have to get a written proxy in your name from the broker, bank or other nominee who holds your shares.

Vote Required

          The annual meeting will be held only if there is a quorum.  A quorum exists if a majority of the outstanding shares of common stock entitled to vote, represented in person or by proxy, is present at the meeting.  If you return valid proxy instructions or attend the meeting in person, your shares will be counted for purposes of determining whether there is a quorum, even if you abstain from voting.  Broker non-votes also will be counted for purposes of determining the existence of a quorum.  A broker non-vote occurs when a broker, bank or other nominee holding shares for a beneficial owner does not vote on a particular proposal because the nominee does not have discretionary voting power with respect to that item and has not received voting instructions from the beneficial owner.

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          Proposal 1:  Election of Directors.  Directors are elected by a plurality of votes cast, without regard to either broker non-votes, or proxies as to which the authority to vote for the nominees being proposed is withheld.

          Proposal 2:  Ratification of the Appointment of Independent Registered Public Accounting Firm:  The affirmative vote of holders of a majority of the votes cast at the annual meeting in person or by proxy is required for the ratification of Crowe Chizek and Company LLP as the independent registered public accounting firm for the fiscal year ending June 30, 2008.  The ratification of this matter shall be determined by a majority of the votes cast at the annual meeting, without regard to broker non-votes or proxies marked “ABSTAIN.”

          Proposal 3:  Approval of the Plan of Conversion and Reorganization.  To be approved, the plan of conversion and reorganization requires the affirmative vote of two-thirds of the outstanding shares of K-Fed Bancorp common stock, including the shares held by K-Fed Mutual Holding Company, and the affirmative vote of a majority of votes eligible to be cast at the meeting, excluding shares held by K-Fed Mutual Holding Company. Abstentions and broker non-votes will have the same effect as a vote against the plan of conversion and reorganization.

          Proposal 4:  Approval of the adjournment of the annual meeting.  We must obtain the affirmative vote of the majority of the votes cast by holders of outstanding shares of K-Fed Bancorp common stock to adjourn the annual meeting, if necessary, to solicit additional proxies in the event that there are not sufficient votes at the time of the annual meeting to approve the proposal to approve the plan of conversion and reorganization.

          Informational Proposals 5a through 5f:  Approval of certain provisions in Kaiser Federal Financial Group, Inc.’s articles of incorporation.  The provisions of Kaiser Federal Financial Group, Inc.’s articles of incorporation and bylaws which are summarized as informational proposals were approved as part of the process in which the board of directors of K-Fed Bancorp approved the plan of conversion and reorganization.  These proposals are informational in nature only, because the Office of Thrift Supervision’s regulations governing mutual-to-stock conversions do not provide for votes on matters other than the plan of conversion and reorganization.  While we are asking you to vote with respect to each of the informational proposals, the proposed provisions for which an informational vote is requested will become effective if stockholders approve the plan of conversion and reorganization, regardless of whether stockholders vote to approve any or all of the informational proposals.  The provisions of Kaiser Federal Financial Group, Inc.’s articles of incorporation and bylaws which are summarized as informational proposals may have the effect of deterring or rendering more difficult attempts by third parties to obtain control of Kaiser Federal Financial Group, Inc., if such attempts are not approved by the Board of Directors, or may make the removal of the board of directors or management, or the appointment of new directors, more difficult.

          Other Matters.  We must obtain the affirmative vote of the majority of the votes cast by holders of outstanding shares of common stock of K-Fed Bancorp.

Shares Held by K-Fed Mutual Holding Company and Our Officers and Directors

          As of June 30, 2007, K-Fed Mutual Holding Company beneficially owned 8,861,750 shares of K-Fed Bancorp common stock.  This equals 63.5% of our outstanding shares.  K-Fed Mutual Holding Company intends to vote all of its shares in favor of Proposal 1, election of directors, Proposal 2, ratification of our independent registered public accounting firm, Proposal 3, approval of the plan of conversion and reorganization, Proposal 4, approval of the adjournment of the annual meeting, and Informational Proposals 5a through 5e.

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          As of _______, 2007, our officers and directors beneficially owned _______ shares of K-Fed Bancorp common stock, not including shares that they may acquire upon the exercise of outstanding stock options.  This equals _____% of our outstanding shares and _____% of shares held by persons other than K-Fed Mutual Holding Company.

Voting by Proxy

          Our Board of Directors is sending you this proxy statement/prospectus to request that you allow your shares of K-Fed Bancorp common stock to be represented at the annual meeting by the persons named in the enclosed proxy card.  All shares of K-Fed Bancorp common stock represented at the meeting by properly executed and dated proxies will be voted according to the instructions indicated on the proxy card.  If you sign, date and return a proxy card without giving voting instructions, your shares will be voted as recommended by our Board of Directors.  Our Board of Directors recommends that you vote “FOR” the director nominees, “FOR” the ratification of Crowe Chizek and Company LLP as the independent registered public accounting firm for the fiscal year ending June 30, 2008, “FOR” approval of the plan of conversion and reorganization, “FOR” approval of the adjournment of the annual meeting, and “FOR” each of the Informational Proposals 5a through 5f.

          If any matters not described in this proxy statement/prospectus are properly presented at the annual meeting, the Board of Directors will use their judgment to determine how to vote your shares.  We do not know of any other matters to be presented at the annual meeting.

          You may revoke your proxy at any time before the vote is taken at the meeting.  To revoke your proxy, you must either advise the Corporate Secretary of K-Fed Bancorp in writing before your common stock has been voted at the annual meeting, deliver a later-dated proxy or attend the annual meeting and vote your shares in person.  Attendance at the annual meeting will not in itself constitute revocation of your proxy.

          If your K-Fed Bancorp common stock is held in street name, you will receive instructions from your broker, bank or other nominee that you must follow to have your shares voted.  Your broker, bank or other nominee may allow you to deliver your voting instructions via the telephone or the Internet.  Please see the instruction form provided by your broker, bank or other nominee that accompanies this proxy statement/prospectus.

Solicitation of Proxies

          This proxy statement/prospectus and the accompanying proxy card are being furnished to you in connection with the solicitation of proxies for the annual meeting by the Board of Directors.  K-Fed Bancorp will pay the costs of soliciting proxies from its stockholders.  To the extent necessary to permit approval of the Plan of Conversion and Reorganization and the other proposals being considered, _______________, our proxy solicitor, directors, officers or employees of K-Fed Bancorp and Kaiser Federal Bank may solicit proxies by mail, telephone and other forms of communication.  We will reimburse such persons for their reasonable out-of-pocket expenses incurred in connection with such solicitation.

          We will also reimburse banks, brokers, nominees and other fiduciaries for the expenses they incur in forwarding the proxy materials to you.

          The Board of Directors recommends that you promptly sign, date and mark the enclosed proxy card in favor of the above described proposals, including, the adoption of the Plan of

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Conversion and Reorganization and promptly return it in the enclosed self-addressed, postage-prepaid proxy reply envelope.  Voting the proxy card will not prevent you from voting in person at the annual meeting.

          Your prompt vote is very important. Failure to vote will have the same effect as voting against the Plan of Conversion and Reorganization.

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SUMMARY

          This summary highlights material information from this proxy statement/prospectus and may not contain all the information that is important to you. To understand the conversion and other proposals fully, you should read this entire document carefully, including the sections entitled “Risk Factors”, “Proposal 1-Election of Directors.” “Proposal 2- Ratification of Appointment of Independent Registered Public Accounting Firm,” “Proposal 3- Approval of The Plan of Conversion and Reorganization,” “Proposal 4-Adjournment of the Annual Meeting,” “Proposals 5a through 5f- Informational Proposals Related to the Articles of Incorporation of Kaiser Federal Financial Group, Inc.” and the consolidated financial statements and the notes to the consolidated financial statements.

Revocation of Proxies

          This proxy statement/prospectus is furnished in connection with the solicitation of proxies on behalf of the board of directors of K-Fed Bancorp to be used at the 2007 Annual Meeting of Stockholders of K-Fed Bancorp.  The accompanying notice of annual meeting of stockholders and this proxy statement/prospectus are first being mailed to stockholders on or about November___, 2007.

          Stockholders who execute proxies in the form solicited hereby retain the right to revoke them in the manner described below.  Unless so revoked, the shares represented by such proxies will be voted at the annual meeting and all adjournments thereof.  Proxies solicited on behalf of the board of directors of K-Fed Bancorp will be voted in accordance with the directions given thereon.  You can vote your shares of our common stock prior to the annual meeting by signing and returning the enclosed proxy card to us, in accordance with instructions set forth on the proxy card.  Proxies received by us, which are signed, but contain no instructions for voting, will be voted “FOR” the proposals set forth in this proxy statement/prospectus for consideration at the annual meeting.

          Proxies may be revoked by sending written notice of revocation to the Secretary of K-Fed Bancorp, Rita H. Zwern, at our address shown above, or by returning a duly executed proxy bearing a later date by mail.  The presence at the annual meeting of any stockholder who had previously given a proxy shall not revoke such proxy unless the stockholder delivers his or her ballot in person at the annual meeting or delivers a written revocation to the Secretary of K-Fed Bancorp prior to the voting of such proxy.

          Holders of record of our common stock, par value $0.01 per share, as of the close of business on _______, 2007 are entitled to one vote for each share then held.  As of ________, 2007, there were __________ shares of our common stock issued and outstanding.  The presence in person or by proxy of a majority of the outstanding shares of common stock entitled to vote is necessary to constitute a quorum at the annual meeting.  Abstentions and broker non-votes will be counted for purposes of determining that a quorum is present.

Plan of Conversion

          The Boards of Directors of K-Fed Bancorp, K-Fed Mutual Holding Company, Kaiser Federal Bank and Kaiser Federal Financial Group, Inc. have adopted a plan of conversion and reorganization, pursuant to which Kaiser Federal Bank will reorganize from a mutual holding company structure to a stock form holding company structure. Public stockholders of K-Fed Bancorp will receive shares in Kaiser Federal Financial Group, Inc. in exchange for their shares of K-Fed Bancorp common stock based on an exchange ratio.  This conversion to a stock holding company structure also includes the offering by Kaiser Federal Financial Group, Inc. of shares of its common stock to eligible depositors of Kaiser Federal Bank in a subscription offering and, if necessary, to the public in a community offering and syndicated community offering.  Following the conversion and offering, K-Fed Mutual Holding

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Company and K-Fed Bancorp will no longer exist, and Kaiser Federal Financial Group, Inc. will be the parent company of Kaiser Federal Bank.

          The conversion and offering cannot be completed unless the stockholders of K-Fed Bancorp approve the plan of conversion and reorganization.  K-Fed Bancorp’s stockholders will vote on the plan of conversion and reorganization at K-Fed Bancorp’s annual meeting.  This document is the proxy statement used by K-Fed Bancorp’s Board of Directors to solicit proxies for the annual meeting.  It is also the prospectus of Kaiser Federal Financial Group, Inc. regarding the shares of Kaiser Federal Financial Group, Inc. common stock to be issued to K-Fed Bancorp’s stockholders in the share exchange.  This document does not serve as the prospectus relating to the offering by Kaiser Federal Financial Group, Inc. of its shares of common stock in the subscription offering and any community offering or syndicated community offering, which are made pursuant to a separate prospectus.

          In addition, informational proposals relating to Kaiser Federal Financial Group, Inc.’s articles of incorporation are also described in this proxy statement/prospectus. These proposals are informational in nature only, because the Office of Thrift Supervision’s regulations governing mutual-to-stock conversions do not provide for votes on matters other than the plan of conversion and reorganization.  While we are asking you to vote with respect to each of the informational proposals listed above, the proposed provisions for which an informational vote is requested will become effective if stockholders approve the plan of conversion and reorganization, regardless of whether stockholders vote to approve any or all of the informational proposals. 

The K-Fed Bancorp Annual meeting

          Date, Time and Place.  K-Fed Bancorp will hold its annual meeting of stockholders to consider and vote on the plan of conversion and reorganization at the ___________________________________________________ on ____________, 2007 at _____, Pacific Time.

          The Proposals. Stockholders will be voting on the following proposals at the annual meeting:

1.	The election of two directors of K-Fed Bancorp.
2.	The ratification of the appointment of Crowe Chizek and Company, LLP as the independent registered public accounting firm for K-Fed Bancorp for the fiscal year ending June 30, 2008;
3.	Approval of the plan of conversion and reorganization;
4.	Approval of the adjournment of the annual meeting, if necessary, to solicit additional proxies in the event that there are not sufficient votes at the time of the annual meeting to approve the plan of conversion;
5.	The following informational proposals:

5a.	Approval of an increase in the authorized shares of capital stock;
5b.	Approval of a provision in Kaiser Federal Financial Group, Inc.’s articles of incorporation to limit the ability of stockholders to remove directors;

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5c.	Approval of a provision in Kaiser Federal Financial Group, Inc.’s articles of incorporation to limit business combinations with interested stockholders;
5d.	Approval of a provision in Kaiser Federal Financial Group, Inc.’s articles of incorporation requiring a super-majority vote to approve certain amendments to Kaiser Federal Financial Group, Inc.’s articles of incorporation;
5e.	Approval of a provision in Kaiser Federal Financial Group, Inc.’s bylaws requiring a super-majority vote of stockholders to approve stockholder proposed amendments to Kaiser Federal Financial Group, Inc.’s bylaws;
5f.	Approval of a provision in Kaiser Federal Financial Group, Inc.’s articles of incorporation to limit the voting rights of shares beneficially owned in excess of 10% of Kaiser Federal Financial Group, Inc.’s outstanding voting stock; and

6. Any other matters that may properly come before the annual meeting or any adjournment or postponement thereof (the Board of Directors is not aware of any such matters).

          The provisions of Kaiser Federal Financial Group, Inc.’s articles of incorporation and bylaws which are summarized as informational proposals 5a through 5f were approved as part of the process in which the board of directors of K-Fed Bancorp approved the plan of conversion and reorganization. These proposals are informational in nature only, because the Office of Thrift Supervision’s regulations governing mutual-to-stock conversions do not provide for votes on matters other than the plan of conversion and reorganization. While we are asking you to vote with respect to each of the informational proposals listed above, the proposed provisions for which an informational vote is requested will become effective if stockholders approve the plan of conversion and reorganization, regardless of whether stockholders vote to approve any or all of the informational proposals. The provisions of Kaiser Federal Financial Group, Inc.’s articles of incorporation and bylaws which are summarized as informational proposals may have the effect of deterring or rendering more difficult attempts by third parties to obtain control of Kaiser Federal Financial Group, Inc., if such attempts are not approved by the Board of Directors, or may make the removal of the board of directors or management, or the appointment of new directors, more difficult.

Vote Required

          Proposal 1:  Election of Directors.  Directors are elected by a plurality of votes cast, without regard to either broker non-votes, or proxies as to which the authority to vote for the nominees being proposed is withheld.

          Proposal 2:  Ratification of the Appointment of Independent Registered Public Accounting Firm:  The affirmative vote of holders of a majority of the votes cast at the annual meeting in person or by proxy is required for the ratification of Crowe Chizek and Company LLP as the independent registered public accounting firm for the fiscal year ending June 30, 2008.  The ratification of this matter shall be determined by a majority of the votes cast at the annual meeting, without regard to broker non-votes or proxies marked “ABSTAIN.”

          Proposal 3: Approval of the Plan of Conversion and Reorganization.  We must obtain the affirmative vote of (i) the holders of a majority of the outstanding shares of common stock of K-Fed Bancorp, other than K-Fed Mutual Holding Company, and (ii) the holders of two-thirds of the votes eligible to be cast by stockholders of K-Fed Bancorp, including K-Fed Mutual Holding Company.

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          Proposal 4:  Approval of the adjournment of the annual meeting.  We must obtain the affirmative vote of the majority of the votes cast by holders of outstanding shares of K-Fed Bancorp common stock to adjourn the annual meeting, if necessary, to solicit additional proxies in the event that there are not sufficient votes at the time of the annual meeting to approve the proposal to approve the plan of conversion and reorganization.

          Informational Proposals 5a through 5f.  The provisions of Kaiser Federal Financial Group, Inc.’s articles of incorporation and bylaws which are summarized as informational proposals were approved as part of the process in which the board of directors of K-Fed Bancorp approved the plan of conversion and reorganization. These proposals are informational in nature only, because the Office of Thrift Supervision’s regulations governing mutual-to-stock conversions do not provide for votes on matters other than the plan of conversion and reorganization.  While we are asking you to vote with respect to each of the informational proposals listed above, the proposed provisions for which an informational vote is requested will become effective if stockholders approve the plan of conversion and reorganization, regardless of whether stockholders vote to approve any or all of the informational proposals.  The provisions of Kaiser Federal Financial Group, Inc.’s articles of incorporation and bylaws which are summarized as informational proposals may have the effect of deterring or rendering more difficult attempts by third parties to obtain control of Kaiser Federal Financial Group, Inc., if such attempts are not approved by the Board of Directors, or may make the removal of the board of directors or management, or the appointment of new directors, more difficult.

          Other Matters. We must obtain the affirmative vote of the majority of the votes cast by holders of outstanding shares of common stock of K-Fed Bancorp.

          Management anticipates that K-Fed Mutual Holding Company, our majority stockholder, will vote all of its shares of common stock in favor of all the matters set forth above.  If K-Fed Mutual Holding Company votes all of its shares in favor of each proposal, the approval of the election of the director nominees, the ratification of Crowe Chizek and Company LLP, and the adjournment of the annual meeting if necessary, would be assured. 

          As of the voting record date, the directors and executive officers of K-Fed Bancorp beneficially owned _________ shares, or approximately ___% of the outstanding shares of K-Fed Bancorp common stock and K-Fed Mutual Holding Company owned 8,861,750 shares, or approximately 63.5% of the outstanding shares of K-Fed Bancorp common stock.

          Your Board of Directors unanimously recommends that you vote “FOR” the plan of conversion and reorganization, “FOR” the adjournment of the annual meeting and “FOR” the Informational Proposals 5a through 5f.

The Companies

          Kaiser Federal Financial Group, Inc.

          Kaiser Federal Financial Group, Inc. is a newly-formed Maryland corporation that was incorporated on September 24, 2007 to be the successor corporation to K-Fed Bancorp upon completion of the conversion. Kaiser Federal Financial Group, Inc. will own all of the outstanding shares of common stock of Kaiser Federal Bank upon completion of the conversion. 

          Kaiser Federal Financial Group, Inc.’s executive offices are located at 1359 North Grand Avenue, Covina, California 91724.  Our telephone number at this address is (626) 339-9663.

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          K-Fed Mutual Holding Company

          K-Fed Mutual Holding Company is the federally chartered mutual holding company of K-Fed Bancorp.  K-Fed Mutual Holding Company’s principal business activity is the ownership of 8,861,750 shares of common stock of K-Fed Bancorp, or 63.5% of the issued and outstanding shares as of June 30, 2007. The remaining 5,087,195 shares of K-Fed Bancorp common stock were held by the public.  After the completion of the conversion, K-Fed Mutual Holding Company will cease to exist.

          K-Fed Bancorp

          K-Fed Bancorp is a federally chartered corporation that owns all of the outstanding shares of common stock of Kaiser Federal Bank.  At June 30, 2007, K-Fed Bancorp had consolidated assets of $799.6 million, deposits of $494.1 million and stockholders’ equity of $92.3 million.  After the completion of the conversion, K-Fed Bancorp will cease to exist, and will be succeeded by Kaiser Federal Financial Group, Inc., a new Maryland corporation formed to be K-Fed Bancorp’s successor corporation.  As of June 30, 2007, K-Fed Bancorp had 13,948,945 shares of common stock outstanding.

          Kaiser Federal Bank

          Kaiser Federal Bank is a federally chartered savings association headquartered in Covina, California. It was originally founded in 1953 as a credit union to serve the employees of the Kaiser Foundation Hospital in Los Angeles, California and converted to a federal mutual savings association in 1999. Kaiser Federal Bank reorganized into the mutual holding company structure in 2003 and became the wholly owned subsidiary of K-Fed Bancorp. Kaiser Federal Bank conducts its business from three full-service banking offices and six financial service centers that provide all the same services as a full service branch but do not dispense or accept cash except through an on-site ATM.  We currently have 54 ATMs.

          Kaiser Federal Bank’s principal business activity has historically consisted of attracting retail deposits from the general public and investing those funds primarily in permanent loans secured by first mortgages on owner-occupied, one- to four-family residences and, to a lesser extent, multi-family residential and commercial real estate loans. Kaiser Federal Bank also originates automobile and other consumer loans. Historically, Kaiser Federal Bank has not made commercial business loans or residential or commercial real estate construction loans.  Kaiser Federal Bank purchases a significant amount of loans as well as originates loans in order to more efficiently use its resources to build its loan portfolio without additional staff.  Kaiser Federal Bank offers a variety of deposit accounts, including savings accounts, money market accounts, demand deposit accounts, individual retirement accounts (“IRA”) and certificate of deposit accounts with varied terms ranging from 90 days to five years, and emphasizes personal and efficient service for its customers. See “Business of Kaiser Federal Bank—General.”

Our Current Organizational Structure

          In March 2004, K-Fed Bancorp completed a minority stock offering by selling approximately 39.0% of its shares of common stock to depositors of Kaiser Federal Bank.  The majority of the outstanding shares of common stock of K-Fed Bancorp are owned by K-Fed Mutual Holding Company, which is a mutual holding company with no stockholders. K-Fed Bancorp owns 100% of the outstanding shares of common stock of Kaiser Federal Bank.

          Pursuant to the terms of K-Fed Mutual Holding Company’s plan of conversion and reorganization, K-Fed Mutual Holding Company will convert from the mutual holding company to the stock holding company corporate structure.  As part of the conversion, we are offering for sale in a

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subscription offering, and possibly in a community and/or a syndicated community offering, the majority ownership interest of K-Fed Bancorp that is currently owned by K-Fed Mutual Holding Company.  Upon the completion of the conversion and offering, K-Fed Mutual Holding Company will cease to exist, and we will complete the transition from partial to full public stock ownership.  Upon completion of the conversion, existing public stockholders of K-Fed Bancorp will receive shares of common stock of Kaiser Federal Financial Group, Inc. in exchange for their shares of K-Fed Bancorp common stock in order to maintain the public stockholders’ existing percentage ownership in our organization (excluding any new shares purchased by them in the offering).

          The following diagram shows our current organizational structure:

Our Organizational Structure Following the Conversion and Offering

          After the conversion and offering are completed, we will be organized as a fully public holding company, as follows:

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Business Strategy

          Our goal is to operate as a well-capitalized and profitable financial institution.  We seek to accomplish this goal by:

• Continued focus on maintaining cost efficiencies through purchases of loans to grow our loan portfolio and expanding our market locations through the use of financial service centers and ATMs;

• Continuing our branch expansion by building or leasing new branch facilities or by acquiring branches from other financial institutions primarily located near Kaiser Permanente Medical Centers in Southern California.  We have no current understandings or agreements for the establishment of any branch;

• Capitalizing on the profitability and growth opportunities in our retail banking network by expanding existing individual customer relationships and developing new customer relationships to increase our core deposits;

• Increasing our commercial real estate and multi-family lending while maintaining a moderate growth of one to four-family residential real estate loans through originations, purchases and sales of such loans while continuing to apply our underwriting standards in order to maintain a high quality loan portfolio;

• Enhancing existing products and services, and supporting the development of new products and services by investing, for example, in technology to support development of commercial deposit products such as sweep accounts and business checking services; and

• Expanding through acquisitions of other financial institutions, primarily in Southern California.  We have no current understandings or agreements for any specific acquisition.

          See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Business Strategy” for a more detailed discussion of our business strategy.

Reasons for the Conversion and Offering

          Our Board of Directors decided at this time to convert to a fully public stock form of ownership and conduct the offering in order to increase our capital position and support future growth. Completing the conversion and offering is necessary for us to continue to grow and execute our business strategy. We believe that our conversion to a fully public company and the increased capital resources that will result from the sale of our shares of common stock will provide us with the flexibility to:

• support internal growth through loan purchases and lending in the communities we serve;

• enhance existing products and services, and support the development of new products and services;

• build or lease new branch facilities or acquire branches from other financial institutions;

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• finance the acquisition of financial institutions, or other financial service companies primarily in Southern California, although we do not currently have any understandings or agreements regarding any specific acquisition transaction;

• improve the liquidity of our shares of common stock and enhance stockholder returns through higher earnings and more flexible capital management strategies; and

• use the additional capital for other general corporate purposes.

Terms of the Conversion and Offering

          Pursuant to K-Fed Mutual Holding Company’s plan of conversion and reorganization, our organization will convert from a partially public form to a fully public form of holding company structure.  In connection with the conversion, we are selling shares of common stock that represent the ownership interest in K-Fed Bancorp currently held by K-Fed Mutual Holding Company.

          We are offering between 11,050,000 and 14,950,000 shares of common stock to eligible depositors of Kaiser Federal Bank, to our tax qualified employee benefit plans, including our employee stock ownership plan and our 401(k) plan and, to the extent shares remain available, to natural persons residing in the California Counties of Los Angeles, San Bernardino, Riverside and Santa Clara, to our existing public stockholders and to the general public.  The number of shares of common stock to be sold may be increased to up to 17,192,500 as a result of regulatory considerations, demand for our shares, or changes in the market for financial institution stocks.  Unless the number of shares of common stock to be offered is increased to more than 17,192,500 shares or decreased to fewer than 11,050,000 shares, or the offering is extended beyond [Extension Date #1], purchasers will not have the opportunity to modify or cancel their stock orders once submitted.  If the number of shares of common stock to be sold is increased to more than 17,192,500 shares or decreased to fewer than 11,050,000 shares, or if the offering is extended beyond [Extension Date #1], purchasers will have the opportunity to maintain, cancel or change their orders for common stock during a designated resolicitation period or have their funds returned promptly with interest.  If you do not provide us with written indication of your intent, your stock order will be cancelled, your funds will be returned to you with interest calculated at Kaiser Federal Bank’s passbook savings rate and any deposit account withdrawal authorization will be cancelled.

          The purchase price of each share of common stock to be offered for sale in the offering is $10.00.  All investors will pay the same purchase price per share.  Investors will not be charged a commission to purchase shares of common stock in the offering.  Keefe Bruyette & Woods, our financial advisor and selling agent in the offering, will use its best efforts to assist us in selling shares of our common stock.  Keefe Bruyette & Woods is not obligated to purchase any shares of common stock in the offering.

Persons Who May Order Shares of Common Stock in the Offering

          We are offering the shares of common stock in a “subscription offering” in the following descending order of priority:

(i)	First, to depositors with accounts at Kaiser Federal Bank with aggregate balances of at least $50 at the close of business on March 31, 2006.
(ii)	Second, to our tax-qualified employee benefit plans, including our employee stock ownership plan and 401(k) plan, which will receive nontransferable subscription rights to purchase in the aggregate up to 10% of the shares of common stock sold in the offering.

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(iii)	Third, to depositors with accounts at Kaiser Federal Bank with aggregate balances of at least $50 at the close of business on September 30, 2007.
(iv)	Fourth, to depositors of Kaiser Federal Bank at the close of business on _________, 2007.

          Shares of common stock not purchased in the subscription offering may be offered for sale to the general public in a “community offering,” with a preference given first to natural persons residing in the California Counties of Los Angeles, San Bernardino, Riverside and Santa Clara, and then to K-Fed Bancorp public stockholders as of _________, 2007.  The community offering, if held, may begin concurrently with, during or promptly after the subscription offering as we may determine at any time.  We also may offer for sale shares of common stock not purchased in the subscription offering or community offering through a “syndicated community offering.”  We have the right to accept or reject, in our sole discretion, orders received in the community offering or syndicated community offering.  Any determination to accept or reject purchase orders in the community offering and the syndicated community offering will be based on the facts and circumstances available to management at the time of the determination.

          If we receive orders for more shares than we are offering, we may not be able to fully or partially fill your order.  Shares will be allocated first to categories in the subscription offering in accordance with K-Fed Mutual Holding Company’s plan of conversion and reorganization.  A detailed description of share allocation procedures can be found in the section of this proxy statement/prospectus entitled “Proposal 3 — Approval of the Plan of Conversion and Reorganization.”

How We Intend to Use the Proceeds from the Offering

          We estimate that the aggregate net proceeds from the offering will be between $106.2 million and $143.2 million, or $164.4 million if the offering range is increased by 15%.  Kaiser Federal Financial Group, Inc. intends to retain between $46.5 million and $62.6 million of the net proceeds, or $71.9 million if the offering range is increased by 15% (excluding the portion of the net proceeds loaned to our employee stock ownership plan).  Approximately $53.1 million to $71.6 million of the net proceeds (or $82.2 million if the offering range is increased by 15%) will be invested in Kaiser Federal Bank. 

          A portion of the net proceeds retained by Kaiser Federal Financial Group, Inc. will be loaned to our employee stock ownership plan to fund its purchase of shares of common stock in the offering (between 663,000 shares and 897,000 shares, or 1,031,550 shares if the offering is increased by 15%).  The employee stock ownership plan was established in connection with our 2004 minority stock issuance.  As of June 30, 2007, there were 307,084 shares remaining unallocated in the plan. The remainder of the net proceeds may be used for general corporate purposes, including paying cash dividends or repurchasing shares of our common stock.  Funds invested in Kaiser Federal Bank will be used to support increased lending and new products and services.  The net proceeds retained by Kaiser Federal Financial Group, Inc. and Kaiser Federal Bank may also be used for future business expansion such as acquisitions of banking or financial services companies and the establishment of additional branch offices primarily in Southern California, and for general corporate purposes.  We currently have no arrangements or understandings regarding any specific transaction or any new branch location.  Initially, a substantial portion of the net proceeds will be invested in short-term investments, investment-grade debt obligations and mortgage-backed securities.

          Please see the section of this proxy statement/prospectus entitled “How We Intend to Use the Proceeds from the Offering” for more information on the proposed use of the net proceeds from the offering.

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How We Determined the Offering Range, the Exchange Ratio and the $10.00 Per Share Stock Price

          The offering range and exchange ratio are based on an independent appraisal of the estimated market value of Kaiser Federal Financial Group, Inc., assuming the conversion, the exchange and the offering are completed.  RP Financial, LC., an appraisal firm experienced in appraisals of financial institutions, has estimated that, as of August 31, 2007, this pro forma market value ranged from $173.9 million to $235.3 million, with a midpoint of $204.6 million.  Based on this valuation, the ownership interest of K-Fed Mutual Holding Company being sold in the offering and the $10.00 per share price, the number of shares of common stock being offered for sale by Kaiser Federal Financial Group, Inc. will range from 11,050,000 shares to 14,950,000 shares.  The $10.00 per share price was selected primarily because it is the price most commonly used in mutual-to-stock conversions of financial institutions. The exchange ratio will range from 1.2469 shares at the minimum of the offering range to 1.6870 shares at the maximum of the offering range in order to preserve the existing percentage ownership of public stockholders in our organization (excluding any new shares purchased by them in the offering).  The independent appraisal is based in part on K-Fed Bancorp’s financial condition and results of operations, the pro forma impact of the additional capital raised by the sale of shares of common stock in the offering, and an analysis of a peer group of 10 publicly traded thrift holding companies that RP Financial, LC. considered comparable to K-Fed Bancorp.

          The independent appraisal does not indicate actual market value or post offering trading value.  Do not assume or expect that the estimated valuation as indicated above means that, after the conversion and offering, the shares of our common stock will trade at or above the $10.00 purchase price.

          The following table presents a summary of selected pricing ratios for the peer group companies, Kaiser Federal Financial Group, Inc. (on a pro forma basis) and K-Fed Bancorp (on a historical basis). The pricing ratios are based on earnings and other information as of and for the twelve months ended June 30, 2007 and stock price information as of August 31, 2007, as reflected in RP Financial, LC.’s appraisal report, dated August 31, 2007.  Compared to the average pricing of the peer group, our pro forma pricing ratios at the maximum of the offering range indicated a discount of 16.1 % on a price-to-book value basis and a discount of 20.9 % on a price-to-tangible book value basis, and a premium of 82.0 % on a price-to-core earnings basis. 

          Our Board of Directors, in reviewing and approving the independent appraisal, considered the range of price-to-core earnings multiples, the range of price-to-book value and price-to-tangible book value ratios at the different ranges of shares of common stock to be sold in the offering, and did not consider one valuation approach to be more important than the other.  Instead, in approving the independent appraisal, the Board of Directors concluded that these ranges represented the appropriate balance of the three approaches to establishing our estimated valuation range, and the number of shares of common stock to be sold, in comparison to the peer group institutions.  Specifically, in approving the independent appraisal, the Board of Directors believed that we would not be able to sell our shares at a price-to-book and price-to-tangible book value that was in line with the peer group without unreasonably exceeding the peer group on a price-to-core earnings basis.  The estimated appraised value and the resulting discount/premium took into consideration the potential financial impact of the conversion and offering as well as the trading price of K-Fed Bancorp common stock, which decreased from $14.75 per share on June 27, 2007, the closing price on the last trading day immediately preceding the announcement of the conversion, to $13.72 per share, the trading price on August 31, 2007, the effective date of the independent appraisal.

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	Price-to-core earnings multiple		Price-to-book value ratio			Price-to-tangible book value ratio
Kaiser Federal Financial Group, Inc. (on a pro forma basis, assuming completion of the conversion)
Minimum		25.64x		92.59	%		94.79	%
Midpoint		29.41x		100.10	%		102.25	%
Maximum		32.26x		106.50	%		108.58	%
Maximum, as adjusted		35.71x		112.74	%		114.81	%
Valuation of peer group companies, as of August 31, 2007
Averages		17.73x		126.99	%		137.30	%
Medians		15.43x		119.01	%		124.46	%

          RP Financial, LC. will update the independent appraisal prior to the completion of the conversion. If the estimated appraised value changes to either below $173.9 million or above $270.6 million, we will resolicit persons who submitted stock orders.  See “Proposal 3 — Approval of the Plan of Conversion and Reorganization —Stock Pricing and Number of Shares to be Issued.”

After-Market Performance Information

          The following table presents selected stock price performance information for all conversions of mutual holding companies to stock holding companies, commonly referred to as “second-step” conversions, completed between January 1, 2005 and August 31, 2007. The companies for which the stock price performance is presented completed their conversions in different market conditions than Kaiser Federal Financial Group, Inc. and may have issued more or less than the 63.5% ownership interest of K-Fed Mutual Holding Company being offered by Kaiser Federal Financial Group, Inc. in the offering.  In addition, the companies may have no similarities to Kaiser Federal Financial Group, Inc. with regard to the market in which Kaiser Federal Financial Group, Inc. competes, earnings quality or growth potential, among other factors. The information shown in the following table was not included in the independent appraisal report; however, RP Financial, LC. did consider the after-market trading performance of any transaction that was completed within the three months prior to the August 31, 2007 valuation date used in the appraisal.

					Price Performance From Initial Trading Date
Institution	Conversion Date		Exchange		% Change 1 day			% Change 1 week			% Change 4 weeks			Through August 31, 2007
Abington Bancorp, Inc. (ABBC)		06/28/07		Nasdaq		(4.0	)		(1.6	)		(6.6	)		(4.1	)
People’s United Financial, Inc. (PBCT)		04/16/07		Nasdaq		3.8	%		2.0	%		0.9	%		(11.6	)%
Osage Bancshares, Inc. (OSBK)		01/18/07		Nasdaq		(0.5	)		(0.5	)		(2.5	)		(16.0	)
Westfield Financial, Inc. (WFD)		01/04/07		Amex		7.0			7.5			9.9			1.1
Citizens Community Bancorp, Inc. (CZWI)		11/01/06		Nasdaq		(2.5	)		(1.0	)		(2.5	)		(10.0	)
Liberty Bancorp, Inc. (LBCP)		07/24/06		Nasdaq		2.5			1.0			(0.8	)		8.1
First Clover Leaf Financial Corp. (FCLF)		07/11/06		Nasdaq		3.9			6.0			9.8			9.0
Monadnock Bancorp, Inc. (MNKB)		06/29/06		Otcbb		—			(5.0	)		(15.6	)		(15.6	)
New England Bancshares, Inc. (NEBS)		12/29/05		Nasdaq		6.6			7.0			7.0			20.1
American Bancorp of New Jersey, Inc. (ABNJ)		10/06/05		Nasdaq		1.6			(2.0	)		0.1			11.0
Hudson City Bancorp, Inc. (HCBK)		06/07/05		Nasdaq		9.6			10.7			15.5			42.2
First Federal of Northern Michigan (FFNM)		04/04/05		Nasdaq		(5.1	)		(7.0	)		(16.0	)		(20.0	)
Rome Bancorp, Inc. (ROME)		03/31/05		Nasdaq		0.5			(2.0	)		(5.6	)		19.0
				Averages		1.8	%		1.2	%		(0.5	)%		2.6	%

*  Transaction involved simultaneous acquisition.

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          The table above presents only short-term historical information on stock price performance for a small number of transactions, which may not be indicative of the short or long-term performance of such stock prices.  The table above is also not intended to predict how our shares of common stock may perform following the offering.  The historical information in the tables may not be meaningful to you because the data were calculated using a small sample and the transactions from which the data were derived occurred primarily during a low market interest rate environment, during which time the trading prices for financial institution stocks typically increase.

          You should bear in mind that stock price appreciation or depreciation is affected by many factors. There can be no assurance that our stock price will not trade at or below $10.00 per share.  The movement of any particular company’s stock price is subject to various factors, including, but not limited to, the amount of proceeds a company raises, the company’s historical and anticipated operating results, the nature and quality of the company’s assets, the company’s market area and the quality of management and management’s ability to deploy proceeds (such as through loans and investments, the acquisition of other financial institutions or other businesses, the payment of dividends and common stock repurchases).  In addition, stock prices may be affected by general market and economic conditions, the interest rate environment, the market for financial institutions and merger or takeover transactions and the presence of professional and other investors who purchase stock on speculation, as well as other unforeseeable events not in the control of management.  Before you make an investment decision, we urge you to read this entire proxy statement/prospectus carefully, including, but not limited to, the section entitled “Risk Factors” beginning on page __.

Benefits to Management and Potential Dilution to Stockholders Resulting from the Conversion

          Employee Stock Ownership Plan.  Our tax-qualified employee stock ownership plan expects to purchase up to 6.0% of the shares of common stock we sell in the offering, or 897,000 shares of common stock, assuming we sell the maximum number of the shares proposed to be sold which, when combined with the existing shares held by the employee stock ownership plan, will be less than 8.0% of the shares outstanding following the conversion as required by Office of Thrift Supervision regulations.  If we receive orders for more shares of common stock than the maximum of the offering range, the employee stock ownership plan will have first priority to purchase shares over this maximum, up to a total of 6.0% of the shares of common stock sold in the offering.  We reserve the right to purchase shares of common stock in the open market following the offering in order to fund all or a portion of the employee stock ownership plan.  This plan is a tax-qualified retirement plan for the benefit of all our employees that was established in 2004 in connection with our minority stock offering and that, as of June 30, 2007, had 307,084 shares remaining unallocated under this plan.  Assuming the employee stock ownership plan purchases 897,000 shares in the offering, which when combined with the 307,084 unallocated shares currently outstanding, for an aggregate amount of 1,204,084 unallocated shares under the plan, we will recognize compensation expense of $12.0 million over a 20-year period for the plan, assuming the shares of common stock have a fair market value of $10.00 per share for the full 20-year period.  If, in the future, the shares of common stock have a fair market value greater or less than $10.00, the compensation expense will increase or decrease accordingly.

          Stock-Based Incentive Plan.  We also intend to implement a new stock-based incentive plan no earlier than six months after completion of the conversion.  Stockholder approval of this plan will be required.  If adopted within 12 months following the completion of the conversion, the stock-based incentive plan will reserve a number of shares up to 3.7%of the shares of common stock sold in the offering, or up to 557,541 shares of common stock at the maximum of the offering range, for awards of restricted stock to key employees and directors, at no cost to the recipients, in order to ensure that the aggregate number of restricted shares of common stock subject to the new stock-based incentive plan and the 2004 Recognition and Retention Plan does not exceed 4.0% of the shares outstanding (including

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shares issued in exchange for existing shares of K-Fed Bancorp common stock) following completion of the conversion as required by Office of Thrift Supervision regulations.  If the shares of common stock awarded under the stock-based incentive plan come from authorized but unissued shares of common stock, stockholders would experience dilution of up to approximately 2.3% in their ownership interest in Kaiser Federal Financial Group, Inc.  If adopted within 12 months following the completion of the conversion, the stock-based incentive plan will also reserve a number of shares up to 9.3% of the shares of common stock sold in the offering, or up to 1,393,854 shares of common stock at the maximum of the offering range, for grants of stock options to key employees and directors in order to ensure that the aggregate number of shares reserved does not exceed 10.0% of the shares outstanding (including shares issued in exchange for existing shares of K-Fed Bancorp common stock) following completion of the conversion as required by Office of Thrift Supervision regulations.  If the shares of common stock issued upon the exercise of options come from authorized but unissued shares of common stock, stockholders would experience dilution of approximately 5.6% in their ownership interest in Kaiser Federal Financial Group, Inc.  Restricted stock awards and stock option grants made under this plan would be subject to vesting over a period of not less than five years.  If the stock-based incentive plan is adopted more than one year after the completion of the conversion, awards of restricted stock or grants of stock options under the plan may exceed 3.7%and 9.3%, respectively, of the shares sold in the offering and have a shorter vesting period.  For a description of our current stock benefit plans, see “Proposal-Election of Director—Benefit Plans.”

          The following table summarizes the number of shares of common stock and the aggregate dollar value of grants that are expected under the new stock-based incentive plan as a result of the conversion.  The table also shows the dilution to stockholders if all such shares are issued from authorized but unissued shares, instead of shares purchased in the open market.  A portion of the stock grants shown in the table below may be made to non-management employees.

	Number of Shares to be Granted or Purchased(1)										Value of Grants (2)
								Dilution Resulting From Issuance of Shares for Stock Benefit Plans
	At Minimum of Offering Range		At Maximum of Offering Range		As a Percentage of Common Stock to be Sold in the Offering						At Minimum of Offering Range		At Maximum of Offering Range
Employee stock ownership plan		663,000		897,000		6.0	%		—	%	$	6,630,000	$	8,970,000
Restricted stock awards		412,096		557,541		3.7			2.3	(3)		4,120,960		5,575,410
Stock options		1,030,240		1,393,854		9.3			5.6	(3)		2,606,507		3,526,451
Total		2,105,336		2,848,395		19.0	%		7.7	%	$	13,357,467	$	18,071,861

(1)	The stock-based incentive plan may award a greater number of options and shares, respectively, if the plan is adopted more than one year after the completion of the conversion, although such plan may remain subject to supervisory restrictions.
(2)	The actual value of restricted stock awards will be determined based on their fair value as of the date grants are made.  For purposes of this table, fair value is assumed to be the same as the offering price of $10.00 per share.  The fair value of stock options has been estimated at $2.53 per option using the Black-Scholes option pricing model with the following assumptions:  a grant-date share price and option exercise price of $10.00; an expected option life of 6.25 years; a dividend rate of 2.33%; a risk free interest rate of 4.67%; and a volatility rate of 23.35% based on an index of publicly traded thrift institutions.  The actual value of option grants will be determined by the grant-date fair value of the options, which will depend on a number of factors, including the valuation assumptions used in the option pricing model ultimately adopted.
(3)	Calculated at the maximum of the offering range, and assumes such shares come from authorized but unissued shares.

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Existing and New Stock Benefit Plans	Participants	Shares			Estimated Value of Shares			Percentage of Shares Outstanding After the Conversion
Existing employee stock ownership plan shares	Employees		767,495	(1)	$	7,674,950			3.3	%
New employee stock ownership plan shares	Employees		897,000			8,970,000			3.8
Total employee stock ownership plan shares	Employees		1,664,495			16,644,950			7.1
Existing shares of restricted stock	Directors, Officers and Employees		383,748	(2)		3,837,480	(3)		1.6
New shares of restricted stock	Directors, Officers and Employees		557,541			5,575,410			2.4
Total shares of restricted stock	Directors, Officers and Employees		941,289			9,412,890			4.0
Existing stock options	Directors, Officers and Employees		959,369	(4)		2,609,484	(5)		4.1
New stock options	Directors, Officers and Employees		1,393,854			3,526,451	(5)		5.9
Total stock options	Directors, Officers and Employees		2,353,223			6,135,935			10.0
Total of stock benefit plans			4,959,007		$	32,193,775			21.1	%

(1)	K-Fed Bancorp initially established an employee stock ownership plan, which purchased 454,940 shares of its common stock in its minority stock issuance.  As of June 30, 2007, the employee stock ownership plan held 454,940 shares of which 147,856 have been allocated.  These shares will be exchanged for 767,495 shares using the exchange ratio at the maximum of the offering range.
(2)	Represents 227,470 shares of restricted stock authorized for grant under the 2004 Recognition and Retention Plan, which will be exchanged for 383,748 shares using the exchange ratio at the maximum of the offering range.  As of June 30, 2007, 164,540 shares of restricted stock were awarded.  As of June 30, 2007, 56,880 shares or 25% of the shares awarded have vested and will be exchanged for 95,958 shares using the exchange ratio at the maximum of the offering range.
(3)	The actual value of restricted stock awards will be determined based on their fair value as of the date grants are made.  For purposes of this table, fair value is assumed to be the same as the offering price of $10.00 per share.
(4)	Represents 568,675 shares reserved for issuance under the 2004 Stock Option Plan, which will be exchanged for 959,369 shares using the exchange ratio at the maximum of the offering range.  Options to purchase a total of 348,400 shares have been granted and are outstanding under the existing 2004 Stock Option Plan, which will be exchanged for options to purchase a total of 587,760 shares using the exchange ratio at the maximum of the offering range. A total of 11,720 options have been exercised. A total of 22% of the outstanding awards or 126,280 options have vested, which will be exchanged for 213,038 shares using the exchange ratio at the maximum of the offering range.
(5)	The weighted-average fair value of stock options granted under the 2004 Stock Option Plan has been estimated at $4.59 per option using the Black-Scholes option pricing model.  The assumptions used for the options granted in 2004 were: exercise price, $15.18; a dividend yield range of 1.33% to 2.35%; expected life of five to seven years; an expected volatility range of 23.0% to 39.18%; and a risk-free interest rate range of 3.54% to 4.77%.  The fair value of stock options granted under the 2004 Stock Option Plan has been adjusted to $2.72 per option to reflect the additional shares issued at the maximum exchange ratio from the conversion and stock offering.  The fair value of stock options to be granted under the new stock-based incentive plan has been estimated based on an index of publicly traded thrift institutions at $2.53 per option using the Black-Scholes option pricing model with the following assumptions; exercise price, $10.00; trading price on date of grant; dividend yield, 2.33%; expected life, 6.25 years; expected volatility, 23.35%; and risk-free interest rate, 4.67%.

          The value of the restricted shares awarded under the stock-based incentive plan will be based on the market value of Kaiser Federal Financial Group, Inc.’s common stock at the time the shares are awarded. The stock-based incentive plan is subject to stockholder approval, and cannot be implemented until at least six months after completion of the conversion and offering.  The following table presents the total value of all shares that would be available for award and issuance under the new stock-based incentive plan, assuming the shares are awarded when the market price of our common stock ranges from $8.00 per share to $14.00 per share.

Share Price	412,096 Shares Awarded at Minimum of Range		484,819 Shares Awarded at Midpoint of Range		557,541 Shares Awarded at Maximum of Range		641,173 Shares Awarded at Maximum of Range, As Adjusted
$          8.00	$	3,296,768	$	3,878,552	$	4,460,328	$	5,129,384
10.00		4,120,960		4,848,190		5,575,410		6,411,730
12.00		4,945,152		5,817,828		6,690,492		7,694,076
14.00		5,769,344		6,787,466		7,805,574		8,976,422

           The grant-date fair value of the options granted under the new stock-based incentive plan will be based in part on the price of shares of common stock of Kaiser Federal Financial Group, Inc. at the time

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the options are granted. The value will also depend on the various assumptions utilized in the option pricing model ultimately adopted.  The following table presents the total estimated value of the options to be available for grant under the proposed stock-based incentive plan, assuming the market price and exercise price for the stock options are equal and the range of market prices for the shares is $8.00 per share to $14.00 per share.

Exercise Price	Grant Date Fair Value Per Option		1,030,240 Options at Minimum of Range		1,212,047 Options at Midpoint of Range		1,393,854 Options at Maximum of Range		1,602,932 Options at Maximum of Range, As Adjusted
$                   8.00	$	2.02	$	2,081,084	$	2,448,335	$	2,815,585	$	3,237,923
10.00		2.53		2,606,507		3,066,479		3,526,451		4,055,418
12.00		3.04		3,131,930		3,684,623		4,237,316		4,872,913
14.00		3.54		3,647,050		4,290,646		4,934,243		5,674,379

          The tables presented above are provided for informational purposes only.  There can be no assurance that our stock price will not trade at or below $10.00 per share.  Before you make an investment decision, we urge you to read this entire proxy statement/prospectus carefully, including, but not limited to, the section entitled “Risk Factors” beginning on page 25.

The Exchange of Existing Shares of K-Fed Bancorp Common Stock

          If you are a stockholder of K-Fed Bancorp as of the conclusion of the conversion, your shares will be canceled and exchanged for shares of common stock of Kaiser Federal Financial Group, Inc.  The number of shares of common stock you receive will be based on an exchange ratio determined as of the conclusion of the conversion, which will depend upon our final appraised value.  The number of shares you receive will not be based on the market price of our currently outstanding K-Fed Bancorp shares.  Instead, the exchange ratio will ensure that existing public stockholders of K-Fed Bancorp will own the same percentage of Kaiser Federal Financial Group, Inc.’s common stock after the conversion and offering exclusive of their purchase of any additional shares of common stock in the offering and their receipt of cash in lieu of fractional exchange shares.  The following table shows how the exchange ratio will adjust, based on the valuation of Kaiser Federal Financial Group, Inc. and the number of shares of common stock issued in the offering.  The table also shows the number of whole shares of Kaiser Federal Financial Group, Inc. common stock a hypothetical owner of K-Fed Bancorp common stock would receive in exchange for 100 shares of K-Fed Bancorp common stock owned at the consummation of the conversion, depending on the number of shares of common stock sold in the offering. 

											Total Shares of Common Stock to be Outstanding
						New Shares to be Exchanged for							Exchange Ratio		Equivalent Per Share Current Market Price (1)		New Shares That Would be Received for 100 Existing Shares
	New Shares to be Sold in This Offering					Existing Shares of K- Fed Bancorp					after the Conversion and Offering
	Amount		Percent			Amount		Percent
Minimum		11,050,000		63.5	%		6,343,386		36.5	%		17,393,386		1.2469	$	12.47		124
Midpoint		13,000,000		63.5	%		7,462,808		36.5	%		20,462,808		1.4670		14.67		146
Maximum		14,950,000		63.5	%		8,582,229		36.5	%		23,532,229		1.6870		16.87		168
Maximum; as adjusted		17,192,500		63.5	%		9,869,563		36.5	%		27,062,063		1.9401		19.40		194

(1) Represents the value of shares of Kaiser Federal Financial Group, Inc. common stock received in the conversion by a holder of one share of K-Fed Bancorp at the exchange ratio, assuming the market price of $10.00 per share.

          If you own shares of K-Fed Bancorp common stock through a brokerage account in “street name,” you do not need to take any action to exchange your shares of common stock.  Your shares will be automatically exchanged.  If you hold K-Fed Bancorp stock certificate(s), you will receive a transmittal

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form with instructions on how to surrender your stock certificate(s) after consummation of the conversion. New certificate(s) of Kaiser Federal Financial Group, Inc. common stock will be mailed to you within five business days after the exchange agent receives your properly executed transmittal form and your K-Fed Bancorp stock certificate(s).  You should not submit a stock certificate for exchange until you receive a transmittal form.

          No fractional shares of Kaiser Federal Financial Group, Inc. common stock will be issued to any public stockholder of K-Fed Bancorp. For each fractional share that would otherwise be issued, Kaiser Federal Financial Group, Inc. will pay in cash an amount equal to the product obtained by multiplying the fractional share interest to which the holder would otherwise be entitled by the $10.00 per share purchase price of the common stock in the offering. 

          Outstanding options to purchase shares of K-Fed Bancorp common stock also will convert into and become options to purchase new shares of Kaiser Federal Financial Group, Inc. common stock. The number of shares of common stock to be received upon exercise of these options will be determined pursuant to the exchange ratio. The aggregate exercise price, duration and vesting schedule of these options will not be affected by the conversion.  At June 30, 2007, there were 348,400 outstanding options to purchase shares of K-Fed Bancorp common stock, 114,560 of which have vested.  Such options will be converted into options to purchase 142,844 shares of common stock at the minimum of the offering range and 193,262 shares of common stock at the maximum of the offering range.  Because Office of Thrift Supervision regulations prohibit us from repurchasing our common stock during the first year following the conversion unless compelling business reasons exist for such repurchases, we may use authorized but unissued shares to fund option exercises that occur during the first year following the conversion.  If all existing options were exercised for authorized, but unissued shares of common stock following the conversion, stockholders would experience dilution of approximately 5.6% at the minimum of the offering range and 5.6% at the maximum of the offering range. 

Limits on How Much Common Stock You May Purchase

          The minimum number of shares of common stock that may be purchased in the offering is 25.

          If you are not currently a K-Fed Bancorp stockholder –

          No person exercising subscription rights through one or more similarly titled individual deposit accounts, and no group of persons exercising subscription rights through one deposit account may purchase more than five percent (5%) of the common stock sold in the offering.  At the midpoint of the offering range this would be $6,500,000 or 650,000 shares of common stock.  If any of the following persons purchase shares of common stock, their purchases, in all categories of the offering combined, when aggregated with your purchases, cannot exceed five percent (5%) of the common stock sold in the offering:

• your spouse or relatives of you or your spouse living in your house;

• companies, trusts or other entities in which you are a trustee, have a controlling beneficial interest or hold a senior position; or

• other persons who may be your associates or persons acting in concert with you.

          Unless we determine otherwise, persons having the same address and persons exercising subscription rights through qualifying deposit accounts registered to the same address will be subject to

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the overall purchase limitation of five percent (5%) of the common stock sold in the offering in all categories of the offering combined.

          See the detailed description of purchase limitations and definitions of “acting in concert” and “associate” in “Proposal 3 — Approval of the Plan of Conversion and Reorganization —Limitations on Common Stock Purchases.”

          If you are currently a K-Fed Bancorp stockholder –

          In addition to the above purchase limitations, there is an ownership limitation for stockholders other than our employee stock ownership plan.  Shares of common stock that you purchase in the offering individually and together with persons described above, plus any shares you and they receive in exchange for existing shares of K-Fed Bancorp common stock, may not exceed five percent (5%) of the total shares of common stock to be issued and outstanding after the completion of the conversion. 

          Subject to Office of Thrift Supervision approval, we may increase or decrease the purchase and ownership limitations at any time.

How You May Purchase Shares of Common Stock

          In the subscription offering and community offering, you may pay for your shares only by:

(i)	personal check, bank check or money order made payable directly to Kaiser Federal Financial Group, Inc.; or
(ii)	authorizing us to withdraw funds from the types of Kaiser Federal Bank deposit accounts designated on the stock order form.

          Kaiser Federal Bank is not permitted to lend funds to anyone for the purpose of purchasing shares of common stock in the offering.  Additionally, you may not use Kaiser Federal Bank line of credit check or any type of third party check or wire transfer to pay for shares of common stock.  Please do not submit cash.

          You may purchase shares of common stock in the offering by delivering a signed and completed original stock order form, together with full payment payable to Kaiser Federal Financial Group, Inc. or authorization to withdraw funds from one or more of your Kaiser Federal Bank deposit accounts, provided that we receive the stock order form before 12:00 Noon, Pacific Time, on [Expiration Date], which is the end of the offering period. Checks and money orders will be immediately deposited in a segregated account with Kaiser Federal Bank or another insured depository institution upon receipt.  We will pay interest calculated at Kaiser Federal Bank’s passbook savings rate from the date funds are received until completion or termination of the conversion.  On your stock order form, you may not authorize direct withdrawal from a Kaiser Federal Bank individual retirement account. If you wish to use funds in an individual retirement account to purchase shares of our common stock, please see “—Using Individual Retirement Account Funds to Purchase Shares” below.  You may not designate a withdrawal from Kaiser Federal Bank accounts with check-writing privileges. Please provide a check instead.

          Withdrawals from certificates of deposit to purchase shares of common stock in the offering may be made without incurring an early withdrawal penalty.  If a withdrawal results in a certificate account with a balance less than the applicable minimum balance requirement, the certificate will be canceled at the time of withdrawal without penalty and the remaining balance will earn interest at the current passbook savings rate subsequent to the withdrawal.  All funds authorized for withdrawal from deposit

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accounts at Kaiser Federal Bank must be available in the accounts at the time the stock order is received. However, funds will not be withdrawn from an account until the completion of the offering and will earn interest at the applicable deposit account rate until that time.  A hold will be placed on those funds when your stock order is received, making the designated funds unavailable to you.     

          We are not required to accept copies or facsimiles of stock order forms.  By signing the stock order form, you are acknowledging both receipt of this proxy statement/prospectus and that the shares of common stock are not deposits or savings accounts that are federally insured or otherwise guaranteed by Kaiser Federal Bank, Kaiser Federal Financial Group, Inc. or the federal government.

Using Individual Retirement Account Funds to Purchase Shares

          You may be able to subscribe for shares of common stock using funds in your individual retirement account.  However, shares of common stock must be held in a self-directed retirement account, such as those offered by a brokerage firm. By regulation, Kaiser Federal Bank’s individual retirement accounts are not self-directed, so they cannot be invested in our common stock. If you wish to use some or all of the funds in your Kaiser Federal Bank individual retirement account, the applicable funds must be transferred to a self-directed account maintained by an independent trustee, such as a brokerage firm. If you do not have such an account, you will need to establish one before placing your stock order. An annual administrative fee may be payable to the independent trustee. Because individual circumstances differ and processing of retirement fund orders takes additional time, we recommend that you contact our Stock Information Center promptly, preferably at least two weeks before the [Expiration Date] offering deadline, for assistance with purchases using your individual retirement account or other retirement account that you may have at Kaiser Federal Bank or elsewhere.  Whether you may use such funds for the purchase of shares in the offering may depend on timing constraints and, possibly, limitations imposed by the institution where the funds are held.

Delivery of Stock Certificates

          Certificates representing shares of common stock sold in the offering will be mailed by regular mail to the persons entitled thereto at the certificate registration address noted on the stock order form, as soon as practicable following consummation of the offering and receipt of all necessary regulatory approvals.  It is possible that, until certificates for the common stock are delivered, purchasers might not be able to sell the shares of common stock that they ordered, even though the common stock will have begun trading.

You May Not Sell or Transfer Your Subscription Rights

          Office of Thrift Supervision regulations prohibit you from transferring your subscription rights.  If you order shares of common stock in the subscription offering, you will be required to state that you are purchasing the common stock for yourself and that you have no agreement or understanding to sell or

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transfer your subscription rights.  We intend to take legal action, including reporting persons to federal agencies, against anyone who we believe has sold or transferred his or her subscription rights.  We will not accept your order if we have reason to believe that you have sold or transferred your subscription rights.  On the stock order form, you may not add the names of others for joint stock registration who do not have subscription rights or who qualify only in a lower subscription offering priority than you do.  You may add only those who were eligible to purchase shares of common stock in the subscription offering at your date of eligibility.  In addition, the stock order form requires that you list all deposit accounts, giving all names on each account and the account number at the applicable eligibility date.  Failure to provide this information, or providing incomplete or incorrect information, may result in a loss of part or all of your share allocation, in the event of an oversubscription.

Deadline for Orders of Common Stock

          If you wish to purchase shares of common stock, a properly completed and signed original stock order form, together with full payment for the shares of common stock, must be received (not postmarked) by the Stock Information Center located in our main office at 1359 North Grand Avenue, Covina, California 91724 no later than 12:00 Noon, Pacific Time, on [Expiration Date].

          Once submitted, your order is irrevocable unless the offering is terminated or extended or the number of shares to be issued increases to more than 17,192,500 shares or decreases to less than 11,050,000 shares. We may extend the [Expiration Date] expiration date, without notice to you, until [Extension Date #1]. If the offering is extended beyond [Extension Date #1], or if the offering range is increased or decreased, we will be required to resolicit purchasers before proceeding with the offering. In either of these cases, purchasers will have the right to maintain, change or cancel their orders. If we do not receive a written response from a purchaser to any resolicitation, the purchaser’s order will be cancelled and all funds received will be returned promptly with interest, and deposit account withdrawal authorizations will be cancelled. No extension may last longer than 90 days. All extensions, in the aggregate, may not last beyond [Extension Date #2].

          Although we will make reasonable attempts to provide this proxy statement/prospectus and offering materials to holders of subscription rights, the subscription offering and all subscription rights will expire at 12:00 Noon, Pacific Time, on [Expiration Date], whether or not we have been able to locate each person entitled to subscription rights.

          TO ENSURE THAT EACH PERSON RECEIVES A PROXY STATEMENT/ PROSPECTUS AT LEAST 48 HOURS PRIOR TO THE EXPIRATION DATE OF THE OFFERING IN ACCORDANCE WITH FEDERAL LAW, NO PROXY STATEMENT/ PROSPECTUS WILL BE MAILED ANY LATER THAN FIVE DAYS PRIOR TO THE OFFERING EXPIRATION DATE OR HAND-DELIVERED ANY LATER THAN TWO DAYS PRIOR TO THE OFFERING EXPIRATION DATE.

Steps We May Take if We Do Not Receive Orders for the Minimum Number of Shares

          If we do not receive orders for at least 11,050,000 shares of common stock in the subscription, community and/or syndicated community offering, we may take several steps in order to issue the minimum number of shares of common stock in the offering range.  Specifically, we may:

• increase the purchase and ownership limitations; and/or

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• seek regulatory approval to extend the offering beyond the [Extension Date #1] expiration date, provided that any such extension will require us to resolicit subscriptions received in the offering.

Alternatively, we may terminate the offering, return funds with interest and cancel deposit account withdrawal authorizations.

Purchases by Officers and Directors

          We expect our directors and executive officers, together with their associates, to purchase 46,600 shares of common stock in the offering.  The purchase price paid by them will be the same $10.00 per share price paid by all other persons who purchase shares of common stock in the offering.  Following the conversion, our directors and executive officers, together with their associates, are expected to own 763,530 shares of common stock, or 3.7% of our total outstanding shares of common stock at the maximum of the offering range, including shares they receive in exchange for shares they currently own in K-Fed Bancorp.

Market for Common Stock

          Publicly held shares of K-Fed Bancorp’s common stock trade on the Nasdaq Global Market under the symbol “KFED.” Upon completion of the conversion, the shares of common stock of Kaiser Federal Financial Group, Inc. will replace K-Fed Bancorp’s existing shares. We expect that Kaiser Federal Financial Group, Inc.’s shares of common stock will trade on the Nasdaq Global Market under the trading symbol “KFFG.” In order to list our common stock on the Nasdaq Global Market, we are required to have at least three broker-dealers who will make a market in our common stock.  K-Fed Bancorp currently has 23 registered market makers. There can be no assurance that persons purchasing shares of common stock in the offering will be able to sell their shares at or above the $10.00 price per share.

Our Dividend Policy

          As of June 30, 2007, K-Fed Bancorp currently paid a quarterly cash dividend of $0.10 per share, which equals $0.40 per share on an annualized basis.  After the conversion, we intend to continue to pay cash dividends on a quarterly basis.  After adjustment for the exchange ratio, we expect the annual dividends to equal $0.32, $0.27, $0.24 and $0.21 per share at the minimum, midpoint, maximum and adjusted maximum of the offering range, respectively, which represents an annual dividend yield of 3.2%, 2.7%, 2.4% and 2.1%, at the minimum, midpoint, maximum and adjusted maximum of the offering range, respectively, based upon a price of $10.00 per share.  The amount of dividends that we intend to pay after the conversion will preserve the dividend amount that K-Fed Bancorp stockholders currently receive, as adjusted to reflect the exchange ratio. However, the dividend rate and the continued payment of dividends will depend on a number of factors, including our capital requirements, our financial condition and results of operations, tax considerations, statutory and regulatory limitations, and general economic conditions. No assurance can be given that we will continue to pay dividends or that they will not be reduced or eliminated in the future.

          See “Selected Consolidated Financial and Other Data of K-Fed Bancorp and Subsidiary” and “Market For The Common Stock” for information regarding our historical dividend payments.

Tax Consequences

          As a general matter, the conversion will not be a taxable transaction for federal or state income tax purposes to K-Fed Mutual Holding Company, K-Fed Bancorp, Kaiser Federal Bank, Kaiser Federal

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Financial Group, Inc., persons eligible to subscribe in the subscription offering, or existing stockholders of K-Fed Bancorp.  Existing stockholders of K-Fed Bancorp who receive cash in lieu of fractional share interests in shares of Kaiser Federal Financial Group, Inc. common stock will recognize a gain or loss equal to the difference between the cash received and the tax basis of the fractional share.

Conditions to Completion of the Conversion

          We cannot complete the conversion and offering unless:

• The plan of conversion and reorganization is approved by at least a majority of votes eligible to be cast by members of K-Fed Mutual Holding Company (depositors of Kaiser Federal Bank as of ___________, 2007);

• The plan of conversion and reorganization is approved by a vote of at least two-thirds of the outstanding shares of common stock of K-Fed Bancorp, including shares held by K-Fed Mutual Holding Company (because K-Fed Mutual Holding Company owns more than 50% of the outstanding shares of K-Fed Bancorp common stock, we expect that K-Fed Mutual Holding Company will control the outcome of this vote);

• The plan of conversion and reorganization is approved by vote of at least a majority of the outstanding shares of common stock of K-Fed Bancorp, excluding those shares held by K-Fed Mutual Holding Company;

• We sell at least the minimum number of shares of common stock offered; and

• We receive the final approval of the Office of Thrift Supervision to complete the conversion and offering, however, such approval does not constitute a recommendation or endorsement of the plan of conversion and reorganization by that agency.

          K-Fed Mutual Holding Company intends to vote its ownership interest in favor of the plan of conversion and reorganization.  At June 30, 2007, K-Fed Mutual Holding Company owned 63.5% of the outstanding shares of common stock of K-Fed Bancorp. The directors and executive officers of K-Fed Bancorp and their affiliates beneficially owned 452,026 shares of K-Fed Bancorp, or 3.2% of the outstanding shares of common stock as of June 30, 2007. They have indicated their intention to vote those shares in favor of the plan of conversion and reorganization.

Decrease in Stockholders’ Rights for Existing Stockholders of K-Fed Bancorp

          As a result of the conversion, existing stockholders of K-Fed Bancorp will become stockholders of Kaiser Federal Financial Group, Inc.  Some rights of stockholders of Kaiser Federal Financial Group, Inc. will be reduced compared to the rights stockholders currently have in K-Fed Bancorp.  The reduction in stockholder rights results from differences between the federal and Maryland charters and bylaws, and from distinctions between federal and Maryland law.  Many of the differences in stockholder rights under the articles of incorporation and bylaws of Kaiser Federal Financial Group, Inc. are not mandated by Maryland law but have been chosen by management as being in the best interests of Kaiser Federal Financial Group, Inc. and all of its stockholders.  The differences in stockholder rights in the articles of incorporation and bylaws of Kaiser Federal Financial Group, Inc. include the following:  (i) approval by at least 80% of outstanding shares required to remove a director for cause; (ii) greater lead time required for stockholders to submit proposals for new business or nominate directors; (iii) approval by at least 80% of outstanding shares required to amend the articles of incorporation and bylaws; (iv) a residency requirement for directors; and (v) approval by at least 80% of outstanding shares required to approve

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business combinations involving an interested stockholder. See “Comparison of Stockholders’ Rights For Existing Stockholders of K-Fed Bancorp” for a discussion of these differences.

Important Risks in Owning Kaiser Federal Financial Group, Inc.’s Common Stock

          Before you decide to purchase stock, you should read the “Risk Factors” section on pages __ to __ of this proxy statement/prospectus.

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RISK FACTORS

          You should consider carefully the following risk factors in evaluating an investment in the shares of common stock.

Risks Related to Our Business

The Current Interest Rate Environment Has Had And Can Have An Adverse Effect On Our Net Interest Income.

          Net income is the amount by which net interest income and non-interest income exceeds non-interest expenses and the provision for loan losses. Net interest income makes up a majority of our income and is based on the difference between:

• the interest income we earn on our interest-earning assets, such as loans and securities; and

• the interest we pay on our interest-bearing liabilities, such as deposits and borrowings.

          A substantial percentage of our interest-earning assets, such as residential mortgage loans, have longer maturities than our interest-bearing liabilities, which consist primarily of deposits and borrowings.  As a result, our net interest income is adversely affected if the average cost of our interest-bearing liabilities increases more rapidly than the average yield on our interest-earning assets.

          Long-term interest rates are generally higher than short-term interest rates.  In the past few years, however, the difference between long-term rates and short-term rates has narrowed from historical levels, placing pressure on our net interest income.  Our average net interest rate spread (the difference between the weighted-average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities) decreased to 1.87% for the year ended June 30, 2007 from 2.17% and 2.48% for the years ended June 30, 2006 and 2005, respectively, and our net interest margin (net interest income as a percent of average interest-earning assets) decreased to 2.43% for the year ended June 30, 2007 from 2.66% and 2.93% for the years ended June 30, 2006 and 2005, respectively.  We expect that our net interest rate spread and net interest margin will continue to be compressed in the current interest rate environment, which will have a negative effect on our profitability.  See “Selected Consolidated Financial and Other Data of K-Fed Bancorp and Subsidiary” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Management of Market Risk.”

We Purchase A Large Percentage Of Our Real Estate Mortgage Loans From Third Parties And Our Net Income Would Be Negatively Affected If We Are Unable To Continue To Purchase These Loans.

          We have purchased without recourse a substantial number of our one- to four-family real estate mortgage loans from large third party originators since 2001.  As of June 30, 2007, $391.9 million or 83.5% of our $469.5 million one- to four-family real estate mortgage loan portfolio consisted of purchased loans.  All of our real estate loans are secured by properties located in the State of California.  We purchase these loans, with servicing retained by the seller, in order to increase our net interest income. By emphasizing loan purchases, we avoid the costs of additional origination staff and infrastructure and believe we increase the overall profitability from these loans.  We review each loan to ensure that it meets our own underwriting standards before making any commitment to purchase the loan.  Should we be unable to purchase loans from these third party originators in the future due to pricing considerations, loan quality or acceptable sellers, among other factors, our ability to originate residential mortgage loans

33

may be disrupted unless we are able to find suitable replacements or have the capability to produce a greater volume of mortgage originations through our lending staff. A disruption to our residential mortgage lending program may negatively impact our net income.

Our Loan Portfolio Possesses Increased Risk Due To Our Level Of Multi-Family Real Estate, Commercial Real Estate And Consumer Loans Which Could Increase Our Level Of Provision For Loan Losses.

          Our outstanding multi-family real estate, commercial real estate and consumer loans accounted for approximately 33.1% of our total loan portfolio as of June 30, 2007.  Generally, management considers these types of loans to involve a higher degree of risk compared to permanent first mortgage loans on one- to four-family, owner occupied residential properties.  These loans have higher risks than permanent loans secured by residential real estate for the following reasons:

• Multi-Family Real Estate Loans.  These loans are underwritten on the income producing potential of the property, financial strength of the borrower and any guarantors.  Repayment is dependent on income being generated in amounts sufficient to cover operating expenses and debt service.

• Commercial Real Estate Loans.  These loans are underwritten on the income producing potential of the property or the successful operation of the borrower’s business, financial strength of the borrower and any guarantors which can be significantly affected by conditions in the real estate markets or in the economy.  Repayment is dependent on income being generated in amounts sufficient to cover operating expenses and debt service.

• Consumer Loans.  Consumer loans (such as automobile loans) are collateralized, if at all, by assets that may not provide adequate source of repayment of the loan due to depreciation, damage or loss.  As a result, consumer loan collections are dependant on the borrower’s continuing financial stability and thus, more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy.

          Management plans to increase emphasis on higher yielding products such as multi-family and commercial real estate loans, while maintaining a moderate growth of one- to four-family residential real estate loans.  Many of our commercial and multi-family real estate loans are not fully amortizing and contain large balloon payments upon maturity.  These balloon payments may require the borrower to either sell or refinance the underlying property in order to make the balloon payment.  Further, commercial and multi-family real estate loans generally have relatively large balances to single borrowers or related groups of borrowers.  Accordingly, if we make any errors in judgment in the collectibility of our commercial and multi-family real estate loans, any resulting charge-offs may be larger on a per loan basis than those incurred with our residential or consumer loan portfolios.  As a result of the above factors, management may determine it necessary to increase the level of provision for loan losses.  Increased provisions for loan losses could negatively affect our results of operation.

Future Changes in Interest Rates Could Reduce Our Net Income.

          To be profitable, we must earn more money in interest received on loans and investments than what we pay in interest to depositors and lenders.  The Federal Reserve Board increased the targeted Federal Funds Rate four times during calendar year 2006, from 4.25% to 5.25%, with all increases occurring during the first six months of 2006. On September 18, 2007, the Federal Reserve Board decreased its target for the Federal Funds Rate from 5.25% to 4.75%.  The targeted Federal Funds Rate has a direct correlation to general rates of interest, including our interest-bearing deposits.  Kaiser Federal

34

Bank’s mix of asset and liabilities are considered to be sensitive to interest rate changes.  Accordingly, if short-term interest rates continue to rise, net interest income could be reduced because interest paid on interest-bearing liabilities, including deposits and borrowings, increases more quickly than interest received on interest-earning assets, including loans and mortgage-backed and related securities.  In addition, rising interest rates may negatively affect income because higher rates may reduce the demand for loans and the value of mortgage-related and investment securities. 

          In a declining rate environment, we may be susceptible to the prepayment or refinancing of high rate loans, which could reduce net interest income.  Under these circumstances, we are subject to reinvestment risk as we may have to redeploy such loan or securities proceeds into lower-yielding assets, which might also negatively impact our income.

          We principally manage interest rate risk by managing our volume and mix of our interest earning assets and funding our interest bearing liabilities.  In a changing interest rate environment, we may not be able to manage this risk effectively.  If we are unable to manage interest rate risk effectively, our business, financial condition and results of operations could be materially harmed.  Changes in the level of interest rates also may negatively affect our ability to originate real estate loans, the value of our assets and our ability to realize gains from the sale of our assets, all of which ultimately affect our earnings.  For further discussion of how changes in interest rates could impact us, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Management of Market Risk.”

Our Loan Portfolio Possesses Increased Risk Due To Its Rapid Expansion, Unseasoned Nature And Amount Of Nonconforming Loans.

          From June 30, 2003 to June 30, 2007, our loan portfolio increased by $309.5 million or 79.4%.  As a result of this rapid expansion, a significant portion of our portfolio is unseasoned and may not have had sufficient time to perform to properly indicate the potential performance. Our unseasoned adjustable rate loans have not, therefore, been subject to an interest rate environment that causes them to adjust to the maximum level and may involve risks resulting from potentially increasing payment obligations by the borrower as a result of the repricing.  A significant portion of our one- to four-family residential loans are non-conforming to secondary market requirements, due mainly to the large loan size, loan terms or the credit score of the borrower and, therefore, are not saleable to Freddie Mac or Fannie Mae.  At June 30, 2007, 40.9% of our one- to four-family loans consisted of loans that were considered nonconforming due to loan size.  In addition, $32.9 million of our one- to four-family residential loans were to borrowers with a credit score less than or equal to 660 which may be an indication of a credit-impaired borrower.

          As of June 30, 2007, we held in our portfolio $100.4 million in one-to four-family interest-only mortgage loans.  This amount represents 14.3% of our gross loan portfolio, with $55.2 million of that amount comprised of adjustable rate loans.  The interest rate on these loans are initially fixed for three, five or seven year terms and then adjust in accordance with the terms of the loan to require payment of both principal and interest in order to amortize the loan for the remainder of the term. In 2005, we began underwriting interest-only loans based on the fully amortized payment and for an adjustable rate loan by qualifying the borrower based upon the rate that would apply upon the first interest rate adjustment rather than upon origination. We have also purchased loans to borrowers who provide limited or no documentation of assets or income, known as stated income loans.  At June 30, 2007, we had $118.8 million of stated income loans consisting of $79.4 million in fixed rate stated income loans and $39.4 million in adjustable rate stated income loans.  Included in our stated income loans at June 30, 2007 were $42.4 million of interest only loans. 

          These types of one- to four-family residential loans are generally considered to have an increased risk of delinquency and foreclosure than conforming loans and may result in higher levels of provisions

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for loan losses.  For example, if the interest rate adjustment results in the borrower being unable to make higher payments of both interest and principal or to refinance the loan, we would be required to initiate collection efforts including foreclosure in order to protect our investment.  Although we have not experienced such increased delinquencies or foreclosures in the current interest rate environment, there can be no assurance that our residential loan portfolio would not be adversely affected in the event of a downturn in regional or national economic conditions.  In addition, there can be no assurance, that we will recover funds in an amount equal to any remaining loan balance. Consequently, we could sustain loan losses and potentially incur a higher provision for loan loss expense.

If The Allowance For Loan Losses Is Not Sufficient To Cover Actual Losses, Net Income May Be Negatively Affected.

          Credit risk is inherent in the lending business, and failure to adequately assess such credit risk could have a material adverse affect on our financial condition and results of operations. Management makes various assumptions and judgments about the collectibility of the loan portfolio, including the creditworthiness of the borrowers and the value of the real estate and other assets serving as collateral for the repayment of many of the loans. In determining the amount of the allowance for loans losses, management reviews the loan portfolio and Kaiser Federal Bank’s historical loss and delinquency experience, as well as overall economic conditions. If management’s assumptions are incorrect, the allowance for loan losses may be insufficient to cover probable losses in the loan portfolio, resulting in additions to the allowance.  The allowance for loan losses is also periodically reviewed by the Office of Thrift Supervision, who may disagree with the allowance and require us to increase or decrease such amount.  Additions to the allowance for loans losses would be made through increased provisions for loan losses and would negatively affect our results of operations. At June 30, 2007, our allowance for loan losses was $2.8 million, or 0.40% of total loans and 245.84% of non-performing loans.

We Depend On Our Management Team To Implement Our Business Strategy And Execute Successful Operations And We Could Be Harmed By The Loss Of Their Services.

          We are dependent upon the services of our senior management team.  Our strategy and operations are directed by the senior management team. Upon completion of the conversion and offering, our president and chief executive officer and our three other executive officers will enter into employment agreements with Kaiser Federal Bank. Any loss of the services of the president and chief executive officer or other members of the management team could impact our ability to implement our business strategy, and have a material adverse effect on our results of operations and our ability to compete in our markets. See “Management– Benefits to be Considered Following Completion of the Conversion—Employment Agreements.”

Strong Competition In Our Primary Market Area May Reduce Our Ability To Attract And Retain Deposits And Also May Increase Our Cost of Funds.

          We operate in a very competitive market for the attraction of deposits, the primary source of our funding.  Historically, our most direct competition for deposits has come from credit unions, community banks, large commercial banks and thrift institutions within our primary market areas.  In recent years competition has also come from institutions that largely deliver their services over the internet.  Such competitors have the competitive advantage of lower infrastructure costs.  Particularly in times of extremely low or extremely high interest rates, we have faced significant competition for investors’ funds from short-term money market securities and other corporate and government securities.  During periods of regularly increasing interest rates, competition for interest bearing deposits increases as customers, particularly certificate of deposit customers, tend to move their accounts between competing businesses to obtain the highest rates in the market. As a result, Kaiser Federal Bank incurs a higher cost of funds in an

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effort to attract and retain customer deposits.  We strive to grow our lower cost deposits, such as non-interest bearing checking accounts, in order to reduce our cost of funds. 

Strong Competition In Our Primary Market Area May Reduce Our Ability To Obtain Loans And Also Decrease Our Yield On Loans.

          We are located in a competitive market that affects our ability to obtain loans through origination or purchase as well as originating them at rates that provide an attractive yield.  Competition for loans comes principally from mortgage bankers, commercial banks, other thrift institutions, nationally based homebuilders and credit unions.  Internet based lenders have also become a greater competitive factor in recent years.  Such competition for the origination and purchase of loans may limit future growth and earnings prospects.

If Economic Conditions Deteriorate In Our Primary Market Of Southern California, Our Results Of Operations And Financial Condition Could Be Adversely Impacted As Borrowers’ Ability To Repay Loans Declines And The Value Of The Collateral Securing Loans Decreases.

          Our financial results may be adversely affected by changes in prevailing economic conditions, including decreases in real estate values, changes in interest rates which may cause a decrease in interest rate spreads, adverse employment conditions, the monetary and fiscal policies of the federal and California state governments and other significant external events.  As of June 30, 2007, 66.9% or $469.5 million of our loan portfolio consisted of loans secured by one- to four-family residences.  All our loans are secured by real estate located in California.  Decreases in California real estate values could adversely affect the value of property used as collateral.  In the event that we are required to foreclose on a property securing a mortgage loan or pursue other remedies in order to protect our investment, there can be no assurance that we will recover funds in an amount equal to any remaining loan balance as a result of prevailing general economic or local conditions, real estate values and other factors associated with the ownership of real property.  As a result, the market value of the real estate or other collateral underlying the loans may not, at any given time, be sufficient to satisfy the outstanding principal amount of the loans. Consequently, we would sustain loan losses and potentially incur a higher provision for loan loss expense. Adverse changes in the economy may also have a negative effect on the ability of borrowers to make timely repayments of their loans, which would have an adverse impact on earnings.

We Operate In A Highly Regulated Environment And May Be Adversely Affected By Changes In Laws And Regulations.

          Kaiser Federal Bank is subject to extensive regulation, supervision and examination by the Office of Thrift Supervision, its chartering authority, and by the Federal Deposit Insurance Corporation, which insures Kaiser Federal Bank’s deposits.  As a thrift holding company, we are subject to regulation and supervision by the Office of Thrift Supervision.  Such regulation and supervision govern the activities in which financial institutions and their holding companies may engage and are intended primarily for the protection of the federal deposit insurance fund and depositors.  These regulatory authorities have extensive discretion in connection with their supervisory and enforcement activities, including the imposition of restrictions on the operations of financial institutions, the classification of assets by financial institutions and the adequacy of financial institutions’ allowance for loan losses.  Any change in such regulation and oversight, whether in the form of regulatory policy, regulations, or legislation, could have a material impact on Kaiser Federal Bank and K-Fed Bancorp or its successor.

          Kaiser Federal Bank’s operations are also subject to extensive regulation by other federal, state and local governmental authorities, and are subject to various laws and judicial and administrative decisions that impose requirements and restrictions on operations.  These laws, rules and regulations are

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frequently changed by legislative and regulatory authorities.  There can be no assurance that changes to existing laws, rules and regulations, or any other new laws, rules or regulations, will not be adopted in the future, which could make compliance more difficult or expensive or otherwise adversely affect the business, financial condition or prospects. See “Supervision and Regulation.”

Risks Related to the Conversion, Offering and Share Exchange

The Market Value Of Kaiser Federal Financial Group, Inc. Common Stock Received In The Share Exchange May Be Less Than The Market Value Of K-Fed Bancorp Common Stock Exchanged.

          The number of shares of Kaiser Federal Financial Group, Inc. common stock you receive will be based on an exchange ratio that will be determined as of the date of completion of the conversion and offering.  The exchange ratio will be based on the percentage of K-Fed Bancorp common stock held by the public prior to the conversion and offering, the final independent appraisal of Kaiser Federal Financial Group, Inc. common stock prepared by RP Financial, LC. and the number of shares of common stock sold in the offering.  The exchange ratio will ensure that existing public stockholders of K-Fed Bancorp common stock will own approximately the same percentage of Kaiser Federal Financial Group, Inc. common stock after the conversion and offering as they owned of K-Fed Bancorp common stock immediately prior to completion of the conversion and offering, exclusive of the effect of their purchase of additional shares in the offering and the receipt of cash in lieu of fractional shares.  The exchange ratio will not depend on the market price of K-Fed Bancorp common stock.

          The exchange ratio ranges from a minimum of 1.2469 to a maximum of 1.6870 shares of Kaiser Federal Financial Group, Inc. common stock per share of K-Fed Bancorp common stock. Under certain circumstances, the pro forma market value can be adjusted upward to reflect changes in market conditions, and, at the adjusted maximum, the exchange ratio would be 1.9401shares of Kaiser Federal Financial Group, Inc. common stock per share of K-Fed Bancorp common stock.  Shares of Kaiser Federal Financial Group, Inc. common stock issued in the share exchange will have an initial value of $10.00 per share.  Depending on the exchange ratio and the market value of K-Fed Bancorp common stock at the time of the exchange, the initial market value of the Kaiser Federal Financial Group, Inc. common stock that you receive in the share exchange could be less than the market value of the K-Fed Bancorp common stock that you currently own.  If the conversion is completed at the midpoint of the offering range, each share of K-Fed Bancorp would be converted into 1.4670 shares of Kaiser Federal Financial Group, Inc. common stock with an initial value of $14.67 based on the $10.00 purchase price of stock in the offering.  This compares to the closing sale price of $_____ per share price for the K-Fed Bancorp common stock on __________, 2007, as reported on the Nasdaq Global Market.  The decline in the initial value of the Kaiser Federal Financial Group, Inc. common stock received in exchange for K-Fed Bancorp common stock could be even greater if the market price for K-Fed Bancorp common stock increases prior to the completion of the conversion.  See “Proposal 3- Approval of The Plan of Conversion and Reorganization – Share Exchange Ratio for Current Stockholders.”

The Future Price Of The Shares Of Common Stock May Be Less Than The $10.00 Purchase Price Per Share In The Offering.

          We cannot assure you that if you purchase shares of common stock in the offering you will be able to sell them later at or above the $10.00 purchase price in the offering.  In several cases, shares of common stock issued by newly converted savings institutions or mutual holding companies have traded below the price at which such shares were sold in the offering conducted by those companies.  The aggregate purchase price of the shares of common stock sold in the offering will be based on an independent appraisal. The independent appraisal is not intended, and should not be construed, as a recommendation of any kind as to the advisability of purchasing shares of common stock. The

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independent appraisal is based on certain estimates, assumptions and projections, all of which are subject to change from time to time.  After our shares begin trading, the trading price of our common stock will be determined by the marketplace, and may be influenced by many factors, including prevailing interest rates, the overall performance of the economy, investor perceptions of Kaiser Federal Financial Group, Inc. and the outlook for the financial institutions industry in general.

Our Failure To Effectively Utilize The Net Proceeds Of The Offering Could Reduce Our Return On Stockholders’ Equity And Our Return On Assets And Negatively Impact The Value Of Our Common Stock.

          Kaiser Federal Financial Group, Inc. intends to contribute between $53.1 million and $71.6 million of the net proceeds of the offering (or $82.2 million at the adjusted maximum of the offering range) to Kaiser Federal Bank.  Kaiser Federal Financial Group, Inc. may use the remaining net proceeds to invest in short-term investments, repurchase shares of common stock, pay dividends or for other general corporate purposes.  Kaiser Federal Financial Group, Inc. also expects to use a portion of the net proceeds it retains to fund a loan for the purchase of shares of common stock in the offering by the employee stock ownership plan.  Kaiser Federal Bank may use the net proceeds it receives to fund new loans, purchase investment securities, acquire financial institutions or financial services companies, build new branches or acquire branches or for other general corporate purposes.  With the exception of the loan to the employee stock ownership plan, we have not allocated specific amounts of the net proceeds for any of these purposes, and we will have significant flexibility in determining the amount of the net proceeds we apply to different uses and the timing of such applications. We have not established a timetable for the effective deployment of the net proceeds, and we cannot predict how long we will require to effectively deploy the net proceeds.

           Additionally, net income divided by average stockholders’ equity, known as “return on equity,” and net income divided by average total assets, known as “return on assets” are ratios many investors use to compare the performance of a financial institution to its peers. Our return on equity ratio for the years ended June 30, 2007 and June 30, 2006 was 5.09% and 5.33%, respectively, compared to an average of 5.48% for all publicly traded savings institutions as of August 3, 2007. Our return on assets ratio for the years ended June 30, 2007 and June 30, 2006 was 0.61% and 0.68%, respectively, compared to an average of 0.56% for all publicly traded savings institutions as of August 3, 2007. Our return on equity has decreased from 6.05% for the fiscal year ended June 30, 2004 to 5.09% for the year ended June 30, 2006. Our return on assets, however, has increased from 0.58% for the year ended June 30, 2004 to 0.61% for the year ended June 30, 2007. Until we can increase our net interest income and non-interest income and effectively deploy the additional capital raised in the offering, we expect our return on equity to be below the industry average, which may negatively affect the value of our common stock.

The Ownership Interest Of Management And Employees Could Enable Insiders To Prevent A Merger That May Provide Stockholders A Premium For Their Shares.

          The shares of common stock that our directors and officers intend to purchase in the offering, when combined with the shares that they will receive in the exchange for their existing shares of K-Fed Bancorp common stock is expected to result in management and the board controlling approximately 3.7% of our outstanding shares of common stock at the maximum of the offering range.  As of June 30, 2007, directors and officers owned 3.2% of the outstanding shares of K-Fed Bancorp common stock.  These shares, when combined with the 6.0% of the shares in the offering expected to be purchased by our employee stock ownership plan, will result in management and employees controlling a large percentage of our common stock.  If these individuals were to act together, they could have significant influence over the outcome of any stockholder vote.  This voting power may discourage a potential sale of Kaiser Federal Financial Group, Inc. that our stockholders may desire.  In addition, the total voting power of management and employees could, in the future, exceed 15.8% of our outstanding shares of common

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stock if a stock-based incentive plan is adopted in the future.  Such voting power could enable management and employees as a group to possibly defeat a stockholder matter that requires an 80% vote, including removal of directors, and certain amendments to our articles of incorporation and bylaws.

There May Be a Limited Market For Our Common Stock, Which May Lower Our Stock Price And Make It More Difficult For Investors To Sell Their Shares Of Our Common Stock.

          We currently trade on the Nasdaq Global Market and plan to continue to do so following the conversion. However, we cannot guarantee that the shares of common stock will be regularly traded. Even if a liquid market develops for our common stock, there is no assurance that it can be maintained.  An active, orderly trading market depends on the presence and participation of willing buyers and sellers which neither Kaiser Federal Financial Group, Inc. nor the market makers in the common stock can control.  This may affect your ability to sell your shares on short notice, and the sale of a large number of shares at one time could temporarily depress the market price of our common stock.  For these reasons, our common stock should not be viewed as a short-term investment. 

          Additionally, the aggregate purchase price of common stock sold in the offering is based on an independent appraisal.  After our shares begin trading, the marketplace will determine the price per share, which may be influenced by various factors, such as prevailing interest rates, investor perceptions of Kaiser Federal Financial Group, Inc., economic conditions and the outlook for financial institutions.  Price fluctuations may be unrelated to the operating performance of particular companies.  In several cases, due to market volatility, shares of common stock of newly converted savings institutions traded below the price at which the shares were sold in the companies’ initial public offerings.  We cannot assure you that, after the conversion, the trading price of our common stock will be at or above $10.00.

The Implementation Of The Stock-Based Incentive Plan May Dilute Your Ownership Interest.

          We intend to adopt a new stock-based incentive plan following the conversion and offering, subject to receipt of stockholder approval. This stock-based incentive plan may be funded either through open market purchases or from the issuance of authorized but unissued shares of common stock of Kaiser Federal Financial Group, Inc.  While our intention is to fund this plan through open market purchases, stockholders would experience a reduction in ownership interest totaling 7.7% at the maximum of the offering range in the event newly issued shares of our common stock are used to fund stock options or shares of restricted common stock under the plan in an amount equal to up to 3.7% and 9.3%, respectively, of the shares sold in the offering.  In the event we adopt the plan within one year following the conversion, shares of restricted stock to be issued and options to be granted under the stock-based incentive plan will be limited in order to ensure that the aggregate number of shares of restricted common stock and option awards subject to the new stock-based incentive plan and the 2004 Recognition and Retention Plan and the 2004 Stock Option Plan do not exceed 4.0% and 10.0%, respectively, of the total shares outstanding (including shares issued by Kaiser Federal Financial Group, Inc. in exchange for existing shares of K-Fed Bancorp) following completion of the conversion and the offering.

Additional Expenses Following The Conversion From The Compensation And Benefit Expenses Associated With The Implementation Of The New Stock-Based Incentive Plan Will Adversely Affect Our Profitability.

          We intend to adopt a new stock-based incentive plan after the offering under which plan participants would be awarded restricted shares of our common stock (at no cost to them) or options to purchase shares of our common stock.  If the stock-based incentive plan is implemented and approved by stockholders within one year of the completion of the conversion and offering, the number of restricted shares of common stock or options granted under any initial stock-based incentive plan may not exceed

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3.7% and 9.3%, respectively, of the shares sold in the conversion and offering.  If we award restricted shares of common stock or grant options in excess of these amounts under a stock-based incentive plan adopted more than one year after the completion of the conversion and offering, our costs would increase further. 

          Following the conversion and offering, our non-interest expenses are likely to increase as we will recognize additional annual employee compensation and benefit expenses stemming from the shares granted to employees and executives under our stock-based incentive plan.  We cannot predict the actual amount of these new stock-related compensation and benefit expenses because applicable accounting practices require that expenses be based on the fair market value of the shares of common stock at specific points in the future; however, we expect them to be material.  In addition, we would recognize expense for our employee stock ownership plan when shares are committed to be released to participants’ accounts (i.e., as the loan used to acquire these shares is repaid) and would recognize expense for restricted stock awards and stock options over the vesting period of awards made to recipients.  The additional expense in the first year following the conversion and offering has been estimated to be approximately $448,500 ($264,000 after tax) at the maximum of the offering range as set forth in the pro forma financial information under “Pro Forma Data,” assuming the $10.00 per share purchase price as fair market value.  Actual expenses, however, may be higher or lower, depending on the price of our common stock.  For further discussion of our proposed stock-based plans, see “Management—Benefit Plans.”

Various Factors May Make Takeover Attempts More Difficult To Achieve.

          Our Board of Directors has no current intention to sell control of Kaiser Federal Financial Group, Inc. Provisions of our articles of incorporation and bylaws, federal regulations, Maryland law and various other factors may make it more difficult for companies or persons to acquire control of Kaiser Federal Financial Group, Inc. without the consent of our Board of Directors.  You may want a takeover attempt to succeed because, for example, a potential acquiror could offer a premium over the then prevailing price of our common stock.  The factors that may discourage takeover attempts or make them more difficult include:

• Office of Thrift Supervision regulations.  Office of Thrift Supervision regulations prohibit, for three years following the completion of a conversion, the direct or indirect acquisition of more than 10% of any class of equity security of a converted savings institution or its holding company without the prior approval of the Office of Thrift Supervision.

• Articles of incorporation and statutory provisions.  Provisions of the articles of incorporation and bylaws of Kaiser Federal Financial Group, Inc. and Maryland law may make it more difficult and expensive to pursue a takeover attempt which management opposes, even if the takeover is favored by a majority of our stockholders.  These provisions also would make it more difficult to remove our current Board of Directors or management, or to elect new directors.  Specifically, our articles of incorporation provide that certain mergers or acquisitions must be approved by stockholders owning at least 80% of our shares of common stock, unless the transaction has been approved by a majority of the disinterested directors or certain fair price and procedure requirements have been satisfied.  Additional provisions include limitations on voting rights of beneficial owners of more than 10% of our common stock, the election of directors to staggered terms of three years and not permitting cumulative voting in the election of directors.  Our bylaws also contain provisions regarding the timing and content of

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stockholder proposals and nominations and qualification for service on the Board of Directors.

•

Issuance of stock options and restricted stock.  We also intend to issue stock options and shares of restricted stock to key employees and directors that will require payments to them in connection with a change in control of Kaiser Federal Financial Group, Inc.  These payments may have the effect of increasing the costs of acquiring Kaiser Federal Financial Group, Inc., thereby discouraging future takeover attempts.

The Rights Of Existing Stockholders Of K-Fed Bancorp Will Be Reduced Under Kaiser Federal Financial Group, Inc.’s Articles Of Incorporation And Bylaws.

          As a result of the conversion, existing stockholders of K-Fed Bancorp will become stockholders of Kaiser Federal Financial Group, Inc.  Some rights of stockholders of Kaiser Federal Financial Group, Inc. will be reduced compared to the rights stockholders currently have in K-Fed Bancorp.  Many of the differences in stockholder rights under our articles of incorporation and bylaws, while not mandated by Maryland law, are permitted and have been chosen by management as being in the best interests of Kaiser Federal Financial Group, Inc. and all of our stockholders.

          For example, current stockholders must submit nominations for election of directors at an annual meeting of stockholders and any new business to be taken up at such a meeting by filing the proposal in writing with K-Fed Bancorp at least five days before the date of any such meeting.  However, Kaiser Federal Financial Group, Inc.’s bylaws generally provide that any stockholder desiring to make a nomination for the election of directors or a proposal for new business at an annual meeting of stockholders must submit written notice to Kaiser Federal Financial Group, Inc. at least 90 days prior to the anniversary date of the mailing of proxy materials in connection with the immediately preceding annual meeting of stockholders.   Similarly, under the current federal charter, special meetings of stockholders may be called by the holders of not less than one-tenth of the outstanding capital stock entitled to vote at the meeting.  However, Kaiser Federal Financial Group, Inc.’s bylaws provide that special meetings of the stockholders may be called by the president or, by a majority of the whole board on the written request of stockholders entitled to cast at least a majority of all votes. See “Comparison of Stockholders’ Rights for Existing Stockholders of K-Fed Bancorp” for a discussion of these differences.

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PROPOSAL 1 — ELECTION OF DIRECTORS

          Our board of directors consists of six members.  Our bylaws provide that approximately one-third of the directors are to be elected annually.  Directors are generally elected to serve for a three-year period, or a shorter period if the director is elected to fill a vacancy, and until their respective successors shall have been elected and shall qualify.  Two directors will be elected at the annual meeting and will serve until their successors have been elected and qualified.  The governance/nominating committee has nominated James L. Breeden and _______________ to serve as directors for three-year terms.  Both of the nominees are currently members of the board of directors.

          The following table provides the positions, ages and terms of office as applicable to our directors and executive officers along with the beneficial ownership of our common stock held by our directors and executive officers, individually and as a group, and all individuals known to management to own more than 5% of our common stock as of August 14, 2007.  It is intended that the proxies solicited on behalf of the board of directors (other than proxies in which the vote is withheld as to the nominee) will be voted at the annual meeting for the election of the nominees identified below.  If the nominees are unable to serve, the shares represented by all such proxies will be voted for the election of such substitute as the board of directors may recommend.  At this time, the board of directors knows of no reason why the nominees might be unable to serve, if elected.  Except as indicated herein, there are no arrangements or understandings between the nominees and any other person pursuant to which such nominees were selected.

Name (1)	Age(2)	Positions Held with K-Fed Bancorp	Director Since (3)	Current Term to Expire	Shares of Common Stock Beneficially Owned (4)(5)	Percent of Class
NOMINEES
James L. Breeden	64	Chairman of the Board	1987	2007	55,637 (6)	*
DIRECTOR NOT CONTINUING IN OFFICE
Frank G. Nicewicz	51	Director	1995	2007	27,800 (7)	*
DIRECTORS CONTINUING IN OFFICE
Kay M. Hoveland	60	Director, President and Chief Executive Officer	2000	2008	151,130(8)	*
Rita H. Zwern	59	Director and Secretary	1987	2008	27,800(9)	*
Gerald A. Murbach	59	Director	2000	2009	42,800 (10)	*
Robert C. Steinbach	54	Director	2000	2009	46,200 (11)	*
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
Dustin Luton	37	Chief Financial Officer	N/A	N/A	20,135 (12)	*
Nancy J. Huber**	44	Chief Credit Officer	N/A	N/A	42,765 (13)	*
Jeanne R. Thompson**	60	Chief Operating Officer	N/A	N/A	38,509 (14)	*
All directors and executive officers as a group (9 persons)					452,776	3.2%
K-Fed Mutual Holding Company 1359 North Grand Avenue Covina, California 91724					8,861,750	63.5%
Hovde Capital Advisors LLC 1826 Jefferson Place, N.W. Washington, D.C. 20036(15)					910,611	6.5%
K-Fed Mutual Holding Company, and all directors and executive officers as a group					9,314,526	66.3%

(footnotes begin on next page)

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*	Less than 1%.
**	Ms. Huber and Ms. Thompson are officers of Kaiser Federal Bank only.
(1)	The mailing address for each person listed is 1359 North Grand Avenue, Covina, California 91724.
(2)	As of August 14, 2007.
(3)	Reflects initial appointment to the Board of Directors of Kaiser Permanente Federal Credit Union, the predecessor to Kaiser Federal Bank, with the exception of Directors Steinbach, Murbach and Hoveland.  Each director of K-Fed Bancorp is also a director of Kaiser Federal Bank and K-Fed Mutual Holding Company, which owns the majority of the issued and outstanding shares of common stock of K-Fed Bancorp.
(4)	In accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as amended, a person is deemed to be the beneficial owner for purposes of this table, of any shares of common stock if he has shared voting or investment power with respect to such security, or has a right to acquire beneficial ownership at any time within 60 days from the dates as of which beneficial ownership is being determining. As used herein, “voting power” is the power to vote or direct the voting of shares and “investment power” is the power to dispose or  direct the disposition of shares, and includes all shares held directly as well as by spouses and minor children, in trust and other indirect ownership, over which shares the named individuals effectively exercise sole or shared voting or investment power.
(5)	Includes 4,320 unvested shares of restricted stock for each of directors Murbach, Nicewicz, Steinbach and Zwern, 6,780 unvested shares of restricted stock for Chairman Breeden, and 24,000, 20,000, 6,000 and 6,000 unvested shares of restricted stock for Ms. Hoveland, Mr. Luton, Ms. Huber and Ms. Thompson, respectively, granted under the K-Fed Bancorp 2004 Recognition and Retention Plan.  Includes 10,610, 0, 8,965 and 8,362 shares of common stock allocated to the accounts of Ms. Hoveland, Mr. Luton, Ms. Huber and Ms. Thompson, respectively, under the K-Fed Bancorp employee stock ownership plan.
(6)	Includes 2,637 shares of common stock held by Mr. Breeden’s spouse and 15,500 shares of common stock held in an IRA for Mr. Breeden. Includes 11,200 stock option shares that have vested.
(7)	Includes 5,600 stock option shares that have vested. Mr. Nicewicz resigned as a director effective September 18, 2007.
(8)	Includes 56,000 shares of common stock held in a trust for Ms. Hoveland, 1,100 shares of common stock held in a Keogh plan for Ms. Hoveland’s spouse and 19,420 shares of common stock held in the Kaiser Federal Bank 401(k) Plan. Includes 40,000 stock option shares that have vested.
(9)	Includes 5,600 stock option shares that have vested. Ms. Zwern has pledged 10,000 shares of our common stock as security for a loan.
(10)	Includes 15,000 shares of common stock held by Mr. Murbach’s spouse. Includes 5,600 stock option shares that have vested.
(11)	Includes 15,000 shares of common stock held by Mr. Steinbach’s spouse. Includes 5,600 stock option shares that have vested.
(12)	Includes 135 shares of common stock held in the Kaiser Federal Bank 401(k) Plan.
(13)	Includes 8,800 stock option shares that have vested. Ms. Huber has pledged 15,000 shares of our common stock as security for a loan.
(14)	Includes 1,172 shares of common stock held by Ms. Thompson’s spouse, 1,400 shares of common stock held in a trust for Ms. Thompson and 4,381 shares of common stock held in the Kaiser Federal Bank 401(k) Plan. Includes 8,800 stock option shares that have vested. Ms. Thompson has pledged 15,000 shares of our common stock as security for a loan.
(15)	Based on a Schedule 13G filed with the Securities and Exchange Commission on February 14, 2007, Hovde Capital Advisors LLC claims shared voting and dispositive ownership over all shares reported. Hovde Capital Advisors LLC is an investment manager whose managed accounts are the direct owners of the shares of common stock. This reported amount of shares of common stock does not reflect any changes in those shareholdings that may have occurred since the date of such filing.

          The Business Background of K-Fed Bancorp Directors.  The business experience for the past five years of each of our continuing directors and nominee directors is set forth below.  Unless otherwise indicated, directors have held their positions for the past five years.

Directors

          The principal occupation during the past five years of each of our directors is set forth below.  All directors have held their present positions for five years unless otherwise stated. 

          James L. Breeden.  Mr. Breeden has served as chairman of the Board of Directors since November 2000.  He is a retired hospital administrator for the Kaiser Foundation Hospitals where he worked for 27 years.

          Kay M. Hoveland.  Ms. Hoveland has served as president and chief executive officer of Kaiser Federal Bank, including service with Kaiser Permanente Federal Credit Union, since 1987.  Ms. Hoveland has served as president and chief executive officer of K-Fed Bancorp since its formation in July 2003.

          Rita H. Zwern.  Ms. Zwern has been employed by Kaiser Foundation Health Plan since 1984 and currently is the manager of State Programs, located in Pasadena, California.  Ms. Zwern has served as secretary of K-Fed Bancorp since its formation in July 2003.

          Gerald A. Murbach.  Mr. Murbach is a retired human resources consultant who worked for the Universal Music Group during 2001 and the Times Mirror newspapers from 1992 to 2001.

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          Robert C. Steinbach.  Mr. Steinbach has served as a manager for the Department of Building and Safety of the City of Los Angeles since 2002 and has been with the Department since 1985. 

Executive Officers Who Are Not Directors

          The business experience for at least the past five years for each of the three executive officers of Kaiser Federal Bank, including service with Kaiser Permanente Federal Credit Union, who do not serve as directors, is set forth below.

          Dustin Luton.  Mr. Luton became chief financial officer in November of 2006. Previously, he was the Partner in Charge of the Southern California office of the National Credit Union Division of the accounting firm, McGladrey & Pullen, LLP, which served as the former registered public accounting firm of the K-Fed Bancorp until 2004. He was employed by McGladrey & Pullen, LLP since 2000 and was responsible for supervising the professional staff and professional services provided to clients in the Southern California region. In addition, he was the National Assurance Leader of the National Credit Union Division.   

          Nancy J. Huber.  Ms. Huber has served as chief credit officer of Kaiser Federal Bank since 1999 and Community Reinvestment Act officer since 2002.  From 1995 until 1999, she served as vice president of credit.

          Jeanne R. Thompson.  Ms. Thompson has served as chief operating officer of Kaiser Federal Bank since 2001.  She served as senior vice president for branch operations of Indy Mac Bank, located in Pasadena, California from 1983 until 2001.

Board Independence

          The Board of Directors consists of a majority of “independent directors” within the meaning of the Nasdaq corporate governance listing standards.  The Board of Directors has determined that directors Breeden, Murbach, ___________ and Zwern are each “independent” within the meaning of the Nasdaq corporate governance listing standards.  The Board of Directors has adopted a policy that the independent directors of the board shall meet in executive sessions periodically, which meetings may be held in conjunction with regularly scheduled board meetings.

Meetings and Committees of the Board of Directors

          Our business is conducted at regular and special meetings of the full Board of Directors and its standing committees.  The standing committees consist of the executive, audit, compensation and governance/nominating committees.  During the fiscal year ended June 30, 2007, the Board of Directors of K-Fed Bancorp held four regular meetings and one special meeting and the Board of Directors of Kaiser Federal Bank held 12 regular meetings and no special meetings.  No director attended fewer than 75% in the aggregate of the total number of board meetings held and the total number of committee meetings on which he or she served during fiscal 2007.

          Executive Committee.  The executive committee consists of directors Breeden, who serves as chairman, Hoveland, Zwern and Steinbach.  The executive committee meets as needed.  The executive committee is generally authorized to act on behalf of the full Board of Directors when certain business matters require prompt action.  The executive committee did not meet during the fiscal year ended June 30, 2007. 

          Audit Committee.  The audit committee consists of directors __________, who serves as chairman, Breeden and Zwern.  The audit committee meets as needed.  The audit committee meets with

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the internal auditor to review audit programs and the results of audits of specific areas as well as other regulatory compliance issues.  In addition, the audit committee meets with the independent registered public accounting firm on a quarterly basis to discuss the results of operations and on an annual basis to review the results of the annual audit and other related matters.  Each member of the audit committee is “independent” as defined in the Nasdaq corporate governance listing standards and Rule 10A-3 of the Securities and Exchange Commission.  The Board of Directors has determined that director ___________ qualifies as an “audit committee financial expert” as that term is used in the rules and regulations of the Securities and Exchange Commission.  Our board of directors has adopted a written charter for the audit committee which is available on K-Fed Bancorp’s website at www.k-fed.com.  The audit committee met four times during the fiscal year ended June 30, 2007.

          Compensation Committee.  The compensation committee is responsible for recommending to the full board the compensation of the chief executive officer and senior management, reviewing and administering overall compensation policy, including setting performance measures and goals, approving benefit programs, establishing compensation of the Board of Directors and other matters of personnel policy and practice and coordinating such actions with the human resources committee of Kaiser Federal Bank.  The compensation committee of K-Fed Bancorp is comprised of directors Breeden (Chairman), Murbach, ___________and Zwern.  Each member of the compensation committee is considered “independent” as defined in the Nasdaq corporate governance listing standards.  The report of the compensation committee is included elsewhere in this proxy statement/prospectus.  Our board of directors has adopted a written charter for the compensation committee which is available on K-Fed Bancorp’s website at www.k-fed.com.  The compensation committee met twice during fiscal 2007.

          The role of the compensation committee is to review annually the compensation levels of the executive officers and recommend compensation changes to the Board of Directors. The compensation committee is composed entirely of outside, non-employee directors.  It is intended that the executive compensation program will enable us to attract, motivate and retain talented executive officers who are capable of achieving our growth strategy and enhancing long-term stockholder value. The compensation committee has adopted a compensation strategy that seeks to provide competitive, performance-based compensation strongly aligned with the financial and stock performance of K-Fed Bancorp.  The key elements of our compensation program for executives are: base salary, annual incentive compensation and stock based award compensation.  For a discussion of how the compensation committee evaluates compensation components in making its decisions, see “Compensation Discussion and Analysis.”

          Governance/Nominating Committee.  The governance/nominating committee consists of directors Murbach and Zwern.  Each member of the governance/nominating committee is considered “independent” as defined in the Nasdaq corporate governance listing standards.  The board of directors has adopted a written charter for the governance/nominating committee, which is available on K-Fed Bancorp’s website at www.k-fed.com. The governance/nominating committee met one time during the fiscal year ended June 30, 2007.  

          The functions of the governance/nominating committee include the following:

• leading the search for individuals qualified to become members of the board of directors and to select director nominees to be presented for stockholder approval;

• developing and recommending to the board of directors other specific criteria not specified in its charter for the selection of individuals to be considered for election or re-election to the board of directors;

• adopting procedures for the submission of recommendations by stockholders for nominees for the board of directors; and

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• annually reviewing the adequacy of its charter and recommending any proposed changes to the board of directors.

          The governance/nominating committee identifies nominees by first evaluating the current members of the board of directors willing to continue in service.  Current members of the board of directors with skills and experience that are relevant to our business and who are willing to continue in service are first considered for re-nomination, balancing the value of continuity of service by existing members of the board of directors with that of obtaining a new perspective.  In addition, the governance/nominating committee is authorized by its charter to engage a third party to assist in the identification of director nominees.  The governance/nominating committee would seek to identify a candidate who, at a minimum, satisfies the following criteria:

• the highest personal and professional ethics and integrity and whose values are compatible with our values;

• experience and achievements that have given them the ability to exercise and develop good business judgment;

• a willingness to devote the necessary time to the work of the board of directors and its committees, which includes being available for board and committee meetings;

• a familiarity with the communities in which we operate and/or are actively engaged in community activities;

• involvement in other activities or interests that do not create a conflict with their responsibilities to us and our stockholders; and

• the capacity and desire to represent the balanced, best interests of our stockholders as a group, and not primarily a special interest group or constituency.

          The governance/nominating committee will also take into account whether a candidate satisfies the criteria for “independence” under the NASDAQ corporate governance listing standards.

          Procedures for the Nomination of Directors by Stockholders.  The governance/nominating committee has adopted procedures for the submission of recommendations for director nominees by our stockholders.  If a determination is made that an additional candidate is needed for the board of directors, the governance/nominating committee will consider candidates submitted by our stockholders.  Stockholders can submit the names of qualified candidates for director by writing to the chairman of the governance/nominating committee at 1359 North Grand Avenue, Covina, California 91724.  The chairman must receive a submission not less than one hundred and twenty (120) days prior to the date of our proxy materials for the preceding year’s annual meeting. The submission must include the following information:

• a statement that the writer is a stockholder and is proposing a candidate for consideration by the governance/nominating committee;

• the name and address of the stockholder as they appear on our books, and number of shares of our common stock that are owned beneficially by such stockholder (if the stockholder is not a holder of record, appropriate evidence of the stockholder’s ownership will be required);

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• the name, address and contact information for the candidate, and the number of shares of our common stock that are owned by the candidate (if the candidate is not a holder of record, appropriate evidence of the stockholder’s ownership should be provided);

• a statement of the candidate’s business and educational experience;

• such other information regarding the candidate as would be required to be included in the proxy statement/prospectus pursuant to Regulation 14A of the Securities Exchange Act of 1934;

• a statement detailing any relationship between the candidate and any customer, supplier or competitor of K-Fed Bancorp or its affiliates;

• detailed information about any relationship or understanding between the proposing stockholder and the candidate; and

• a statement of the candidate that the candidate is willing to be considered and willing to serve as a director if nominated and elected.

          A nomination submitted by a stockholder for presentation by the stockholder at an annual meeting of our stockholders must comply with the procedural and informational requirements described in our bylaws.

          Stockholder Communications with the Board of Directors.  A stockholder who wants to communicate with the board of directors or with any individual director can write to K-Fed Bancorp at 1359 North Grand Avenue, Covina, California 91724, attention: chairman of the governance/nominating committee.  The letter should indicate that the author is a stockholder and, if shares are not held of record, should include appropriate evidence of stock ownership.  Depending on the subject matter, management will:

• forward the communication to the director or directors to whom it is addressed;

• attempt to handle the inquiry directly, or forward the communication for response by another employee.  For example, a request for information about us as a stock-related matter may be forwarded to our stockholder relations officer; or

• not forward the communication if it is primarily commercial in nature, relates to an improper or irrelevant topic, or is unduly hostile, threatening, illegal or otherwise inappropriate.

          At each board of directors meeting, management shall present a summary of all communications received since the last meeting that were not forwarded and make those communications available to the directors.

Code of Ethics

          The board of directors has adopted a Code of Business Conduct and Ethics that applies to all of our officers, directors and employees, and a Code of Ethics for the Chief Executive Officer and Senior Financial Officers.  The codes are intended to promote honest and ethical conduct, full and accurate reporting and compliance with laws.  The codes are available on K-Fed Bancorp’s website at www.k-fed.com.

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Amendments to and waivers from the Code of Ethics will also be disclosed on K-Fed Bancorp’s website.

Attendance at Annual Meetings of Stockholders

          Although we do not have a formal written policy regarding director attendance at annual meetings of stockholders, it is expected that directors will attend our annual meetings.  All of our current directors attended the prior year’s annual meeting of stockholders.

Audit Committee Report

          Our audit committee operates under a written charter adopted by the board of directors.  The audit committee charter is available on K-Fed Bancorp’s website at www.k-fed.com.  The audit committee has issued a report which states that it has:

• reviewed and discussed with management and our independent registered public accounting firm, our audited consolidated financial statements for the fiscal year ended June 30, 2007;

• discussed with the independent registered public accounting firm the matters required to be discussed by Statement on Auditing Standards No. 61, Communications with Audit Committees, as amended; and

• received the written disclosures and the letter from the independent registered public accounting firm required by Independence Standards Board Standard No. 1, Independence Discussions with Audit Committees, and have discussed with the independent registered public accounting firm their independence from us.

          Based on the review and discussions referred to above, the audit committee recommended to the board of directors that the audited consolidated financial statements be included in our annual report on Form 10-K for the fiscal year ended June 30, 2007 and to be filed with the Securities and Exchange Commission.  In addition, the audit committee approved the appointment of Crowe Chizek and Company LLP as the independent registered public accounting firm for us for the fiscal year ending June 30, 2008, subject to the ratification of this appointment by our stockholders.

          This report shall not be deemed incorporated by reference by any general statement incorporating by reference this proxy statement/prospectus into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that we specifically incorporate this report by reference, and shall not otherwise be deemed filed with the Securities and Exchange Commission.

This report has been provided by the audit committee.

Frank G. Nicewicz, Chairman
James L. Breeden
Rita H. Zwern

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Section 16(a) Beneficial Ownership Reporting Compliance

          Our common stock is registered pursuant to Section 12(b) of the Securities Exchange Act of 1934, as amended.  Our officers and directors and beneficial owners of greater than 10% of our common stock are required to file reports on Forms 3, 4 and 5 with the Securities and Exchange Commission disclosing beneficial ownership and changes in beneficial ownership of our common stock.  Securities and Exchange Commission rules require disclosure in a company’s annual proxy statement and annual report on Form 10-K of the failure of an officer, director or 10% beneficial owner of the common stock to file a Form 3, 4 or 5 on a timely basis.  Based on our review of such ownership reports, no officer, director or 10% beneficial owner of our common stock failed to file such ownership reports on a timely basis for the fiscal year ended June 30, 2007 except for Director James Breeden who filed one late Form 4 transaction.

Executive Compensation

Compensation Discussion and Analysis

          We believe the most effective executive compensation program is one that is aligned with achievement of our long-term strategic goals and we intend for our compensation program to align executives’ interests with those of the stockholders by rewarding performance for implementing our various strategies with the ultimate objective of improving shareholder value. We evaluate both performance and compensation to ensure that we maintain our ability to attract and retain employees in key positions and to ensure that compensation provided to key employees keeps these employees focused on value creation.

          In this regard, we provide what we consider to be a competitive compensation package for the named executive officers comprised of a base salary, an annual incentive plan, a stock option plan, a recognition and retention plan, an employee stock ownership plan, a 401(k) Plan, and a deferred compensation program as well as health and welfare benefits.

          The compensation committee is responsible for all compensation and benefit matters relating to the executive officers, including the evaluation and compensation of our president and chief executive officer. The president and chief executive officer evaluates the performance of the other named executive officers and recommends to the compensation committee the named executive officers’ compensation levels for approval. The compensation committee regularly evaluates and approves all compensation practices applicable to the named executive officers, including the president and chief executive officer.

Base Salary

          It is our philosophy to maintain base salaries at levels comparable to the salaries paid by similar organizations. In establishing base salaries, we take into account each executive officer’s ability and experience as well as past and potential performance. On an annual basis, each executive officer is evaluated and their base salary may be adjusted based on market data as well as taking into account the above factors.

Annual Incentive Plan

          The Annual Incentive Plan is an integral part of an executive’s total compensation package that recognizes the executive’s annual contribution to our success. The Plan is designed to: 1) support a business change to community-based banking; 2) support a culture change to pay-for-performance; 3)

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focus the executive team on annual goals to meet long-term goals; 4) reward executives for their effort; and 5) align compensation with the goals of the organization and marketplace practices.  The award is achieved only if Kaiser Federal Bank achieves a minimum return on average assets (ROA) which is set each year.  If our return on assets goal is achieved, each individual executive must also achieve certain personal performance objectives set by the president and chief executive officer or the Board of Directors.  One of these goals must address expense management. The president and chief executive officer is eligible to receive up to 30% of her annual base salary and the remaining named executive officers are eligible to receive up to 20% of their annual base salaries under this plan.

Equity Compensation

          The compensation committee uses the award of stock options and restricted stock under the recognition and retention plan to align the interests of the named executive officers with those of our stockholders. At the annual meeting of stockholders in 2004, stockholders approved our stock option plan and recognition and retention plan. Ms. Hoveland, Ms. Huber, and Ms. Thompson received both stock options and awards from the compensation committee under each of those equity compensation plans during 2004. Mr. Luton received his stock options and stock awards when he became chief financial officer in November 2006. Both the stock options and the stock awards vest at a rate of 20% per year over five years commencing on the first anniversary of the award.  The compensation committee believes that the five year vesting of stock options and restricted stock awards will focus senior management on long term performance and stock appreciation. Except for Mr. Luton, no additional options or awards were granted to any of the named executive officers in fiscal years ended June 30, 2006 and 2007.

          Information regarding the outstanding stock option grants and unvested recognition and retention plan awards is included in the section titled “- Outstanding Equity Awards at Year End,” below. For information regarding our expense related to the portion of each stock option and restricted stock plan award that vested during fiscal 2007, as calculated in accordance with Statement of Financial Accounting Standards No. 123(R), see “Summary Compensation Table.”

Benefit Plans

          The compensation committee annually reviews the expense and appropriateness of all benefit plans for the named executive officers and all other employees. The benefit plans include a 401(k) plan, deferred compensation plan, employee stock ownership plan, and other benefit plans such as medical, dental, life and disability insurance.

          The named executive officers are eligible to participate in a 401(k) Plan which includes a match of up to 50% of the participant’s eligible contributions up to 10% of the participant’s salary. The match and the investment options are identical to those available to all other participants. Under the terms of our employee stock ownership plan, all named executive officers receive an annual allocation of our common stock based upon the participant’s eligible compensation up to $210,000. Participation levels for named executive officers are identical to those of all other employee stock ownership plan participants.

          The named executive officers are eligible to participate in the nonqualified deferred retirement plan, which allows them to defer a portion of their compensation earned during the plan year. At our discretion, we have the ability to match the elective deferrals of the participants. However, we have not made any matching contributions to this plan since inception.  

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Compensation Committee Interlocks and Insider Participation

          The compensation committee is composed of independent directors within the meaning of the NASDAQ corporate governance listing standards.  The compensation committee consists of directors Breeden, who serves as chairman, Murbach and Zwern.  Under the board’s policies, Ms. Hoveland, and any other director who is also an executive officer of K-Fed Bancorp and Kaiser Federal Bank, will not participate in the board of director’s determination of compensation for their respective offices.

Report of the Compensation Committee on Executive Compensation

          The compensation committee has issued a report that states that it has reviewed and discussed the section entitled “Compensation Discussion and Analysis” with management.  Based on this review and discussion, the compensation committee recommended to the Board of Directors that the “Compensation Discussion and Analysis” be included in this proxy statement/prospectus.

          This report shall not be deemed incorporated by reference by any general statement incorporating by reference this proxy statement/prospectus into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that we specifically incorporate this report by reference, and shall not otherwise be deemed filed with the Securities and Exchange Commission.

This report has been provided by the compensation committee:

James L. Breeden, Chairman	Gerald A. Murbach
Frank G. Nicewicz	Rita H. Zwern

Summary Compensation

          The following table sets forth for the fiscal year ended June 30, 2007, certain information as to the total remuneration paid by Kaiser Federal Bank to Ms. Hoveland, who serves as president and chief executive officer, Mr. Luton, who serves as chief financial officer and certain information as to the total remuneration paid by Kaiser Federal Bank to the other most highly compensated executive officers of Kaiser Federal Bank, other than Ms. Hoveland or Mr. Luton, who received total annual compensation in excess of $100,000.  Each of the individuals listed in the table below are referred to as a named executive officer.

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Name and Principal Position	Year		Salary		Bonus		Stock awards(1)		Option awards(2)		Non-equity incentive plan compensation(3)		Change in pension value and non- qualified deferred compensation earnings(4)		All other compensation(5)		Total
Kay M. Hoveland, President and Chief Executive Officer		2007	$	280,851	$	100,800	$	112,800	$	102,000	$	—	$	40,835	$	105,734	$	743,020
Dustin Luton, Chief Financial Officer		2007		130,308		—		43,950		21,300		30,250		—		6,000		231,808
Jeanne R. Thompson, Chief Operating Officer		2007		145,830		—		28,200		22,440		5,000		—		55,949		257,419
Nancy J. Huber, Chief Credit Officer		2007		159,835		—		28,200		22,440		28,122		—		62,182		300,779

(1)	The amounts in this column reflect the dollar amount recognized for financial statement reporting purposes for the fiscal year ended June 30, 2007, in accordance with FAS 123(R), of restricted stock awards pursuant to the 2004 Recognition and Retention Plan and thus may include amounts from awards granted in and prior to 2007.  Assumptions used in the calculation of these amounts are included in footnote 10 to our audited consolidated financial statements included in this proxy statement/prospectus.
(2)	The amounts in this column reflect the dollar amount recognized for financial statement reporting purposes, for the fiscal year ended June 30, 2007, in accordance with FAS 123(R), of stock option awards pursuant to the 2004 Stock Option Plan and thus include amounts from awards granted in and prior to 2007. Assumptions used in the calculation of this amount are included in footnote 10 to our audited consolidated financial statements included in this proxy statement/prospectus.  Pursuant to SEC rules, the amounts shown exclude the impact of estimated forfeitures related to service-based conditions.
(3)	All cash incentive plan awards are reported for the fiscal year for which they were earned. These awards are traditionally paid during the first quarter of the following fiscal year.
(4)	Kaiser Federal Bank maintains an executive deferral program for the benefit of senior executive officers.  Ms. Hoveland is currently the only executive officer who has chosen to participate.  The amount represents the change in net present value of accrued benefits under the plan during fiscal 2007.
(5)	Amounts shown include (a) the market value as of June 30, 2007 of ESOP awards allocated to each named executive officer for fiscal 2007; (b) the amount of dividends earned on the unvested portion of previously awarded shares of common stock under our 2004 Recognition and Retention Plan; and (c) the matching contributions made to the 401(k) Plan on behalf of the named executive officers.  The following table lists all the amounts included in “All Other Compensation” column for each named executive officer.
(6)	Mr. Luton joined Kaiser Federal Bank effective November 15, 2006.

All Other Compensation

Name	Perquisites(1)		Contributions to 401(k) Plan		RRP Dividends(2)		ESOP Shares Granted(3)		Directors Fees(4)		Total
Kay M. Hoveland	$	—	$	7,524	$	10,880	$	65,030	$	22,300	$	105,734
Dustin Luton		—		—		6,000		—		—		6,000
Jeanne R. Thompson		—		6,373		2,720		46,856		—		55,949
Nancy J. Huber		—		4,295		2,720		55,167		—		62,182

(1)	For the fiscal year ended June 30, 2007, no named executive officer received perquisites or personal benefits which exceeded $10,000.
(2)	Represents dividends on unearned restricted stock awards.
(3)	Market value of shares granted under the ESOP. See Note 11 - Employee Stock Ownership Plan to our financial statements in this proxy statement/prospectus.
(4)	Ms. Hoveland, the president and chief executive officer, is also a director.

          Outstanding Equity Awards at Year End.  The following table sets forth information with respect to our outstanding equity awards as of June 30, 2007 for our named executive officers.

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Outstanding Equity Awards at Fiscal Year-End
	Option Awards												Stock Awards
	Grant Date		Number of securities underlying unexercised options (#) exercisable		Number of securities underlying unexercised options (#) unexercisable		Equity incentive plan awards: number of securities underlying unexercised earned options (#)		Option exercise price ($)		Option expiration date(1)		Number of shares or units of stock that have not vested (#)		Market value of shares or units of stock that have not vested ($)(2)		Equity incentive plan awards: number of unearned shares, units or other rights that have not vested (#)		Equity incentive plan awards: market or payout value of unearned shares, units or other rights that have not vested ($)
Kay M. Hoveland, President and Chief Executive Officer		11/14/2004		40,000		60,000		—	$	14.50		11/14/2014		24,000	$	376,560		—		—
Dustin Luton, Chief Financial Officer		11/15/2006		—		40,000		—		17.40		11/15/2016		20,000		313,800		—		—
Jeanne R. Thompson, Chief Operating Officer		11/14/2004		8,800		13,200		—		14.50		11/14/2014		6,000		94,140		—		—
Nancy J. Huber, Chief Credit Officer		11/14/2004		8,800		13,200		—		14.50		11/14/2014		6,000		94,140		—		—

(1)	Stock options expire 10 years after the grant date.
(2)	This amount is based on the fair market value of K-Fed Bancorp common stock on June 29, 2007 of $15.69.

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Benefits

          General.  Kaiser Federal Bank currently provides health and welfare benefits to its employees, including hospitalization and comprehensive medical insurance, life insurance, subject to deductibles and co-payments by employees.

          401(k) Plan.  Kaiser Federal Bank provides its employees with a qualified profit sharing plan under the applicable provisions of the Internal Revenue Code of 1986, as amended.

          Employees who are age 21 or older are eligible to begin making salary deferral contributions beginning in the first calendar quarter on or after they become an employee.  This is their earliest entry date.  Employees are eligible to receive contributions other than salary deferral contributions beginning in the first calendar quarter on or after they are an employee, are age 21 or older, and have completed one year of entry service.

          Eligible employees may contribute up to 15% of their compensation each pay period to the 401(k) Plan on a pre-tax basis, not to exceed $15,500 for the calendar year 2007.  The maximum deferral percentage and/or dollar amount may also be limited by Internal Revenue Service regulations.  For eligible employees, we currently match 50% of the first 10% of the compensation an employee defers each pay period.

          Employees are always 100% vested in the contributions they choose to defer, whereas vesting in Kaiser Federal Bank contributions is based on years of vesting service in which an employee works at least 1,000 hours.  Vesting in Kaiser Federal Bank contributions begins after two years of vesting service and increases for each year of vesting service until an employee becomes fully vested after six years of vesting service.

          Employees may receive money from their vested accounts at retirement (age 65), early retirement (age 55 and ten years of vesting service), age 59 ½ and still working, death, disability, or termination of employment.  Employees may obtain loans from their vested account balances or withdraw all or part of their vested accounts (not earnings) if they can prove financial hardship and are unable to meet their financial needs another way.

          Kaiser Federal Bank may amend the 401(k) Plan at any time, except that no amendment may be made which would reduce the interest of any participant in or beneficiary of the 401(k) Plan trust fund or divert any of the assets of the 401(k) Plan trust fund to purposes other than the benefit of participants or their beneficiaries unless necessary to comply with any law or regulation issued by any governmental agency to which the 401(k) Plan is subject.

          Employee Stock Ownership Plan.  In connection with our minority stock offering, we adopted the K-Fed Bancorp Employee Stock Ownership Plan or ESOP for eligible employees of K-Fed Bancorp and any subsidiary, including Kaiser Federal Bank.  Employees of K-Fed Bancorp and Kaiser Federal Bank who have been credited with at least 1,000 hours of service during a twelve month period are eligible to participate in the ESOP.

          The ESOP borrowed funds from K-Fed Bancorp to purchase 454,940 shares of the common stock sold in our stock offering.  The shares of common stock were purchased with proceeds of a $4.5 million loan from K-Fed Bancorp.  The loan to the ESOP bears interest at 4.0% and will be repaid principally from Kaiser Federal Bank’s contributions to the ESOP over a period of ten years.  The collateral for the loan is the shares of common stock of K-Fed Bancorp purchased by the ESOP.  Shares purchased by the ESOP are held in a suspense account and are released to participants’ accounts as debt service payments

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are made.  Shares released from the ESOP are allocated to each eligible participant’s ESOP account based on the ratio of each such participant’s compensation to the total compensation of all eligible participants.  Forfeitures are reallocated among remaining participating employees and may reduce any amount K-Fed Bancorp might otherwise have contributed to the ESOP.  A participant vests in 100% of his or her account balance after six years of credited service.  In the case of a “change in control,” as defined in the ESOP, which triggers a termination of the ESOP, participants will become immediately fully vested in their account balances.  Benefits are payable upon retirement or other separation from service.  K-Fed Bancorp’s contributions to the ESOP are not fixed, so benefits payable under the ESOP cannot be estimated.

          Annual Incentive Plan.  Kaiser Federal Bank maintains an Annual Incentive Plan for our key employees.  Participants are awarded a percentage of their base salary, based upon their position with Kaiser Federal Bank that is tied to achieving a minimum return on assets and the attainment of personal performance goals established by the employee and his or her supervisor.

K-Fed Bancorp 2004 Stock Benefit Plans

          Outside directors and key employees of Kaiser Federal Bank, K-Fed Bancorp or their affiliates are eligible to participate in and receive awards of stock options and restricted stock under the K-Fed Bancorp 2004 Stock Option Plan, and the K-Fed Bancorp 2004 Recognition and Retention Plan, respectively.  A total of 568,675 shares of our common stock is reserved for the 2004 Stock Option Plan and 227,470 shares of our common stock is reserved for the 2004 Recognition and Retention Plan.  On November 16, 2004, directors Murbach, Nicewicz (who resigned on September 18, 2007), Steinbach and Zwern each were granted non-qualified stock options to purchase 14,000 shares of our common stock. Chairman Breeden was granted non-qualified stock options to purchase 28,000 shares of our common stock.  Additionally, incentive stock options to purchase 100,000, 22,000 and 22,000 shares of our common stock were each granted to Ms. Hoveland, Ms. Huber and Ms. Thompson, respectively.  On November 16, 2004, a total of 373,600 stock options were granted to directors and employees.  All of the stock options granted to the directors and key employees on November 16, 2004 were granted at an exercise price of $14.50 per share, the fair market value of our common stock on the grant date.  On November 15, 2006, incentive stock options to purchase 40,000 shares of our common stock was granted to Mr. Luton, the chief financial officer, with an exercise price of $17.40 per share, the fair market value of our common stock on the grant date.

          On November 16, 2004, directors Murbach, Nicewicz, Steinbach and Zwern were granted a restricted stock award of 7,200 shares of our common stock. Chairman Breeden was granted a restricted stock award of 11,300 shares of our common stock.  Additionally, restricted stock awards of 40,000, 10,000 and 10,000 shares of our common stock were granted to Ms. Hoveland, Ms. Huber and Ms. Thompson, respectively.  On November 16, 2006, Mr. Luton was granted a restricted stock award of 20,000 shares of our common stock.

          All stock options and restricted stock awards vest in 20% increments over a five-year period, beginning on the first anniversary of the award date.  Stock options will vest and become immediately exercisable and restricted stock awards will vest upon the grantee’s death, disability or following a change in control of K-Fed Bancorp.

Effect on Existing Compensation Plans

          Under the plan of conversion and reorganization, the existing 2004 Stock Option Plan and 2004 Recognition and Retention Plan of K-Fed Bancorp will become stock benefit plans of Kaiser Federal Financial Group, Inc. and shares of Kaiser Federal Financial Group, Inc. common stock will be issued (or

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reserved for issuance) pursuant to such benefit plans and not shares of K-Fed Bancorp common stock.  Upon consummation of the conversion, the common stock currently reserved for or held by these benefit plans will be converted into options or Kaiser Federal Financial Group, Inc. common stock based upon the exchange ratio.  Upon completion of the conversion, (i) all rights to purchase, sell or receive K-Fed Bancorp common stock currently under any agreement between K-Fed Bancorp and Kaiser Federal Bank and any director, officer or employee of Kaiser Federal Bank or under any plan or program of K-Fed Bancorp or Kaiser Federal Bank (including, without limitation, the 2004 Recognition and Retention Plan), shall automatically, by operation of law, be converted into and shall become an identical right to purchase, sell or receive Kaiser Federal Financial Group, Inc. common stock and an identical right to make payment in common stock under any such agreement between K-Fed Bancorp or Kaiser Federal Bank and any director, officer or employee or under such plan or program of K-Fed Bancorp or Kaiser Federal Bank, and (ii) rights outstanding under the 2004 Stock Option Plan shall be assumed by Kaiser Federal Financial Group, Inc. and thereafter shall be rights only for shares of Kaiser Federal Financial Group, Inc. common stock, with each such right being for a number of shares of Kaiser Federal Financial Group, Inc. common stock based upon the exchange ratio and the number of shares of K-Fed Bancorp that were available thereunder immediately prior to consummation of the conversion, with the price adjusted to reflect the exchange ratio but with no change in any other term or condition of such right.

          Options Exercised and Stock Vested.  The following table sets forth information with respect to option exercises and common stock awards that have vested during the year ended June 30, 2007.

Option Exercises and Stock Vested for the Fiscal Year
	Option awards				Stock awards
Name	Number of shares acquired on exercise (#)		Value realized on exercise ($)		Number of shares acquired on vesting (#)		Value realized on vesting ($)(1)
Kay M. Hoveland, President and Chief Executive Officer		—	$	—		8,000	$	140,640
Dustin Luton, Chief Financial Officer		—		—		—		—
Jeanne R. Thompson, Chief Operating Officer		—		—		2,000		35,160
Nancy H. Huber, Chief Credit Officer		—		—		2,000		35,160

⁽¹⁾ The value realized on vesting represents the market value on the day the stock vested.

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          Nonqualified Deferred Compensation.  The following table sets forth information with respect to the Executive Nonqualified Retirement Plan at and for the year ended June 30, 2007 for the named executive officers.

Nonqualified Deferred Compensation
Name	Executive Contributions in Last FY ($)		Registrant Contributions in Last FY ($)		Aggregate Earnings in Last FY ($)		Aggregate Withdrawals/ Distributions ($)		Aggregate Balance at Last FYE ($)
Kay M. Hoveland, President and Chief Executive Officer	$	—	$	—	$	40,835	$	—	$	1,013,464
Dustin Luton, Chief Financial Officer		—		—		—		—		—
Jeanne R. Thompson, Chief Operating Officer		—		—		—		—		—
Nancy H. Huber, Chief Credit Officer		—		—		—		—		—

          Kaiser Federal Bank Executive Non-Qualified Retirement Plan.  Kaiser Federal Bank also maintains an executive deferral program for the benefit of certain senior executives that have been designated to participate in the program.  The program allows an additional opportunity for key executives to defer a portion of their compensation into a non-qualified deferral program to supplement their retirement earnings.  Ms. Hoveland, currently the only participant in the program, had $1.0 million in compensation deferred pursuant to this program as of June 30, 2007.

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          Potential Payments Upon Termination or Change in Control. The following table shows, as of June 30, 2007, in all cases, potential payments following a termination of employment or a change in control of K-Fed Bancorp.

	Voluntary Resignation		Early Retirement		Normal Retirement		Involuntary Termination		Involuntary Termination for cause		Involuntary Termination after change in control		Disability		Death
Kay M. Hoveland
2004 Stock Option Plan(1)	$	—	$	—	$	—	$	—	$	—	$	119,000	$	119,000	$	119,000
2004 Recognition and Retention Plan(1)	$	—	$	—	$	—	$	—	$	—	$	376,560	$	376,560	$	376,560
Executive Nonqualified Retirement Plan(2)	$	1,013,464	$	1,013,464	$	1,013,464	$	1,013,464	$	1,013,464	$	1,013,464	$	1,013,464	$	1,013,464
Dustin Luton
2004 Stock Option Plan(3)	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
2004 Recognition and Retention Plan(3)	$	—	$	—	$	—	$	—	$	—	$	313,800	$	313,800	$	313,800
Jeanne R. Thompson
2004 Stock Option Plan(4)	$	—	$	—	$	—	$	—	$	—	$	26,180	$	26,180	$	26,180
2004 Recognition and Retention Plan(4)	$	—	$	—	$	—	$	—	$	—	$	94,140	$	94,140	$	94,140
Nancy J. Huber
2004 Stock Option Plan(5)	$	—	$	—	$	—	$	—	$	—	$	26,180	$	26,180	$	26,180
2004 Recognition and Retention Plan(5)	$	—	$	—	$	—	$	—	$	—	$	94,140	$	94,140	$	94,140

(1)	As of June 30, 2007, 16,000 restricted shares have vested and 40,000 stock options have vested and not been exercised.  At June 30, 2007, the restricted shares of common stock granted under the plan were valued at $15.69 per share. At the same date, the “in-the-money” value of 40,000 vested and unexercised stock options granted on November 16, 2004 was $1.19 per share, based on an exercise price of $14.50 per option and a share value of $15.69.  As of June 30, 2007, 24,000 unvested shares of restricted stock and 60,000 unvested stock options granted to the executive will vest in the event of a change in control of K-Fed Bancorp, or the executive’s death or disability.
(2)	Represents the amount of Ms. Hoveland’s deferred compensation plan as of June 30, 2007.
(3)	As of June 30, 2007, no restricted shares have vested and no stock options have vested or been exercised.  At June 30, 2007, the restricted shares of common stock granted under the plan were valued at $15.69 per share. As of June 30, 2007, 20,000 unvested shares of restricted stock and 40,000 unvested stock options granted to the executive will vest in the event of a change in control of K-Fed Bancorp, or the executive’s death or disability.  As of June 30, 2007, none of Mr. Luton’s stock options were in the money.
(4)	As of June 30, 2007, 4,000 restricted shares have vested and 8,800 stock options have vested and not been exercised.  At June 30, 2007, the restricted shares of common stock granted under the plan were valued at $15.69 per share. At the same date, the “in-the-money” value of 8,800 vested and unexercised stock options granted on November 16, 2004 was $1.19 per share, based on an exercise price of $14.50 per option and a share value of $15.69.  As of June 30, 2007, 6,000 unvested shares of restricted stock and 13,200 unvested stock options granted to the executive will vest in the event of a change in control of K-Fed Bancorp, or the executive’s death or disability.
(5)	As of June 30, 2007, 4,000 restricted shares have vested and 8,800 stock options have vested and not been exercised.  At June 30, 2007, the restricted shares of common stock granted under the plan were valued at $15.69 per share. At the same date, the “in-the-money” value of 8,800 vested and unexercised stock options granted on November 16, 2004 was $1.19 per share, based on an exercise price of $14.50 per option and a share value of $15.69.  As of June 30, 2007, 6,000 unvested shares of restricted stock and 13,200 unvested stock options granted to the executive will vest in the event of a change in control of K-Fed Bancorp, or the executive’s death or disability.

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Directors Compensation

          Members of the Board of Directors and the committees of K-Fed Bancorp do not receive separate compensation for their service on the Board of Directors or the committees of K-Fed Bancorp. 

          For the fiscal year ended June 30, 2007, members of the Board of Directors of Kaiser Federal Bank received an annual stipend of $10,000 plus an annual fee of $7,500 for Board of Directors meetings.  The chairman of the Board of Directors received an annual stipend of $25,000 plus an annual fee of $7,500 for Board of Directors meetings.  Each member of Kaiser Federal Bank’s executive committee received an annual fee of $4,800.  Each member of Kaiser Federal Bank’s other committees received an annual fee of $1,200 with the committee chairman receiving $1,600.  The Board Chairman received annual fees of $15,000 for attending weekly credit committee and asset/liability management committee meetings. 

          Directors’ Summary Compensation Table.  Set forth below is summary compensation for each of our non-employee directors. 

Director Compensation
Name(1)	Fees earned or paid in cash		Stock awards(2)		Option awards(3)		Non-equity incentive plan compensation		Change in pension value and non- qualified deferred compensation earnings		All other compensation(4)		Total
James C. Breeden	$	67,300	$	31,866	$	28,560	$	—	$	—	$	3,074	$	130,800
Frank G. Nicewicz (5)		19,100		20,304		14,280		—		—		1,958		55,642
Rita H. Zwern		23,500		20,304		14,280		—		—		1,958		60,042
Gerald A. Murbach		19,100		20,304		14,280		—		—		1,958		55,642
Robert C. Steinbach		23,500		20,304		14,280		—		—		1,958		60,042

(1)	Ms. Hoveland, the president and chief executive officer, is also a director.  Ms. Hoveland receives compensation for serving on the board, however, her compensation has been omitted from this table and is reported in the Summary Compensation table.
(2)	The amounts in this column reflect the dollar amount recognized for financial statement reporting purposes for the fiscal year ended June 30, 2007, in accordance with FAS 123(R), of restricted stock awards pursuant to the 2004 Recognition and Retention Plan and thus may include amounts from awards granted in and prior to 2007.  Assumptions used in the calculation of these amounts are included in footnote 10 to our audited financial statements for the fiscal year ended June 30, 2007 included in this proxy statement/prospectus.
(3)	The amounts in this column reflect the dollar amount recognized for financial statement reporting purposes, for the fiscal year ended June 30, 2007, in accordance with FAS 123(R), of stock option awards pursuant to the 2004 Stock Option Plan and thus include amounts from awards granted in and prior to 2007. Assumptions used in the calculation of this amount are included in footnote 10 to our audited financial statements for the fiscal year ended June 30, 2007 included in this proxy statement/prospectus.  Pursuant to SEC rules, the amounts shown exclude the impact of estimated forfeitures related to service-based conditions.
(4)	This amount represents dividends received on unvested stock awards in 2007. For the year ended June 30, 2007, no director received perquisites or personal benefits, which exceeded $10,000.
(5)	Mr. Nicewicz resigned from the Board of Directors effective September 18, 2007.

Transactions with Certain Related Persons

          Kaiser Federal Bank has a policy of granting loans to officers and directors, which fully complies with all applicable federal regulations.  Loans to directors and executive officers are made in the ordinary course of business and on the same terms and conditions as those of comparable transactions with unaffiliated third parties prevailing at the time, in accordance with our underwriting guidelines, and do not involve more than the normal risk of collectibility or present other unfavorable features.  In addition, all loans to directors and executive officers are approved by at least a majority of the independent, disinterested members of the board.

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          All loans Kaiser Federal Bank makes to its directors and executive officers are subject to regulations restricting loans and other transactions with affiliated persons of Kaiser Federal Bank.  Loans to all directors and executive officers and their associates totaled approximately $813,000 at June 30, 2007, which was 0.1% of our stockholders’ equity at that date.  All loans to directors and executive officers were performing in accordance with their terms at June 30, 2007.

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PROPOSAL 2 — RATIFICATION OF APPOINTMENT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM

          Our independent registered public accounting firm for the year ended June 30, 2007 was Crowe Chizek and Company LLP.  Our audit committee has approved the engagement of Crowe Chizek and Company LLP to be our independent registered public accounting firm for the fiscal year ending June 30, 2008, subject to the ratification of the engagement by our stockholders.  At the annual meeting, our stockholders will consider and vote on the ratification of the engagement of Crowe Chizek and Company LLP for the fiscal year ending June 30, 2008.  A representative of Crowe Chizek and Company LLP is expected to attend the annual meeting and will have the opportunity to make a statement and respond to appropriate questions.

          Set forth below is certain information concerning aggregate fees billed for professional services rendered by Crowe Chizek and Company LLP during the fiscal years ended June 30, 2007 and June 30, 2006, respectively. The aggregate fees included in the audit category were fees billed for the fiscal years for the audit of our annual financial statements and the review of our quarterly financial statements.  The aggregate fees included in each of the other categories were fees billed in the noted fiscal years. 

	2007		2006
Audit Fees	$	160,000	$	71,000
Audit Related Fees	$	—	$	35,000
Tax Fees	$	23,450	$	31,300
All Other Fees	$	4,195	$	—

          Audit Fees. Audit fees of $160,000 and $71,000 in fiscal 2007 and 2006, respectively, were for the audit of our consolidated financial statements. The audit fees for fiscal 2007 and 2006 included fees for review of the financial statements included in our annual and quarterly reports and filed with the Securities and Exchange Commission and the preparatory internal controls attestation required under regulations of the Securities and Exchange Commission.

          Audit-Related Fees. Audit-related fees of $0 and $35,000 in fiscal years 2007 and 2006, respectively were for compliance with Federal Banking and Securities laws, which are reasonably related to the performance of the audit of and review of the financial statements and that are not reported in “Audit Fees,” above.

          Tax Fees. Tax fees of $23,450 in fiscal year 2007 and $31,300 in fiscal year 2006 were for services related to tax compliance and tax planning.

          All Other Fees. Other fees of $4,195 in fiscal year 2007 were for the annual software license fee for management’s assessment of internal controls over financial reporting.

Policy on Audit Committee Pre-Approval of Audit and Non-Audit Services of Independent Registered Public Accounting Firm.

          The audit committee has considered whether the provision of non-audit services, which relate primarily to tax consulting and other compliance services rendered, is compatible with maintaining the independence of Crowe Chizek and Company LLP.  The audit committee concluded that performing such services does not affect the independence of Crowe Chizek and Company LLP in performing its function as auditor of K-Fed Bancorp.

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          The audit committee’s policy is to pre-approve all audit and non-audit services provided by the independent registered public accounting firm. These services may include audit services, audit-related services, tax services and other services.  The audit committee has delegated pre-approval authority to its chairman when expedition of services is necessary.  The independent registered public accounting firm and management are required to periodically report to the full audit committee regarding the extent of services provided by the independent registered public accounting firm in accordance with this pre-approval, and the fees for the services performed to date. 

          In order to ratify the selection of Crowe Chizek and Company LLP as the independent registered public accounting firm for the fiscal year ending June 30, 2008, the proposal must receive at least a majority of the votes cast, without regard to broker non-votes, either in person or by proxy, in favor of such ratification.  The audit committee of the board of directors recommends a vote “FOR” the ratification of Crowe Chizek and Company LLP as the independent registered public accounting firm for the fiscal year ending June 30, 2008.

PROPOSAL 3 — APPROVAL OF THE PLAN OF CONVERSION AND REORGANIZATION

          The Boards of Directors of K-Fed Bancorp and K-Fed Mutual Holding Company have approved the plan of conversion and reorganization.  The plan of conversion and reorganization must also be approved by the members of K-Fed Mutual Holding Company (depositors of Kaiser Federal Bank) and the stockholders of K-Fed Bancorp.  A special meeting of members and a special meeting of stockholders have been called for this purpose. The Office of Thrift Supervision has conditionally approved the plan of conversion and reorganization; however, such approval does not constitute a recommendation or endorsement of the plan of conversion and reorganization by that agency.

General

          The respective Boards of Directors of K-Fed Mutual Holding Company and K-Fed Bancorp adopted the plan of conversion and reorganization on June 26, 2007.  Pursuant to the plan of conversion and reorganization, our organization will convert from the mutual holding company form of organization to the fully stock form.  K-Fed Mutual Holding Company, the mutual holding company parent of K-Fed Bancorp, will be merged into Kaiser Federal Bank, and K-Fed Mutual Holding Company will no longer exist.  K-Fed Bancorp, which owns 100% of Kaiser Federal Bank, will be succeeded by a new Maryland corporation named Kaiser Federal Financial Group, Inc.  As part of the conversion, the ownership interest in K-Fed Bancorp of K-Fed Mutual Holding Company will be offered for sale in the offering by K-Fed Bancorp.  When the conversion is completed, all of the outstanding common stock of Kaiser Federal Bank will be owned by Kaiser Federal Financial Group, Inc., and all of the outstanding common stock of Kaiser Federal Financial Group, Inc. will be owned by public stockholders.  A diagram of our corporate structure before and after the conversion is set forth in the “Summary” section of this proxy statement/prospectus.

          Under the plan of conversion and reorganization, at the conclusion of the conversion and offering, each share of K-Fed Bancorp common stock owned by persons other than K-Fed Mutual Holding Company will be canceled and converted automatically into new shares of Kaiser Federal Financial Group, Inc. common stock determined pursuant to an exchange ratio.  The exchange ratio will ensure that immediately after the exchange of existing shares of K-Fed Bancorp for new shares, the public stockholders will own the same percentage of shares of common stock of Kaiser Federal Financial Group, Inc. that they owned in K-Fed Bancorp immediately prior to the conversion, excluding any shares they purchased in the offering and cash paid in lieu of fractional shares.

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          Kaiser Federal Financial Group, Inc. intends to retain between $46.5 million and $62.6 million of the net proceeds, or $71.9 million if the offering range is increased by 15% (excluding the portion of the net proceeds loaned to our employee stock ownership plan), and to contribute the balance of the net proceeds to Kaiser Federal Bank.  The conversion will be consummated only upon the issuance of at least the minimum number of shares of our common stock offered pursuant to the plan of conversion and reorganization.

          The plan of conversion and reorganization provides that we will offer shares of common stock in a “subscription offering” in the following descending order of priority:

(i)	First, to depositors with accounts at Kaiser Federal Bank with aggregate balances of at least $50.00 at the close of business on March 31, 2006.
(ii)	Second, to our tax-qualified employee benefit plans, including our employee stock ownership plan and 401(k) plan which will receive nontransferable subscription rights to purchase in the aggregate up to 10% of the shares of common stock sold in the offering.
(iii)	Third, to depositors with accounts at Kaiser Federal Bank with aggregate balances of at least $50.00 at the close of business on September 30, 2007.
(iv)	Fourth, to depositors of Kaiser Federal Bank at the close of business on _____, 2007.

          If all shares are not subscribed for in the subscription offering, we may, at our discretion, offer shares of common stock for sale in a community offering to members of the general public, with a preference given in the following order:

(i)	Natural persons residing in Los Angeles, San Bernardino, Riverside and Santa Clara Counties, California; and
(ii)	K-Fed Bancorp’s public stockholders as of _______, 2007.

          We have the right to accept or reject, in whole or in part, any orders to purchase shares of the common stock received in the community offering. The community offering, if any, may begin at the same time as, during, or after the subscription offering and must be completed within 45 days after the completion of the subscription offering unless otherwise extended by the Office of Thrift Supervision. See “—Community Offering.”

          We determined the number of shares of common stock to be offered in the offering based upon an independent valuation appraisal of the estimated pro forma market value of Kaiser Federal Financial Group, Inc.  All shares of common stock to be sold in the offering will be sold at $10.00 per share. Investors will not be charged a commission to purchase shares of common stock in the offering.  The independent valuation will be updated and the final number of the shares of common stock to be issued in the offering will be determined at the completion of the offering. See “—Stock Pricing and Number of Shares to be Issued” for more information as to the determination of the estimated pro forma market value of the common stock.

          The following is a brief summary of the conversion and is qualified in its entirety by reference to the provisions of the plan of conversion and reorganization. A copy of the plan of conversion and reorganization is available for inspection at each branch office of Kaiser Federal Bank and at the West Regional and the Washington, D.C. offices of the Office of Thrift Supervision. The plan of conversion and reorganization is also filed as an exhibit to K-Fed Mutual Holding Company’s application to convert

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from mutual to stock form, of which this proxy statement/prospectus is a part, copies of which may be obtained from the Office of Thrift Supervision.  The plan of conversion and reorganization is also an exhibit to Kaiser Federal Financial Group, Inc.’s Registration Statement on Form S-1, which is accessible on the Securities and Exchange Commission website, www.sec.gov.  See “Where You Can Find Additional Information.”

Reasons for the Conversion and Offering

          The primary reasons for the conversion and offering are to:

• support internal growth through loan purchases and lending in the communities we serve;

• enhance existing products and services, and support the development of new products and services;

• build or lease new branch facilities or acquire branches from other financial institutions;

• finance the acquisition of financial institutions, or other financial service companies primarily in Southern California, although we do not currently have any understandings or agreements regarding any specific acquisition transaction;

• improve the liquidity of our shares of common stock and enhance stockholder returns through higher earnings and more flexible capital management strategies; and

• use the additional capital for other general corporate purposes.

          As a fully converted stock holding company, we will have greater flexibility in structuring mergers and acquisitions, including the form of consideration that we can use to pay for an acquisition.  Our current mutual holding company structure limits our ability to offer shares of our common stock as consideration for a merger or acquisition since K-Fed Mutual Holding Company is required to own a majority of our shares of common stock.  Potential sellers often want stock for at least part of the purchase price.  Our new stock holding company structure will enable us to offer stock or cash consideration, or a combination of stock and cash, and will therefore enhance our ability to compete with other bidders when acquisition opportunities arise.  We do not currently have any agreement or understanding as to any specific acquisition.

Approvals Required

          The affirmative vote of a majority of the total eligible votes of the members of K-Fed Mutual Holding Company as of _____, 2007 is required to approve the plan of conversion and reorganization. By their approval of the plan of conversion and reorganization, the members of K-Fed Mutual Holding Company will also be approving the merger of K-Fed Mutual Holding Company into Kaiser Federal Bank. The affirmative vote of the holders of at least two-thirds of the outstanding shares of common stock of K-Fed Bancorp, including shares held by K-Fed Mutual Holding Company, and the affirmative vote of the holders of a majority of the outstanding shares of common stock of K-Fed Bancorp held by the public stockholders of K-Fed Bancorp as of _______, 2007 are also required to approve the plan of conversion and reorganization. The plan of conversion and reorganization also must be approved by the Office of Thrift Supervision, which has given its conditional approval; however, such approval does not constitute a recommendation or endorsement of the plan of conversion and reorganization by such agency.

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Share Exchange Ratio for Current Stockholders

          Office of Thrift Supervision regulations provide that in a conversion of a mutual holding company to fully stock form, the public stockholders will be entitled to exchange their shares for common stock of the new holding company, provided that the mutual holding company demonstrates to the satisfaction of the Office of Thrift Supervision that the basis for the exchange is fair and reasonable.  Each publicly held share of K-Fed Bancorp common stock will, on the effective date of the conversion, be automatically converted into the right to receive a number of shares of Kaiser Federal Financial Group, Inc. common stock.  The number of shares of common stock will be determined pursuant to the exchange ratio, which ensures that the public stockholders will own approximately the same percentage of common stock in Kaiser Federal Financial Group, Inc. after the conversion as they held in K-Fed Bancorp immediately prior to the conversion, exclusive of their purchase of additional shares of common stock in the offering and their receipt of cash in lieu of fractional exchange shares. The exchange ratio is not dependent on the market value of our currently outstanding K-Fed Bancorp common stock.  The exchange ratio is based on the percentage of K-Fed Bancorp common stock held by the public, the independent valuation of Kaiser Federal Financial Group, Inc. prepared by RP Financial, LC. and the number of shares of common stock issued in the offering. The exchange ratio is expected to range from approximately 1.2469 exchange shares for each publicly held share of K-Fed Bancorp at the minimum of the offering range to 1.9401 exchange shares for each publicly held share of K-Fed Bancorp at the adjusted maximum of the offering range.

          If you are a stockholder of K-Fed Bancorp, at the conclusion of the conversion and offering, your shares will be exchanged for shares of Kaiser Federal Financial Group, Inc. The number of shares you receive will be based on the number of shares of common stock you own and the final exchange ratio determined as of the conclusion of the conversion. 

          The following table shows how the exchange ratio will adjust, based on the number of shares of common stock issued in the offering.  The table also shows how many whole shares of Kaiser Federal Financial Group, Inc. a hypothetical owner of K-Fed Bancorp common stock would receive in the exchange for 100 shares of K-Fed Bancorp common stock owned at the consummation of the conversion, depending on the number of shares issued in the offering.

									Total Shares of Common Stock to be Outstanding after the Conversion and Offering						New Shares That Would be Received for 100 Existing Shares
					New Shares to be Exchanged for Existing Shares of K-Fed Bancorp
	New Shares to be Sold in This Offering												Equivalent  Per Share Current Market Price(1)
											Exchange Ratio
		Amount	Percent			Amount	Percent
Minimum		11,050,000	63.5	%		6,343,386	36.5	%		17,393,386		1.2469	$	12.47		124
Midpoint		13,000,000	63.5	%		7,462,808	36.5	%		20,462,808		1.4670		14.67		146
Maximum		14,950,000	63.5	%		8,582,229	36.5	%		23,532,229		1.6870		16.87		168
15% above Maximum		17,192,500	63.5	%		9,869,563	36.5	%		27,062,063		1.9401		19.40		194

⁽¹⁾ Represents the value of shares of Kaiser Federal Financial Group, Inc. received in the conversion by a holder of one share of K-Fed Bancorp at the exchange ratio, assuming the market price of $10.00 per share.

Effects of Conversion on Depositors, Borrowers and Members

          Continuity. While the conversion is being accomplished, the normal business of Kaiser Federal Bank of accepting deposits and making loans will continue without interruption. Kaiser Federal Bank will continue to be a federally chartered savings association and will continue to be regulated by the Office of Thrift Supervision. After the conversion, Kaiser Federal Bank will continue to offer existing services to

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depositors, borrowers and other customers.  The directors serving K-Fed Bancorp at the time of the conversion will be the directors of Kaiser Federal Financial Group, Inc. after the conversion.

          Effect on Deposit Accounts. Pursuant to the plan of conversion and reorganization, each depositor of Kaiser Federal Bank at the time of the conversion will automatically continue as a depositor after the conversion, and the deposit balance, interest rate and other terms of such deposit accounts will not change as a result of the conversion. Each such account will be insured by the Federal Deposit Insurance Corporation to the same extent as before the conversion. Depositors will continue to hold their existing certificates, passbooks and other evidences of their accounts.

          Effect on Loans. No loan outstanding from Kaiser Federal Bank will be affected by the conversion, and the amount, interest rate, maturity and security for each loan will remain as it was contractually fixed prior to the conversion.

          Effect on Voting Rights of Members. At present, all depositors of Kaiser Federal Bank are members of, and have voting rights in, K-Fed Mutual Holding Company as to all matters requiring membership action. Upon completion of the conversion, depositors will cease to be members of K-Fed Mutual Holding Company and will no longer have voting rights, unless they purchase shares of Kaiser Federal Financial Group, Inc.’s common stock. Upon completion of the conversion, all voting rights in Kaiser Federal Bank will be vested in Kaiser Federal Financial Group, Inc. as the sole stockholder of Kaiser Federal Bank.  The stockholders of Kaiser Federal Financial Group, Inc. will possess exclusive voting rights with respect to Kaiser Federal Financial Group, Inc. common stock.

          Tax Effects. We will receive an opinion of counsel or tax advisor with regard to the federal and state income tax consequences of the conversion to the effect that the conversion will not be a taxable transaction for federal or state income tax purposes to K-Fed Mutual Holding Company, K-Fed Bancorp, the public stockholders of K-Fed Bancorp (except for cash paid for fractional shares), members of K-Fed Mutual Holding Company, eligible account holders, supplemental eligible account holders, or Kaiser Federal Bank. See “—Material Income Tax Consequences.”

          Effect on Liquidation Rights.  Each depositor in Kaiser Federal Bank has both a deposit account in Kaiser Federal Bank and a pro rata ownership interest in the net worth of K-Fed Mutual Holding Company based upon the deposit balance in his or her account. This ownership interest is tied to the depositor’s account and has no tangible market value separate from the deposit account. This interest may only be realized in the event of a complete liquidation of K-Fed Mutual Holding Company and Kaiser Federal Bank. Any depositor who opens a deposit account obtains a pro rata ownership interest in K-Fed Mutual Holding Company without any additional payment beyond the amount of the deposit. A depositor who reduces or closes his or her account receives a portion or all of the balance in the deposit account but nothing for his or her ownership interest in the net worth of K-Fed Mutual Holding Company, which is lost to the extent that the balance in the account is reduced or closed.

          Consequently, depositors in a stock subsidiary of a mutual holding company normally have no way of realizing the value of their ownership interest, which has realizable value only in the unlikely event that K-Fed Mutual Holding Company and Kaiser Federal Bank are liquidated. If this occurs, the depositors of record at that time, as owners, would share pro rata in any residual surplus and reserves of K-Fed Mutual Holding Company after other claims, including claims of depositors to the amounts of their deposits, are paid.

          In the unlikely event that Kaiser Federal Bank were to liquidate after the conversion, all claims of creditors, including those of depositors, would be paid first, followed by distribution of the “liquidation account” to depositors as of March 31, 2006 and September 30, 2007 who continue to maintain their

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deposit accounts as of the date of liquidation, with any assets remaining thereafter distributed to Kaiser Federal Financial Group, Inc. as the holder of Kaiser Federal Bank’s capital stock. Pursuant to the rules and regulations of the Office of Thrift Supervision, a post-conversion merger, consolidation, sale of bulk assets or similar combination or transaction with another insured savings institution would not be considered a liquidation and, in such a transaction, the liquidation account would be assumed by the surviving institution.  See “—Liquidation Rights.”

Stock Pricing and Number of Shares to be Issued

          The plan of conversion and reorganization and federal regulations require that the aggregate purchase price of the common stock sold in the offering must be based on the appraised pro forma market value of the common stock, as determined by an independent valuation. Kaiser Federal Bank and K-Fed Mutual Holding Company have retained RP Financial, LC. to prepare an independent valuation appraisal. For its services in preparing the initial valuation, RP Financial, LC. will receive a fee of $110,000 and $10,000 for expenses. Kaiser Federal Bank and K-Fed Mutual Holding Company have agreed to indemnify RP Financial, LC. and its employees and affiliates against specified losses, including any losses in connection with claims under the federal securities laws, arising out of its services as independent appraiser, except where such liability results from its negligence or bad faith.

          The independent valuation appraisal considered the pro forma impact of the offering. Consistent with the Office of Thrift Supervision appraisal guidelines, the appraisal applied three primary methodologies: the pro forma price-to-book value approach applied to both reported book value and tangible book value; the pro forma price-to-earnings approach applied to reported and core earnings; and the pro forma price-to-assets approach. The market value ratios applied in the three methodologies were based upon the current market valuations of the peer group companies, subject to valuation adjustments applied by RP Financial, LC. to account for differences between K-Fed Bancorp and the peer group. RP Financial, LC. placed the greatest emphasis on the price-to-earnings and price-to-book approaches in estimating pro forma market value.

          The independent valuation was prepared by RP Financial, LC. in reliance upon the information contained in this proxy statement/prospectus, including the consolidated financial statements of K-Fed Bancorp.  RP Financial, LC. also considered the following factors, among others:

• the present results and financial condition of K-Fed Bancorp and the projected results and financial condition of Kaiser Federal Financial Group, Inc.;

• the economic and demographic conditions in K-Fed Bancorp’s existing market area;

• certain historical, financial and other information relating to K-Fed Bancorp;

• a comparative evaluation of the operating and financial characteristics of K-Fed Bancorp with those of other similarly situated publicly traded savings institutions located in its market area and the western regions of the United States;

• the impact of the conversion and offering on K-Fed Bancorp’s stockholders’ equity and earnings potential;

• the proposed dividend policy of Kaiser Federal Financial Group, Inc.; and

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• the trading market for securities of comparable institutions and general conditions in the market for such securities.

          Included in RP Financial, LC.’s independent valuation were certain assumptions as to the pro forma earnings of Kaiser Federal Financial Group, Inc. after the conversion that were utilized in determining the appraised value.  These assumptions included estimated expenses, an assumed after-tax rate of return on the net offering proceeds and purchases in the open market of 2.9% of the common stock issued in the offering by the stock-based incentive plan at the $10.00 per share purchase price. See “Pro Forma Data” for additional information concerning these assumptions. The use of different assumptions may yield different results.

          The independent valuation states that as of August 31, 2007, the estimated pro forma market value, or valuation range, of Kaiser Federal Financial Group, Inc. ranged from a minimum of $173.9 million to a maximum of $235.3 million, with a midpoint of $204.6 million and an adjusted maximum of $270.6 million.  The Board of Directors of Kaiser Federal Financial Group, Inc. decided to offer the shares of common stock for a price of $10.00 per share. The aggregate offering price of the shares of common stock will be equal to the valuation range multiplied by the percentage of K-Fed Bancorp common stock owned by K-Fed Mutual Holding Company.  The number of shares offered will be equal to the aggregate offering price of the shares of common stock divided by the price per share. Based on the valuation range, the percentage of K-Fed Bancorp common stock owned by K-Fed Mutual Holding Company and the $10.00 price per share, the minimum of the offering range will be 11,050,000 shares, the midpoint of the offering range will be 13,000,000 shares and the maximum of the offering range will be 14,950,000 shares of common stock, with an adjusted maximum of 17,192,500 shares.

          The Board of Directors of Kaiser Federal Financial Group, Inc. reviewed the independent valuation and, in particular, considered the following:

• K-Fed Bancorp’s financial condition and results of operations;

• comparison of financial performance ratios of K-Fed Bancorp to those of other financial institutions of similar size;

• market conditions generally and in particular for financial institutions; and

• the historical trading price of the publicly held shares of K-Fed Bancorp common stock.

          All of these factors are set forth in the independent valuation. The Board of Directors also reviewed the methodology and the assumptions used by RP Financial, LC. in preparing the independent valuation and believes that such assumptions were reasonable. The offering range may be amended with the approval of the Office of Thrift Supervision, if required, as a result of subsequent developments in the financial condition of K-Fed Bancorp or Kaiser Federal Bank or market conditions generally. In the event the independent valuation is updated to amend the pro forma market value of Kaiser Federal Financial Group, Inc. to less than $173.9 million or more than $270.6 million the appraisal will be filed with the Securities and Exchange Commission by a post-effective amendment to Kaiser Federal Financial Group, Inc.’s registration statement.

          The independent valuation is not intended, and must not be construed, as a recommendation of any kind as to the advisability of purchasing our shares of common stock. RP Financial, LC. did not independently verify our consolidated financial statements and other information that we provided to them, nor did RP Financial, LC. independently value our assets or

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liabilities. The independent valuation considers Kaiser Federal Bank as a going concern and should not be considered as an indication of the liquidation value of Kaiser Federal Bank. Moreover, because the independent valuation is necessarily based upon estimates and projections of a number of matters, all of which may change from time to time, no assurance can be given that persons purchasing our common stock in the offering will thereafter be able to sell their shares of common stock at prices at or above the $10.00 price per share.

          Following commencement of the subscription offering, the maximum of the valuation range may be increased by up to 15%, or up to $270.6 million, without resoliciting purchasers, which will result in a corresponding increase of up to 15% in the maximum of the offering range to up to 17,192,500 shares, to reflect changes in the market and financial conditions, demand for the shares of common stock or regulatory considerations.  We will not decrease the minimum of the valuation range and the minimum of the offering range without a resolicitation of purchasers.  The subscription price of $10.00 per share of common stock will remain fixed.  See “—Limitations on Common Stock Purchases” as to the method of distribution of additional shares of common stock to be issued in the event of an increase in the offering range of up to 17,192,500 shares.

          If the update to the independent valuation at the conclusion of the offering results in an increase in the maximum of the valuation range to more than $171.9 million and a corresponding increase in the offering range to more than 17,192,500 shares, or a decrease in the minimum of the valuation range to less than $110.5 million and a corresponding decrease in the offering range to fewer than 11,050,000 shares, then, after consulting with the Office of Thrift Supervision, we may terminate the plan of conversion and reorganization, cancel deposit account withdrawal authorizations and promptly return by check all funds received with interest at Kaiser Federal Bank’s passbook savings rate of interest.  Alternatively, we may hold a new offering, establish a new offering range, extend the offering period and commence a resolicitation of purchasers or take other actions as permitted by the Office of Thrift Supervision in order to complete the conversion and offering.  In the event that we extend the offering and conduct a resolicitation, purchasers would have the opportunity to maintain, change or cancel their stock orders within a specified period.  If a purchaser does not respond during the period, his or her stock order will be cancelled and payment will be returned promptly, with interest at Kaiser Federal Bank’s passbook savings rate, and deposit account withdrawal authorizations will be cancelled.  Any single offering extension will not exceed 90 days; aggregate extensions may not conclude beyond [Extension Date #2], two years after the special meeting of depositors to vote on the conversion.

          An increase in the number of shares of common stock to be issued in the offering would decrease both a purchaser’s ownership interest and Kaiser Federal Financial Group, Inc.’s pro forma earnings and stockholders’ equity on a per share basis while increasing pro forma earnings and stockholders’ equity on an aggregate basis. A decrease in the number of shares to be issued in the offering would increase both a purchaser’s ownership interest and Kaiser Federal Financial Group, Inc.’s pro forma earnings and stockholders’ equity on a per share basis, while decreasing pro forma earnings and stockholders’ equity on an aggregate basis. For a presentation of the effects of these changes, see “Pro Forma Data.”

          Copies of the independent valuation appraisal report prepared by RP Financial, LC. and the detailed memorandum setting forth the method and assumptions used in the appraisal report are available for inspection at the main office of Kaiser Federal Bank and as specified under “Where You Can Find Additional Information.”

Exchange of Existing Stockholders’ Stock Certificates

          The conversion of existing outstanding shares of K-Fed Bancorp common stock into the right to receive shares of Kaiser Federal Financial Group, Inc. common stock will occur automatically on the

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effective date of the conversion. As soon as practicable after the effective date of the conversion, our exchange agent, will send a transmittal form to each public stockholder of K-Fed Bancorp who holds stock certificates.  The transmittal forms are expected to be mailed within five business days after the effective date of the conversion and will contain instructions on how to exchange stock certificates of K-Fed Bancorp common stock for stock certificates of Kaiser Federal Financial Group, Inc. common stock.  We expect that stock certificates evidencing shares of Kaiser Federal Financial Group, Inc. common stock will be distributed within five business days after the exchange agent receives properly executed transmittal forms, K-Fed Bancorp stock certificates and other required documents.  You should not forward your stock certificates until you have received transmittal forms, which will include forwarding instructions.  Shares held by public stockholders through a brokerage account in “street name” will be exchanged automatically upon the conclusion of the conversion; no transmittal forms will be mailed relating to these shares. 

          No fractional shares of Kaiser Federal Financial Group, Inc. common stock will be issued to any public stockholder of K-Fed Bancorp when the conversion is completed. For each fractional share that would otherwise be issued to a stockholder who holds a stock certificate, we will pay by check an amount equal to the product obtained by multiplying the fractional share interest to which the holder would otherwise be entitled by the $10.00 offering purchase price per share. Payment for fractional shares will be made as soon as practicable after the receipt by the exchange agent of the transmittal forms and the surrendered K-Fed Bancorp stock certificates.  If your shares of common stock are held in street name (such as a brokerage account), you will automatically receive cash in lieu of fractional shares in your brokerage account.

          After the conversion, K-Fed Bancorp stockholders who hold stock certificates will not receive shares of Kaiser Federal Financial Group, Inc. common stock and will not be paid dividends on the shares of Kaiser Federal Financial Group, Inc. common stock until existing certificates representing shares of K-Fed Bancorp common stock are surrendered for exchange in compliance with the terms of the transmittal form. When stockholders surrender their certificates, any unpaid dividends will be paid without interest. For all other purposes, however, each certificate that represents shares of K-Fed Bancorp common stock outstanding at the effective date of the conversion will be considered to evidence ownership of shares of Kaiser Federal Financial Group, Inc. common stock into which those shares have been converted by virtue of the conversion.

          If a certificate for K-Fed Bancorp common stock has been lost, stolen or destroyed, our exchange agent will issue a new stock certificate upon receipt of appropriate evidence as to the loss, theft or destruction of the certificate, appropriate evidence as to the ownership of the certificate by the claimant, and appropriate and customary indemnification, which is normally effected by the purchase of a bond from a surety company at the stockholder’s expense.

          All shares of Kaiser Federal Financial Group, Inc. common stock that we issue in exchange for existing shares of K-Fed Bancorp common stock will be considered to have been issued in full satisfaction of all rights pertaining to such shares of common stock, subject, however, to our obligation to pay any dividends or make any other distributions with a record date prior to the effective date of the conversion that may have been declared by us on or prior to the effective date, and which remain unpaid at the effective date.

Subscription Offering and Subscription Rights

          In accordance with the plan of conversion and reorganization, rights to subscribe for shares of common stock in the subscription offering have been granted in the following descending order of priority.  The filling of all subscriptions that we receive will depend on the availability of common stock

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after satisfaction of all subscriptions of all persons having prior rights in the subscription offering and subject to the minimum, maximum and overall purchase and ownership limitations set forth in the plan of conversion and reorganization and as described below under “—Limitations on Common Stock Purchases.”

          Priority 1: Eligible Account Holders. Each Kaiser Federal Bank depositor with aggregate deposit account balances of $50.00 or more (a “Qualifying Deposit”) at the close of business on March 31, 2006 (an “Eligible Account Holder”) will receive, without payment therefor, nontransferable subscription rights to purchase up to the greater of (i) five percent (5%) of the shares of common stock sold in the offering, (ii) one-tenth of one percent of the total offering of common stock; or (iii) 15 times the product, rounded down to the nearest whole number, obtained by multiplying the total number of shares of common stock to be sold by a fraction, the numerator of which is the amount of the qualifying deposit of the eligible account holder and the denominator is the total amount of qualifying deposits of all eligible account holders subject to the overall purchase and ownership limitations.  See “—Limitations on Common Stock Purchases.”  If there are not sufficient shares available to satisfy all subscriptions, shares will first be allocated so as to permit each Eligible Account Holder to purchase a number of shares sufficient to make his or her total allocation equal to the lesser of 100 shares or the number of shares for which he or she subscribed. Thereafter, unallocated shares will be allocated to each Eligible Account Holder whose subscription remains unfilled in the proportion that the amount of his or her Qualifying Deposit bears to the total amount of Qualifying Deposits of all subscribing Eligible Account Holders whose subscriptions remain unfilled. If an amount so allocated exceeds the amount subscribed for by any one or more Eligible Account Holders, the excess shall be reallocated among those Eligible Account Holders whose subscriptions are not fully satisfied until all available shares have been allocated.

          To ensure proper allocation of our shares of common stock, each Eligible Account Holder must list on his or her stock order form all deposit accounts in which he or she had an ownership interest on March 31, 2006.  In the event of oversubscription, failure to list an account could result in fewer shares being allocated than if all accounts had been disclosed. In the event of an oversubscription, the subscription rights of Eligible Account Holders who are also directors or executive officers of K-Fed Bancorp or their associates will be subordinated to the subscription rights of other Eligible Account Holders to the extent attributable to increased deposits in the twelve months preceding March 31, 2006.

          Priority 2: Tax-Qualified Plans.  Our tax-qualified employee plans, consisting of our employee benefit plans, will receive, without payment therefor, nontransferable subscription rights to purchase up to 10% of the shares of common stock issued in the offering, although our employee benefit plans intends to purchase 6.0% of the shares of common stock issued in the offering.  If market conditions warrant, in the judgment of its trustees, the employee benefit plans may elect to fill its subscription rights, in whole or in part, through open-market purchases.

          Priority 3: Supplemental Eligible Account Holders.  To the extent that there are sufficient shares of common stock remaining after satisfaction of subscriptions by Eligible Account Holders and our tax-qualified employee stock benefit plans, each Kaiser Federal Bank depositor with a Qualifying Deposit at the close of business on September 30, 2007 who is not an Eligible Account Holder (“Supplemental Eligible Account Holder”) will receive, without payment therefore, nontransferable subscription rights to purchase up to the greater of (i) five percent (5%) of the shares of common stock sold in the offering, (ii) one-tenth of one percent of the total offering of common stock; or (iii) 15 times the product, rounded down to the nearest whole number, obtained by multiplying the total number of shares of common stock to be sold by a fraction, the numerator of which is the amount of the qualifying deposit of the Supplemental Eligible Account Holder and the denominator is the total amount of qualifying deposits of all  Supplemental Eligible Account Holders subject to the overall purchase and ownership limitations. See “—Limitations on Common Stock Purchases.” If there are not sufficient shares available to satisfy all

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subscriptions, shares will be allocated so as to permit each Supplemental Eligible Account Holder to purchase a number of shares sufficient to make his or her total allocation equal to the lesser of 100 shares of common stock or the number of shares for which he or she subscribed. Thereafter, unallocated shares will be allocated to each Supplemental Eligible Account Holder whose subscription remains unfilled in the proportion that the amount of his or her Qualifying Deposit bears to the total amount of Qualifying Deposits of all Supplemental Eligible Account Holders whose subscriptions remain unfilled.

          To ensure proper allocation of common stock, each Supplemental Eligible Account Holder must list on the stock order form all deposit accounts in which he or she had an ownership interest at September 30, 2007.  In the event of oversubscription, failure to list an account could result in fewer shares being allocated than if all accounts had been disclosed.

          Priority 4: Other Members. To the extent that there are shares of common stock remaining after satisfaction of subscriptions by Eligible Account Holders, our tax-qualified employee stock benefit plans, and Supplemental Eligible Account Holders, each depositor of Kaiser Federal Bank as of the close of business on the voting record date of _____, 2007 who is not an Eligible Account Holder or Supplemental Eligible Account Holder (“Other Members”) will receive, without payment therefor, nontransferable subscription rights to purchase up to five percent (5%) of the shares of common stock sold in the offering, subject to the overall purchase and ownership limitations. See “—Limitations on Common Stock Purchases.” If there are not sufficient shares available to satisfy all subscriptions, available shares will be allocated in the proportion that the amount of the subscription of each Other Member whose subscription remains unsatisfied bears to the total amount of the subscriptions of all Other Members whose subscriptions remain unsatisfied.  To ensure proper allocation of common stock, each Other Member must list on the stock order form all deposit accounts in which he or she had an ownership interest at ______, 2007.  In the event of oversubscription, failure to list an account could result in fewer shares being allocated than if all accounts had been disclosed.

          Expiration Date. The subscription offering will expire at 12:00 Noon, Pacific Time, on [Expiration Date], unless extended by us for up to 45 days. Such extension may be made without notice to you.  Extensions beyond [Extension Date #1] will require the approval of the Office of Thrift Supervision and a resolicitation of subscribers in the offering. Subscription rights will expire whether or not each eligible depositor can be located.  We may decide to extend the expiration date of the subscription offering for any reason, whether or not subscriptions have been received for shares at the minimum, midpoint or maximum of the offering range. Subscription rights which have not been exercised prior to the expiration date will become void.

Community Offering

          To the extent that shares of common stock remain available for purchase after satisfaction of all subscriptions of Eligible Account Holders, our tax-qualified employee stock benefit plans, Supplemental Eligible Account Holders and Other Members, we may offer shares pursuant to the plan of conversion and reorganization to members of the general public in a community offering.  Shares may be offered with the following preferences:

(i)	Natural persons residing in Los Angeles, San Bernardino, Riverside and Santa Clara Counties, California;
(ii)	K-Fed Bancorp’s public stockholders as of _______ 2007; and
(iii)	Other members of the general public.

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          Purchasers in the community offering may purchase up to five percent (5%) of the shares of common stock sold in the offering, subject to the overall purchase and ownership limitations. See “—Limitations on Common Stock Purchases.” The minimum purchase is 25 shares. The opportunity to purchase shares of common stock in the community offering category is subject to our right, in our sole discretion, to accept or reject any such orders in whole or in part either at the time of receipt of an order or as soon as practicable following the expiration date of the offering.

          If we do not have sufficient shares of common stock available to fill the orders of natural persons residing in Los Angeles, San Bernardino, Riverside and Santa Clara Counties, California, we will allocate the available shares among those persons in a manner that permits each of them, to the extent possible, to purchase the lesser of 100 shares or the number of shares subscribed for by such person.  Thereafter, unallocated shares will be allocated among natural persons residing in those counties whose orders remain unsatisfied on an equal number of shares basis per order.  If an oversubscription occurs due to the orders of public stockholders of K-Fed Bancorp as of _________, 2007, the allocation procedures described above will apply to the stock orders of such persons. In the event of an oversubscription among members of the general public, these same allocation procedures will also apply.  In addition, orders received for Kaiser Federal Financial Group, Inc. common stock in the community offering will first be filled up to a maximum of two percent (2%) of the shares sold in the offering, and thereafter any remaining shares will be allocated on an equal number of shares basis per order until all shares have been allocated.

          The term “residing” or “resident” as used in this proxy statement/prospectus means any person who occupies a dwelling within Los Angeles, San Bernardino, Riverside and Santa Clara Counties, California has a present intent to remain within this community for a period of time, and manifests the genuineness of that intent by establishing an ongoing physical presence within the community, together with an indication that this presence within the community is something other than merely transitory in nature.  We may utilize deposit or loan records or other evidence provided to us to decide whether a person is a resident. In all cases, however, the determination shall be in our sole discretion.

          Expiration Date.  The community offering, if any, may begin during or after the subscription offering, and is currently expected to terminate at the same time as the subscription offering. Kaiser Federal Financial Group, Inc. may decide to extend the community offering for any reason and is not required to give purchasers notice of any such extension unless such period extends beyond [Extension Date #1], in which case we will resolicit purchasers in the offering. 

Syndicated Community Offering

          As a final step in the conversion, the plan of conversion and reorganization provides that, if feasible, all shares of common stock not purchased in the subscription offering and direct community offering may be offered for sale to selected members of the general public in a syndicated community offering through a syndicate of registered broker-dealers managed by Keefe, Bruyette & Woods as agent of Kaiser Federal Financial Group, Inc.  We call this the syndicated community offering.  We expect that the syndicated community offering will begin as soon as practicable after termination of the subscription offering and the direct community offering, if any.  We, in our sole discretion, have the right to reject orders in whole or in part received in the syndicated community offering.  Neither Keefe, Bruyette & Woods nor any registered broker-dealer shall have any obligation to take or purchase any shares of common stock in the syndicated community offering; however, Keefe, Bruyette & Woods has agreed to use its best efforts in the sale of shares in any syndicated community offering.

          The price at which common stock is sold in the syndicated community offering will be the same price at which shares are offered and sold in the subscription offering and direct community offering.  No person, acting alone, or with an associate or group of persons acting in concert, may purchase more than

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five percent (5%) of the shares of common stock in the syndicated community offering, subject to the overall purchase and ownership limitations.  See “– Limitations on Stock Purchases.”

          Keefe, Bruyette & Woods may enter into agreements with broker-dealers to assist in the sale of the shares in the syndicated community offering, although no such agreements currently exist.  No orders may be placed or filled by or for a selected dealer during the subscription offering.  After the close of the subscription offering, Keefe, Bruyette & Woods will instruct selected dealers as to the number of shares to be allocated to each dealer.  Only after the close of the subscription offering and upon allocation of shares to selected dealers may selected dealers take orders from their customers.  During the subscription offering and direct community offering, selected dealers may only solicit indications of interest from their customers to place orders as of a certain order date for the purchase of shares of Kaiser Federal Financial Group, Inc. common stock.  When, and if, Keefe, Bruyette & Woods and Kaiser Federal Financial Group, Inc. believe that enough indications of interest and orders have not been received in the subscription offering and direct community offering to consummate the conversion, Keefe, Bruyette & Woods will request, as of the order date, selected dealers to submit orders to purchase shares for which they have previously received indications of interest from their customers.  The dealers will send confirmations of the orders to their customers on the next business day after the order date.  The dealers will debit the accounts of their customers on the settlement date, which will be three business days from the order date.  Customers who authorize selected dealers to debit their brokerage accounts are required to have the funds for payment in their account on but not before the settlement date.  On the settlement date, the dealers will deposit funds to the account established by Kaiser Federal Financial Group, Inc. for each dealer.  Each customer’s funds forwarded to Kaiser Federal Bank, along with all other accounts held in the same title, will be insured by the Federal Deposit Insurance Corporation up to $100,000 in accordance with applicable Federal Deposit Insurance Corporation regulations.  After payment has been received by Kaiser Federal Bank from the dealers, funds will earn interest at Kaiser Federal Bank’s passbook (statement savings) account rate until the completion or termination of the conversion.  Funds will be promptly returned, with interest, in the event the conversion is not consummated as described above. Notwithstanding the foregoing, any checks received by Keefe, Bruyette & Woods or any selected dealer specifically for payment for the shares will be forwarded to Kaiser Federal Financial Group, Inc. by noon of the day following receipt for deposit to the account established by Kaiser Federal Financial Group, Inc. for each dealer.  Keefe, Bruyette & Woods shall also have the right, in its sole discretion, to permit investors to submit irrevocable orders together with legally binding commitments for payment for shares for which they subscribe at any time prior to the closing of the offering.

          The syndicated community offering will be completed within 45 days after the termination of the subscription offering, unless extended by Kaiser Federal Financial Group, Inc. with the approval of the Office of Thrift Supervision.  The syndicated community offering may not be extended past _________, 2009.  See “– How We Determined Our Price and the Number of Shares to Be Issued in the Stock Offering” above for a discussion of rights of subscribers, if any, in the event an extension is granted.

Limitations on Common Stock Purchases

          The plan of conversion and reorganization includes the following limitations on the number of shares of common stock that may be purchased in the offering:

(i)	No person may purchase fewer than 25 shares of common stock or more than five percent (5%) of the shares of common stock sold in the offering;
(ii)	No person exercising subscription rights through one deposit account may purchase more than five percent (5%) of the shares of common stock sold in the offering. No person exercising subscription rights through one or more similarly titled individual deposit

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	accounts, and no group of persons exercising subscription rights though one deposit account, may purchase more than five percent (5%) of the shares of common stock sold in the offering;
(iii)	Tax qualified employee benefit plans, including our employee stock ownership plan and 401(k) plan, may purchase in the aggregate up to 10% of the shares of common stock sold in the offering, including shares issued in the event of an increase in the offering range of up to 15%;
(iv)	Except for tax qualified employee benefit plans, including our employee stock ownership plan, as described above, no person or entity, together with associates or persons acting in concert with such person or entity, may purchase more than five percent (5%) of the shares of common stock sold in the offering in all categories of the offering combined;
(v)	Current stockholders of K-Fed Bancorp are subject to an ownership limitation.  As previously described, current stockholders of K-Fed Bancorp will receive shares of Kaiser Federal Financial Group, Inc. common stock in exchange for their existing shares of K-Fed Bancorp common stock at the conclusion of the conversion and offering. The number of shares of common stock that a stockholder may purchase in the offering, together with associates or persons acting in concert with such stockholder, when combined with the shares that the stockholder and his or her associates will receive in exchange for existing K-Fed Bancorp common stock, may not exceed 5% of the shares of common stock of Kaiser Federal Financial Group, Inc. to be issued and outstanding at the completion of the conversion; and
(vi)	The maximum number of shares of common stock that may be purchased in all categories of the offering by executive officers and directors of Kaiser Federal Bank and their associates, in the aggregate, when combined with shares of common stock issued in exchange for existing shares, may not exceed 25% of the shares issued in the conversion.

          Depending upon market or financial conditions, our Board of Directors, with the approval of the Office of Thrift Supervision and without further approval of members of K-Fed Mutual Holding Company, may decrease or increase the purchase and ownership limitations.  If a purchase limitation is increased, subscribers in the subscription offering who ordered the maximum amount will be given, and, in our sole discretion, some other large subscribers who through their subscriptions evidence a desire to purchase the maximum allowable number of shares may be given, the opportunity to increase their subscriptions up to the then applicable limit.  The effect of this type of resolicitation will be an increase in the number of shares of common stock owned by subscribers who choose to increase their subscriptions. The maximum purchase limitation of five percent (5%) of the shares sold in the offering may be further increased to 9.99%, provided that orders for Kaiser Federal Financial Group, Inc. common stock exceeding five percent (5%) of the shares sold in the offering shall not exceed in the aggregate ten (10%) of the total shares sold in the offering.

          In the event of an increase in the offering range of up to 17,192,500 shares of common stock, shares will be allocated in the following order of priority in accordance with the plan of conversion and reorganization:

(i) to fill the tax-qualified employee benefit plans, including the employee stock ownership plan’s, subscription for up to 10% of the total number of shares of common stock issued in the offering;

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(ii)	in the event that there is an oversubscription at the Eligible Account Holder, Supplemental Eligible Account Holder or Other Member levels, to fill unfulfilled subscriptions of these subscribers according to their respective priorities; and
(iii)	to fill unfulfilled subscriptions in the community offering, with preference given first to natural persons residing in Los Angeles, San Bernardino, Riverside and Santa Clara Counties, California, then to K-Fed Bancorp’s public stockholders as of______, 2007 and then to members of the general public.
The term “associate” of a person means:
(i)	any corporation or organization, other than K-Fed Bancorp, Kaiser Federal Bank or a majority-owned subsidiary of Kaiser Federal Bank, of which the person is a senior officer, partner or 10% beneficial stockholder;
(ii)	any trust or other estate in which the person has a substantial beneficial interest or serves as a trustee or in a similar fiduciary capacity; provided, however, it does not include any employee stock benefit plan of Kaiser Federal Bank in which the person has a substantial beneficial interest or serves as trustee or in a similar fiduciary capacity; and
(iii)	any blood or marriage relative of the person, who either has the same home as the person or who is a director or officer of K-Fed Bancorp or Kaiser Federal Bank.
The term “acting in concert” means:
(i)	knowing participation in a joint activity or interdependent conscious parallel action towards a common goal whether or not pursuant to an express agreement; or
(ii)	a combination or pooling of voting or other interests in the securities of an issuer for a common purpose pursuant to any contract, understanding, relationship, agreement or other arrangement, whether written or otherwise.

          A person or company which acts in concert with another person or company shall also be deemed to be acting in concert with any person or company who is also acting in concert with that other party, except that any tax-qualified employee stock benefit plan will not be deemed to be acting in concert with its trustee or a person who serves in a similar capacity solely for the purpose of determining whether common stock held by the trustee and common stock held by the employee stock benefit plan will be aggregated.

          We have the sole discretion to determine whether prospective purchasers are “associates” or “acting in concert.”  Persons having the same address, and persons exercising subscription rights through qualifying deposits registered at the same address, whether or not related, will be deemed to be acting in concert unless we determine otherwise.

          Our directors are not treated as associates of each other solely because of their membership on the Board of Directors. Common stock purchased in the offering will be freely transferable except for shares purchased by executive officers and directors of Kaiser Federal Financial Group, Inc. or Kaiser Federal Bank and except as described below.  Any purchases made by any associate of Kaiser Federal Financial Group, Inc. or Kaiser Federal Bank for the explicit purpose of meeting the minimum number of shares of common stock required to be sold in order to complete the offering shall be made for investment purposes only and not with a view toward redistribution.  In addition, under National Association of Securities

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Dealers, Inc. guidelines, members of the National Association of Securities Dealers, Inc. and their associates are subject to certain restrictions on transfer of securities purchased in accordance with subscription rights and to certain reporting requirements upon purchase of these securities.  For a further discussion of limitations on purchases of our shares of common stock at the time of conversion and thereafter, see “—Certain Restrictions on Purchase or Transfer of Our Shares after Conversion” and “Restrictions on Acquisition of Kaiser Federal Financial Group, Inc.”

Marketing Arrangements

          To assist in the marketing of our common stock, we have retained Keefe Bruyette & Woods, which is a broker-dealer registered with the National Association of Securities Dealers, Inc.  Keefe Bruyette & Woods will assist us on a best efforts basis in the offering by, among other things:

(i)	acting as our financial advisor and marketing agent for the conversion and offering;
(ii)	managing the Stock Information Center;
(iii)	providing administrative services;
(iv)	targeting our sales efforts, including assisting in the preparation of marketing materials;
(v)	soliciting orders for common stock; and
(vi)	assisting in soliciting proxies of our members.

          For these services, Keefe Bruyette & Woods will receive an advisory and administrative fee of $50,000 and a sales fee equal to 1.0% of the dollar amount of all shares of common stock sold in the subscription and community offering.  The sales fee will be reduced by the advisory and administrative fee.  No sales fee will be payable to Keefe Bruyette & Woods with respect to shares purchased by officers, directors and employees or their immediate families, shares purchased by our tax-qualified and non-qualified employee benefit plans.  In the event that Keefe Bruyette & Woods sells common stock through a group of broker-dealers in a syndicated community offering, it will be paid a fee equal to 5.5% of the dollar amount of total shares sold in the syndicated community offering, which fee along with the fee payable to selected dealers (which may include Keefe Bruyette & Woods). Keefe Bruyette & Woods also will be reimbursed for allocable expenses in an amount not to exceed $30,000, and for attorneys’ fees and allocable expenses in an amount not to exceed $55,000.

          We will indemnify Keefe Bruyette & Woods against liabilities and expenses, including legal fees, incurred in connection with certain claims or litigation arising out of or based upon untrue statements or omissions contained in the offering materials for the common stock, including liabilities under the Securities Act of 1933, as amended and will contribute to payments Keefe, Bruyette & Woods may be required to make in connection with any such claims or liabilities.

          Some of our directors and executive officers may participate in the solicitation of offers to purchase common stock. These persons will be reimbursed for their reasonable out-of-pocket expenses incurred in connection with the solicitation. Other regular employees of Kaiser Federal Bank may assist in the offering, but only in ministerial capacities, and may provide clerical work in effecting a sales transaction.  No offers or sales may be made by tellers or at the teller counters.  All sales activity will be conducted in a segregated or separately identifiable area of Kaiser Federal Bank’s main office apart from the area accessible to the general public.  Other questions of prospective purchasers will be directed to executive officers or registered representatives of Keefe Bruyette & Woods  Our other employees have

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been instructed not to solicit offers to purchase shares of common stock or provide advice regarding the purchase of common stock.  We will rely on Rule 3a4-1 under the Securities Exchange Act of 1934, as amended, and sales of common stock will be conducted within the requirements of Rule 3a4-1, so as to permit officers, directors and employees to participate in the sale of common stock. None of our officers, directors or employees will be compensated in connection with their participation in the offering.

Offering Deadline

          The offering will expire at 12:00 Noon, Pacific Time, on [Expiration Date], unless we extend it, without notice to you, for up to 45 days. Any extension of the subscription and/or community offering beyond [Extension Date #1] would require the Office of Thrift Supervision’s approval.  In such event, we would conduct a resolicitation.  Purchasers would have the opportunity to maintain, change or cancel their stock orders within a specified period.  If a purchaser does not respond during the resolicitation period, his or her stock order will be cancelled and payment will be returned promptly, with interest calculated at Kaiser Federal Bank’s passbook savings rate, and deposit account withdrawal authorizations will be cancelled.  We will not execute orders until at least the minimum number of shares offered has been sold.  If we have not sold the minimum by the expiration date or any extension thereof, we will terminate the offering and cancel all orders, as described above.  Any single offering extension will not exceed 90 days; aggregate extensions may not conclude beyond [Extension Date #2], which is two years after the special meeting of depositors to vote on the conversion.  We reserve the right in our sole discretion to terminate the offering at any time and for any reason, in which case we will cancel any deposit account withdrawal orders and promptly return all funds submitted, with interest calculated at Kaiser Federal Bank’s passbook savings rate from the date of receipt.

Prospectus Delivery

          To ensure that each purchaser receives a prospectus at least 48 hours before the expiration date of the offering in accordance with Rule 15c2-8 of the Securities Exchange Act of 1934, we may not mail a prospectus any later than five days prior to the expiration date or hand deliver any later than two days prior to the expiration date. Execution of an order form will confirm receipt of delivery in accordance with Rule 15c2-8. Order forms will only be distributed with or preceded by a prospectus.

          We have the right to reject any order submitted in the offering by a person who we believe is making false representations or who we otherwise believe, either alone or acting in concert with others, is violating, evading, circumventing, or intends to violate, evade or circumvent the terms and conditions of the plan of conversion.

Procedure for Purchasing Shares in the Subscription and Community Offerings

          Use of Stock Order Forms. In order to purchase shares of common stock in the subscription offering and community offering, you must submit a properly completed original stock order form and remit full payment.  Incomplete stock order forms or stock order forms that are not signed are not required to be accepted. We are not required to accept stock orders submitted on photocopied or facsimiled stock order forms. All stock order forms must be received (not postmarked) prior to 12:00 Noon Pacific Time, on [Expiration Date] at our Stock Information Center. We are not required to accept stock order forms that are not received by that time, are executed defectively or are received without full payment or without appropriate withdrawal instructions. We are not required to notify purchasers of incomplete or improperly executed stock order forms, and we have the right to waive or permit the correction of incomplete or improperly executed stock order forms.  We do not represent, however, that we will do so, and we have no affirmative duty to notify any prospective purchaser of any such defects.

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You may submit your stock order form and payment by mail using the stock order reply envelope provided, by bringing your stock order form to our Stock Information Center, or by overnight delivery to the indicated address on the order form. Our Stock Information Center is located in our main office at 1359 North Grand Avenue, Covina, California. Stock order forms may not be delivered to our other Kaiser Federal Bank offices.  Once tendered, a stock order form cannot be modified or revoked without our consent.  We reserve the absolute right, in our sole discretion, to reject orders received in the community offering, in whole or in part, at the time of receipt or at any time prior to completion of the offering. 

          If you are ordering shares in the subscription offering, by signing the stock order form you are representing that you are purchasing shares for your own account and that you have no agreement or understanding with any person for the sale or transfer of the shares.  Our interpretation of the terms and conditions of the plan of conversion and reorganization and of the acceptability of the stock order forms will be final.

          By signing the stock order form, you will be acknowledging that the common stock is not a deposit or savings account and is not federally insured or otherwise guaranteed by Kaiser Federal Bank or the federal government, and that you received a copy of this proxy statement/prospectus. However, signing the stock order form will not result in you waiving your rights under the Securities Act of 1933 or the Securities Exchange Act of 1934.

          Payment for Shares. Payment for all shares of common stock will be required to accompany all completed order forms for the purchase to be valid.  You may not submit cash or wire transfers.  Payment for shares may be made by:

(i)	personal check, bank check or money order, made payable to Kaiser Federal Financial Group, Inc.; or
(ii)	authorization of withdrawal from the types of Kaiser Federal Bank deposit accounts designated on the stock order form.

          Appropriate means for designating withdrawals from deposit accounts at Kaiser Federal Bank are provided on the order forms. The funds designated must be available in the account(s) at the time the stock order form is received. A hold will be placed on these funds, making them unavailable to the depositor. Funds authorized for withdrawal will continue to earn interest within the account at the contract rate until the offering is completed, at which time the designated withdrawal will be made. Interest penalties for early withdrawal applicable to certificate accounts will not apply to withdrawals authorized for the purchase of shares of common stock; however, if a withdrawal results in a certificate account with a balance less than the applicable minimum balance requirement, the certificate will be canceled at the time of withdrawal without penalty and the remaining balance will earn interest calculated at the current passbook savings rate subsequent to the withdrawal.  In the case of payments made by check or money order, these funds must be available in the account(s) and will be immediately cashed and placed in a segregated account at Kaiser Federal Bank or another depository institution and will earn interest calculated at Kaiser Federal Bank’s passbook savings rate from the date payment is received until the offering is completed or terminated.

          You may not remit Kaiser Federal Bank line of credit checks, and we will not accept third-party checks, including those payable to you and endorsed over to Kaiser Federal Financial Group, Inc.  You may not designate on your stock order form a direct withdrawal from an Kaiser Federal Bank individual retirement account.  See “— Using Individual Retirement Funds to Purchase Shares” for information on using such funds.  Additionally, you may not designate on your stock order form a direct withdrawal from

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Kaiser Federal Bank deposit accounts with check-writing privileges.  Please provide a check instead. Once we receive your executed order form, it may not be modified, amended or rescinded without our consent, unless the offering is not completed by the expiration date, in which event purchasers may be given the opportunity to increase, decrease or rescind their orders for a specified period of time.

          Regulations prohibit Kaiser Federal Bank from lending funds or extending credit to any persons to purchase shares of common stock in the offering.

          We shall have the right, in our sole discretion, to permit institutional investors to submit irrevocable orders together with the legally binding commitment for payment and to thereafter pay for the shares of common stock for which they subscribe in the community offering at any time prior to 48 hours before the completion of the conversion.  This payment may be made by wire transfer.

          If our employee stock ownership plan purchases shares in the offering, it will not be required to pay for such shares until consummation of the offering, provided that there is a loan commitment from an unrelated financial institution or Kaiser Federal Financial Group, Inc. to lend to the employee stock ownership plan the necessary amount to fund the purchase.

Using Individual Retirement Funds to Purchase Shares

          If you are interested in using your individual retirement account funds to purchase shares of common stock, you must do so through a self-directed individual retirement account such as a brokerage firm individual retirement account.  By regulation, Kaiser Federal Bank’s individual retirement accounts are not self-directed, so they cannot be invested in our shares of common stock.  Therefore, if you wish to use your funds that are currently in a Kaiser Federal Bank individual retirement account, you may not designate on the stock order form that you wish funds to be withdrawn from the account for the purchase of common stock. The funds you wish to use for the purchase of common stock will have to be transferred to a brokerage account before you place your stock order. There will be no early withdrawal or interest penalties for these transfers.  The new trustee will hold the shares of common stock in a self-directed account in the same manner as we now hold the depositor’s individual retirement account funds.  An annual administrative fee may be payable to the new trustee.  Assistance on how to transfer individual retirement accounts maintained at Kaiser Federal Bank can be obtained from the Stock Information Center.  Depositors interested in using funds in an individual retirement account or any other retirement account at Kaiser Federal Bank or elsewhere to purchase shares of common stock should contact our Stock Information Center as soon as possible, preferably at least two weeks prior to the [Expiration Date] offering deadline, because processing such transactions takes additional time, and whether such funds can be used may depend on limitations imposed by the institutions where such funds are currently held. We cannot guarantee that you will be able to use such funds.

          Delivery of Stock Certificates. Certificates representing shares of common stock issued in the offering will be mailed to the persons entitled thereto at the certificate registration address noted by them on the stock order form, as soon as practicable following consummation of the conversion. Any certificates returned as undeliverable will be held by our transfer agent until claimed by persons legally entitled thereto or otherwise disposed of in accordance with applicable law. Until certificates for the shares of common stock are available and delivered to purchasers, purchasers may not be able to sell the shares of common stock which they ordered, even though the common stock will have begun trading.

          Other Restrictions. Notwithstanding any other provision of the plan of conversion and reorganization, no person is entitled to purchase any shares of common stock to the extent the purchase would be illegal under any federal or state law or regulation, including state “blue sky” regulations, or

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would violate regulations or policies of the National Association of Securities Dealers, Inc., particularly those regarding free riding and withholding. We may ask for an acceptable legal opinion from any purchaser as to the legality of his or her purchase and we may refuse to honor any purchase order if an opinion is not timely furnished.  In addition, we are not required to offer shares of common stock to any person who resides in a foreign country, or in a State of the United States with respect to which any of the following apply: (a) a small number of persons otherwise eligible to subscribe for shares under the plan of conversion reside in such state; (b) the issuance of subscription rights or the offer or sale of shares of common stock to such persons would require us, under the securities laws of such state, to register as a broker, dealer, salesman or agent or to register or otherwise qualify our securities for sale in such state; (c) such registration or qualification would be impracticable for reasons of cost or otherwise.

Restrictions on Transfer of Subscription Rights and Shares

          Office of Thrift Supervision regulations prohibit any person with subscription rights, including the Eligible Account Holders, Supplemental Eligible Account Holders and Other Members, from transferring or entering into any agreement or understanding to transfer the legal or beneficial ownership of the subscription rights issued under the plan of conversion and reorganization or the shares of common stock to be issued upon their exercise. These rights may be exercised only by the person to whom they are granted and only for his or her account.  When registering your stock purchase on the stock order form, you should not add the name(s) of persons who do not have subscription rights or who qualify only in a lower purchase priority than you do.  Doing so may jeopardize your subscription rights.  Each person exercising subscription rights will be required to certify that he or she is purchasing shares solely for his or her own account and that he or she has no agreement or understanding regarding the sale or transfer of such shares. The regulations also prohibit any person from offering or making an announcement of an offer or intent to make an offer to purchase subscription rights or shares of common stock to be issued upon their exercise prior to completion of the offering.

          We will pursue any and all legal and equitable remedies in the event we become aware of the transfer of subscription rights, and we will not honor orders that we believe involve the transfer of subscription rights.

Liquidation Rights

          In the unlikely event of a complete liquidation of K-Fed Bancorp prior to the conversion, all claims of creditors of K-Fed Bancorp, including those of depositors of Kaiser Federal Bank (to the extent of their deposit balances), would be paid first. Thereafter, if there were any assets of K-Fed Bancorp remaining, these assets would be distributed to stockholders, including K-Fed Mutual Holding Company.  In the unlikely event that K-Fed Mutual Holding Company and K-Fed Bancorp liquidated prior to the conversion, all claims of creditors would be paid first. Then, if there were any assets of K-Fed Mutual Holding Company remaining, members of K-Fed Mutual Holding Company would receive those remaining assets, pro rata, based upon the deposit balances in their deposit account in Kaiser Federal Bank immediately prior to liquidation. In the unlikely event that Kaiser Federal Bank were to liquidate

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after the conversion, all claims of creditors, including those of depositors, would be paid first, followed by distribution of the “liquidation account” to certain depositors, with any assets remaining thereafter distributed to Kaiser Federal Financial Group, Inc. as the holder of Kaiser Federal Bank capital stock. Pursuant to the rules and regulations of the Office of Thrift Supervision, a post-conversion merger, consolidation, sale of bulk assets or similar combination or transaction with another insured savings institution would not be considered a liquidation and, in these types of transactions, the liquidation account would be assumed by the surviving institution.

          The plan of conversion and reorganization provides for the establishment, upon the completion of the conversion, of a special “liquidation account” for the benefit of Eligible Account Holders and Supplemental Eligible Account Holders in an amount equal to the greater of:

(i)	K-Fed Mutual Holding Company’s ownership interest in the retained earnings of K-Fed Bancorp as of the date of its latest balance sheet contained in this proxy statement/prospectus; or
(ii)	the retained earnings of Kaiser Federal Bank as of the date of the latest financial statements set forth in the proxy statement/prospectus used by Kaiser Federal Bank’s mutual predecessor when it reorganized into K-Fed Mutual Holding Company in July, 2003.

          The purpose of the liquidation account is to provide Eligible Account Holders and Supplemental Eligible Account Holders who maintain their deposit accounts with Kaiser Federal Bank after the conversion with a liquidation interest in the unlikely event of the complete liquidation of Kaiser Federal Bank after the conversion. Each Eligible Account Holder and Supplemental Eligible Account Holder who continues to maintain his or her deposit account at Kaiser Federal Bank, would be entitled, on a complete liquidation of Kaiser Federal Bank after the conversion, to an interest in the liquidation account prior to any payment to the stockholders of Kaiser Federal Financial Group, Inc.  Each Eligible Account Holder and Supplemental Eligible Account Holder would have an initial interest in the liquidation account for each deposit account, including savings accounts, transaction accounts such as negotiable order of withdrawal accounts, money market deposit accounts, and certificates of deposit, with a balance of $50 or more held in Kaiser Federal Bank on March 31, 2006, or September 30, 2007.  Each Eligible Account Holder and Supplemental Eligible Account Holder would have a pro rata interest in the total liquidation account for each such deposit account, based on the proportion that the balance of each such deposit account on March 31, 2006, or September 30, 2007 bears to the balance of all deposit accounts in Kaiser Federal Bank on such dates.

          If, however, on any December 31 annual closing date commencing after the effective date of the conversion, the amount in any such deposit account is less than the amount in the deposit account on March 31, 2006 or September 30, 2007 or any other annual closing date, then the interest in the liquidation account relating to such deposit account would be reduced from time to time by the proportion of any such reduction, and such interest will cease to exist if such deposit account is closed. In addition, no interest in the liquidation account would ever be increased despite any subsequent increase in the related deposit account. Payment pursuant to liquidation rights of Eligible Account Holders and Supplemental Eligible Account Holders would be separate and apart from the payment of any insured deposit accounts to such depositor. Any assets remaining after the above liquidation rights of Eligible Account Holders and Supplemental Eligible Account Holders are satisfied would be distributed to Kaiser Federal Financial Group, Inc. as the sole stockholder of Kaiser Federal Bank.

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Material Income Tax Consequences

          Consummation of the conversion is subject to the prior receipt of an opinion of counsel or tax advisor with respect to federal and state income taxation that the conversion will not be a taxable transaction to K-Fed Mutual Holding Company, K-Fed Bancorp, Kaiser Federal Bank, Eligible Account Holders, Supplemental Eligible Account Holders, Other Members of K-Fed Mutual Holding Company and stockholders of K-Fed Bancorp. Unlike private letter rulings, opinions of counsel or tax advisors are not binding on the Internal Revenue Service or any state taxing authority, and such authorities may disagree with such opinions. In the event of such disagreement, there can be no assurance that K-Fed Bancorp or Kaiser Federal Bank would prevail in a judicial proceeding.

          K-Fed Mutual Holding Company and K-Fed Bancorp have received an opinion of counsel, Luse Gorman Pomerenk & Schick, P.C., regarding all of the material federal income tax consequences of the conversion, which includes the following:

1.	The conversion of K-Fed Bancorp to a federally chartered interim stock savings bank will qualify as a tax-free reorganization within the meaning of Section 368(a)(1)(F) of the Internal Revenue Code, and the merger of K-Fed Bancorp with and into Kaiser Federal Bank qualifies as a tax-free reorganization within the meaning of Section 368(a)(1)(A) of the Internal Revenue Code.
2.	Neither K-Fed Bancorp, Kaiser Federal Bank, nor the stockholders of K-Fed Bancorp will recognize any gain or loss upon the transfer of assets of K-Fed Bancorp to Kaiser Federal Bank in exchange for shares of common stock of Kaiser Federal Bank, which will be constructively received by Kaiser Federal Financial Group, Inc.’s stockholders. (Sections 361 and 1032(a) of the Internal Revenue Code.)
3.	The basis of the assets of K-Fed Bancorp and the holding period of such assets to be received by Kaiser Federal Bank will be the same as the basis and holding period in such assets in the hands of K-Fed Bancorp immediately before the exchange.  (Sections 362(b) and 1223(2) of the Internal Revenue Code).
4.	The conversion of K-Fed Mutual Holding Company, to a federally chartered interim stock savings bank will qualify as a tax-free reorganization within the meaning of Section 368(a)(1)(F) of the Internal Revenue Code and the merger of K-Fed Mutual Holding Company with and into Kaiser Federal Bank qualifies as a tax-free reorganization within the meaning of Section 368(a)(1)(A) of the Internal Revenue Code.
5.	The exchange of Eligible Account Holders’ and Supplemental Account Holders’ interests in K-Fed Mutual Holding Company for interests in a liquidation account established in Kaiser Federal Bank will satisfy the continuity of interest requirement of Section 1.368-1(b) of the Federal Income Tax Regulations.
6.	None of K-Fed Mutual Holding Company, K-Fed Bancorp, Kaiser Federal Bank, nor Eligible Account Holders, Supplemental Eligible Account Holders or Other Members, will recognize any gain or loss on the transfer of the assets of K-Fed Mutual Holding Company to Kaiser Federal Bank in exchange for an interest in a liquidation account established in Kaiser Federal Bank for the benefit of eligible account holders and supplemental eligible account holders who remain depositors of Kaiser Federal Bank.

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7.	Current stockholders of K-Fed Bancorp will not recognize any gain or loss upon their constructive exchange of K-Fed Bancorp common stock for shares of Kaiser Federal Bank which will in turn be exchanged for new shares of Kaiser Federal Financial Group, Inc. common stock.
8.	Each stockholder’s aggregate basis in shares of Kaiser Federal Financial Group, Inc. common stock (including fractional share interests) received in the exchange will be the same as the aggregate basis of K-Fed Bancorp common stock surrendered in exchange therefore.
9.	Each stockholder’s holding period in his or her Kaiser Federal Financial Group, Inc. common stock received in the exchange will include the period during which K-Fed Bancorp common stock surrendered was held, provided that the K-Fed Bancorp common stock surrendered is a capital asset in the hands of the stockholder on the date of the exchange.
10.	Cash received by any current stockholder of K-Fed Bancorp in lieu of a fractional share interest in shares of Kaiser Federal Financial Group, Inc. common stock will be treated as having been received as a distribution in full payment in exchange for a fractional share interest of Kaiser Federal Financial Group, Inc. common stock, which such stockholder would otherwise be entitled to receive.  Accordingly, a stockholder will recognize gain or loss equal to the difference between the cash received and the basis of the fractional share.  If the common stock is held by the stockholder as a capital asset, the gain or loss will be capital gain or loss.
11.	It is more likely than not that the fair market value of the nontransferable subscription rights to purchase Kaiser Federal Financial Group, Inc. common stock is zero.  Accordingly, no gain or loss will be recognized by Eligible Account Holders, Supplemental Eligible Account Holders or Other Members upon distribution to them of nontransferable subscription rights to purchase shares of Kaiser Federal Financial Group, Inc. common stock.  Eligible Account Holders, Supplemental Eligible Account Holders and Other Members will not realize any taxable income as the result of the exercise by them of the nontransferable subscriptions rights.
12.	It is more likely than not that the basis of the shares of Kaiser Federal Financial Group, Inc. common stock purchased in the offering by the exercise of nontransferable subscription rights will be the purchase price.  The holding period of the Kaiser Federal Financial Group, Inc. common stock purchased pursuant to the exercise of nontransferable subscription rights will commence on the date on which the right to acquire such stock was exercised.
13.	No gain or loss will be recognized by Kaiser Federal Financial Group, Inc. on the receipt of money in exchange for Kaiser Federal Financial Group, Inc. common stock sold in the offering.

          The opinion addresses all material federal income tax consequences of the conversion and reorganization.  The tax opinion as to items 11 and 12 above is based on the position that subscription rights to be received by Eligible Account Holders, Supplemental Eligible Account Holders and Other Members do not have any economic value at the time of distribution or the time the subscription rights are exercised.  In this regard, Luse Gorman Pomerenk & Schick, P.C. noted that the subscription rights will be granted at no cost to the recipients, are legally non-transferable and of short duration, and will provide

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the recipient with the right only to purchase shares of common stock at the same price to be paid by members of the general public in any community offering.  The firm also noted that the Internal Revenue Service has not in the past concluded that subscription rights have value.  Based on the foregoing, Luse Gorman Pomerenk & Schick, P.C. believes that it is more likely than not that the nontransferable subscription rights to purchase shares of common stock have no value.  However, the issue of whether or not the nontransferable subscription rights have value is based on all the facts and circumstances.  If the nontransferable subscription rights granted to eligible subscribers are subsequently found to have an ascertainable value greater than zero, income may be recognized by various recipients of the nontransferable subscription rights (in certain cases, whether or not the rights are exercised) and we could recognize gain on the distribution of the nontransferable subscription rights. 

          The opinion of Luse Gorman Pomerenk & Schick, P.C., unlike a letter ruling issued by the Internal Revenue Service, are not binding on the Internal Revenue Service and the conclusions expressed therein may be challenged at a future date. The Internal Revenue Service has issued favorable rulings for transactions substantially similar to the proposed reorganization and stock offering, but any such ruling may not be cited as precedent by any taxpayer other than the taxpayer to whom the ruling is addressed.  We do not plan to apply for a letter ruling concerning the transactions described herein.

          The federal tax opinion has been filed with the Securities and Exchange Commission as an exhibit to Kaiser Federal Financial Group, Inc.’s registration statement.  Advice regarding the California state income tax consequences consistent with the federal tax opinion has been issued by Crowe Chizek and Company LLP, tax advisors to K-Fed Mutual Holding Company and K-Fed Bancorp.

          We also have received a letter from RP Financial, LC. stating its belief that the subscription rights do not have any ascertainable fair market value and that the price at which the subscription rights are exercisable will not be more or less than the fair market value of the shares on the date of the exercise. This position is based on the fact that these rights are acquired by the recipients without cost, are nontransferable and of short duration, and afford the recipients the right only to purchase the common stock at the same price as will be paid by members of the general public in any community offering.

          If the subscription rights granted to Eligible Account Holders, Supplemental Eligible Account Holders and Other Members are deemed to have an ascertainable value, receipt of these rights could result in taxable gain to those Eligible Account Holders, Supplemental Eligible Account Holders and Other Members who exercise the subscription rights in an amount equal to the ascertainable value, and we could recognize gain on a distribution. Eligible Account Holders, Supplemental Eligible Account Holders and Other Members are encouraged to consult with their own tax advisors as to the tax consequences in the event that subscription rights are deemed to have an ascertainable value.

Certain Restrictions on Purchase or Transfer of Our Shares after the Conversion

          All shares of common stock purchased in the offering by a director or an executive officer of Kaiser Federal Bank generally may not be sold for a period of one year following the closing of the conversion, except in the event of the death of the director or executive officer. Each certificate for restricted shares will bear a legend giving notice of this restriction on transfer, and instructions will be issued to the effect that any transfer within this time period of any certificate or record ownership of the shares other than as provided above is a violation of the restriction. Any shares of common stock issued at a later date as a stock dividend, stock split, or otherwise, with respect to the restricted stock will be similarly restricted. The directors and executive officers of Kaiser Federal Financial Group, Inc. also will be restricted by the insider trading rules promulgated pursuant to the Securities Exchange Act of 1934.

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          Purchases of shares of our common stock by any of our directors, executive officers and their associates, during the three-year period following the closing of the conversion may be made only through a broker or dealer registered with the Securities and Exchange Commission, except with the prior written approval of the Office of Thrift Supervision. This restriction does not apply, however, to negotiated transactions involving more than 1% of our outstanding common stock or to purchases of our common stock by our stock-based incentive plan or any of our tax-qualified employee stock benefit plans or non-tax-qualified employee stock benefit plans.

          Office of Thrift Supervision regulations prohibit Kaiser Federal Financial Group, Inc. from repurchasing its shares of common stock during the first year following conversion unless compelling business reasons exist for such repurchases. After one year, the Office of Thrift Supervision does not impose any repurchase restrictions.

          The Board of Directors recommends that you vote “FOR” the Plan of Conversion and Reorganization.

PROPOSAL 4 - ADJOURNMENT OF THE ANNUAL MEETING

          If there are not sufficient votes to constitute a quorum or to approve the plan of conversion and reorganization at the time of the annual meeting, the plan of conversion and reorganization may not be approved unless the annual meeting is adjourned to a later date or dates in order to permit further solicitation of proxies.  In order to allow proxies that have been received by K-Fed Bancorp at the time of the annual meeting to be voted for an adjournment, if necessary, K-Fed Bancorp has submitted the question of adjournment to its stockholders as a separate matter for their consideration.  The Board of Directors of K-Fed Bancorp recommends that stockholders vote “FOR” the adjournment proposal.  If it is necessary to adjourn the annual meeting, no notice of the adjourned annual meeting is required to be given to stockholders (unless the adjournment is for more than 30 days or if a new record date is fixed), other than an announcement at the annual meeting of the hour, date and place to which the annual meeting is adjourned.

          The Board of Directors recommends that you vote “FOR” the adjournment of the annual meeting, if necessary, to solicit additional proxies in the event that there are not sufficient votes at the time of the annual meeting to approve the proposal to approve the plan of conversion and reorganization.

PROPOSALS 5a THROUGH 5f - INFORMATIONAL PROPOSALS RELATED TO THE
ARTICLES OF INCORPORATION OF KAISER FEDERAL FINANCIAL GROUP, INC.

          By their approval of the plan of conversion and reorganization as set forth in Proposal 3, the Board of Directors of K-Fed Bancorp has approved each of the informational proposals numbered 5a through 5f, all of which relate to provisions included in the articles of incorporation or bylaws of Kaiser Federal Financial Group, Inc.  Each of these informational proposals is discussed in more detail below.

          As a result of the conversion, the public stockholders of K-Fed Bancorp, whose rights are presently governed by the charter and bylaws of K-Fed Bancorp, will become stockholders of Kaiser Federal Financial Group, Inc., whose rights will be governed by the articles of incorporation and bylaws of Kaiser Federal Financial Group, Inc.  The following informational proposals address the material differences between the governing documents of the two companies.  This discussion is qualified in its entirety by reference to the charter and bylaws of K-Fed Bancorp and the articles of incorporation and bylaws of Kaiser Federal Financial Group, Inc.  See “Where You Can Find Additional Information” for procedures for obtaining a copy of those documents.

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          The provisions of Kaiser Federal Financial Group, Inc.’s articles of incorporation and bylaws which are summarized as informational proposals 5a through 5f were approved as part of the process in which the board of directors of K-Fed Bancorp approved the plan of conversion and reorganization.  These proposals are informational in nature only, because the Office of Thrift Supervision’s regulations governing mutual-to-stock conversions do not provide for votes on matters other than the plan of conversion and reorganization.  K-Fed Bancorp’s stockholders are not being asked to approve these informational proposals at the annual meeting.  While we are asking you to vote with respect to each of the informational proposals set forth below, the proposed provisions for which an informational vote is requested will become effective if stockholders approve the plan of conversion and reorganization, regardless of whether stockholders vote to approve any or all of the informational proposals.  The provisions of Kaiser Federal Financial Group, Inc.’s articles of incorporation and bylaws which are summarized as informational proposals may have the effect of deterring or rendering more difficult attempts by third parties to obtain control of Kaiser Federal Financial Group, Inc., if such attempts are not approved by the Board of Directors, or may make the removal of the board of directors or management, or the appointment of new directors, more difficult.

          Informational Proposal 5a – Approval of an Increase of Authorized Shares of Capital Stock.  The authorized capital stock of Kaiser Federal Financial Group, Inc. consists of 100,000,000 shares of common stock, par value $0.01 per share, and 25,000,000 shares of preferred stock, par value $0.01 per share.  The current authorized capital stock of K-Fed Bancorp consists of 18,000,000 shares of common stock, par value $0.01 per share, and 2,000,000 shares of preferred stock, par value $0.01 per share.

          At June 30, 2007, there were 13,948,945 outstanding shares of common stock of K-Fed Bancorp and no outstanding shares of preferred stock.  At the maximum of the offering range, we expect to issue an aggregate of 23,532,229 shares of Kaiser Federal Financial Group, Inc. common stock in the offering and as exchange shares, almost double the existing number of outstanding shares of K-Fed Bancorp.  At the maximum of the offering range, an additional 959,369 shares of Kaiser Federal Financial Group, Inc. common stock will be reserved for issuance pursuant to the existing 2004 stock option plan and another 383,748 shares will be reserved for issuance pursuant to the 2004 recognition and retention plan.  In addition, 1,951,395 shares would be reserved under the future stock-based incentive plan, which is contemplated.  Given the increased number of shares of common stock to be issued and outstanding and reserved for issuance, an increase in the number of authorized shares of capital stock is believed to be appropriate.

          Kaiser Federal Financial Group, Inc.’s Board of Directors currently has no plans for the issuance of additional shares of common stock, other than the issuance of shares of pursuant to the terms of the existing 2004 stock option plan and 2004 recognition and retention plan and the proposed new stock-based incentive plan.

          All authorized and unissued shares of Kaiser Federal Financial Group, Inc.’s common stock and preferred stock following the conversion and offering will be available for issuance without further action of the stockholders, unless such action is required by applicable law or the listing standards of The Nasdaq Stock Market or the listing standards of any other stock exchange on which Kaiser Federal Financial Group, Inc.’s securities may then be listed.

          An increase in the number of authorized shares of capital stock may have the effect of deterring or rendering more difficult attempts by third parties to obtain control of Kaiser Federal Financial Group, Inc., if such attempts are not approved by the Board of Directors.  In the event that a tender offer or other takeover attempt is threatened, the Board of Directors could issue shares of stock from authorized and

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unissued shares in order to dilute the stock ownership of persons seeking to take control of Kaiser Federal Financial Group, Inc.

          The Board of Directors recommends that you vote “FOR” the proposal to increase the authorized shares of capital stock.

          Informational Proposal 5b – Approval of a Provision in Kaiser Federal Financial Group, Inc.’s Articles of Incorporation to Limit the Ability of Stockholders to Remove Directors.  The articles of incorporation of Kaiser Federal Financial Group, Inc. provide that any director may be removed by stockholders only for cause upon the affirmative vote of the holders of at least 80% of the shares entitled to vote in the election of directors.

          K-Fed Bancorp’s Bylaws provides that any director may be removed only for cause by vote of the holders of a majority of the outstanding voting shares at a meeting of stockholders called for such purpose.  This has provided an adequate degree of protection under the mutual holding company structure, in which the mutual holding company owns a majority of all voting shares and can prevent a third party from seeking removal of one or more directors in order to promote an agenda that may not be in the best interests of all other stockholders.

          The 80% voting requirement of the Articles of Incorporation of Kaiser Federal Financial Group, Inc. is intended to prevent sudden and fundamental changes to the composition of the Board of Directors except in the case of director misconduct.  This provision does not prevent the replacement of one or more directors at an annual meeting of stockholders, and will not prevent replacement of the entire Board over the course of three years.  This provision is intended to reduce the ability of anyone to coerce members of the Board of Directors by threatening them with removal from office, in cases where the directors are acting in good faith to discharge their duties to the corporation and to all stockholders as a group.  This provision will not prevent a stockholder from conducting a proxy contest with respect to the election of directors at an annual meeting of stockholders.

          The higher vote threshold may make it more difficult to bring about a change in control of Kaiser Federal Financial Group, Inc..  One method for a hostile stockholder to take control of a company is to acquire a majority of the outstanding shares of the company through a tender offer or open market purchases and then use its voting power to remove the existing directors.

          The Board of Directors believes that it is desirable to adopt this provision so that a director’s continued service will be conditioned on his or her ability to serve and discharge his or her duties to the corporation and the stockholders in good faith, rather than his or her position relative to a dominant stockholder.

          The Board of Directors recommends that you vote “FOR” the approval of a provision in Kaiser Federal Financial Group, Inc.’s articles of incorporation to limit the ability of stockholders to remove directors.

          Informational Proposal 5c – Approval of a Provision In Kaiser Federal Financial Group, Inc.’s Articles Of Incorporation to Limit Business Combinations with Interested Stockholders.  The articles of incorporation of Kaiser Federal Financial Group, Inc. require the approval of the holders of at least 80% of Kaiser Federal Financial Group, Inc.’s outstanding shares of voting stock entitled to vote to approve certain “business combinations” with an “interested stockholder.”  This supermajority voting requirement will not apply in cases where the proposed transaction has been approved by a majority of disinterested directors or where various fair price and procedural conditions have been met.

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          Under Kaiser Federal Financial Group, Inc.’s articles of incorporation, the term “interested stockholder” means any person who or which is:

•	the beneficial owner, directly or indirectly, of more than 10% of the voting power of the then outstanding voting stock of Kaiser Federal Financial Group, Inc.;
•	an affiliate of Kaiser Federal Financial Group, Inc. and at any time within the two-year period prior to the date in question was the beneficial owner, directly or indirectly, of more than 10% of the voting power of the then outstanding voting stock of the Kaiser Federal Financial Group, Inc.; or
•	an assignee of or has otherwise succeeded to any shares of voting stock that were at any time within the two-year period immediately prior to the date in question beneficially owned by any interested stockholder, if such assignment or succession shall have occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933, as amended.
A “business combination” includes, but is not limited to:
•	any merger or consolidation of Kaiser Federal Financial Group, Inc. or of its subsidiaries with (a) any interested stockholder; or (b) any other corporation, which is, or after such merger or consolidation would be, an affiliate of an interested stockholder;
•	any sale, lease, exchange , mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions) to or with any interested stockholder, or any affiliate of any interested stockholder, of any assets of Kaiser Federal Financial Group, Inc. or any of its subsidiaries having an aggregate fair market value equaling or exceeding 25% or more of the combined assets of the Kaiser Federal Financial Group, Inc. and its subsidiaries;
•	the issuance or transfer by Kaiser Federal Financial Group, Inc. or any of its subsidiaries (in one transaction or a series of transactions) of any securities of Kaiser Federal Financial Group, Inc. or any of its subsidiaries to any interested stockholder or any affiliate of any interested stockholder in exchange for cash, securities or other property (or a combination thereof) having an aggregate fair market value equaling or exceeding 25% of the combined assets of Kaiser Federal Financial Group, Inc. and its subsidiaries, except for any issuance or transfer pursuant to an employee benefit plan of Kaiser Federal Financial Group, Inc. or any of its subsidiaries;
•	the adoption of any plan or proposal for the liquidation or dissolution of Kaiser Federal Financial Group, Inc. proposed by or on behalf of any interested stockholder or any affiliate of such interested stockholder; or
•	any reclassification of securities (including any reverse stock split), or recapitalization of Kaiser Federal Financial Group, Inc., or any merger or consolidation of Kaiser Federal Financial Group, Inc. with any of its subsidiaries or any other transaction (whether or not with or into or otherwise involving an interested stockholder) which has the effect, directly or indirectly, of increasing the proportionate share of the outstanding shares of any class of equity or convertible securities of Kaiser Federal Financial Group, Inc. or any of its

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subsidiaries, which is directly or indirectly owned by any interested stockholder or any affiliate of any interested stockholder.

          Neither the charter or bylaws of K-Fed Bancorp nor the federal laws and regulations applicable to K-Fed Bancorp contain a provision that restricts business combinations between K-Fed Bancorp and any interested stockholder in the manner set forth above.

          This provision is intended to limit the ability of any person who acquires a significant number of shares of Kaiser Federal Financial Group, Inc. common stock to effect a transaction that may not be in the best interests of Kaiser Federal Financial Group, Inc. and its stockholders generally. This will not prevent a significant stockholder from seeking approval of a business combination, but it will make it more difficult for such a stockholder to influence the outcome of a stockholder vote simply by acquiring a large number of shares of common stock but without persuading other stockholders of the merits of its proposed course of action.

          K-Fed Bancorp’s charter does not contain similar provisions regarding business combinations involving interested stockholders.  This has not been necessary under the mutual holding company structure, in which the mutual holding company owns a majority of all voting shares and can prevent a third party from effecting a transaction that may be in its own self-interest but which may not be in the best interests of all other stockholders. 

          The Board of Directors recommends that you vote “FOR” the approval of a provision in Kaiser Federal Financial Group, Inc.’s articles of incorporation to limit business combinations with interested stockholders.

          Informational Proposal 5d. - Approval of a Provision in Kaiser Federal Financial Group, Inc.’s Articles of Incorporation Requiring a Super-Majority Vote to Approve Certain Amendments to Kaiser Federal Financial Group, Inc.’s Articles of Incorporation.  No amendment of the charter of K-Fed Bancorp may be made unless it is first proposed by the Board of Directors, then preliminarily approved by the Office of Thrift Supervision, and thereafter approved by the holders of a majority of the total votes eligible to be cast at a legal meeting.  The articles of incorporation of Kaiser Federal Financial Group, Inc. generally may be amended by the holders of a majority of the shares entitled to vote; provided, however, that any amendment of Section C, D and E of Article Fifth (Preferred Stock, Restrictions on Voting Rights of the Corporation’s Equity Securities, Majority Vote), Article Seventh (Directors), Article Eighth (Bylaws), Article Ninth (Approval of Certain Business Combinations), Article Eleventh (Indemnification, etc. of Directors and Officers), Article Twelfth (Limitation of Liability) and Article Thirteen (Amendment of the Articles of Incorporation) must be approved by the affirmative vote of the holders of at least 80% of the outstanding shares entitled to vote, except that the Board of Directors may amend the articles of incorporation without any action by the stockholders to increase or decrease the aggregate number of shares of capital stock.

          These limitations on amendments to specified provisions of Kaiser Federal Financial Group, Inc.’s articles of incorporation are intended to ensure that the referenced provisions are not limited or changed upon a simple majority vote.  While this limits the ability of stockholders to amend those provisions, K-Fed Mutual Holding Company, as a 63.5% stockholder, currently can effectively block any stockholder proposed change to the charter.

          This provision in Kaiser Federal Financial Group, Inc.’s articles of incorporation could have the effect of discouraging a tender offer or other takeover attempt where to ability to make fundamental changes through amendments to the articles of incorporation is an important element of the takeover strategy of the potential acquiror.  The board of directors believes that the provisions limiting certain

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amendments to the articles of incorporation will put the Board of Directors in a stronger position to negotiate with third parties with respect to transactions potentially affecting the corporate structure of Kaiser Federal Financial Group, Inc. and the fundamental rights of its stockholders, and to preserve the ability of all stockholders to have an effective voice in the outcome of such matters.

          The Board of Directors recommends that you vote “FOR” the approval of a provision in Kaiser Federal Financial Group, Inc.’s articles of incorporation requiring a super-majority vote to approve certain amendments to Kaiser Federal Financial Group, Inc.’s articles of incorporation.

          Informational Proposal 5e. - Approval of a Provision in Kaiser Federal Financial Group, Inc.’s Bylaws Requiring a Super-Majority Vote of Stockholders to Approve Stockholder Proposed Amendments to Kaiser Federal Financial Group, Inc.’s Bylaws.  An amendment to K-Fed Bancorp’s bylaws proposed by stockholders must be approved by the holders of a majority of the total votes eligible to be cast at a legal meeting subject to applicable approval by the Office of Thrift Supervision. The bylaws of Kaiser Federal Financial Group, Inc. provide that stockholders may only amend the bylaws if such proposal is approved by the affirmative vote of the holders of at least 80% of the outstanding shares entitled to vote.

          These limitations on amendments to the bylaws of Kaiser Federal Financial Group, Inc. are intended to ensure that the bylaws are not limited or changed upon a simple majority vote of stockholders.  While this limits the ability of stockholders to amend the bylaws, K-Fed Mutual Holding Company, as a 63.5% stockholder, currently can effectively block any stockholder proposed change to the bylaws. Also, the Board of Directors of both K-Fed Bancorp and Kaiser Federal Financial Group, Inc. may by a majority vote amend either company’s bylaws. 

          This provision in Kaiser Federal Financial Group, Inc.’s bylaws could have the effect of discouraging a tender offer or other takeover attempt where the ability to make fundamental changes through amendments to the bylaws is an important element of the takeover strategy of the potential acquiror. The Board of Directors believes that the provision limiting amendments to the bylaws will put the Board of Directors in a stronger position to negotiate with third parties with respect to transactions potentially affecting the corporate structure of Kaiser Federal Financial Group, Inc. and the fundamental rights of its stockholders, and to preserve the ability of all stockholders to have an effective voice in the outcome of such matters.

          The Board of Directors recommends that you vote “FOR” the approval of the provision in Kaiser Federal Financial Group, Inc.’s bylaws requiring a super-majority vote of stockholders to approve stockholder proposed amendments to Kaiser Federal Financial Group, Inc.’s bylaws.

          Informational Proposal 5f. – Approval of a Provision in Kaiser Federal Financial Group, Inc.’s Articles of Incorporation to Limit the Voting Rights of Shares Beneficially Owned in Excess of 10% of Kaiser Federal Financial Group, Inc.’s Outstanding Voting Stock.  The articles of incorporation of Kaiser Federal Financial Group, Inc. provide that in no event shall any person, who directly or indirectly beneficially owns in excess of 10% of the then-outstanding shares of common stock as of the record date for the determination of stockholders entitled or permitted to vote on any matter, be entitled or permitted to any vote in respect of the shares held in excess of the 10% limit. Beneficial ownership is determined pursuant to the federal securities laws and includes, but is not limited to, shares as to which any person and his or her affiliates (1) have the right to acquire pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options and (2) have or share investment or voting power (but shall not be deemed the beneficial owner of any voting shares solely by reason of a revocable proxy granted for a particular meeting of stockholders,

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and that are not otherwise beneficially, or deemed by Kaiser Federal Financial Group, Inc. to be beneficially, owned by such person and his or her affiliates).

          The foregoing restriction does not apply to any employee benefit plans of Kaiser Federal Financial Group, Inc. or any subsidiary or a trustee of a plan.

          The charter of K-Fed Bancorp provides that, for a period of five years from the effective date of Kaiser Federal Bank’s mutual holding company reorganization, no person, other than K-Fed Mutual Holding Company, shall directly or indirectly offer to acquire or acquire more than 10% of the then-outstanding shares of common stock.  The foregoing restriction does not apply to:

• the purchase of shares by underwriters in connection with a public offering; or

• the purchase of shares by any employee benefit plans of K-Fed Bancorp or any subsidiary.

          The provision in Kaiser Federal Financial Group, Inc.’s articles of incorporation limiting the voting rights of beneficial owners of more than 10% of Kaiser Federal Financial Group, Inc.’s outstanding voting stock is intended to limit the ability of any person to acquire a significant number of shares of Kaiser Federal Financial Group, Inc. common stock and thereby gain sufficient voting control so as to cause Kaiser Federal Financial Group, Inc. to effect a transaction that may not be in the best interests of Kaiser Federal Financial Group, Inc. and its stockholders generally.  This provision will not prevent a stockholder from seeking to acquire a controlling interest in Kaiser Federal Financial Group, Inc., but it will prevent a stockholder from voting more than 10% of the outstanding shares of common stock unless that stockholder has first persuaded the Board of Directors of the merits of the course of action proposed by the stockholder.  The Board of Directors of Kaiser Federal Financial Group, Inc. believes that fundamental transactions generally should be first considered and approved by the Board of Directors as the Board generally believes that it is in the best position to make an initial assessment of the merits of any such transactions and that the Board of Directors’ ability to make the initial assessment could be impeded if a single stockholder could acquire a sufficiently large voting interest so as to control a stockholder vote on any given proposal.  This provision in Kaiser Federal Financial Group, Inc.’s articles of incorporation makes an acquisition, merger or other similar corporate transaction less likely to occur, even if such transaction is supported by most stockholders, because it can prevent a holder of shares in excess of the 10% limit from voting the excess shares in favor of the transaction.  Thus, it may be deemed to have an anti-takeover effect.

          The Board of Directors recommends that you vote “FOR” the approval of a provision in Kaiser Federal Financial Group, Inc.’s articles of incorporation to limit the voting rights of shares beneficially owned in excess of 10% of Kaiser Federal Financial Group, Inc.’s outstanding voting stock.

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SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
OF
K-FED BANCORP AND SUBSIDIARY

          The summary financial information presented below is derived in part from the consolidated financial statements of K-Fed Bancorp.  The following is only a summary and you should read it in conjunction with the consolidated financial statements and notes beginning on page F-1.  The information at June 30, 2007 and 2006, and for the years ended June 30, 2007, 2006 and 2005 is derived in part from the audited consolidated financial statements of K-Fed Bancorp that appear in this proxy statement/prospectus.  The information at June 30, 2005, 2004 and 2003, and for the years ended June 30, 2004 and 2003 is derived in part from audited consolidated financial statements that do not appear in this proxy statement/prospectus. 

	At June 30,
	2007		2006		2005			2004		2003
	(Dollars in thousands, except per share amounts)
Selected Financial Condition Data:
Total assets	$	799,625	$	738,899	$	639,882		$	584,422	$	433,753
Total cash and cash equivalents		26,732		25,579		17,315			12,158		16,190
Loans receivable, net		699,143		634,093		537,567			496,206		389,640
Securities available-for-sale		13,579		11,289		18,848			21,003		—
Securities held-to-maturity		21,096		24,738		30,834			41,361		14,247
Interest bearing deposits in other financial institutions		2,970		9,010		9,010			2,970		6,437
Federal Home Loan Bank stock		9,870		8,746		4,027			3,290		2,602
Total deposits		494,128		463,454		475,792	1		422,953		346,239
Total borrowings		210,016		179,948		70,777			70,000		50,000
Total stockholders’ equity		92,317		92,657		90,760			89,116		35,395
Selected Operations Data:
Total interest income	$	41,166	$	35,821	$	28,168		$	22,037	$	20,444
Total interest expense		23,140		17,464		10,800			9,622		8,365
Net interest income		18,026		18,357		17,368			12,415		12,079
Provision for loan losses		529		652		406			483		1,124
Net interest income after provision for loan losses		17,497		17,705		16,962			11,932		10,955
Total noninterest expense		14,518		13,476		12,041			10,000		9,992
Income before income tax expense		7,238		7,655		7,977			5,161		4,149
Income tax expense		2,534		2,726		2,980			1,993		1,710
Net income	$	4,704	$	4,929	$	4,997		$	3,168	$	2,439
Basic earnings per share	$	0.35	$	0.36	$	0.36		$	0.06	$	n/m
Diluted earnings per share	$	0.34	$	0.36	$	0.36		$	0.06	$	n/m
Dividends per share	$	0.39	$	0.28	$	0.16		$	—	$	—

¹ In September 2004, we acquired $60 million in deposits from another financial institution in connection with a branch acquisition.

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	At or for the Year Ended June 30,
	2007			2006			2005			2004			2003
Selected Operating Ratios:
Performance Ratios:
Return on assets (ratio of net income to average total assets)		0.61	%		0.68	%		0.82	%		0.58	%		0.68	%
Return on equity (ratio of net income to average total equity)		5.09	%		5.33	%		5.49	%		6.05	%		7.13	%
Dividend payout ratio (1)		112.69	%		78.62	%		44.80	%		n/a			n/a
Ratio of noninterest expense to average total assets		1.89	%		1.87	%		1.97	%		1.82	%		2.77	%
Efficiency ratio (2)		65.15	%		61.86	%		58.96	%		63.92	%		65.46	%
Ratio of average interest-earning assets to average interest-bearing liabilities		117.84	%		119.38	%		124.49	%		117.32	%		118.57	%
Interest Rate Spread Information:
Average interest rate spread		1.87	%		2.17	%		2.48	%		2.03	%		2.98	%
Interest rate spread at end of period		1.84	%		2.18	%		2.33	%		2.31	%		2.84	%
Net interest margin (3)		2.43	%		2.66	%		2.93	%		2.34	%		3.42	%
Asset Quality Ratios:
Non-performing assets to total assets		0.18	%		0.02	%		0.13	%		0.02	%		0.01	%
Allowance for loan losses to non-performing loans(4)		245.84	%		4062.69	%		305.97	%		2839.02	%		8773.08	%
Allowance for loan losses to total loans (4) (5)		0.40	%		0.43	%		0.45	%		0.47	%		0.58	%
Net charge-offs to average outstanding loans		0.07	%		0.06	%		0.06	%		0.11	%		0.19	%
Non-performing loans to total loans		0.16	%		0.01	%		0.15	%		0.02	%		0.01	%
Capital Ratios:
Equity to total assets at end of period		11.55	%		12.54	%		14.18	%		15.25	%		8.16	%
Average equity to average assets		12.00	%		12.84	%		14.85	%		9.56	%		9.47	%
Tier 1 leverage		8.32	%		9.58	%		10.17	%		11.05	%		8.16	%
Tier 1 risk-based		12.76	%		15.42	%		16.12	%		17.95	%		14.20	%
Total risk-based		13.30	%		16.03	%		16.74	%		18.63	%		15.11	%
Other Data:
Number of branches		9			7			5			4			3
Number of ATMs		54			52			30			28			13
Number of loans		9,442			8,942			8,847			9,936			11,020
Number of deposit accounts		66,330			64,995			65,724			65,264			64,495
Assets in millions per total number of full-time equivalent employees	$	8.79		$	7.46		$	7.44		$	7.04		$	4.82

(1)	The dividend payout ratio is calculated using dividends declared and not waived by our mutual holding company parent, K-Fed Mutual Holding Company, divided by net income.
(2)	Efficiency ratio represents noninterest expense as a percentage of net interest income plus noninterest income, exclusive of securities gains and losses.
(3)	Net interest income divided by average interest-earning assets.
(4)	The allowance for loan losses at June 30, 2007, 2006, 2005, 2004, and 2003 was $2.8 million, $2.7 million, $2.4 million, $2.3 million, and $2.3 million, respectively.
(5)	Total loans are net of deferred fees and costs.

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FORWARD-LOOKING STATEMENTS

          This proxy statement/prospectus contains forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “plan,” “seek,” “expect” and words of similar meaning. These forward-looking statements include, but are not limited to:

• statements of our goals, intentions and expectations;

• statements regarding our business plans, prospects, growth and operating strategies;

• statements regarding the asset quality of our loan and investment portfolios; and

• estimates of our risks and future costs and benefits.

          These forward-looking statements are based on current beliefs and expectations of our management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change.

          The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:

• general economic conditions, either nationally or in our market areas, that are worse than expected;

• competition among depository and other financial institutions;

• inflation and changes in the interest rate environment that reduce our margins or reduce the fair value of financial instruments;

• adverse changes in the securities markets;

• changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements;

• our ability to enter new markets successfully and capitalize on growth opportunities;

• our ability to successfully integrate acquired entities, if any;

• changes in consumer spending, borrowing and savings habits;

• changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Public Accounting Oversight Board and the Financial Accounting Standards Board; and

• changes in our organization, compensation and benefit plans.

          Any of the forward-looking statements we make in this proxy statement/prospectus and in other public statements we may make may turn out to be inaccurate due to mistaken assumptions we might

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make, because of the factors listed above or because of other factors we cannot control.  Because of these and other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements and you should not rely on these statements.  Please see “Risk Factors” beginning on page 25.

HOW WE INTEND TO USE THE PROCEEDS FROM THE OFFERING

          Although we cannot determine what the actual net proceeds from the sale of the shares of common stock in the offering will be until the offering is completed, we anticipate that the aggregate net proceeds will be between $106.2 million and $143.2 million, or $164.4 million if the offering range is increased by 15%.  Kaiser Federal Financial Group, Inc. expects to contribute to Kaiser Federal Bank not less than 50% of the net proceeds.  We intend to retain between $46.5 million and $62.6 million of the net proceeds, or $71.9 million if the offering range is increased by 15% (excluding the portion of the net proceeds loaned to our employee stock ownership plan).  Between $6.6 million and $9.0 million, or $10.3 million if the offering range is increased by 15%, will be used for the loan to the employee stock ownership plan to fund its purchase of shares of common stock in the offering.

          A summary of the anticipated net proceeds at the minimum, midpoint, maximum and adjusted maximum of the offering range and distribution of the net proceeds is as follows:

	Based Upon the Sale at $10.00 Per Share of
	Minimum 11,050,000 Shares					Midpoint 13,000,000 Shares					Maximum 14,950,000 Shares					Maximum, As Adjusted 17,192,500 Shares (1)
	Amount		Percent of Net Proceeds			Amount		Percent of Net Proceeds			Amount		Percent of Net Proceeds			Amount		Percent of Net Proceeds
	(Dollars in thousands)
Offering proceeds	$	110,500				$	130,000				$	149,500				$	171,925
Less offering expenses		4,324					5,332					6,340					7,500
Net offering proceeds	$	106,176		100	%	$	124,668		100	%	$	143,160		100	%	$	164,425		100	%
Distribution of net proceeds:
To Kaiser Federal Bank	$	53,088		50.0	%	$	62,334		50.0	%	$	71,580		50.0	%	$	82,213		50.0	%
To fund loan to employee stock ownership plan	$	6,630		6.2	%	$	7,800		6.3	%	$	8,970		6.3	%	$	10,316		6.3	%
Retained by Kaiser Federal Financial Group, Inc.	$	46,458		43.8	%	$	54,534		43.7	%	$	62,610		43.7	%	$	71,896		43.7	%

(1) As adjusted to give effect to an increase in the number of shares which could occur due to a 15% increase in the offering range to reflect demand for the shares, changes in market or general financial conditions following the commencement of the offering, or regulatory considerations.

Payments for shares of common stock made through withdrawals from existing deposit accounts will not result in the receipt of new funds for investment but will result in a reduction of Kaiser Federal Bank’s deposits.  The net proceeds may vary because total expenses relating to the offering may be more or less than our estimates.  For example, our expenses would increase if the shares sold in any syndicated community offering are greater than what has been assumed for purposes of this table.  See “Pro Forma Data.” 

Kaiser Federal Financial Group, Inc. May Use The Proceeds It Retains From The Offering:

• to fund a loan to the employee stock ownership plan to purchase shares of common stock in the offering;

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• to finance the acquisition of financial institutions or other financial service companies primarily in Southern California as opportunities arise, although we do not currently have any agreements or understandings regarding any specific acquisition transaction and it is impossible to determine when, if ever, such opportunities may arise;

• to pay cash dividends to stockholders;

• to repurchase shares of our common stock for, among other things, the funding of our stock-based incentive plan;

• to invest in securities; and

• for other general corporate purposes.

          Initially, a substantial portion of the net proceeds will be invested in short-term investments, investment-grade debt obligations and mortgage-backed securities.

          Under current Office of Thrift Supervision regulations, we may not repurchase shares of our common stock during the first year following the completion of the conversion, except when extraordinary circumstances exist and with prior regulatory approval.

Kaiser Federal Bank May Use The Net Proceeds It Receives From The Offering:

• to fund the origination and purchase of new loans including one- to four-family residential, multi-family and commercial real estate mortgage loans and consumer loans;

• to enhance existing products and services and to support the development of new products and services;

• to expand our retail banking franchise by acquiring branches from other financial institutions or by building or leasing new branches primarily in Southern California, although we do not currently have any agreements or understandings regarding the establishment of specific branches;

• to acquire other financial institutions or other financial services companies primarily in Southern California as opportunities arise, although we do not currently have any agreements or understandings regarding any specific acquisition;

• to invest in securities; and

• for other general corporate purposes.

          Initially, a substantial portion of the net proceeds will be invested in short-term investments, investment-grade debt obligations and mortgage-backed securities.

          We expect our return on equity to be relatively low until we are able to utilize effectively the additional capital raised in the offering.  Until we can increase our net interest income and non-interest income, we expect our return on equity to continue to be below the industry average, which may negatively affect the value of our common stock. See “Risk Factors—Risks Related to the Conversion and Offering—Our Failure to Utilize Effectively The Net Proceeds Of The Offering Could Reduce Our

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Return on Stockholders’ Equity And Our Return On Assets And Negatively Impact The Value Of Our Common Stock.”

OUR POLICY REGARDING DIVIDENDS

          K-Fed Bancorp currently pays a quarterly cash dividend of $0.10 per share, which equals $0.40 per share on an annualized basis.  After the conversion, we intend to continue to pay cash dividends on a quarterly basis.  After adjustment for the exchange ratio, we expect the annual dividends to equal $0.32, $0.27, $0.24 and $0.21 per share at the minimum, midpoint, maximum and adjusted maximum of the offering range, respectively, which represents an annual dividend yield of 3.2%, 2.7%, 2.4% and 2.1% at the minimum, midpoint, maximum and adjusted maximum of the offering range, respectively, based upon a stock price of $10.00 per share.  The amount of dividends that we intend to pay to our stockholders following the conversion is intended to preserve the per share dividend amount, adjusted to reflect the exchange ratio, that our stockholders currently receive on their shares of K-Fed Bancorp common stock.  However, the dividend rate and the continued payment of dividends will depend on a number of factors including our capital requirements, our financial condition and results of operations, tax considerations, statutory and regulatory limitations, and general economic conditions.  We cannot assure you that we will not reduce or eliminate dividends in the future.

          Under the rules of the Office of Thrift Supervision, Kaiser Federal Bank will not be permitted to pay dividends on its capital stock to Kaiser Federal Financial Group, Inc., its sole stockholder, if Kaiser Federal Bank’s stockholder’s equity would be reduced below the amount of the liquidation account established in connection with the conversion.  In addition, Kaiser Federal Bank will not be permitted to make a capital distribution if, after making such distribution, it would be undercapitalized.  See “Proposal 3— Approval of the Plan of Conversion and Reorganization—Liquidation Rights.” For information concerning additional federal and state law and regulations regarding the ability of Kaiser Federal Bank to make capital distributions, including the payment of dividends to Kaiser Federal Financial Group, Inc., see “Taxation—Federal Taxation” and “Supervision and Regulation—Federal Banking Regulation.”

          Unlike Kaiser Federal Bank, we are not restricted by Office of Thrift Supervision regulations on the payment of dividends to our stockholders, although the source of dividends will depend on the net proceeds retained by us and earnings and dividends from Kaiser Federal Bank.  However, we will be subject to state law limitations on the payment of dividends. Maryland law generally limits dividends to an amount equal to the excess of our capital surplus over payments that would be owed upon dissolution to stockholders whose preferential rights upon dissolution are superior to those receiving the dividend, and to an amount that would not make us insolvent.

          Finally, pursuant to Office of Thrift Supervision regulations, during the three-year period following the conversion, we will not take any action to declare an extraordinary dividend to stockholders that would be treated by recipients as a tax-free return of capital for federal income tax purposes.

          See “Selected Consolidated Financial and Other Data of K-Fed Bancorp and Subsidiary” and “Market for the Common Stock” for information regarding our historical dividend payments.

MARKET FOR THE COMMON STOCK

          K-Fed Bancorp’s common stock currently trades on the Nasdaq Global Market under the symbol “KFED.” Upon completion of the conversion and offering, the shares of common stock of Kaiser Federal Financial Group, Inc. will replace K-Fed Bancorp’s shares of common stock. We expect that Kaiser Federal Financial Group, Inc.’s shares of common stock will trade on the Nasdaq Global Market under the trading symbol “KFFG.”  In order to list our common stock on the Nasdaq Global Market, we are

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required to have at least three broker-dealers who will make a market in our common stock.  K-Fed Bancorp currently has 23 registered market makers.

          The development of a public market having the desirable characteristics of depth, liquidity and orderliness depends on the existence of willing buyers and sellers, the presence of which is not within our control or that of any market maker.  The number of active buyers and sellers of our common stock at any particular time may be limited, which may have an adverse effect on the price at which our common stock can be sold.  There can be no assurance that persons purchasing the common stock will be able to sell their shares at or above the $10.00 price per share in the offering.  Purchasers of our common stock should have a long-term investment intent and should recognize that there may be a limited trading market in our common stock.

          The following table sets forth the high and low trading prices for shares of K-Fed Bancorp common stock and cash dividends paid per share for the periods indicated.  As of June 30, 2007, there were 5,087,195 shares of K-Fed Bancorp common stock issued and outstanding (excluding shares held by K-Fed Mutual Holding Company). In connection with the conversion, each existing publicly held share of common stock of K-Fed Bancorp will be converted into a right to receive a number of shares of Kaiser Federal Financial Group, Inc. common stock, based upon the exchange ratio that is described in other sections of this proxy statement/prospectus.  See “Proposal 3 — Approval of the Plan of Conversion and Reorganization—Share Exchange Ratio for Current Stockholders.”

Year Ending June 30, 2008	High		Low		Dividend Paid Per Share
Quarter Ended September 30, 2007	$		$		$
Year Ended June 30, 2007	High		Low		Dividend Paid Per Share
Quarter ended June 30, 2007	$	19.70	$	14.51	$	0.10
Quarter ended March 31, 2007		20.05		18.45		0.10
Quarter ended December 31, 2006		19.25		16.09		0.10
Quarter ended September 30, 2006		16.09		14.25		0.09
Year Ended June 30, 2006	High		Low		Dividend Paid Per Share
Quarter ended June 30, 2006	$	14.49	$	12.61	$	0.08
Quarter ended March 31, 2006		12.74		12.05		0.07
Quarter ended December 31, 2005		12.54		11.88		0.07
Quarter ended September 30, 2005		13.04		12.13		0.06

          On June 27, 2007, the business day immediately preceding the public announcement of the conversion, and on June 28, 2007, the closing prices of K-Fed Bancorp common stock as reported on the Nasdaq Global Market were $14.75 per share and $15.00 per share, respectively.  At June 30, 2007, K-Fed Bancorp had approximately 2,428 stockholders of record. On the effective date of the conversion, all publicly held shares of K-Fed Bancorp common stock, including shares of common stock held by our officers and directors, will be converted automatically into and become the right to receive a number of shares of Kaiser Federal Financial Group, Inc. common stock determined pursuant to the exchange ratio.  See “Proposal 3 — Approval of the Plan of Conversion and Reorganization —Share Exchange Ratio for Current Stockholders.”  Options to purchase shares of K-Fed Bancorp common stock will be converted into options to purchase a number of shares of Kaiser Federal Financial Group, Inc. common stock determined pursuant to the exchange ratio, for the same aggregate exercise price. See “Proposal-Election of Director.”

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HISTORICAL AND PRO FORMA REGULATORY CAPITAL COMPLIANCE

          At June 30, 2007, Kaiser Federal Bank exceeded all of the applicable regulatory capital requirements. The table below sets forth the historical equity capital and regulatory capital of Kaiser Federal Bank at June 30, 2007, and the pro forma regulatory capital of Kaiser Federal Bank, after giving effect to the sale of Kaiser Federal Financial Group, Inc.’s shares of common stock at a $10.00 per share purchase price.  Accordingly, the table assumes the receipt by Kaiser Federal Bank of between $53.1 million and $71.6 million (and $82.2 million if the offering amount of the offering range is increased by 15%) of the net offering proceeds at the minimum and maximum of the offering range, respectively.

						Pro Forma at June 30, 2007 Based Upon the Sale at $10.00 Per Share
	Kaiser Federal Bank Historical at June 30, 2007					11,050,000 Shares (Minimum of Range)					13,000,000 Shares (Midpoint of Range)					14,950,000 Shares (Maximum of Range)					17,192,500 Shares (Maximum of Range, as Adjusted)(1)
	Amount		Percent of Assets (2)			Amount		Percent of Assets (2)			Amount		Percent of Assets (2)			Amount		Percent of Assets (2)			Amount		Percent of Assets (2)
	(Dollars in thousands)
Equity capital	$	69,148		8.82	%	$	115,630		13.81	%	$	123,706		14.62	%	$	131,782		15.40	%	$	141,069		16.28	%
Core (leverage) capital	$	64,875		8.32	%	$	111,357		13.37	%	$	119,433		14.18	%	$	127,509		14.98	%	$	136,796		15.87	%
Core (leverage) requirement (3)		31,191		4.00			33,315		4.00			33,685		4.00			34,055		4.00			34,480		4.00
Excess	$	33,684		4.32	%	$	78,042		9.37	%	$	85,748		10.18	%	$	93,454		10.98	%	$	102,316		11.87	%
Tier 1 risk-based  capital (4)	$	64,875		12.76	%	$	111,357		21.46	%	$	119,433		22.94	%	$	127,509		24.40	%	$	136,796		26.07	%
Tier 1 requirement		20,330		4.00			20,755		4.00			20,829		4.00			20,903		4.00			20,988		4.00
Excess	$	44,545		8.76	%	$	90,602		17.46	%	$	98,604		18.94	%	$	106,606		20.40	%	$	115,808		22.07	%
Total risk-based  capital (4)	$	67,622		13.30	%	$	114,104		21.99	%	$	122,180		23.46	%	$	130,256		24.93	%	$	139,543		26.60	%
Risk-based requirement		40,660		8.00			41,510		8.00			41,658		8.00			41,806		8.00			41,976		8.00
Excess	$	26,962		5.30	%	$	72,594		13.99	%	$	80,522		15.46	%	$	88,450		16.93	%	$	97,567		18.60	%
Reconciliation of capital infused into Kaiser Federal Bank:
Net proceeds						$	53,088				$	62,334				$	71,580				$	82,213
Add: Kaiser Federal Mutual Holding Company capital consolidation
Less:							24					24					24					24
Common stock acquired by employee stock ownership plan							6,630					7,800					8,970					10,316
Pro forma increase in GAAP and regulatory capital						$	46,482				$	54,558				$	62,634				$	71,921

(1)	As adjusted to give effect to an increase in the number of shares that could occur due to a 15% increase in the offering range to reflect demand for the shares, changes in market or general financial conditions following the commencement of the offering, or regulatory considerations.
(2)	Tangible and core capital levels are shown as a percentage of total adjusted assets. Risk-based capital levels are shown as a percentage of risk-weighted assets.
(3)	The current Office of Thrift Supervision core capital requirement for financial institutions is 3% of total adjusted assets for financial institutions that receive the highest supervisory rating for safety and soundness and a 4% to 5% core capital ratio requirement for all other financial institutions.
(4)	Pro forma amounts and percentages assume net proceeds are invested in assets that carry a 20% risk weighting.

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CAPITALIZATION

          The following table presents the historical consolidated capitalization of K-Fed Bancorp at June 30, 2007 and the pro forma consolidated capitalization of Kaiser Federal Financial Group, Inc. after giving effect to the conversion and offering, based upon the assumptions set forth in the “Pro Forma Data” section.

				Kaiser Federal Financial Group, Inc. $10.00 Per Share Pro Forma
	K-Fed Bancorp Historical at June 30, 2007			11,050,000 Shares (Minimum of Range)			13,000,000 Shares (Midpoint of Range)			14,950,000 Shares (Maximum of Range)			17,192,500 Shares (Maximum of Range, as Adjusted)(1)
	(Dollars in thousands)
Deposits (2)	$	494,128		$	494,128		$	494,128		$	494,128		$	494,128
Borrowed funds		210,016			210,016			210,016			210,016			210,016
Total deposits and borrowed funds	$	704,144		$	704,144		$	704,144		$	704,144		$	704,144
Stockholders’ equity:
Preferred stock, $0.01 par value, 25,000,000 shares authorized (post-conversion) (3)		—			—			—			—			—
Common stock $0.01 par value, 100,000,000 shares authorized (post-conversion); shares to be issued as reflected (3) (4)		147			174			205			235			271
Additional paid-in capital (3)		58,976			153,782			172,243			190,705			211,934
Retained earnings (5)		49,084			49,084			49,084			49,084			49,084
Accumulated other comprehensive income		(126	)		(126	)		(126	)		(126	)		(126	)
Plus:
Cash held by K-Fed Mutual Holding Company					24			24			24			24
Less:
Treasury stock		(11,343	)		—			—			—			—
Unallocated ESOP shares		(3,071	)		(3,071	)		(3,071	)		(3,071	)		(3,071	)
Common stock held by existing recognition and retention plan		(1,350	)		(1,350	)		(1,350	)		(1,350	)		(1,350	)
Common stock to be acquired by the ESOP(6)		—			(6,630	)		(7,800	)		(8,970	)		(10,316	)
Common stock to be acquired by the stock-based incentive plan (7)		—			(4,121	)		(4,848	)		(5,575	)		(6,412	)
Total stockholders’ equity	$	92,317		$	187,766		$	204,361		$	220,956		$	240,039
Pro Forma Shares Outstanding
Total shares outstanding					17,393,386			20,462,808			23,532,229			27,062,063
Exchange shares issued					6,343,386			7,462,808			8,582,229			9,869,563
Shares offered for sale					11,050,000			13,000,000			14,950,000			17,192,500
Total stockholders’ equity as a percentage of total assets		11.55	%		20.98	%		22.42	%		23.80	%		25.34	%

(1)	As adjusted to give effect to an increase in the number of shares of common stock that could occur due to a 15% increase in the offering range to reflect demand for shares, changes in market or general financial conditions following the commencement of the subscription and community offerings, or regulatory considerations.
(2)	Does not reflect withdrawals from deposit accounts for the purchase of shares of common stock in the conversion and offering. These withdrawals would reduce pro forma deposits by the amount of the withdrawals.  On a pro forma basis, reflects transfer to equity of $24,000 in K-Fed Mutual Holding Company deposits held at Kaiser Federal Bank.
(3)	K-Fed Bancorp currently has 2,000,000 authorized shares of preferred stock and 18,000,000 authorized shares of common stock, par value $0.01 per share.  On a pro forma basis, Kaiser Federal Financial Group, Inc. common stock and additional paid-in capital have been revised to reflect the number of shares of Kaiser Federal Financial Group, Inc. common stock to be outstanding, which is 17,393,386 shares, 20,462,808 shares, 23,532,229 shares and 27,062,063 shares at the minimum, midpoint, maximum and adjusted maximum of the offering range, respectively.

(footnotes continued on next page)

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(4)	No effect has been given to the issuance of additional shares of Kaiser Federal Financial Group, Inc. common stock pursuant to stock options to be granted under a stock-based incentive plan. If this plan is implemented, an amount up to 9.3% of the shares of Kaiser Federal Financial Group, Inc. common stock sold in the offering will be reserved for issuance upon the exercise of options.  No effect has been given to the exercise of options currently outstanding. See “Management—Benefits to be Considered Following Completion of the Conversion.”
(5)	The retained earnings of Kaiser Federal Bank will be substantially restricted after the conversion.  See “Proposal 3 — Approval of the Plan of Conversion and Reorganization —Liquidation Rights” and “Supervision and Regulation—Federal Banking Regulation.”
(6)	Assumes that 6.0% of the shares sold in the offering will be acquired by the employee stock ownership plan financed by a loan from Kaiser Federal Financial Group, Inc. The loan will be repaid principally from Kaiser Federal Bank’s contributions to the employee stock ownership plan. Since Kaiser Federal Financial Group, Inc. will finance the employee stock ownership plan debt, this debt will be eliminated through consolidation and no liability will be reflected on Kaiser Federal Financial Group, Inc.’s consolidated financial statements.  Accordingly, the amount of shares of common stock acquired by the employee stock ownership plan is shown in this table as a reduction of total stockholders’ equity.
(7)	Assumes at the midpoint, the maximum and the maximum as adjusted, of the offering range that a number of shares of common stock equal to 3.7% of the shares of common stock to be sold in the offering will be purchased by the stock-based incentive plan in open market purchases for the purpose of funding future grants of restricted stock.  The funds to be used by the stock-based incentive plan to purchase the shares will be provided by Kaiser Federal Financial Group, Inc. The dollar amount of common stock to be purchased is based on the $10.00 per share offering price and represents unearned compensation. This amount does not reflect possible increases or decreases in the value of common stock relative to the subscription price in the offering. As Kaiser Federal Financial Group, Inc. accrues compensation expense to reflect the vesting of shares pursuant to the stock-based incentive plan, the credit to capital will be offset by a charge to operations. Implementation of the stock-based incentive plan will require stockholder approval. If the shares to fund the plan are assumed to come from authorized but unissued shares of Kaiser Federal Financial Group, Inc., the number of outstanding shares at the minimum, midpoint, maximum and the maximum, as adjusted, of the offering range would be 18,835,722, 22,159,674, 25,483,624 and 29,306,168, respectively, total stockholders’ equity would be $191.9 million, $209.2 million, $226.5 million and $246.5 million, respectively, and total stockholders’ ownership in Kaiser Federal Financial Group, Inc. would be diluted by approximately 5.6% at the maximum of the offering range.

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PRO FORMA DATA

          The following tables summarize historical data of K-Fed Bancorp and pro forma data at and for the year ended June 30, 2007.  This information is based on assumptions set forth below and in the table, and should not be used as a basis for projections of market value of the shares of common stock following the conversion and offering.  Moreover, pro forma stockholders’ equity per share does not give effect to the liquidation account to be established in the conversion or, in the unlikely event of a liquidation of Kaiser Federal Bank, to the recoverability of intangibles or the tax effect of the recapture of the bad debt reserve.  See “Proposal 3 — Approval of the Plan of Conversion and Reorganization —Liquidation Rights.”

          The net proceeds in the tables are based upon the following assumptions:

(i)	all shares of common stock will be sold in the subscription and community offerings;
(ii)	46,600 shares of common stock will be purchased by our executive officers and directors, and their associates;
(iii)	our employee stock ownership plan will purchase 6.0% of the shares of common stock sold in the offering, with a loan from Kaiser Federal Financial Group, Inc. The loan will be repaid in substantially equal payments of principal and interest over a period of 20 years;
(iv)	Keefe Bruyette & Woods will receive a fee equal to 1.0% of the common stock sold in the subscription and community offering.  In addition, Keefe, Bruyette & Woods, Inc. will receive a fee of 5.5% of the common stock sold in the syndicated community offering.  Such fee will be used to compensate Keefe, Bruyette & Woods, Inc. and broker-dealers selected by Kaiser Federal Financial Group, Inc. to assist Keefe, Bruyette & Woods, Inc. in selling the stock in the syndicated community offering.  The following pro forma information assumes that at the minimum, midpoint, maximum and maximum, as adjusted, 4,667,000, 6,500,000, 8,330,000, and 10,440,950, shares are sold through the syndicated community offering.  No fee will be paid with respect to shares of common stock purchased by our qualified and non-qualified employee stock benefit plans, or stock purchased by our officers, directors and employees, and their immediate families; and
(v)	total expenses of the offering, including the marketing fees to be paid to Keefe Bruyette & Woods, will be between $4.3 million at the minimum of the offering range and $7.5 million at the maximum of the offering range, as adjusted.

          We calculated pro forma consolidated net earnings for the year ended June 30, 2007 as if the estimated net proceeds we received had been invested at the beginning of the period at an assumed interest rate of 4.9%, (2.9% on an after-tax basis), which represented the yield on the one-year U.S. Treasury Bill as of June 30, 2007 (which we consider to reflect more accurately the pro forma reinvestment rate than an arithmetic average method in light of current market interest rates).  The effect of withdrawals from deposit accounts for the purchase of shares of common stock has not been reflected.  Historical and pro forma per share amounts have been calculated by dividing historical and pro forma amounts by the indicated number of shares of common stock. No effect has been given in the pro forma stockholders’ equity calculations for the assumed earnings on the net proceeds. It is assumed that Kaiser Federal Financial Group, Inc. will retain between $46.5 million and $62.6 million of the estimated net proceeds in the offering, or $71.9 million if the offering range is increased by 15% (excluding the portion the net proceeds loaned to our employee stock ownership plan). The actual net proceeds from the sale of shares of common stock will not be determined until the offering is completed.  However, we currently estimate the net proceeds to be between $106.2 million and $143.2 million, or $164.4 million if the offering range is increased by 15%.

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          The following pro forma information may not be representative of the financial effects of the offering at the date on which the offering actually occurs, and should not be taken as indicative of future results of operations. Pro forma consolidated stockholders’ equity represents the difference between the stated amounts of our assets and liabilities.  The pro forma stockholders’ equity is not intended to represent the fair market value of the shares of common stock.

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	At or for the Year Ended June 30, 2007 Based upon the Sale at $10.00 Per Share of
	11,050,000 Shares at Minimum of Offering Range			13,000,000 Shares at Midpoint of Offering Range			14,950,000 Shares at Maximum of Offering Range			17,192,500 Shares at Maximum of Offering Range, as Adjusted(1)
	(Dollars in thousands, except per share amounts)
Gross proceeds of offering	$	110,500		$	130,000		$	149,500		$	171,925
Less: Expenses		4,324			5,332			6,340			7,500
Estimated net proceeds	$	106,176		$	124,668		$	143,160		$	164,425
Less: Common stock purchased by employee stock ownership plan	$	(6,630	)	$	(7,800	)	$	(8,970	)	$	(10,316	)
Less: Common stock purchased by the stock-based incentive plan	$	(4,121	)	$	(4,848	)	$	(5,575	)		(6,412	)
Plus: K-Fed Mutual Holding Company capital consolidation		24			24			24			24
Estimated net proceeds, as adjusted	$	95,449		$	112,044		$	128,639		$	147,722
For the Year Ended June 30, 2007
Consolidated net earnings:
Historical	$	4,704		$	4,704		$	4,704		$	4,704
Pro forma adjustments:
Income on adjusted net proceeds		2,760			3,240			3,720			4,272
Employee stock ownership plan (2)		(195	)		(230	)		(264	)		(304	)
Shares granted under the stock-based incentive plan (3)		(485	)		(571	)		(657	)		(755	)
Options granted under the stock-based incentive plan (4)		(469	)		(551	)		(634	)		(729	)
Pro forma net income	$	6,315		$	6,592		$	6,869		$	7,188
Net income per share (5):
Historical	$	0.29		$	0.24		$	0.21		$	0.18
Pro forma adjustments:
Income on adjusted net proceeds		0.17			0.17			0.17			0.17
Employee stock ownership plan (2)		(0.01	)		(0.01	)		(0.01	)		(0.01	)
Shares granted under the stock-based incentive plan (3)		(0.03	)		(0.03	)		(0.03	)		(0.03	)
Options granted under the stock-based incentive plan (4)		(0.03	)		(0.03	)		(0.03	)		(0.03	)
Pro forma net income per share (5) (6)	$	0.39		$	0.34		$	0.31		$	0.28
Offering price to pro forma net income per share		25.64x			29.41x			32.26x			35.71x
Number of shares used in net income per share calculations (5)		16,362,797			19,250,353			22,137,905			25,458,590
At June 30, 2007
Stockholders’ equity:
Historical	$	92,317		$	92,317		$	92,317		$	92,317
Estimated net proceeds		106,176			124,668			143,160			164,425
K-Fed Mutual Holding Company capital consolidation		24			24			24			24
Less: Common stock acquired by employee stock ownership plan (2)		(6,630	)		(7,800	)		(8,970	)		(10,316	)
Less: Common stock acquired by the stock-based incentive plan (3)		(4,121	)		(4,848	)		(5,575	)		(6,412	)
Pro forma stockholders’ equity	$	187,766		$	204,361		$	220,956		$	240,038
Less: Intangible assets		4,273			4,273			4,273			4,273
Pro forma tangible stockholders’ equity	$	183,493		$	200,088		$	216,683		$	235,765
Stockholders’ equity per share (7):
Historical	$	5.31		$	4.51		$	3.92		$	3.41
Estimated net proceeds		6.11			6.10			6.09			6.08
K-Fed Mutual Holding Company capital consolidation		0.00			0.00			0.00			0.00
Less: Common stock acquired by employee stock ownership plan (2)		(0.38	)		(0.38	)		(0.38	)		(0.38	)
Less: Common stock acquired by the stock-based incentive plan (3)		(0.24	)		(0.24	)		(0.24	)		(0.24	)
Pro forma stockholders’ equity per share (7)	$	10.80		$	9.99		$	9.39		$	8.87
Pro forma tangible stockholders’ equity per share (7)	$	10.55		$	9.78		$	9.21		$	8.71
Offering price as percentage of pro forma stockholders’ equity per share		92.59	%		100.10	%		106.50	%		112.74	%
Offering price as percentage of pro forma tangible stockholders’ equity per share		94.79	%		102.25	%		108.58	%		114.81	%
Number of shares outstanding for pro forma book value per share calculations (8)		17,393,386			20,462,808			23,532,229			27,062,063

(Footnotes follow on next page)

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(1)	As adjusted to give effect to an increase in the number of shares that could occur due to a 15% increase in the offering range to reflect demand for the shares, changes in market and financial conditions following the commencement of the offering, or regulatory considerations.
(2)	Assumes that 6.0% of shares of common stock sold in the offering will be purchased by the employee stock ownership plan.  For purposes of this table, the funds used to acquire these shares are assumed to have been borrowed by the employee stock ownership plan from Kaiser Federal Financial Group, Inc.  Kaiser Federal Bank intends to make annual contributions to the employee stock ownership plan in an amount at least equal to the required principal and interest payments on the debt.  Kaiser Federal Bank’s total annual payments on the employee stock ownership plan debt are based upon 20 equal annual installments of principal and interest.  Statement of Position 93-6 requires that an employer record compensation expense in an amount equal to the fair value of the shares committed to be released to employees.  The pro forma adjustments assume that (i) the employee stock ownership plan shares are allocated in equal annual installments based on the number of loan repayment installments assumed to be paid by Kaiser Federal Bank, (ii) the fair value of the common stock remains equal to the $10.00 subscription price and (iii) the employee stock ownership plan expense reflects an effective combined federal and state tax rate of 41.1%.  The unallocated employee stock ownership plan shares are reflected as a reduction of stockholders’ equity.  No reinvestment is assumed on proceeds contributed to fund the employee stock ownership plan.  The pro forma net income further assumes that 33,150, 39,000, 44,850 and 51,578 shares were committed to be released during the period at the minimum, midpoint, maximum, and adjusted maximum of the offering range, respectively, and in accordance with Statement of Position 93-6, only the employee stock ownership plan shares committed to be released during the period were considered outstanding for purposes of net income per share calculations.
(3)	Gives effect to the grant of stock awards pursuant to the stock-based incentive plan expected to be adopted by Kaiser Federal Financial Group, Inc. following the offering and presented to stockholders for approval not earlier than six months after the completion of the offering.  We have assumed that at the midpoint, maximum and maximum as adjusted, of the offering range this plan acquires a number of shares of restricted common stock equal to 3.7% of the shares sold in the offering, either through open market purchases, from authorized but unissued shares of common stock or treasury stock of Kaiser Federal Financial Group, Inc., if any, in order to ensure that the aggregate number of shares subject to such plan and our 2004 Recognition and Retention Plan does not exceed 4.0% of the shares outstanding following completion of the conversion. Funds used by the stock-based incentive plan to purchase the shares of common stock will be contributed by Kaiser Federal Financial Group, Inc.  In calculating the pro forma effect of the stock-based incentive plan, it is assumed that the shares of common stock were acquired by the plan in open market purchases at the beginning of the period presented for a purchase price equal to the price for which the shares are sold in the offering, and that 15% of the amount contributed was an amortized expense (20% annually based upon a five-year vesting period) during the year ended June 30, 2007.  There can be no assurance that the actual purchase price of the shares of common stock granted under the stock-based incentive plan will be equal to the $10.00 subscription price.  If shares are acquired from authorized but unissued shares of common stock or from treasury shares of Kaiser Federal Financial Group, Inc., our net loss per share will increase and stockholders’ equity per share will decrease.  This will also have a dilutive effect of approximately 2.3% (at the maximum of the offering range) on the ownership interest of stockholders.  The impact on pro forma net income per share and pro forma stockholders’ equity per share is not material. The following table shows pro forma net income per share and pro forma stockholders’ equity per share, assuming all the shares of common stock to fund the stock awards are obtained from authorized but unissued shares.
(4)	Gives effect to the granting of options pursuant to the stock-based incentive plan, which is expected to be adopted by Kaiser Federal Financial Group, Inc. following the offering and presented to stockholders for approval not earlier than six months after the completion of the offering.  We have assumed that options will be granted to acquire shares of common stock equal to 9.3% of the shares sold in the offering.  In calculating the pro forma effect of the stock options, it is assumed that the exercise price of the stock options and the trading price of the stock at the date of grant were $10.00 per share, and the estimated grant date fair value pursuant to the application of the Black-Scholes option pricing model was $2.53 for each option.  The pro forma net income assumes that the options granted under the stock-based incentive plan have a value of $2.53 per option, which was determined using the Black-Scholes option pricing formula using the following assumptions:  (i) the trading price on date of grant was $10.00 per share; (ii) exercise price is equal to the trading price on the date of grant; (iii) dividend yield of 2.33%; (iv) expected life of 6.25 years; (v) expected volatility of 23.35%; and (vi) risk-free interest rate of 4.67%.  If the fair market value per share on the date of grant is different than $10.00, or if the assumptions used in the option pricing formula are different from those used in preparing this pro forma data, the value of options and the related expense recognized will be different.  The aggregate grant date fair value of the stock options was amortized to expense on a straight-line basis over a five-year vesting period of the options.  There can be no assurance that the actual exercise price of the stock options will be equal to the $10.00 price per share.  If a portion of the shares to satisfy the exercise of options under the stock-based incentive plan is obtained from the issuance of authorized but unissued shares of common stock, our net income and stockholders’ equity per share will decrease.  This also will have a dilutive effect of up to 5.6% on the ownership interest of persons who purchase shares of common stock in the offering.
(5)	The number of shares used to calculate pro forma net income per share is equal to the weighted average shares outstanding for the year ended June 30, 2007 (13,627,566 shares) multiplied by the exchange ratio at the minimum, midpoint, maximum and maximum, as adjusted by subtracting the employee stock ownership plan shares which have not been committed for release during the respective periods in accordance with Statement of Position 93-6. See footnote 2.
(6)	The retained earnings of Kaiser Federal Bank will be substantially restricted after the conversion. See “Our Dividend Policy,” “Proposal 3- Approval of the Plan of Conversion and Reorganization—Liquidation Rights” and “Supervision and Regulation—Federal Banking Regulation—Capital Distributions.”
(7)	Per share figures include publicly held shares of K-Fed Bancorp common stock that will be exchanged for shares of Kaiser Federal Financial Group, Inc. common stock in the conversion. Stockholders’ equity per share calculations are based upon the sum of (i) the number of subscription shares assumed to be sold in the offering and (ii) shares to be issued in exchange for publicly held shares at the minimum, midpoint, maximum and adjusted maximum of the offering range, respectively. The exchange shares reflect an exchange ratio of 1.2469, 1.4670, 1.6870 and 1.9401 at the minimum, midpoint, maximum and adjusted maximum of the offering range, respectively. The number of subscription shares actually sold and the corresponding number of exchange shares may be more or less than the assumed amounts.
(8)	The number of shares used to calculate pro forma stockholders’ equity per share is equal to the total number of shares to be outstanding upon completion of the offering.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

Overview and Management Strategy

          Our results of operations depend primarily on our net interest income, which is the difference between interest income on interest-earning assets, which principally consist of loans and investment securities, and interest expense on interest-bearing liabilities, which principally consist of deposits and borrowings. Our results of operations also are affected by the level of our provisions for loan losses, noninterest income and noninterest expenses. Noninterest income consists primarily of service charges on deposit accounts and ATM fees and charges. Noninterest expense consists primarily of salaries and employee benefits, occupancy, equipment, data processing, and ATM costs. Our results of operations may also be affected significantly by general and local economic and competitive conditions, changes in market interest rates, governmental policies and actions of regulatory authorities.

          Our strategy continues to focus on operating as an independent financial institution dedicated to serving the needs of customers in our market area, which extends from Southern California to the San Francisco Bay area as a result of our history as a credit union serving the employees of the Kaiser Permanente Medical Care Program. We intend to continue to attract retail deposits, with the goal of expanding the deposit base by building upon the existing market locations. We opened new financial service centers in Los Angeles and Riverside during the 2007 fiscal year as part of this effort.

          We seek to accomplish this strategy by:

• Continued focus on maintaining cost efficiencies through purchases of loans to grow our loan portfolio and expanding our market locations through the use of financial service centers and ATMs;

• Continuing our branch expansion by building or leasing new branch facilities or by acquiring branches from other financial institutions primarily located near Kaiser Permanente Medical Centers in Southern California. We have no current understandings or agreements for any specific branch establishment;

• Capitalizing on the profitability and growth opportunities in our retail banking network by expanding existing individual customer relationships and developing new customer relationships to increase our core deposits;

• Increasing our commercial real estate and multi-family lending while maintaining a moderate growth of one-to four-family residential real estate loans through originations and purchases of such loans while continuing to apply our underwriting standards in order to maintain a high quality loan portfolio;

• Enhancing existing products and services, and supporting the development of new products and services by investing, for example, in technology to support the introduction of commercial deposit products such as sweep accounts and business checking services; and

• Expanding through acquisitions of other financial institutions, primarily in Southern California.  We have no current understandings or agreements for any specific acquisition.

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          Remote access methods, such as our 54 ATMs, audio response unit, call center, and internet banking / bill payer continue to process over 90% of our customer transactions. Branches and financial service centers are strategically located in our markets to provide touchstones to attract new account holders and facilitate transactions that cannot be completed electronically.  Financial service centers provide all the services as a full service branch but do not dispense or accept cash except through an on-site ATM. By utilizing our remote access methods and “cash-less” branches we are able to reduce branch personnel costs and improve our efficiency in delivering financial services.

          Historically, a majority of our deposits have been used to originate or purchase one- to four-family residential, multi-family or commercial real estate loans. We anticipate we will continue this practice. A majority of our loan portfolio consists one- to four-family residential of loans that we have purchased from other large mortgage originators or financial institutions.  We review each loan prior to purchase to ensure consistency with our current underwriting standards. We will continue to rely on purchased and broker sourced loans as a method of reducing costs related to internally generated loans. By purchasing loans we can increase our loan portfolio without adding additional staff.  We will also continue to analyze the utilization of borrowed funds from the Federal Home Loan Bank of San Francisco to purchase attractive loan pools in an effort to leverage our current financial structure to further reduce marginal operating costs.

          We have a commitment to our customers, existing and new, to provide high quality service. Our goal is to grow Kaiser Federal Bank while providing cost effective services to our market area.

Expected Increase in Non-Interest Expense Following the Conversion and Offering

          Following the completion of the conversion and offering, our non-interest expense can be expected to increase because of the increased compensation expenses associated with the purchase of shares of common stock by our employee stock ownership plan, the adoption of a new stock-based incentive plan, if approved by our stockholders, and implementation of our business plan.

          Assuming that 14,950,000 shares are sold in the offering (the maximum of the offering range):

(i)	the employee stock ownership plan will acquire 897,000 shares of common stock with a $8,970,000 loan from Kaiser Federal Financial Group, Inc. that is expected to be repaid over 20 years, resulting in an annual expense (after-tax) of approximately $264,000 (assuming that the shares of common stock maintain a value of $10.00 per share);
(ii)	the new stock-based incentive plan may award a number of shares of restricted stock equal to 3.7% of the shares sold in the offering, or 557,541 shares, to eligible participants, and such awards will be expensed as the awards vest.  Assuming all shares are awarded under the stock-based incentive plan at a price of $10.00 per share, and that the awards vest over a minimum of five years, the corresponding annual expense (after-tax) associated with shares awarded under the stock-based incentive plan will be approximately $657,000; and
(iii)	the new stock-based incentive plan may award options to purchase a number of shares equal to 9.3% of the shares sold in the offering, or 1,393,854 shares, to eligible participants, and such options will be expensed as the options vest.  Assuming all options are awarded under the stock-based incentive plan at a price of $10.00 per share, and that the options vest over a minimum of five years and using the Black-Scholes option pricing model with the following assumptions:  an exercise price and trading price on the date of grant of $10.00 and a fair value of $2.53 per option based upon a dividend yield of 2.33% as of June 30, 2007, expected life of 6.25 years, expected volatility of 23.35% and risk-free interest rate of 4.67%. The corresponding annual

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expense (after-tax) associated with options awarded under the stock-based incentive plan will be approximately $634,000.

          The actual expense that will be recorded for the employee stock ownership plan will be determined by the market value of the shares of common stock as they are released to employees over the term of the loan, and whether the loan is repaid faster than its contractual term.  Accordingly, increases in the stock price above $10.00 per share will increase the total employee stock ownership plan expense, and accelerated repayment of the loan will increase the employee stock ownership plan expense for those periods in which accelerated or larger loan repayments are made.  Further, the actual expense of the stock-based incentive plan will be determined by the fair market value of the common stock on the grant date, which may be less than or greater than $10.00 per share.

Critical Accounting Policies and Estimates

          In reviewing and understanding financial information for us, you are encouraged to read and understand the significant accounting policies used in preparing our consolidated financial statements.

          These policies are described in Note 1 to the consolidated financial statements and are essential in understanding Management’s Discussion and Analysis of Financial Condition and Results of Operation. Our accounting and financial reporting policies conform to generally accepted accounting principles practiced within the banking industry. Accordingly, the consolidated financial statements require certain estimates, judgments, and assumptions, which are believed to be reasonable, based upon the information available. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the periods presented. The following accounting policies comprise those that management believes are the most critical to aid in fully understanding and evaluating our reported financial results.

          Allowance for Loan Losses.  The allowance for loan losses is established through a provision for loan losses charged to expense. Loans are charged against the allowance for loan losses when management believes that collectibility of the principal is unlikely. Subsequent recoveries, if any, are credited to the allowance.

          The allowance is an amount that management believes will absorb probable incurred losses relating to specifically identified loans, as well as probable incurred credit losses inherent in the balance of the loan portfolio, based on an evaluation of the collectibility of existing loans and prior loss experience. This evaluation also takes into consideration such factors as changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans, and current economic conditions that may affect the borrower’s ability to pay. This evaluation does not include the effects of expected losses on specific loans or groups of loans that are related to future events or expected changes in economic conditions. While management uses the best information available to make its evaluation, future adjustments to the allowance may be necessary if there are significant changes in economic conditions. In addition, regulatory agencies, as an integral part of their examination process, periodically review the allowance for loan losses, and may require adjustments to the allowance based on their judgment about information available to them at the time of their examinations.

          The allowance consists of specific and general components. The specific component relates to loans that are classified as doubtful, substandard, or special mention. For such loans that are also classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers non-classified loans and is based on historical loss experience for consumer loans and peer group loss experience for real estate loans adjusted for qualitative factors.

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          A loan is impaired when it is probable, based on current information and events, Kaiser Federal Bank will be unable to collect all contractual principal and interest payments due in accordance with the terms of the loan agreement. Commercial real estate loans are evaluated for impairment based on their past due status and are measured on an individual basis based on the present value of expected future cashflows discounted at the loan’s effective interest rate or, as a practical expedient, at the loan’s observable market price or the fair value of the collateral if the loan is collateral dependent. The amount of impairment, if any, and any subsequent changes are included in the allowance for loan losses.

          Large groups of smaller balance homogenous loans are collectively evaluated for impairment. Accordingly, Kaiser Federal Bank does not separately identify individual consumer and residential loans for impairment disclosures.

          In addition, management’s determination as to the amount of our allowance for loan losses is subject to review by the Office of Thrift Supervision and the FDIC, which may require the establishment of additional general or specific allowances based upon their judgment of the information available to them at the time of their examination of Kaiser Federal Bank.

          Loans. Loans are stated at the amount of unpaid principal, reduced by an allowance for loan losses and deferred net loan origination fees, and increased by net premiums on purchased loans. Interest on loans is recognized over the terms of the loans and is accrued as earned, using the effective interest rate. Net premiums on purchased loans are recognized in interest income as a yield adjustment over the estimated lives of the loan pools using the effective interest method. The estimated lives of these loan pools are re-evaluated periodically based on actual prepayments. The current estimated lives of these loan pools range from two to eight years. Loan fees and certain direct loan origination costs are deferred, and the net fee or cost is recognized as an adjustment to interest income using the effective interest method over the estimated lives of the related loans.

          Fair Value of Financial Instruments.  Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in Note 15 of our consolidated financial statements. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the estimates.

Comparison of Financial Condition at June 30, 2007 and June 30, 2006.

          General. Our total assets increased by $60.7 million, or 8.2%, to $799.6 million at June 30, 2007 compared to $738.9 million at June 30, 2006. The increase primarily reflects growth in our net loan portfolio of $65.0 million to $699.1 million at June 30, 2007 from $634.1 million at June 30, 2006. The increase in assets was funded by increases in borrowings and deposits. Borrowings from the Federal Home Loan Bank increased $30.1 million to $210.0 million at June 30, 2007 from $179.9 million at June 30, 2006. Deposits increased $30.6 million to $494.1 million at June 30, 2007 from $463.5 million at June 30, 2006. Stockholder’s equity decreased $340,000 to $92.3 million at June 30, 2007 from $92.7 million at June 30, 2006 due to dividends paid to public stockholders and stock repurchases that exceeded net income.

          Loans. Our net loan portfolio increased $65.0 million, or 10.3%, to $699.1 million at June 30, 2007 from $634.1 million at June 30, 2006. This increase was primarily attributable to increases in one- to four-family real estate loans, which increased $32.5 million, or 7.4% to $469.5 million at June 30, 2007 from $437.0 million at June 30, 2006. Additional increases were experienced in commercial real estate loans, which increased $19.0 million, or 32.2% to $77.8 million at June 30, 2007 from $58.8 million at June 30, 2006. Consumer loans increased $14.9 million, or 28.7% to $66.6 million at June 30, 2007 from $51.7 million at June 30, 2006.  The overall loan mix remained relatively constant, with real estate loans comprising 90.5% of the total loan portfolio

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at June 30, 2007, compared with 91.9% at June 30, 2006. This growth in loans is consistent with our business strategy of utilizing deposits and other funding sources to expand our real estate loan portfolio.

          Investments. Our investment portfolio (including mortgage-backed securities) decreased $1.3 million, or 3.8% to $34.7 million at June 30, 2007 from $36.0 million at June 30, 2006 due to maturity of existing securities offset by new purchases.

          Interest earning deposits in other financial institutions was $3.0 million at June 30, 2007 compared to $9.0 million at June 30, 2006.

          Deposits. Our total deposits increased $30.6 million, or 6.6%, to $494.1 million at June 30, 2007 from $463.5 million at June 30, 2006. This increase was due to increased marketing efforts, a promotion to increase certificates of deposit in October 2006, establishment of new branches and our attractive rate structure.  The increase was primarily concentrated in higher yielding savings products and short-term certificates of deposit.

          Equity. Total stockholders’ equity decreased $340,000, or 0.4%, to $92.3 million at June 30, 2007, from $92.7 million at June 30, 2006. Our equity to assets ratio under generally accepted accounting principles (“GAAP”) was 11.55% at June 30, 2007 compared to 12.54% at June 30, 2006.   The decrease resulted from the repurchase of 279,845 of our outstanding common shares at an average price of $17.67 for a total cost of $4.9 million and cash payments of $1.8 million in dividends to stockholders of record, excluding shares held by K-Fed Mutual Holding Company, of $0.39 per share for the year ended June 30, 2007.  This decrease was offset by $4.7 million in income earned for the year ended June 30, 2007 in addition to the allocation of employee stock ownership plan shares, stock awards, and stock options earned during the same period totaling $1.4 million.

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Average Balances, Net Interest Income, Yields Earned and Rates Paid

          The following table sets forth certain information at June 30, 2007 and for the fiscal years ended June 30, 2007, 2006 and 2005, respectively. The average yields and costs are derived by dividing income or expense by the average balance of assets or liabilities, respectively, for the periods presented. Average balances are derived primarily from month-end balances. Management does not believe that the use of month-end balances rather than daily average balances has caused any material differences in the information presented.

				For the year ended June 30,
	At June 30, 2007			2007								2006								2005
	Yield/Cost			Average Balance			Interest		Average Yield/Cost			Average Balance			Interest		Average Yield/Cost			Average Balance			Interest		Average Yield/Cost
	(Dollars in thousands)
Interest-Earning Assets
Loans receivable (1) (4)		5.80	%	$	659,186		$	37,379		5.67	%	$	610,410		$	32,918		5.39	%	$	510,842		$	25,519		5.00	%
Securities(2)		4.37			33,788			1,365		4.04			44,188			1,611		3.65			55,432			1,935		3.49
Fed funds		5.21			31,357			1,604		5.12			16,696			637		3.82			15,472			362		2.34
Federal Home Loan Bank stock		5.06			9,111			480		5.27			7,121			280		3.93			3,863			151		3.91
Interest-earning deposits in other financial institutions		3.40			5,232			178		3.40			9,010			301		3.34			6,672			190		2.85
Other interest-earning assets		5.19			2,764			160		5.79			1,512			74		4.89			261			11		4.14
Total interest-earning assets		5.70			741,438			41,166		5.55			688,937			35,821		5.20			592,542			28,168		4.75
Noninterest earning assets					28,224								30,756								19,951
Total assets				$	769,662							$	719,693							$	612,493
Interest-Bearing Liabilities
Deposits:
Money market		2.84	%	$	95,113		$	2,700		2.84	%	$	111,487		$	2,343		2.10	%	$	107,274		$	1,396		1.30	%
Savings		2.05			116,150			1,925		1.66			94,809			395		0.42			96,740			405		0.42
Certificates of deposit		4.70			228,717			10,254		4.48			222,416			8,586		3.86			211,611			6,977		3.30
FHLB Advances		4.44			189,217			8,261		4.37			148,408			6,140		4.14			60,354			2,022		3.35
Total interest-bearing liabilities		3.86			629,197			23,140		3.68			577,120			17,464		3.03			475,979			10,800		2.27
Noninterest bearing liabilities					48,110								50,171								45,553
Total liabilities					677,307								627,291								521,532
Equity					92,355								92,402								90,961
Total liabilities and equity				$	769,662							$	719,693							$	612,493
Net interest/spread		1.84	%				$	18,026		1.87	%				$	18,357		2.17	%				$	17,368		2.48	%
Margin(3)		N/A								2.43	%							2.66	%							2.93	%
Ratio of interest-earning assets to interest-bearing liabilities					117.84	%							119.38	%							124.49	%

(1)	Calculated net of deferred fees, loan loss reserves and includes non-accrual loans.
(2)	Calculated based on amortized cost.
(3)	Net interest income divided by interest-earning assets
(4)	Interest income includes loan fees of $251,000, $276,000, and $299,000 for the fiscal years ended June 30, 2007, 2006, and 2005, respectively.

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Rate/Volume Analysis

          The following table presents the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (1) changes in volume, which are changes in volume multiplied by the old rate; (2) changes in rate, which are changes in rate multiplied by the old volume; and (3) changes in rate/volume, which are the changes in rate times the changes in volume.

	For the Year Ended June 30,												For the Year Ended June 30,
	2007 vs. 2006 Increase (Decrease) Due to												2006 vs. 2005 Increase (Decrease) Due to
	Volume			Rate			Rate/ Volume			Net			Volume			Rate			Rate/ Volume			Net
	(In thousands)
Interest-Earning Assets
Loans Receivable (1)	$	2,630		$	1,695		$	136		$	4,461		$	4,974		$	2,030		$	395		$	7,399
Securities		(379	)		174			(41	)		(246	)		(393	)		86			(17	)		(324	)
Fed Funds		559			217			191			967			29			228			18			275
Federal home Loan Bank stock		78			95			27			200			127			1			1			129
Interest-earning deposits in other financial institutions		(126	)		6			(3	)		(123	)		67			33			11			111
Other interest-earning assets		61			14			11			86			53			2			8			63
Total interest-earning assets	$	2,823		$	2,201		$	321		$	5,345		$	4,857		$	2,380		$	416		$	7,653
Interest-Bearing Liabilities
Deposits:
Money market	$	(344	)	$	822		$	(121	)	$	357		$	55		$	858		$	34		$	947
Savings		89			1,176			265			1,530			(8	)		(2	)		—			(10	)
Certificates of deposit		243			1,386			39			1,668			356			1,192			61			1,609
FHLB advances		1,688			339			94			2,121			2,950			475			693			4,118
Total interest-bearing liabilities		1,676			3,723			277			5,676			3,353			2,523			788			6,664
Change in net interest income/spread	$	1,147		$	(1,522	)	$	44		$	(331	)	$	1,504			(143	)	$	(372	)	$	989

(1) Total loans are net of deferred fees and costs.

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Comparison of Results of Operations for the Fiscal Years Ended June 30, 2007 and 2006.

          General. Net income for the year ended June 30, 2007 was $4.7 million, a decrease of $225,000, or 4.6%, from net income of $4.9 million for the year ended June 30, 2006 due to a decline in net interest income and an increase in non-interest expense. 

          Interest Income. Interest income increased $5.4 million, or 14.9%, to $41.2 million for the year ended June 30, 2007 from $35.8 million for the year ended June 30, 2006. The primary factor for the increase in the interest income was an increase in the average loans receivable balance of $48.8 million, or 8.0%, to $659.2 million for the year ended June 30, 2007 from $610.4 million for the year ended June 30, 2006. The increase was primarily due to increases in multifamily loans and purchases of one- to four-family real estate loans. The average yield on loans receivable increased 28 basis points to 5.67% for the year ended June 30, 2007 from 5.39% for the year ended June 30, 2006.

          Interest Expense. Interest expense increased $5.6 million, or 32.5%, to $23.1 million for the year ended June 30, 2007 from $17.5 million for the year ended June 30, 2006. The average interest rates on interest-bearing liabilities increased 65 basis points to 3.68% for the year ended June 30, 2007 from 3.03% for the year ended June 30, 2006. This increase was primarily attributable to the increased volume of average deposits, specifically certificates of deposit, and an increase in the average balance and interest rate on advances from the Federal Home Loan Bank of San Francisco.  

          The average balance of money market accounts decreased by $16.4 million, or 14.7% to $95.1 million for the year ended June 30, 2007 from $111.5 million for the year ended June 30, 2006.  The average cost of money market accounts increased 74 basis points to 2.84% for the year ended June 30, 2007 from 2.10% for the year ended June 30, 2006.  The average balance of savings accounts increased by $21.4 million, or 22.5% to $116.2 million for the year ended June 30, 2007 from $94.8 million for the year ended June 30, 2006.  The average cost of savings accounts increased 124 basis points to 1.66% for the year ended June 30, 2007 from .42% for the year ended June 30, 2006.  The average balance of certificate of deposit accounts increased by $6.3 million, or 2.8%, to $228.7 million for the year ended June 30, 2007 from $222.4 million for the year ended June 30, 2006. The average cost of certificate of deposits increased 62 basis points to 4.48% for the year ended June 30, 2007 from 3.86% for the year ended June 30, 2006.

          The average balance of advances from the Federal Home Loan Bank of San Francisco increased $40.8 million, or 27.5%, to $189.2 million for the year ended June 30, 2007 from $148.4 million for the year ended June 30, 2007. The average cost of advances increased 23 basis points to 4.37% for the year ended June 30, 2007 from 4.14% for the year ended June 30, 2006.

          The primary factor for the increase in the average balance and average interest rates on deposits and advances was to fund real estate loan purchases to better match our debt maturity schedule with the maturities and repricing terms of our interest-earning assets.

          Provision for Loan Losses. We maintain an allowance for loan losses to absorb probable incurred losses inherent in the loan portfolio. The allowance is based on ongoing, quarterly assessments of the probable losses inherent in the loan portfolio.

          Our provision for loan losses decreased $123,000 to $529,000 for the year ended June 30, 2007 as compared to $652,000 for the year ended June 30, 2006. The allowance for loan losses as a percent of total loans was 0.40% at June 30, 2007 as compared to 0.43% at June 30, 2006. The decrease in the provision was primarily attributable to reduced loan concentrations to higher-risk automobile loan borrowers coupled with a continued history of no losses in our real estate loan portfolio.  We used the

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same methodology and generally similar assumptions in assessing the adequacy of the allowance for consumer and real estate loans for both years.

          Noninterest Income. Noninterest income increased $833,000, or 24.3%, to $4.3 million for the year ended June 30, 2007 from $3.4 million for the year ended June 30, 2006. The increase was primarily the result of a $489,000 reduction in the loss on our equity investment in a California Affordable Housing Program tax credit fund, an $186,000 increase in service charges and fees from deposit accounts and a $131,000 increase in fee and transaction income related to the deployment of additional ATMs.

          We account for our equity investment in the California Affordable Housing program in accordance with APB 18 using the equity method of accounting.  The reduction in loss attributable to our equity investment was based upon the most recent financial statement information.

          Noninterest Expense. Our noninterest expense increased $1.0 million, or 7.7% to $14.5 million for the year ended June 30, 2007 from $13.5 million for the year ended June 30, 2006. The increase was primarily due to a $321,000 increase in salaries and benefits, a $316,000 increase in occupancy and equipment, a $162,000 increase in professional services and a $102,000 increase in other operating expenses.

          Salaries and benefits represented 52.5% and 54.2% of total noninterest expense for the years ended June 30, 2007 and 2006, respectively. Total salaries and benefits increased $321,000, or 4.4%, to $7.6 million for the year ended June 30, 2007 from $7.3 million for the year ended June 30, 2006. The increase was primarily due to compensation expense arising from general salary increases, increased staffing for new financial service centers and an increase in costs related to our employee stock ownership plan as a result of an increase in our average stock price.

          Occupancy and equipment expenses increased $316,000, or 17.8% to $2.1 million for the year ended June 30, 2007 from $1.8 million for the year ended June 30, 2006. The increase was primarily due to costs associated with the relocation of our Pasadena Branch and increased costs related to build-outs of financial service centers in Los Angeles and Riverside in addition to increased equipment maintenance expense.

          Professional services increased $162,000, or 21.6% to $913,000 for the year ended June 30, 2007 compared to $751,000 for the year ended June 30, 2006. The increase in professional services was primarily due to increased external and internal audit services as a result of complying with Sarbanes-Oxley Section 404 audit requirements. 

          Other operating expenses increased $102,000, or 7.0% to $1.6 million for the year ended June 30, 2007 from $1.5 million for the year ended June 30, 2006. The increase in other expense was primarily due to increased operational costs to support our continued growth.

          Income Tax Expense. Income tax expense for the year ended June 30, 2007 was $2.5 million as compared to $2.7 million for the year ended June 30, 2006. This decrease was primarily the result of a decline in pre-tax income of $417,000 for the year ended June 30, 2007. The effective tax rate was 35.0% and 35.6% for the years ended June 30, 2007 and 2006, respectively.

Comparison of Results of Operations for the Fiscal Years Ended June 30, 2006 and 2005.

          General. Net income for the year ended June 30, 2006 was $4.9 million, a decrease of $68,000, or 1.36%, from net income of $5.0 million for the year ended June 30, 2005. 

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          Interest Income. Interest income increased $7.7 million, or 27.2%, to $35.8 million for the year ended June 30, 2006 from $28.2 million for the year ended June 30, 2005. The primary factor for the increase in the interest income was an increase in the average loans receivable balance of $99.6 million, or 19.5%, to $610.4 million for the year ended June 30, 2006 from $510.8 million for the year ended June 30, 2005. The increase was primarily due to purchases of one- to four-family and multi-family real estate loans. The average yield on loans receivable increased 39 basis points to 5.39% for the year ended June 30, 2006 from 5.00% for the year ended June 30, 2005.

          Interest Expense. Interest expense increased $6.7 million, or 61.7%, to $17.5 million for the year ended June 30, 2006 from $10.8 million for the year ended June 30, 2005. The average interest rates on interest-bearing liabilities increased 76 basis points to 3.03% for the year ended June 30, 2006 from 2.27% for the year ended June 30, 2005. This increase was primarily attributable to the increased volume of average deposits, specifically certificates of deposit, and an increase in the average balance and interest rate on advances from the Federal Home Loan Bank of San Francisco.  

          The average balance of money market accounts increased by $4.2 million, or 3.9% to $111.5 million for the year ended June 30, 2006 from $107.3 million for the year ended June 30, 2005.  The average balance of savings accounts decreased by $1.9 million, or 2.0% to $94.8 million for the year ended June 30, 2006 from $96.7 million for the year ended June 30, 2005.  The average balance of certificate of deposits increased by $10.8 million, or 5.1%, to $222.4 million for the year ended June 30, 2006 from $211.6 million for the year ended June 30, 2005.

          The average balance of advances from the Federal Home Loan Bank of San Francisco increased $88.0 million, or 145.9%, to $148.4 million for the year ended June 30, 2006 from $60.4 million for the year ended June 30, 2005. The average cost of advances increased 79 basis points to 4.14% for the year ended June 30, 2006 from 3.35% for the year ended June 30, 2005. The primary factor for the increase in the average balance and average interest rates on advances was due to new borrowings used to fund real estate loan purchases in order to better match our debt maturity schedule with the maturities and repricing terms of our interest-earning assets and other interest-bearing liabilities.

          Provision for Loan Losses. We maintain an allowance for loan losses to absorb probable incurred losses inherent in the loan portfolio. The allowance is based on ongoing, quarterly assessments of the probable losses inherent in the loan portfolio.

          Our provision for loan losses increased $246,000 to $652,000 for the year ended June 30, 2006 as compared to $406,000 for the year ended June 30, 2005. The allowance for loan losses as a percent of total loans was 0.43% at June 30, 2006 as compared to 0.45% at June 30, 2005. The increase in the provision was primarily attributable to an increase in real estate loans. We used the same methodology and generally similar assumptions in assessing the adequacy of the allowance for consumer and real estate loans for both years.

          Noninterest Income. Noninterest income increased $370,000, or 12.1%, to $3.4 million for the year ended June 30, 2006 from $3.1 million for the year ended June 30, 2005. The increase was primarily the result an increase of $337,000 from bank-owned life insurance purchased in April 2005 and a $126,000 increase in ATM fees and charges due to increased usage and deployment of additional ATM’s partially offset by an increase in the loss of $83,000 recognized from our investment in an affordable housing tax credit limited liability partnership.

          Noninterest Expense. Our noninterest expense increased $1.5 million, or 11.9% to $13.5 million for the year ended June 30, 2006 from $12.0 million for the year ended June 30, 2005. The increase was

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primarily due to a $736,000 increase in salaries and benefits, a $316,000 increase in occupancy and equipment, and a $235,000 increase in other operating expenses.

          Salaries and benefits represented 54.2% and 54.5% of total noninterest expense for the years ended June 30, 2006 and 2005, respectively. Total salaries and benefits increased $736,000, or 11.2%, to $7.3 million for the year ended June 30, 2006 from $6.6 million for the year ended June 30, 2005. The increase was primarily due to an increase of $257,000 in compensation expense arising from general salary increases and additional full-time employees, an increase of $151,000 in stock award expense and the addition of $370,000 in stock option expense related to the to the adoption of FAS-123R partially offset by a reduction in fair market value costs related to our employee stock ownership plan.

          Occupancy and equipment expenses increased $316,000, or 21.7% to $1.8 million for the year ended June 30, 2006 from $1.5 million for the year ended June 30, 2005. The increase was primarily due to costs associated with the relocation of our Pasadena Branch and increased costs related to build-outs of financial service centers in Bellflower and Harbor City in addition to increased equipment maintenance expense.

          Other operating expenses increased $235,000, or 19.3% to $1.5 million for the year ended June 30, 2006 from $1.2 million for the year ended June 30, 2005. The increase in other expense was primarily due to increased operational costs to support our continued growth.

          Income Tax Expense. Income tax expense for the year ended June 30, 2006 was $2.7 million as compared to $3.0 million for the year ended June 30, 2005. This decrease was primarily the result of a decline in pre-tax income of $322,000, combined with an increase in non-taxable income from our bank-owned life insurance and tax credits from our affordable housing investment for the year ended June 30, 2006. The effective tax rate was 35.6% and 37.4% for the years ended June 30, 2006 and 2005, respectively.

Liquidity, Capital Resources and Commitments

          Liquidity may increase or decrease depending upon the availability of funds and comparative yields on investments in relation to the return on loans. Historically, we have maintained liquid assets at levels above the minimum requirements previously imposed by Office of Thrift Supervision regulations and above levels believed to be adequate to meet the requirements of normal operations, including potential deposit outflows. Cash flow projections are regularly reviewed and updated to assure that adequate liquidity is maintained.

          Our liquidity, represented by cash and cash equivalents and mortgage-backed and related securities, is a product of our operating, investing and financing activities. Our primary sources of funds are deposits, amortization, prepayments and maturities of outstanding loans and mortgage-backed and related securities, and other short-term investments and funds provided from operations. While scheduled payments from the amortization of loans and mortgage-backed related securities and maturing investment securities and short-term investments are relatively predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions and competition. In addition, we invest excess funds in short-term interest-earning assets, which provide liquidity to meet lending requirements. We also generate cash through borrowings. We utilize Federal Home Loan Bank advances to leverage our capital base and provide funds for our lending and investment activities, and enhance our interest rate risk management. 

          Liquidity management is both a daily and long-term function of business management. Excess liquidity is generally invested in short-term investments such as overnight deposits. On a longer-term

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basis, we maintain a strategy of investing in various lending products as described in greater detail under “Business - Lending Activities.”  We use our sources of funds primarily to meet ongoing commitments, to pay maturing certificate of deposits and savings withdrawals, to fund loan commitments and to maintain our portfolio of mortgage-backed and related securities. At June 30, 2007, the total approved loan commitments amounted to $13.9 million, which includes the unadvanced portion of loans of $6.4 million.  Certificates of deposit and advances from the Federal Home Loan Bank of San Francisco scheduled to mature in one year or less at June 30, 2007, totaled $174.7 million and $20.0 million, respectively. Based on historical experience, management believes that a significant portion of maturing deposits will remain with Kaiser Federal Bank and we anticipate that we will continue to have sufficient funds, through deposits and borrowings, to meet our current commitments.

          At June 30, 2007, we had available additional advances from the Federal Home Loan Bank of San Francisco in the amount of $101.4 million.

Contractual Obligations

          In the normal course of business, we enter into contractual obligations that meet various business needs. These contractual obligations include deposit account obligations to customers, borrowings from the Federal Home Loan Bank, lease obligations for facilities, and commitments to purchase and/or originate loans. The following table summarizes our long-term contractual obligations at June 30, 2007.

Category of Contractual obligations	Total		Less than 1 year		1 – 3 Years		More than 3 - 5 Years		More than 5 years
	(In thousands)
FHLB advances	$	210,000	$	20,000	$	98,000	$	92,000	$	—
Operating lease obligations		3,441		845		1,645		528		423
Loan commitments to purchase residential mortgage loans		—		—		—		—		—
Loan commitments to originate residential mortgage loans		7,475		7,475		—		—		—
Available home equity and unadvanced lines of credit		6,415		6,415		—		—		—
Time Deposits		238,717		174,738		40,505		23,474		—
Commitments to fund equity investment in tax credit fund		193		129		64		—		—
Total commitments and contractual obligations	$	466,241	$	209,602	$	140,214	$	116,002	$	423

Off-Balance Sheet Arrangements

          As a financial services provider, we routinely are a party to various financial instruments with off-balance-sheet risks, such as commitments to extend credit and unused lines of credit.  While these contractual obligations represent our future cash requirements, a significant portion of commitments to extend credit may expire without being drawn upon.  Such commitments are subject to the same credit policies and approval process accorded to loans we make.  For additional information, see Note 14 of the notes to our consolidated financial statements.

Capital

          Consistent with our goal to operate a sound and profitable financial organization, we actively seek to maintain a “well capitalized” institution in accordance with regulatory standards. Total

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stockholders’ equity was $92.3 million at June 30, 2007 or 11.5%, of total assets on that date. As of June 30, 2007, we exceeded all regulatory capital requirements. Kaiser Federal Bank’s regulatory capital ratios at June 30, 2007 were as follows: core capital 8.32%; Tier I risk-based capital 12.76%; and total risk-based capital 13.30%. The regulatory capital requirements to be considered well capitalized are 5%, 6% and 10%, respectively. See “Supervision and Regulation- Capital Requirements.”

           For the year ended June 30, 2007, we repurchased 279,845 shares of our common stock at an average cost of $17.67. 

          Impact of Inflation

          The consolidated financial statements presented herein have been prepared in accordance with GAAP. These principles require the measurement of financial position and operating results in terms of historical dollars, without considering changes in the relative purchasing power of money over time due to inflation.

          Our primary assets and liabilities are monetary in nature. As a result, interest rates have a more significant impact on our performance than the effects of general levels of inflation. Interest rates, however, do not necessarily move in the same direction or with the same magnitude as the price of goods and services, since such prices are affected by inflation. In a period of rapidly rising interest rates, the liquidity and maturity structure of our assets and liabilities are critical to the maintenance of acceptable performance levels.

          The principal effect of inflation, as distinct from levels of interest rates, on earnings is in the area of non-interest expense. Such expense items as employee compensation, employee benefits and occupancy and equipment costs may be subject to increases as a result of inflation. An additional effect of inflation is the possible increase in the dollar value of the collateral securing loans that we have made. We are unable to determine the extent, if any, to which properties securing our loans have appreciated in dollar value due to inflation.

Recent Accounting Pronouncements

          Please refer to Note 1 of the consolidated financial statements.

Management of Market Risk

          How We Measure Our Risk of Interest Rate Changes. As part of our attempt to manage our exposure to changes in interest rates and comply with applicable regulations, we monitor our interest rate risk. In monitoring interest rate risk, we continually analyze and manage assets and liabilities based on their payment streams and interest rates, the timing of their maturities, and their sensitivity to actual or potential changes in market interest rates.

          In order to minimize the potential for adverse effects of material and prolonged increases in interest rates on our results of operations, we have adopted investment/asset and liability management policies to better match the maturities and repricing terms of our interest-earning assets and interest-bearing liabilities. The Board of Directors sets and recommends the asset and liability policies of Kaiser Federal Bank, which are implemented by the asset/liability management committee.

          The purpose of the asset/liability management committee is to communicate, coordinate and control asset/liability management consistent with our business plan and board approved policies. The committee establishes and monitors the volume and mix of assets and funding sources taking into account

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relative costs and spreads, interest rate sensitivity and liquidity needs. The objectives are to manage assets and funding sources to produce results that are consistent with liquidity, capital adequacy, growth, risk and profitability goals.

          The asset/liability management committee generally meets on a weekly basis to review, among other things, economic conditions and interest rate outlook, current and projected liquidity needs and capital position, anticipated changes in the volume and mix of assets and liabilities and interest rate risk exposure limits versus current projections pursuant to net present value of portfolio equity analysis and income simulations. The asset/liability management committee recommends appropriate strategy changes based on this review. The chairman or his designee is responsible for reviewing and reporting on the effects of the policy implementations and strategies to the Board of Directors at least monthly.

          In order to manage our assets and liabilities and achieve the desired liquidity, credit quality, interest rate risk, profitability and capital targets, we have focused our strategies on:

• Originating and purchasing adjustable rate loans;

• Originating a reasonable volume of short- and intermediate-term consumer loans;

• Managing our deposits to establish stable deposit relationships; and

• Using Federal Home Loan Bank advances and pricing on fixed-term non-core deposits to align maturities and repricing terms.

          At times, depending on the level of general interest rates, the relationship between long- and short-term interest rates, market conditions and competitive factors, the asset/liability management committee may determine to increase our interest rate risk position somewhat in order to maintain our net interest margin.

          The asset/liability management committee regularly reviews interest rate risk by forecasting the impact of alternative interest rate environments on net interest income and market value of portfolio equity, which is defined as the net present value of an institution’s existing assets, liabilities and off-balance sheet instruments, and evaluating such impacts against the maximum potential changes in net interest income and market value of portfolio equity that are authorized by the Board of Directors of Kaiser Federal Bank.

          The Office of Thrift Supervision provides Kaiser Federal Bank with the information presented in the following tables, which is based on information provided to the Office of Thrift Supervision by Kaiser Federal Bank. It presents the change in Kaiser Federal Bank’s net portfolio value at June 30, 2007 and June 30, 2006 that would occur upon an immediate change in interest rates based on Office of Thrift Supervision assumptions but without giving effect to any steps that management might take to counteract that change.  

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	June 30, 2007
Change in interest rates in basis points (“bp”) (Rate shock in rates)	Net portfolio value (NPV)								NPV as % of PV of assets
	$ amount		$ change			% change			NPV ratio			Change(bp)
	(Dollars in thousands)
+300 bp	$	39,973	$	(38,212	)		(49	)%		5.49	%		(445	)bp
+200 bp		54,079		(24,106	)		(31	)		7.22			(272	)
+100 bp		67,237		(10,498	)		(14	)		8.75			(119	)
0 bp		78,185		—			—			9.94			—
-100 bp		85,981		7,796			10			10.72			78
-200 bp		88,745		10,560			14			10.92			98

	June 30, 2006
Change in interest rates in basis points (“bp”) (Rate shock in rates)	Net portfolio value (NPV)								NPV as % of PV of assets
	$ amount		$ change			% change			NPV ratio			Change(bp)
	(Dollars in thousands)
+300 bp	$	52,074	$	(31,435	)		(38	)%		7.79	%		(377	)bp
+200 bp		62,793		(20,716	)		(25	)		9.15			(241	)
+100 bp		73,459		(10,050	)		(12	)		10.43			(113	)
0 bp		83,509		—			—			11.56			—
-100 bp		90,540		7,031			8			12.27			71
-200 bp		89,698		6,189			7			12.03			47

          The Office of Thrift Supervision uses certain assumptions in assessing the interest rate risk of savings associations. These assumptions relate to interest rates, loan prepayment rates, deposit decay rates, and the market values of certain assets under differing interest rate scenarios, among others.

          As with any method of measuring interest rate risk, shortcomings are inherent in the method of analysis presented in the foregoing tables. For example, although assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in the market interest rates. Also, 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. Additionally, certain assets, such as adjustable rate mortgage loans, have features, that restrict changes in interest rates on a short-term basis and over the life of the asset. Further, if interest rates change, expected rates of prepayments on loans and early withdrawals from certificates of deposit could deviate significantly from those assumed in calculating the table.

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BUSINESS OF K-FED BANCORP
AND KAISER FEDERAL FINANCIAL GROUP, INC.

Kaiser Federal Financial Group, Inc.

          Kaiser Federal Financial Group, Inc. is a Maryland corporation, organized on September 24, 2007.  Upon completion of the conversion and offering, Kaiser Federal Financial Group, Inc. will serve as the holding company for Kaiser Federal Bank and will succeed to all of the business and operations of K-Fed Bancorp and each of K-Fed Bancorp and K-Fed Mutual Holding Company will cease to exist. 

          Initially following the completion of the conversion and offering, Kaiser Federal Financial Group, Inc. will have no significant assets other than owning 100% of the outstanding common stock of Kaiser Federal Bank, the net proceeds it retains from the offering, part of which will be used to make a loan to the Kaiser Federal Bank Employee Stock Ownership Plan, and will have no significant liabilities.  See “How We Intend to Use the Proceeds From the Offering.”  Kaiser Federal Financial Group, Inc. intends to utilize the support staff and offices of Kaiser Federal Bank and will pay Kaiser Federal Bank for these services.  If Kaiser Federal Financial Group, Inc. expands or changes its business in the future, it may hire its own employees.

          Kaiser Federal Financial Group, Inc. intends to invest the net proceeds of the offering as discussed under “How We Intend to Use the Proceeds From the Offering.”  In the future, it may pursue other business activities, including mergers and acquisitions, investment alternatives and diversification of operations.  There are, however, no current understandings or agreements for these activities.

K-Fed Bancorp

          K-Fed Bancorp is a federally-chartered stock corporation that was formed in July 2003 as a wholly-owned subsidiary of K-Fed Mutual Holding Company, a federally-chartered mutual holding company, in connection with the mutual holding company reorganization of Kaiser Federal Bank, a federally chartered stock savings association. Upon completion of the mutual holding company reorganization in July 2003, K-Fed Bancorp acquired all of the capital stock of Kaiser Federal Bank. On March 30, 2004, K-Fed Bancorp completed a minority stock offering in which it sold 5,686,750 shares, or 39.09%, of its outstanding common stock to eligible depositors of Kaiser Federal Bank and the Kaiser Federal Bank employee stock ownership plan in a subscription offering. The remaining 8,861,750 outstanding shares of K-Fed Bancorp’s common stock are owned by K-Fed Mutual Holding Company. At June 30, 2007, K-Fed Mutual Holding Company owned 63.5%, or 8,861,750 shares, of the outstanding shares of common stock of K-Fed Bancorp, with the remaining 36.5%, or 5,087,195 shares held by public stockholders.  K-Fed Bancorp owns 100% of Kaiser Federal Bank’s outstanding common stock.

          At June 30, 2007, K-Fed Bancorp had consolidated assets of $799.6 million, deposits of $494.1 million and stockholders’ equity of $92.3 million.  K-Fed Bancorp has not engaged in any significant business to date.  Its primary activity is holding all of the outstanding shares of common stock of Kaiser Federal Bank.  K-Fed Bancorp does not maintain offices separate from those of Kaiser Federal Bank or utilize persons other than certain of Kaiser Federal Bank’s officers.  Our executive offices are located at 1359 North Grand Avenue, Covina, California 91724 and our telephone number is (626) 339-9663.

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BUSINESS OF KAISER FEDERAL BANK

General

          Kaiser Federal Bank is a community oriented financial institution offering a variety of financial services to meet the needs of the communities it serves. We are headquartered in Covina, California, with branches in Pasadena and Panorama City to serve Los Angeles County. We also have financial service centers in Fontana, Riverside and Santa Clara to serve the California Counties of San Bernardino Riverside and Santa Clara, respectively.  We also have financial service centers in Los Angeles, Bellflower and Harbor City in Los Angeles County, California.  We have a network of 54 ATMs located in Southern California and the San Francisco Metropolitan Area, primarily located at Kaiser Permanente Medical Centers.  We utilize financial service centers, ATMs and purchases of residential mortgage loans to more efficiently use our resources.

          We enjoy a strong and positive reputation with the customer base and the local market area. Dating back to our days as a credit union, we have a strong bond with our customers.  As a personal-service focused community financial institution, we focus on enhancing customer satisfaction with products and services that address customer needs and are consistent with our charter and risk profile.  We strive to offer high quality customer service in the most efficient way.  We consistently evaluate ways to broaden the products and services we offerwhich will enhance our market penetration in the communities we serve.

          Kaiser Federal Bank began operations as a credit union in 1953 to serve the employees of the Kaiser Foundation Hospital in Los Angeles, California.  On November 1, 1999, the Credit Union converted to a federal mutual savings association known as Kaiser Federal Bank which serves the general public as well as Kaiser Permanente employees. On July 1, 2003, we completed our conversion from a federal mutual savings association to a federal stock savings association in conjunction with the mutual holding company reorganization.  On March 30, 2004, K-Fed Bancorp completed its initial minority stock offering.

          Our principal business consists of attracting retail deposits from the general public and investing those funds primarily in permanent loans secured by first mortgages on owner-occupied, one- to four-family residences and to a lesser extent, multi-family residential loans and commercial real estate loans. We also originate automobile and other consumer loans. Historically, we have not made or purchased commercial business loans or commercial or residential real estate construction loans and have no current plans to do so. 

          Our revenues are derived principally from interest on loans and mortgage-backed and related securities. We also generate revenue from service charges and other income.

          We offer a variety of deposit accounts having a wide range of interest rates and terms, which generally include savings accounts, money market accounts, demand deposit accounts and certificate of deposit accounts with varied terms ranging from 90 days to five years. We solicit deposits in our primary market area of San Diego, Los Angeles, San Bernardino, Riverside, and Santa Clara Counties, California.

          Our website address is www.k-fed.com. Information on our website is not and should not be considered a part of this proxy statement/prospectus.

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Market Area

          Our California market area provides a large, increasing base of potential customers with per capita income levels favorable to the national average.  Los Angeles County is one of the largest counties in the United States and has the largest population of any county in the United States and is exceeded only by eight states.  Historically, the County’s economy was tied to the aerospace, entertainment and tourism industries.  In the early 1990’s, the area suffered recessionary conditions due to the downsizing of the United States military and the economic downturn affecting the national economy.  Los Angeles County’s economy has improved dramatically since the mid 1990’s as a result of extensive overhauling and restructuring of the region’s basic economic sectors from one formerly dominated by the aerospace, tourism and entertainment industries to a more diversified mix of high-technology commercial endeavors and by-products of the defense related industries, which capitalized on the highly educated and skilled labor force. The largest employers consist of the County of Los Angeles, the Los Angeles United School District and the City of Los Angeles.  Emerging growth areas include telecommunications, electronics, computers, software and biomedical technologies as well as international trade.

          The Counties of Riverside and San Bernadino are commonly referred to as the “Inland Empire.”  While the Inland Empire covers a vast geographic area extending to the Nevada border, Kaiser Federal Bank’s operations are concentrated in the western portion of these counties.  This area was also affected by the economic downtown of the early 1990’s, but has since recovered.  Many firms have moved from the congested and high priced regions of Los Angeles, Orange and San Diego Counties to the Inland Empire, a trend that is expected to continue.  The Pacific portion of San Bernardino and Riverside Counties are adjacent to higher housing cost areas of Los Angeles, Orange and San Diego Counties and are a magnet for new residents seeking affordable housing. Manufacturing, transportation and distribution companies provide thousands of jobs in this area.

          Santa Clara County is home to a number of leading technology and telecommunication companies and is located in the “Silicon Valley” where the per capita income well exceeds the state and national average. 

          The sales of new and existing one- to four-family homes in Southern California is at a 15 year low.  A decrease in home sales decreases lending opportunities and may negatively affect our income since a substantial portion of our loan portfolio consists of one- to four-family residential loans.  In addition, default rates statewide in California on one- to four-family loans in the second quarter of 2007 were also at the highest levels in a decade.  Despite these trends, real estate values have remained relatively stable through the second quarter.

Competition

          We face strong competition in originating real estate and other loans and in attracting deposits. Competition in originating real estate loans comes primarily from other savings institutions, commercial banks, credit unions and mortgage bankers. Other savings institutions, commercial banks, credit unions and finance companies provide vigorous competition in consumer lending. We also face competition from other lenders and investors with respect to loans that we purchase.

          We attract all of our deposits through our branch and ATM network. Competition for those deposits is principally from other savings institutions, commercial banks and credit unions, as well as mutual funds and other alternative investments. We compete for these deposits by offering superior service and a variety of deposit accounts at competitive rates.  We have less than a 1% market share of deposits in each of the markets in which we compete.

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Lending Activities

          General. We originate and purchase one- to four-family and multi-family residential loans and to a lesser extent we originate commercial real estate loans.  We do not originate or purchase residential or commercial construction loans.  We do not offer adjustable rate loans where the initial rate is below the otherwise applicable index rate (known as “teaser rates”).  We also originate consumer loans, primarily automobile loans. Our loans carry either a fixed or an adjustable rate of interest. Consumer loans are generally short term and amortize monthly or have interest payable monthly. Mortgage loans generally have a longer term amortization, with maturities up to 30 years, depending upon the type of property with principal and interest due each month. We also have loans in our portfolio that require only interest payments on a monthly basis. At June 30, 2007, our net loan portfolio totaled $699.1 million, which constituted 87.4% of our total assets. We generally underwrite each purchased loan individually in accordance with our underwriting standards. We utilize loan purchases to more efficiently use our resources by reducing operating costs such as staff and marketing.  In the Southern California market for an institution of our size, we have found it more efficient to purchase, rather than to originate loans, in order to supplement our lending platform.  The majority of the loans that we purchase are acquired with servicing released to allow us to build our portfolio without having to significantly increase our servicing and operations costs. We generally purchase these loans without recourse against the seller.

          At June 30, 2007, the maximum amount which we could have loaned to any one borrower and the borrower’s related entities under applicable regulations was $9.7 million, or 15% of Kaiser Federal Bank’s unimpaired capital. At June 30, 2007, we had no loans or group of loans to related borrowers with outstanding balances in excess of this amount. Our five largest lending relationships at June 30, 2007 were as follows:  (1) one loan to a limited partnership totaling $5.2 million, secured by an industrial facility located in Riverside County; (2) two loans to an individual totaling $4.8 million, secured by a 38 unit multi-family property located in Orange County and a medical office building located in Los Angeles County; (3) one loan to a limited partnership totaling $4.4 million, secured by six industrial buildings located in Los Angeles County; (4) one loan to a corporation totaling $4.0 million, secured by an office building located in Orange County; and (5) two loans to an individual totaling $3.8 million, secured by a 10 unit multi-family property and a 33 unit multi-family property located in Los Angeles County.  At June 30, 2007, these loans were performing in accordance with these terms.

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          The following table presents information concerning the composition of Kaiser Federal Bank’s loan portfolio in dollar amounts and in percentages as of the dates indicated.

	At June 30,
	2007						2006						2005						2004						2003
	Amount			Percent			Amount			Percent			Amount			Percent			Amount			Percent			Amount			Percent
	(Dollars in thousands)
Real estate
One- to four-family	$	469,459			66.88	%	$	437,024			68.63	%	$	372,134			69.04	%	$	341,776			68.82	%	$	259,563			66.64	%
Commercial		77,821			11.09			58,845			9.24			32,383			6.01			26,879			5.41			21,266			5.46
Multi-family		88,112			12.55			89,220			14.01			87,650			16.26			72,519			14.60			42,275			10.85
Total real estate loans		635,392			90.52			585,089			91.88			492,167			91.31			441,174			88.83			323,104			82.95
Other loans
Consumer:
Automobile		53,100			7.56			41,572			6.53			38,613			7.16			47,359			9.54			56,872			14.60
Home equity		1,446			0.21			1,787			0.28			601			0.11			437			0.08			664			0.17
Other		12,024			1.71			8,374			1.31			7,644			1.42			7,675			1.55			8,878			2.28
Total other loans		66,570			9.48			51,733			8.12			46,858			8.69			55,471			11.17			66,414			17.05
Total loans		701,962			100.00	%		636,822			100.00	%		539,025			100.00	%		496,645			100.00	%		389,518			100.00	%
Less:
Net deferred loan originations fees		(134	)					(202	)					(32	)					(332	)					(354	)
Net premiums on purchased loans		120						195						982						2,221						2,757
Allowance for loan losses		(2,805	)					(2,722	)					(2,408	)					(2,328	)					(2,281	)
Total loans receivable, net	$	699,143					$	634,093					$	537,567					$	496,206					$	389,640

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          Loan Maturity. The following schedule illustrates certain information at June 30, 2007 regarding the scheduled repayment of loans maturing in Kaiser Federal Bank’s portfolio based on their contractual terms-to-maturity, but does not include scheduled payments or potential prepayments. Demand loans, loans having no stated schedule of repayments and no stated maturity are reported as due in one year or less. Loan balances do not include undisbursed loan proceeds, unearned discounts, unearned income and allowance for loan losses.

	Real Estate						Consumer
	One- to Four-Family		Commercial		Multi-family		Automobile		Home Equity		Other		Total
	(In thousands)
At June 30, 2007
Within (1) year (1)	$	—	$	—	$	37	$	647	$	1,446	$	3,869	$	5,999
After 1 year:
After 1 year through 3 years		156		—		—		9,609		—		422		10,187
After 3 year through 5 years		568		1,167		—		41,831		—		512		44,078
After 5 year through 10 years		5,711		70,045		2,332		1,013		—		7,221		86,322
After 10 year through 15 years		65,775		6,609		57,502		—		—		—		129,886
After 15 years		397,249		—		28,241		—		—		—		425,490
Total due after 1 year		469,459		77,821		88,075		52,453		—		8,155		695,963
Total	$	469,459	$	77,821	$	88,112	$	53,100	$	1,446	$	12,024	$	701,962

(1) Includes demand loans and loans that have no stated maturity.

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          The following tables set forth the scheduled repayments of fixed and adjustable rate loans at June 30, 2007, that are contractually due after June 30, 2008.

	Due after June 30, 2008
	Fixed		Adjustable		Total
	(In thousands)
Real estate loans
One- to four-family	$	348,798	$	120,661	$	469,459
Commercial		—		77,821		77,821
Multi-family		—		88,075		88,075
Total real estate loans		348,798		286,557		635,355
Other Loans
Consumer:
Automobile		52,453		—		52,453
Home equity		—		—		—
Other loans		8,155		—		8,155
Total other loans		60,608		—		60,608
Total loans	$	409,406	$	286,557	$	695,963

          One- to Four-Family Residential Lending. At June 30, 2007, our first lien one- to four-family residential mortgage loans totaled $469.5 million, or 66.9%, of our gross loan portfolio, of which $391.9 million or 83.5% were purchased from large mortgage originators. We generally underwrite our one- to four-family loans based on the applicant’s employment and credit history and the appraised value of the subject property. With respect to purchased loans, we underwrite each loan based upon our underwriting standards prior to making the purchase. Presently, we lend up to 80% of the lesser of the appraised value or purchase price for one- to four-family residential loans. Should we grant a loan with a loan-to-value ratio in excess of 80%, we require private mortgage insurance in order to reduce our exposure below 80%. Properties securing our one- to four-family loans are generally appraised by independent state licensed fee appraisers approved by our Board of Directors. We require our borrowers to obtain title and hazard insurance, and flood insurance, if necessary, in an amount not less than the value of the property improvements. We currently retain in our portfolios all single-family loans we originate. We purchased $109.8 million in one- to four-family residential mortgage loans within the past fiscal year.    

          We currently originate one- to four-family mortgage loans on a fixed rate and adjustable rate basis. Our pricing strategy for mortgage loans includes setting interest rates that are competitive with other local financial institutions and consistent with our internal needs. Adjustable-rate loans are tied to indices based on the one year London InterBank Offering Rate or U.S. Treasury securities adjusted to a constant maturity of one year.  A majority of our adjustable rate loans carry an initial fixed rate of interest for either three or five years which then converts to an interest rate that is adjusted annually based upon the applicable index. At June 30, 2007, $2.9 million, $9.3 million and $61.4 million of our adjustable rate one- to four-family loans will initially reprice in 2008, 2009 and 2010, respectively.  Our home mortgages are structured with a five to thirty year maturity, with amortization periods up to a 30-year period. All of our one- to four-family loans originated or purchased are secured by properties located in California.

          All our real estate loans contain a “due on sale” clause allowing us to declare the unpaid principal balance due and payable upon the sale of the security property. The loans originated or purchased by us are underwritten and documented pursuant to our underwriting guidelines. See “- Loan Originations, Purchases, Sales and Repayments.”  See “- Asset Quality - Non-Performing Assets” and “Asset Quality - Classified Assets.”

          Adjustable rate mortgage loans generally pose different credit risks than fixed-rate loan mortgages, primarily because as interest rates rise, the borrower’s payment rises, increasing the potential for default. We have not experienced significant delinquencies for these loans. However, the majority of

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these loans have been purchased or originated within the past three years.  See “ - Asset Quality – Non-Performing Assets” and “ - Classified Assets.”  At June 30, 2007, our one- to four-family adjustable rate mortgage loan portfolio totaled $120.7 million, or 17.2% of our gross loan portfolio. At that date, the fixed-rate one- to four-family mortgage loan portfolio totaled $348.8 million, or 49.7% of our gross loan portfolio.

          In addition, we have purchased interest-only one- to four-family mortgage loans. As of June 30, 2007, our one- to four-family interest-only mortgages loans totaled $100.4 million, or 14.3% of our gross loan portfolio, with $55.2 million of that amount consisting of adjustable rate loans.  We have no plans to significantly increase the number of interest-only loans held in our loan portfolio at this time.

          In late 2005, we began to underwrite interest-only loans assuming a fully amortized payment and for adjustable rate loans we qualify the borrower based upon the rate that would apply upon the first interest rate adjustment.  An interest-only loan typically provides for the payment of interest (rather than both principal and interest) for a fixed period of three, five or seven years, thereafter the loan payments adjust to include both principal and interest for the remaining term.  We believe those loans purchased under these additional underwriting standards should not present greater risk than other loans in our one-to four-family loan portfolio.

          The following table describes certain risk characteristics of our one-to four-family non-conforming mortgage loans held for investment as of June 30, 2007:

Category	Outstanding Balance		Weighted- Average Credit Score(1)		Weighted Average LTV(2)			Weighted Average Seasoning (3)
	(Dollars in thousands)
Interest-only	$	100,424		737		70.89	%		1.79 years
Stated income(4)		118,842		741		66.42			2.06
Credit score less than or equal to 660		32,850		642		68.99			2.03

(1)	The credit score is one factor in determining the credit worthiness of a borrower based on the borrower’s credit history.
(2)	LTV (loan-to-value) is the ratio calculated by dividing the original loan balance by the appraised value of the real estate collateral.
(3)	Seasoning describes the number of years since the funding date of the loan.
(4)	Stated income is defined as a borrower provided level of income which is not subject to verification during the loan origination process through the borrower’s application, but the reasonableness of the borrower’s income is verified through other sources.  Included in interest-only loans are $42.4 million in stated-income loans.

          Multi-Family Residential Lending. We also offer multi-family residential loans. These loans are secured by real estate located in our primary market area. At June 30, 2007, multi-family residential loans totaled $88.1 million, or 12.6%, of our gross loan portfolio.

          Our multi-family residential loans are originated primarily with adjustable interest rates. We use a number of indices to set the interest rate, including a rate based on the constant maturity of one year U.S. Treasury securities.  Our adjustable rate loans carry an initial fixed rate of interest for either three or five years which then converts to an interest rate that is adjusted annually based upon the applicable index. Loan-to-value ratios on our multi-family residential loans do not exceed 75% of the appraised value of the property securing the loan. These loans require monthly payments, amortize over a period of up to 30 years and have maximum maturity of 30 years. These loans are secured by properties located in California. We originate these loans through our staff. We retain some of the multi-family loans we originate, while selling participations in others to manage our exposure to any one borrower.

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          Loans secured by multi-family residential real estate are underwritten based on the income producing potential of the property and the financial strength of the borrower. The net operating income, which is the income derived from the operation of the property less all operating expenses, must be sufficient to cover the payments related to the outstanding debt. We may require an assignment of rents or leases in order to be assured that the cash flow from the project will be used to repay the debt. Appraisals on properties securing multi-family residential loans are performed by independent state licensed fee appraisers approved by our Board of Directors. See “- Loan Originations, Purchases, Sales and Repayments.”

          Loans secured by multi-family residential properties are generally larger and involve a greater degree of credit risk than one- to four-family residential mortgage loans. Because payments on loans secured by multi-family residential properties are often dependent on the successful operation or management of the properties, repayment of such loans may be subject to adverse conditions in the real estate market or the economy. If the cash flow from the project is reduced, or if leases are not obtained or renewed, the borrower’s ability to repay the loan may be impaired. In order to monitor the adequacy of cash flows on income-producing properties, the borrowers are required to provide periodic financial information.  In addition, many of our multi-family real estate loans are not fully amortizing and contain large balloon payments upon maturity.  These balloon payments may require the borrower to either sell or refinance the underlying property in order to make the balloon payment.  If we foreclose on a multi-family real estate loan, our holding period for the collateral typically is longer than for one- to four-family residential mortgage loans because there are fewer potential purchasers of the collateral.  Further, our multi-family real estate loans generally have relatively large balances to single borrowers or related groups of borrowers.  Accordingly, if we make any errors in judgment in the collectibility of our multi-family real estate loans, any resulting charge-offs may be larger on a per loan basis than those incurred with our residential or consumer loan portfolios.  See “- Asset Quality - Non-Performing Assets.”

          Commercial Real Estate Lending. We offer commercial real estate loans. These loans are secured primarily by small retail establishments, rental properties and small office buildings located in our primary market area and are both owner and non-owner occupied. We originate commercial real estate loans through our own staff. We generally do not purchase commercial real estate loans. At June 30, 2007, commercial real estate loans totaled $77.8 million, or 11.1% of our gross loan portfolio, of which $28.3 million or 36.4% of our commercial real estate loan portfolio were to borrowers occupying the underlying collateral. Our largest commercial real estate loan at June 30, 2007 was a $5.2 million loan secured by an industrial facility located in Riverside County performing in accordance with its terms. We do not originate commercial construction loans.

          We originate only adjustable-rate commercial real estate loans. The interest rate on these loans is tied to a rate based on the constant maturity of one year U.S. Treasury securities. A majority of our adjustable rate loans carry an initial fixed rate of interest for either three or five years which then converts to an interest rate that is adjusted annually based upon the index. Loan-to-value ratios on our commercial real estate loans generally do not exceed 75% of the appraised value of the property securing the loan. These loans require monthly payments, amortize up to 30 years, have maturities of up to 15 years and carry prepayment penalties.

          Loans secured by commercial real estate are underwritten based on the income producing potential of the property, the financial strength of the borrower and any guarantors. The net operating income, which is the income derived from the operation of the property less all operating expenses, must be sufficient to cover the payments related to the outstanding debt. We may require an assignment of rents or leases in order to be assured that the cash flow from the project will be used to repay the debt. Appraisals on properties securing commercial real estate loans are performed by independent state licensed fee appraisers approved by the Board of Directors. All the properties securing our commercial

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real estate loans are located in California. In order to monitor the adequacy of cash flows on income producing properties, the borrowers are required to provide periodic financial information. See “- Loan Originations, Purchases, Sales and Repayments.”

          Loans secured by commercial real estate properties are generally larger and involve a greater degree of credit risk than one- to four-family residential mortgage loans. Because payments on loans secured by commercial real estate properties are often dependent on the successful operation or management of the properties, repayment of such loans may be subject to adverse conditions in the real estate market or the economy. If the cash flow from the project is reduced, or if leases are not obtained or renewed, the borrower’s ability to repay the loan may be impaired.  In addition, many of our commercial real estate loans are not fully amortizing and contain large balloon payments upon maturity.  These balloon payments may require the borrower to either sell or refinance the underlying property in order to make the balloon payment.  If we foreclose on a commercial real estate loan, our holding period for the collateral typically is longer than for one- to four-family residential mortgage loans because there are fewer potential purchasers of the collateral.  Further, our commercial real estate loans generally have relatively large balances to single borrowers or related groups of borrowers.  Accordingly, if we make any errors in judgment in the collectibility of our commercial real estate loans, any resulting charge-offs may be larger on a per loan basis than those incurred with our residential or consumer loan portfolios.  See “- Asset Quality - Non-Performing Loans.”

          Consumer Loans. We offer a variety of secured consumer loans, including home equity lines of credit, new and used auto loans, and loans secured by savings deposits. We also offer a limited amount of unsecured loans. Consumer loans generally have shorter terms to maturity, which reduces our exposure to changes in interest rates, and carry higher rates of interest than do one- to four-family residential mortgage loans. At June 30, 2007, our consumer loan portfolio, exclusive of automobile loans, totaled $13.5 million, or 1.9%, of our gross loan portfolio.

          The most significant component of our consumer lending is automobile loans. We originate automobile loans only on a direct basis with the borrower. Loans secured by automobiles totaled $53.1 million, or 7.6%, of our gross loan portfolio at June 30, 2007. Automobile loans may be written for up to seven years for new automobiles and a maximum of five years for used automobiles (with an age limit of five years) and have fixed rates of interest. Loan-to-value ratios for automobile loans are up to 100% of the sales price for new automobiles and up to 100% of value on used cars, based on valuation from official used car guides.

          Each automobile loan requires the borrower to keep the financed vehicle fully insured against loss or damage by fire, theft and collision.  In addition, we have the right to force place insurance coverage in the event the required physical damage insurance on the vehicle is not maintained by the borrower.  Our primary focus when originating automobile loans is on the ability of the borrower to repay the loan rather than the value of the underlying collateral.  The amount financed by us is generally up to the full sales price of the financed vehicle plus sales tax, dealer preparation, license, and title fees, plus the cost of a vehicle and warranty contract.

          Consumer loans may entail greater risk than do one- to four-family residential mortgage loans, particularly in the case of consumer loans which are secured by rapidly depreciable assets, such as automobiles. In these cases, any repossessed collateral for a defaulted loan may not provide an adequate source of repayment of the outstanding loan balance. As a result, consumer loan collections are dependent on the borrower’s continuing financial stability and, thus, are more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy.  Furthermore, the application of various federal and state laws, including federal and state bankruptcy and insolvency laws, may limit the amount that can be recovered on these loans.

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Loan Originations, Purchases, Sales and Repayments

          We originate loans through employees located at our offices. Walk-in customers and referrals from our current customer base, advertisements, real estate brokers and mortgage loan brokers are also important sources of loan originations.

          While we originate adjustable rate and fixed rate loans, our ability to originate loans is dependent upon customer demand for loans in our market area. Demand is affected by local competition and the interest rate environment. We also purchase real estate whole loans as well as participation interests in real estate loans. From time to time, we have sold participation interests in some of our larger real estate loans. At June 30, 2007, our real estate loan portfolio totaled $635.4 million or 90.5% of the gross loan portfolio. Purchased real estate loans at June 30, 2007 totaled $406.5 million, or 64.0% of the real estate loan portfolio. At June 30, 2006, our real estate loan portfolio totaled $585.1 million or 91.9% of the gross loan portfolio.  Purchased real estate loans at June 30, 2006 totaled $386.9 million or 66.1% of the real estate loan portfolio.

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          The following table shows the loan origination, purchase, sale and repayment activities of Kaiser Federal Bank for the periods indicated, and includes loans originated for both our own portfolio and for sale of participating interests.

	Year ended June 30,
	2007			2006			2005
	(In thousands)
Originations by type:
Adjustable rate:
Real estate-one to four-family	$	2,399		$	—		$	3,942
-commercial		23,432			32,154			6,200
-multi-family		13,740			14,771			17,750
Non-real estate – other consumer		3,542			5,694			4,445
Total adjustable rate		43,113			52,619			32,337
Fixed rate:
Real estate-one to four-family		20,574			14,238			10,446
Non-real estate - consumer automobile		35,654			26,318			18,453
- other consumer		11,841			8,591			8,617
Total fixed rate		68,069			49,147			37,516
Total loans originated		111,182			101,766			69,853
Purchases:
Adjustable rate:
Real estate- one to four-family		—			13,074			73,740
-commercial		—			—			3,993
-multi-family		—			2,430			10,152
Total adjustable rate		—			15,504			87,885
Fixed rate:
Real estate- one to four-family		109,830			145,771			62,825
Total fixed rate		109,830			145,771			62,825
Total loans purchased		109,830			161,275			150,710
Sales and repayments:
Sales and loan participations sold		—			—			—
Principal repayments		155,872			165,244			178,183
Total reductions		155,872			165,244			178,183
Decrease in other items, net		(90	)		(1,271	)		(1,019	)
Net increase	$	65,050		$	96,526		$	41,361

Asset Quality

          We do not originate, purchase or hold in our loan portfolio teaser option-ARM loans or negative amortizing loans.  We underwrite all real estate loans based on an applicant’s employment history, credit history and an appraised value of the subject property.  At June 30, 2007, one- to four-family residential mortgage loans totaled $469.5 million, or 66.9%, of our gross loan portfolio of which $348.8 million were fixed rate and $120.7 million were adjustable rate loans.  Adjustable rate mortgages generally pose different credit risks than fixed rate loan mortgages, primarily because as interest rates rise, the borrower’s payment rises, increasing the potential for default.  Beginning in 2005, we originated and purchased for portfolio more fixed rate loans than adjustable rate loans.  At June 30, 2005, one-to-four family fixed rate loans totaled $133.9 million compared to $238.3 million in adjustable rate loans.  At June 30, 2006, one-to-four family fixed rate loans totaled $258.9 million compared to $178.1 million in

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adjustable rate loans.  Although we have reduced the amount of adjustable rate loans held in portfolio, we have not experienced significant delinquencies for these loans.

          For one- to four-family residential, multi-family and commercial real estate loans serviced by us, a delinquency notice is sent to the borrower when the loan is eight days past due. When the loan is 20 days past due, we mail a subsequent delinquency notice to the borrower. Typically, before the loan becomes 30 days past due, contact with the borrower is made requesting payment of the delinquent amount in full, or the establishment of an acceptable repayment plan to bring the loan current. If an acceptable repayment plan has not been agreed upon, loan personnel will generally prepare a notice of intent to foreclose. The notice of intent to foreclose allows the borrower up to 10 days to bring the account current. Once the loan becomes 60 days delinquent, and an acceptable repayment plan has not been agreed upon, the servicing officer will turn over the account to the deed of trust trustee with instructions to initiate foreclosure.

          Real estate loans serviced by a third party are subject to the servicing institution’s collection policies. However, we track each purchased loan individually to ensure full payments are received as scheduled. Each month, third party servicers are required to provide delinquent loan status reports to our servicing officer, which are included in the month-end delinquent real estate report to management.

          When a borrower fails to make a timely payment on a consumer loan, a delinquency notice is sent when the loan is 10 days past due. When the loan is 20 days past due, we mail a subsequent delinquency notice to the borrower. Once a loan is 30 days past due, our staff contacts the borrower by telephone to determine the reason for delinquency and to request payment of the delinquent amount in full or the establishment of an acceptable repayment plan to bring the loan current. If the borrower is unable to make or keep payment arrangements, additional collection action is taken in the form of repossession of collateral for secured loans and small claims or legal action for unsecured loans.

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          Delinquent Loans.  The following table sets forth certain information with respect to our loan portfolio delinquencies at the dates indicated.

	Loans Delinquent:
	60-89 Days				90 Days or More				Total Delinquent Loans
	Number of Loans		Amount		Number of Loans		Amount		Number of Loans		Amount
	(Dollars in thousands)
At June 30, 2007
Real estate loans:
One- to four-family		—	$	—		2	$	1,115		2	$	1,115
Commercial		—		—		—		—		—		—
Multi-family		—		—		—		—		—		—
Other loans:
Automobile		7		111		2		19		9		130
Home equity		—		—		—		—		—		—
Other		5		8		4		7		9		15
Total loans		12	$	119		8	$	1,141		20	$	1,260
At June 30, 2006
Real estate loans:
One- to four-family		2	$	383		—	$	—		2	$	383
Commercial		—		—		—		—		—		—
Multi-family		—		—		—		—		—		—
Other loans:
Automobile		8		108		7		57		15		165
Home equity		—		—		—		—		—		—
Other		3		3		6		10		9		13
Total loans		13	$	494		13	$	67		26	$	561
At June 30, 2005
Real estate loans:
One- to four-family		—	$	—		2	$	757		2	$	757
Commercial		—		—		—		—		—		—
Multi-family		—		—		—		—		—		—
Other loans:
Automobile		6		50		2		28		8		78
Home equity		—		—		—		—		—		—
Other		10		10		1		2		11		12
Total loans		16	$	60		5	$	787		21	$	847
At June 30, 2004
Real estate loans:
One- to four-family		—	$	—		—	$	—		—	$	—
Commercial		—		—		—		—		—		—
Multi-family		—		—		—		—		—		—
Other loans:
Automobile		40		502		9		79		49		581
Home equity		—		—		—		—		—		—
Other		97		93		2		3		99		96
Total loans		137	$	595		11	$	82		148	$	677
At June 30, 2003
Real estate loans:
One- to four-family		—	$	—		—	$	—		—	$	—
Commercial		—		—		—		—		—		—
Multi-family		—		—		—		—		—		—
Other loans:
Automobile		7		129		1		13		8		142
Home equity		—		—		—		—		—		—
Other		60		92		3		13		63		105
Total loans		67	$	221		4	$	26		71	$	247

          Non-Performing Assets. The following table sets forth the amounts and categories of non-performing assets in our loan portfolio. Non-performing assets consist of non-accrual loans, and foreclosed assets. Loans to a customer whose financial condition has deteriorated are considered for non-accrual status whether or not the loan is 90 days and over past due. All loans past due 90 days and over are classified as non-accrual. On non-accrual loans, interest income is not recognized until actually

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collected. At the time the loan is placed on non-accrual status, interest previously accrued but not collected is reversed and charged against current income. Interest is not accrued on loans greater than 90 days or more delinquent. At each date presented we had no troubled debt restructurings (loans for which a portion of interest or principal has been forgiven and loans modified at an interest rate materially less than current market rate).

          Foreclosed assets consist of real estate and other assets which have been acquired through foreclosure on loans. At the time of foreclosure, assets are recorded at the lower of their estimated fair value less selling costs or the loan balance, with any write-down charged against the allowance for loan losses.

	At June 30,
	2007			2006			2005			2004			2003
	(Dollars in thousands)
Non-accrual loans:
Real estate loans:
One- to four-family	$	1,115		$	—		$	757		$	—		$	—
Commercial		—			—			—			—			—
Multi-family		—			—			—			—			—
Other loans:
Automobile		19			57			28			79			13
Home Equity		—			—			—			—			—
Other		7			10			2			3			13
Total		1,141			67			787			82			26
Real estate owned and Repossessed assets:
Real estate loans:
One- to four-family		238			—			—			—			—
Commercial		—			—			—			—			—
Multi-family		—			—			—			—			—
Other loans:
Automobile		74			69			35			62			26
Home equity		—			—			—			—			—
Other		—			—			—			—			—
Total		312			69			35			62			26
Total non-performing assets	$	1,453		$	136		$	822		$	144		$	52
Non-performing loans to total loans (1)		0.16	%		0.01	%		0.15	%		0.02	%		0.01	%
Non-performing assets to total assets		0.18	%		0.02	%		0.13	%		0.02	%		0.01	%
Non-accrued interest (2)	$	17		$	1		$	25		$	4		$	1

(1)	Total loans are net of deferred fees and costs.
(2)	If interest on the loans classified as non-performing had been accrued, interest income in these amounts would have been accrued.

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          Classified Assets. Federal regulations provide for the classification of loans and other assets, such as debt and equity securities considered by regulators to be of lesser quality, as “substandard,” “doubtful” or “loss.”  An asset is considered “substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. “Substandard” assets include those characterized by the “distinct possibility” that the insured institution will sustain “some loss” if the deficiencies are not corrected. Assets classified as “doubtful” have all of the weaknesses inherent in those classified “substandard,” with the added characteristic that the weaknesses present make “collection or liquidation in full,” on the basis of currently existing facts, conditions, and values, “highly questionable and improbable.”  Assets classified as “loss” are those considered “uncollectible” and of such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted.

          When an insured institution classifies problem assets as either substandard or doubtful, it may establish general allowances for loan losses in an amount deemed prudent by management and approved by the Board of Directors. General allowances represent loss allowances which have been established to recognize the inherent risk associated with lending activities, but which, unlike specific allowances, have not been allocated to particular problem assets. When an insured institution classifies problem assets as “loss,” it is required either to establish a specific allowance for losses equal to 100% of that portion of the asset so classified or to charge off such amount. An institution’s determination as to the classification of its assets and the amount of its valuation allowances is subject to review by the Office of Thrift Supervision and the FDIC, which may order the establishment of additional general or specific loss allowances.

          In connection with the filing of our periodic reports with the Office of Thrift Supervision and in accordance with our classification of assets policy, we regularly review the problem assets in our portfolio to determine whether any assets require classification in accordance with applicable regulations. The total amount of classified assets represented 6.2% of our equity capital and 0.7% of our total assets at June 30, 2007.

          The aggregate amount of our classified and special mention assets at the dates indicated were as follows:

	At June 30,
	2007		2006		2005
	(In thousands)
Classified Assets:
Loss	$	58	$	90	$	45
Doubtful		670		1,321		1,375
Substandard		2,010		1,134		1,459
Special Mention		3,495		2,497		1,793
Total	$	6,233	$	5,042	$	4,672

          With the exception of these classified and special mention loans, management is not aware of any loans as of June 30, 2007, where the known credit problems of the borrower would cause us to have serious doubts as to the ability of such borrowers to comply with their present loan repayment terms.

          Allowance for Loan Losses. We maintain an allowance for loan losses to absorb probable incurred losses inherent in the loan portfolio. The allowance is based on ongoing, quarterly assessments of the probable losses inherent in the loan portfolio. Our methodology for assessing the appropriateness of the allowance consists of several key elements, which include loss ratio analysis by type of loan and specific allowances for identified problem loans, including the results of measuring impaired loans as provided in Statement of Financial Accounting Standards (“SFAS”) No. 114, “Accounting by Creditors for Impairment of a Loan” and SFAS No. 118, “Accounting by Creditors for Impairment of a Loan –

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Income Recognition and Disclosures.”  These accounting standards prescribe the measurement methods, income recognition and disclosures related to impaired loans.

          The loss ratio analysis component of the allowance is calculated by applying loss factors to outstanding loans based on the internal risk evaluation of the loans or pools of loans. Changes in risk evaluations of both performing and nonperforming loans affect the amount of the allowance. Loss factors are based both on our historical loss experience as well as on significant factors that, in management’s judgment, affect the collectibility of the portfolio as of the evaluation date.

          The appropriateness of the allowance is reviewed and established by management based upon its evaluation of then-existing economic and business conditions affecting our key lending areas and other conditions, such as credit quality trends (including trends in nonperforming loans expected to result from existing conditions), collateral values, loan volumes and concentrations, specific industry conditions within portfolio segments and recent loss experience in particular segments of the portfolio that existed as of the balance sheet date and the impact that such conditions were believed to have had on the collectibility of the loan. Senior management reviews these conditions quarterly in discussions with our senior credit officers. To the extent that any of these conditions is evidenced by a specifically identifiable problem credit or portfolio segment as of the evaluation date, management’s estimate of the effect of such condition may be reflected as a specific allowance applicable to such credit or portfolio segment. Where any of these conditions is not evidenced by a specifically identifiable problem credit or portfolio segment as of the evaluation date, management’s evaluation of the loss related to this condition is reflected in the general allowance. The evaluation of the inherent loss with respect to these conditions is subject to a higher degree of uncertainty because they are not identified with specific problem credits or portfolio segments.

          Management also evaluates the adequacy of the allowance for loan losses based on a review of individual loans, historical loan loss experience, the value and adequacy of collateral, and economic conditions in our market area. This evaluation is inherently subjective as it requires material estimates, including the amounts and timing of future cash flows expected to be received on impaired loans that may be susceptible to significant change. For all specifically reviewed loans for which it is probable that we will be unable to collect all amounts due according to the terms of the loan agreement, we determine impairment by computing a fair value either based on discounted cash flows using the loan’s initial interest rate or the fair value of the collateral if the loan is collateral dependent. Large groups of smaller balance homogenous loans that are collectively evaluated for impairment and are excluded from specific impairment evaluation, and their allowance for loan losses is calculated in accordance with the allowance for loan losses policy described above.

          Because the allowance for loan losses is based on estimates of losses inherent in the loan portfolio, actual losses can vary significantly from the estimated amounts. Our methodology as described permits adjustments to any loss factor used in the computation of the formula allowance in the event that, in management’s judgment, significant factors which affect the collectibility of the portfolio as of the evaluation date are not reflected in the loss factors. By assessing the estimated losses inherent in the loan portfolio on a quarterly basis, we are able to adjust specific and inherent loss estimates based upon any more recent information that has become available.

          At June 30, 2007, our allowance for loan losses was $2.8 million or 0.4% of the total loan portfolio and 245.8% of total non-performing loans. Assessing the adequacy of the allowance for loan losses is inherently subjective as it requires making material estimates, including the amount and timing of future cash flows expected to be received on impaired loans, which may be susceptible to significant change. In the opinion of management, the allowance, when taken as a whole, is at an amount that will absorb probable incurred loan losses inherent in our loan portfolios.

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          The following sets forth an analysis of our allowance for loan losses.

	Year Ended June 30,
	2007			2006			2005			2004			2003
	(Dollars in thousands)
Balance at beginning of period	$	2,722		$	2,408		$	2,328		$	2,281		$	1,744
Charge-offs:
One- to four-family		—			—			—			—			—
Commercial		—			—			—			—			—
Multi-family		—			—			—			—			—
Consumer – automobile		676			547			500			675			842
Consumer – other		92			33			48			62			58
		768			580			548			737			900
Recoveries:
One- to four-family		—			—			—			—			—
Commercial		—			—			—			—			—
Multi-family		—			—			—			—			—
Consumer – automobile		312			234			203			279			296
Consumer – other		10			8			19			22			17
		322			242			222			301			313
Net charge-offs		446			338			326			436			587
Provision for losses		529			652			406			483			1,124
Balance at end of period	$	2,805		$	2,722		$	2,408		$	2,328		$	2,281
Net charge-offs to average loans during this period(1)		0.07	%		0.06	%		0.06	%		0.11	%		0.19	%
Net charge-offs to average non-performing loans during this period		47.90	%		73.04	%		112.37	%		807.41	%		715.85	%
Allowance for loan losses to non-performing loans		245.84	%		4,062.69	%		305.97	%		2,839.02	%		8,773.08	%
Allowance as a percent of total loans (end of period) (1)		0.40	%		0.43	%		0.45	%		0.47	%		0.58	%

(1) Total loans are net of deferred fees and costs.

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Allocation of Allowance for Loan Losses.  The distribution of the allowance for losses on loans at the dates indicated is summarized as follows.

	At June 30,
	2007					2006					2005					2004					2003
	Amount		Percent of Loans in Each Category to Total Loans			Amount		Percent of Loans in Each Category to Total Loans			Amount		Percent of Loans in Each Category to Total Loans			Amount		Percent of Loans in Each Category to Total Loans			Amount		Percent of Loans in Each Category to Total Loans
	(Dollars in thousands)
Real estate loans:
One- to four-family	$	1,626		66.88	%	$	1,322		68.63	%	$	1,037		69.04	%	$	932		68.82	%	$	703		66.64	%
Commercial		73		11.09			54		9.24			40		6.01			99		5.41			82		5.46
Multi-family		114		12.55			123		14.01			155		16.26			232		14.60			132		10.85
Other loans:
Automobile		922		7.56			1,184		6.53			1,143		7.16			1,008		9.54			1,289		14.60
Home equity		1		0.21			2		0.28			1		0.11			1		0.08			2		0.17
Other		69		1.71			37		1.31			32		1.42			56		1.55			73		2.28
Total allowance for loan losses	$	2,805		100.00	%	$	2,722		100.00	%	$	2,408		100.00	%	$	2,328		100.00	%	$	2,281		100.00	%

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Investment Activities

          General. We are required by federal regulations to maintain an amount of liquid assets in order to meet our liquidity needs. These assets consist of certain specified securities. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity, Capital Resources and Commitments.”  Cash flow projections are regularly reviewed and updated to assure that adequate liquidity is provided.

          We are authorized to invest in various types of liquid assets, including U.S. Treasury obligations, securities of various federal agencies, certain certificates of deposit of insured banks and savings institutions, certain bankers’ acceptances, repurchase agreements and federal funds. Subject to various restrictions, federal savings associations may also invest their assets in investment grade commercial paper and corporate debt securities and mutual funds whose assets conform to the investments that a federally chartered savings association is otherwise authorized to make directly. See “Supervision and Regulation” for a discussion of additional restrictions on our investment activities.

          Under the direction and guidance of the Investment/Asset and Liability Management Committee and board policy, our president has the basic responsibility for the management of our investment portfolio. Various factors are considered when making decisions, including the marketability, maturity and tax consequences of the proposed investment. The maturity structure of investments will be affected by various market conditions, including the current and anticipated short and long term interest rates, the level of interest rates, the trend of new deposit inflows, and the anticipated demand for funds via deposit withdrawals and loan originations and purchases.

          The current structure of our investment portfolio provides liquidity when loan demand is high, assists in maintaining earnings when loan demand is low and maximizes earnings while satisfactorily managing risk, including credit risk, reinvestment risk, liquidity risk and interest rate risk.  Management’s Discussion and Analysis of Financial Condition and Results of Operation–Management of Market Risk.”

          At June 30, 2007, our investment portfolio totaled $34.7 million and consisted principally of collateralized mortgage obligations, mortgage-backed securities, and U.S. government agency and government sponsored entity bonds. From time to time, investment levels may increase or decrease depending upon yields available on investment alternatives and management’s projected demand for funds for loan originations, deposits, and other activities. Our investment policy only permits us to buy investment grade securities.

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

	At June 30,
	2007					2006					2005
	Carrying Value		Percent of Total			Carrying Value		Percent of Total			Carrying Value		Percent of Total
	(Dollars in thousands)
Securities available-for-sale:
U.S. government and government sponsored entity bonds	$	2,994		8.63	%	$	5,392		14.96	%	$	10,864		21.87	%
Mortgage-backed securities:
Freddie Mac		4,827		13.92			5,897		16.37			7,984		16.07
Collateralized mortgage obligations:
Freddie Mac		5,758		16.61			—		—			—		—
Total securities available-for-sale	$	13,579		39.16	%	$	11,289		31.33	%	$	18,848		37.94	%
Securities held-to-maturity:
U.S. government and government sponsored entity bonds	$	12,000		34.61	%	$	12,000		33.31	%	$	10,000		20.13	%
Mortgage-backed securities:
Fannie Mae		303		0.87			408		1.13			541		1.09
Freddie Mac		217		0.63			269		0.75			335		0.67
Ginnie Mae		146		0.42			168		0.47			250		0.50
Collateralized mortgage obligations:
Fannie Mae		2,747		7.92			3,372		9.36			4,617		9.29
Freddie Mac		4,926		14.21			7,197		19.98			12,570		25.30
Ginnie Mae		757		2.18			1,324		3.67			2,521		5.08
Total securities held-to-maturity	$	21,096		60.84	%	$	24,738		68.67	%	$	30,834		62.06	%
Total securities	$	34,675		100.00	%	$	36,027		100.00	%	$	49,682		100.00	%
Other earning assets:
Interest-bearing deposits in other financial institutions	$	2,970		10.39	%	$	9,010		24.97	%	$	9,010		38.57	%
Fed Funds		15,750		55.09			18,335		50.80			10,325		44.20
FHLB stock		9,870		34.52			8,746		24.23			4,027		17.23
Total other earning assets	$	28,590		100.00	%	$	36,091		100.00	%	$	23,362		100.00	%
Total securities and other earning assets	$	63,265				$	72,118				$	73,044

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          While our collateralized mortgage-backed securities and mortgage-backed securities carry a reduced credit risk as compared to whole loans due to their issuance under government agency sponsored programs, they remain subject to the risk that a fluctuating interest rate environment, along with other factors like the geographic distribution of the underlying mortgage loans, may alter the prepayment rate of the mortgage loans and so affect both the prepayment speed, and value, of the investment securities. As a result of these factors, the estimated average lives of these securities will be shorter than the contractual maturities as shown on the following table.

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          Portfolio Maturities and Yields.  The composition and maturities of the investment securities portfolio at June 30, 2007 are summarized in the following table.  Maturities are based on the final contractual payment dates, and do not reflect the impact of prepayments or early redemptions that may occur. 

	One year or less					More than One Year through Five Years					More than Five Years through Ten Years					More than Ten Years					Total Securities
	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)
Securities available-for-sale:
U.S. government and government sponsored entity bonds	$	—		—	%	$	3,000		5.30	%		—		—	%	$	—		—	%	$	3,000	$	2,994		5.30	%
Mortgage-backed securities:
Freddie Mac		—		—			3,836		3.26			1,130		3.86			—		—			4,966		4,827		3.40
Collateralized mortgage obligations
Freddie Mac		—		—			—		—			—		—			5,827		5.37			5,827		5,758		5.37
Total securities available-for-sale	$	—		—	%		6,836		4.16	%		1,130		3.86	%		5,827		5.37	%		13,793		13,579		4.65	%
Securities held-to-maturity:
U.S. government and government sponsored entity bonds	$	12,000		3.83			—		—			—		—			—		—			12,000		11,930		3.83
Mortgage-backed securities:
Fannie Mae		—		—			—		—			—		—			303		6.44			303		304		6.44
Freddie Mac		—		—			—		—			—		—			217		5.65			217		216		5.65
Ginnie Mae		—		—			—		—			—		—			146		6.05			146		146		6.05
Collateralized mortgage obligations
Fannie Mae		—		—			—		—			—		—			2,747		4.56			2,747		2,621		4.56
Freddie Mac		—		—			—		—			—		—			4,926		4.72			4,926		4,570		4.72
Ginnie Mae		—		—			—		—			—		—			757		3.45			757		727		3.45
Total securities held-to-maturity		12,000		3.83			—		—			—		—			9,096		4.67			21,096		20,514		4.19
Total securities	$	12,000		3.83			6,836		4.16	%		1,130		3.86	%	$	14,923		4.94	%	$	34,889	$	34,093		4.37	%

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          Interest Earning Deposits in Other Financial Institutions. Interest earning deposits in other financial institutions consists of certificates of deposits placed with multiple federally insured financial institutions in amounts that do not exceed the insurable limit of $100,000. These deposits are used as short-term investments as part of our overall asset/liability management. These certificates of deposit had a weighted-average yield of 3.4% and an average remaining life of four months at June 30, 2007.

          Federal Home Loan Bank Stock. As a member of the Federal Home Loan Bank of San Francisco, we are required to own capital stock in the Federal Home Loan Bank of San Francisco. The amount of stock we hold is based on percentages specified by the Federal Home Loan Bank of San Francisco on our outstanding advances and the requirements of their Mortgage Purchase Program. The redemption of any excess stock we hold is at the discretion of the Federal Home Loan Bank of San Francisco. The carrying value of Federal Home Loan Bank of San Francisco stock totaled $9.9 million and had a weighted-average-yield of 5.3% for the year ended June 30, 2007. The yield on the Federal Home Loan Bank of San Francisco stock is produced by stock dividends that are subject to the discretion of the Board of Directors of the Federal Home Loan Bank of San Francisco.

          Equity Investment. At June 30, 2007, we also had an investment in an affordable housing fund totaling $2.1 million with a commitment to fund an additional $193,000 for the purposes of obtaining tax credits and for Community Reinvestment Act purposes. The investment is being accounted for using the equity method of accounting. The investment is evaluated regularly for impairment based on the remaining allocable tax credits.

          Bank-Owned Life Insurance. In April 2005, we purchased $10.0 million in bank-owned life insurance, which covers certain key employees, to provide tax-exempt income to assist in offsetting costs associated with employee benefit plans offered by Kaiser Federal Bank. The bank-owned life insurance is recorded at its cash surrender value, or the amount that can be realized. At June 30, 2007, the cash surrender value was $11.0 million.

Sources of Funds

          General. Our sources of funds are deposits, payment of principal and interest on loans, interest earned on or maturation of other investment securities, borrowings, and funds provided from operations.

          Deposits. We offer a variety of deposit accounts to consumers with a wide range of interest rates and terms. Our deposits consist of certificate of deposit accounts, savings, money market and demand deposit accounts. We have historically paid competitive rates on our deposit accounts. We primarily rely on competitive pricing policies, marketing and customer service to attract and retain these deposits. At June 30, 2007, 39.5% of the dollar amount of our deposits were from customers who are employed by the Kaiser Permanente Medical Care Program, one of the largest employers in Southern California.  Our ATMs are located in branches and near Kaiser Permanente Medical Centers.  We currently do not accept brokered deposits.

          The flow of deposits is influenced significantly by general economic conditions, changes in money market and prevailing interest rates and bi-weekly direct deposits from Kaiser Permanente Medical Care Program payrolls. The variety of deposit accounts we offer has allowed us to be competitive in obtaining funds and to respond with flexibility to changes in consumer demand. We have become more susceptible to short-term fluctuations in deposit flows, as customers have become more interest rate conscious. We try to manage the pricing of our deposits in keeping with

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our asset/liability management, liquidity and profitability objectives, subject to competitive factors. Based on our experience, we believe that our deposits are a relatively stable sources of funds. Despite this stability, our ability to attract and maintain these deposits and the rates paid on them has been and will continue to be significantly affected by market conditions.

          The following table shows the distribution of various types of deposits and certain other information relating to as of the dates indicated.

	At June 30,
	2007					2006					2005
	Amount		Percent of Total			Amount		Percent of Total			Amount		Percent of Total
	(Dollars in thousands)
Noninterest-bearing demand	$	43,169		8.74	%	$	43,137		9.31	%	$	43,744		9.19	%
Savings		136,643		27.65			91,199		19.68			99,730		20.96
Money Market		75,599		15.30			110,987		23.95			107,080		22.51
Certificates of deposit:
1.00% - 1.99%		13		0.01			55		.01			7,139		1.50
2.00% - 2.99%		939		0.19			4,911		1.06			49,332		10.37
3.00% - 3.99%		21,256		4.30			54,679		11.80			93,291		19.61
4.00% - 4.99%		119,952		24.27			150,843		32.54			55,168		11.59
5.00% - 5.99%		96,557		19.54			7,643		1.65			9,148		1.92
6.00% - 6.99%		—		—			—		—			5,021		1.06
7.00% - 7.99%		—		—			—		—			6,139		1.29
Total Certificates of deposit		238,717		48.31			218,131		47.06			225,238		47.34
Total	$	494,128		100.00	%	$	463,454		100.00	%	$	475,792		100.00	%

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          The following table sets forth our deposit flows during the periods indicated.

	Year Ended June 30,
	2007			2006			2005
	(Dollars in thousands)
Opening balance	$	463,454		$	475,792		$	422,953
Acquired deposits		—			—			61,177	(1)
Deposits, net of withdrawals		15,752			(23,721	)		(17,204	)
Interest credited		14,922			11,383			8,866
Ending balance	$	494,128		$	463,454		$	475,792
Net increase (decrease)	$	30,674		$	(12,338	)	$	52,839
Percent increase (decrease)		6.6	%		(2.6	)%		12.5	%

(1) In September 2004, we acquired $60 million in deposits from another financial institution in connection with a branch acquisition.

          The following table indicates the amount of Kaiser Federal Bank’s certificates of deposit by time remaining until maturity as of June 30, 2007.

	Less than or equal to one year		More than one to two years		More than two to three years		More than three to four years		More than four years		Total
	(Dollars in thousands)
1.00% - 1.99%	$	13	$	—	$	—	$	—	$	—	$	13
2.00% - 2.99%		913		26		—		—		—		939
3.00% - 3.99%		9,256		9,308		2,061		522		109		21,256
4.00% - 4.99%		74,834		10,811		17,886		12,883		3,538		119,952
5.00% - 5.99%		89,722		321		92		300		6,122		96,557
	$	174,738	$	20,466	$	20,039	$	13,705	$	9,769	$	238,717

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          As of June 30, 2007, the aggregate amount of outstanding certificates of deposit in amounts greater than or equal to $100,000 was $93.5 million.  At June 30, 2006, the amount of such deposits was $74.7 million. The following table sets forth the maturity of those certificates as of June 30, 2007. 

Maturity Period	Certificates of Deposit
	(In thousands)
Three months or less	$	16,161
Over three through six months		28,285
Over six through twelve months		22,270
Over twelve months		26,831
Total	$	93,547

          Borrowings. Although deposits are our primary source of funds, we may utilize borrowings when they are a less costly source of funds, and can be invested at a positive interest rate spread, when we desire additional capacity to purchase loans or to fund loan demand or when they meet our asset/liability management goals. Our borrowings historically have consisted of advances from the Federal Home Loan Bank of San Francisco.

          We may obtain advances from the Federal Home Loan Bank of San Francisco upon the security of our mortgage loans and mortgage-backed securities. These advances may be made pursuant to several different credit programs, each of which has its own interest rate, range of maturities and call features. At June 30, 2007, we had $210.0 million in Federal Home Loan Bank advances outstanding.

          The following table sets forth information as to our Federal Home Loan Bank advances for the periods indicated.

	Year Ended June 30,
	2007			2006			2005
	(Dollars in thousands)
Balance at end of period	$	210,016		$	179,948		$	70,777
Average balance outstanding		189,217			148,408			60,354
Maximum month-end balance		210,016			179,948			90,444
Weighted average interest rate during the period		4.37	%		4.14	%		3.35	%
Weighted average interest rate at end of period		4.44	%		4.20	%		3.40	%

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Properties

          At June 30, 2007, we had three full service offices and six financial service centers. Our financial service centers provide all the same services as a full service office except they do not dispense cash, but cash is available from an ATM located on site. The net book value of our investment in premises, equipment and fixtures, excluding computer equipment, was approximately $2.7 million at June 30, 2007.

          The following table provides a list of our main and branch offices, all of which are leased with the exception of our Riverside branch.

Location	Owned or Leased		Lease Expiration Date		Deposits June 30, 2007
					(In thousands)
Home and Executive Office
1359 North Grand Avenue Covina, CA 91724		Leased		April 2010	$	65,645
Branch Offices:
252 South Lake Avenue Pasadena, CA 91101		Leased		May 2015	$	46,396
3375 Scott Boulevard, Suite 312 Santa Clara, CA 95054		Leased		May 2009	$	55,455
9844 Sierra Avenue, Suite A Fontana, CA 92335		Leased		September 2011	$	41,041
8501 Van Nuys Boulevard Panorama City, CA 91402		Leased		March 2011	$	116,009
10105 Rosecrans Avenue Bellflower, CA 90706		Leased		March 2011	$	46,698
26640 Western Avenue, Suite N Harbor City, CA 90170		Leased		February 2011	$	22,047
1110 N. Virgil Avenue Los Angeles, CA 90029		Leased		March 2011	$	66,480
11810 Pierce Street, Suite 150 Riverside, CA 92505		Owned		N/A	$	34,357

          We believe that our current facilities are adequate to meet the present and immediately foreseeable needs of Kaiser Federal Bank and K-Fed Bancorp.

          We use an in-house system with support provided by a third-party vendor to maintain our database of depositor and borrower customer information. The net book value of our data processing and computer equipment at June 30, 2007 was approximately $743,000.

Legal Proceedings

          From time to time, we are involved as plaintiff or defendant in various legal actions arising in the normal course of business. We do not anticipate incurring any material liability as a result of this litigation or any material impact on our financial position, results of operations or cash flows.

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          In March 2007, U.S. Mortgage converted its Chapter 11 bankruptcy proceeding to a Chapter 7 in the District Court of Nevada. U.S. Mortgage was responsible for servicing various commercial real estate participation loans totaling approximately $1.0 million that Kaiser Federal Bank purchased from the company. Through this transition period, all servicing functions of U.S. Mortgage are being handled by the Bankruptcy Trustee.

          During the course of these proceedings, U.S. Bank has asserted a claim against $1.0 million in loan principal being serviced by U.S. Mortgage on the basis that U.S. Bank has a priority right to the funds. Kaiser Federal Bank is vigorously contesting this claim and believes it has the priority ownership interest in these loans.

Employees

          At June 30, 2007, we had a total of 83 employees, and 15 part-time employees. Our employees are not represented by any collective bargaining group.  Management believes that we have good relations with our employees.

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SUPERVISION AND REGULATION

General

          As a federally chartered savings association, Kaiser Federal Bank is regulated and supervised by the Office of Thrift Supervision and the Federal Deposit Insurance Corporation.  This regulation and supervision establishes a comprehensive framework of activities in which we may engage, and is intended primarily for the protection of the Federal Deposit Insurance Corporation’s deposit insurance fund and depositors.  Under this system of federal regulation, financial institutions are periodically examined to ensure that they satisfy applicable standards with respect to their capital adequacy, assets, management, earnings, liquidity and sensitivity to market interest rates.  After completing an examination, the federal agency critiques the financial institution’s operations and assigns its rating (known as an institution’s CAMELS).  Under federal law, an institution may not disclose its CAMELS rating to the public.  Kaiser Federal Bank also is a member of, and owns stock in, the Federal Home Loan Bank of San Francisco, which is one of the 12 regional banks in the Federal Home Loan Bank System.  Kaiser Federal Bank also is regulated, to a lesser extent, by the Board of Governors of the Federal Reserve System, governing reserves to be maintained against deposits and other matters.  The Office of Thrift Supervision examines Kaiser Federal Bank and prepares reports for consideration by our Board of Directors on any operating deficiencies.  Kaiser Federal Bank’s relationship with our depositors and borrowers also is regulated to a great extent by both federal and state laws, especially in matters concerning the ownership of deposit accounts and the form and content of our loan documents.

          There can be no assurance that changes to existing laws, rules and regulations, or any other new laws, rules or regulations, will not be adopted in the future, which could make compliance more difficult or expensive or otherwise adversely affect our business, financial condition or prospects.  Any change in these laws or regulations, or in regulatory policy, whether by the Federal Deposit Insurance Corporation, the Office of Thrift Supervision or Congress, could have a material adverse impact on our business, financial condition or operations.

Federal Banking Regulation

          Business Activities.  A federal savings association derives its lending and investment powers from the Home Owners’ Loan Act, and the regulations of the Office of Thrift Supervision.  Under these laws and regulations, Kaiser Federal Bank may invest in mortgage loans secured by residential and commercial real estate, commercial business and consumer loans, certain types of debt securities and certain other loans and assets subject to applicable limits.  Kaiser Federal Bank also may establish subsidiaries that may engage in activities not otherwise permissible for Kaiser Federal Bank directly, including real estate investment, securities brokerage and insurance agency services subject to applicable registration and licensing requirements.

          Loans to One Borrower.  A federal savings association generally may not make a loan or extend credit to a single or related group of borrowers in excess of 15% of unimpaired capital and surplus.  An additional amount may be loaned, not in excess of 10% of unimpaired capital and surplus, if the loan is secured by readily marketable collateral, which generally does not include real estate.  As of June 30, 2007, Kaiser Federal Bank was in compliance with the loans-to-one-borrower limitations.

          Qualified Thrift Lender Test.  As a federal savings association, Kaiser Federal Bank is subject to the qualified thrift lender, or “QTL,” test.  Under the QTL test, Kaiser Federal Bank must maintain at least 65% of its “portfolio assets” in “qualified thrift investments” in at least nine months of the most recent 12-month period.  “Portfolio assets” generally means total assets of a savings institution, less the

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sum of specified liquid assets up to 20% of total assets, goodwill and other intangible assets, and the value of property used in the conduct of the institution’s business.

          “Qualified thrift investments” include various types of loans made for residential and housing purposes, investments related to such purposes, including certain mortgage-backed and related securities, and loans for personal, family, household and certain other purposes up to a limit of 20% of portfolio assets.  “Qualified thrift investments” also include 100% of an institution’s credit card loans, education loans and small business loans.  Kaiser Federal Bank also may satisfy the QTL test by qualifying as a “domestic building and loan association” as defined in the Internal Revenue Code of 1986.

          A savings association that fails the QTL test must either convert to a bank charter or operate under specified restrictions.  At June 30, 2007, Kaiser Federal Bank maintained approximately 87.4% of its portfolio assets in qualified thrift investments, and therefore satisfied the QTL test.

          Capital Distributions.  Office of Thrift Supervision regulations govern capital distributions by a federal savings association, which include cash dividends, stock repurchases and other transactions charged to the institution’s capital account.  A savings association must file an application with the Office of Thrift Supervision for approval of a capital distribution if:

• the total capital distributions for the applicable calendar year exceed the sum of the savings association’s net income for that year to date plus the savings association’s retained net income for the preceding two years;

• the savings association would not be at least adequately capitalized following the distribution;

• the distribution would violate any applicable statute, regulation, agreement or Office of Thrift Supervision-imposed condition; or

• the savings association is not eligible for expedited treatment of its filings.

          Even if an application is not otherwise required, every savings association that is a subsidiary of a holding company must still file a notice with the Office of Thrift Supervision at least 30 days before the Board of Directors declares a dividend or approves a capital distribution.

          The Office of Thrift Supervision may disapprove a notice or application if:

• the savings association would be undercapitalized following the distribution;

• the proposed capital distribution raises safety and soundness concerns; or

• the capital distribution would violate a prohibition contained in any statute, regulation or agreement.

          Liquidity.  A federal savings association is required to maintain a sufficient amount of liquid assets to ensure its safe and sound operation. 

          Community Reinvestment Act and Fair Lending Laws.  All savings associations have a continuing responsibility under the Community Reinvestment Act and related regulations of the Office of Thrift Supervision to help meet the credit needs of their communities, including low- and moderate-income neighborhoods.  In connection with its examination of a federal savings association, the Office of

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Thrift Supervision is required to assess the savings association’s record of compliance with the Community Reinvestment Act.  In addition, the Equal Credit Opportunity Act and the Fair Housing Act prohibit lenders from discriminating in their lending practices on the basis of characteristics specified in those statutes.  A savings association’s failure to comply with the provisions of the Community Reinvestment Act could, at a minimum, result in regulatory restrictions on its activities.  The failure to comply with the Equal Credit Opportunity Act and the Fair Housing Act could result in enforcement actions by the Office of Thrift Supervision, as well as other federal regulatory agencies and the Department of Justice.  Kaiser Federal Bank received a “Satisfactory” Community Reinvestment Act rating in its most recent federal examination.  The Community Reinvestment Act requires all FDIC-insured institutions to publicly disclose their rating.

          Transactions with Related Parties.  A federal savings association’s authority to engage in transactions with its “affiliates” is limited by Office of Thrift Supervision regulations and Regulation W of the Federal Reserve Board, which implements Sections 23A and 23B of the Federal Reserve Act.  The term “affiliates” for these purposes generally means any company that controls or is under common control with an institution.  Kaiser Federal Financial Group, Inc. and its non-savings institution subsidiaries will be affiliates of Kaiser Federal Bank.  In general, transactions with affiliates must be on terms that are as favorable to the savings association as comparable transactions with non-affiliates.  In addition, certain types of these transactions are restricted to an aggregate percentage of the savings association’s capital.  Collateral in specified amounts must usually be provided by affiliates in order to receive loans from the savings association.  In addition, Office of Thrift Supervision regulations prohibit a savings association from lending to any of its affiliates that are engaged in activities that are not permissible for bank holding companies and from purchasing the securities of any affiliate, other than a subsidiary.

          Kaiser Federal Bank’s authority to extend credit to its directors, executive officers and 10% or greater stockholders, as well as to entities controlled by such persons, is currently governed by the requirements of Sections 22(g) and 22(h) of the Federal Reserve Act and Regulation O of the Federal Reserve Board and regulations of the Office of Thrift Supervision. Among other things, these provisions require that extensions of credit to insiders (i) be made on terms that are substantially the same as, and follow credit underwriting procedures that are not less stringent than, those prevailing for comparable transactions with unaffiliated persons and that do not involve more than the normal risk of repayment or present other unfavorable features, and (ii) not exceed certain limitations on the amount of credit extended to such persons, individually and in the aggregate, which limits are based, in part, on the amount of Kaiser Federal Bank’s capital.  In addition, extensions of credit in excess of certain limits must be approved by Kaiser Federal Bank’s Board of Directors.

          Enforcement.  The Office of Thrift Supervision has primary enforcement responsibility over federal savings associations and has the authority to bring enforcement actions against all “institution-affiliated parties,” including stockholders, attorneys, appraisers and accountants who knowingly or recklessly participate in wrongful action likely to have an adverse effect on an institution.  Formal enforcement action may range from the issuance of a capital directive or cease and desist order to removal of officers and/or directors of the savings association, receivership, conservatorship or the termination of deposit insurance.  Civil penalties cover a wide range of violations and actions, and range up to $25,000 per day, unless a finding of reckless disregard is made, in which case penalties may be as high as $1.0 million per day.  The Federal Deposit Insurance Corporation also has the authority to recommend to the Director of the Office of Thrift Supervision that enforcement action be taken with respect to a particular savings association.  If action is not taken by the Director of the Office of Thrift Supervision, the Federal Deposit Insurance Corporation has authority to take action under specified circumstances.

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          Standards for Safety and Soundness.  Federal law requires each federal banking agency to prescribe certain standards for all insured depository institutions.  These standards relate to, among other things, internal controls, information systems and audit systems, loan documentation, credit underwriting, interest rate risk exposure, asset growth, compensation, and other operational and managerial standards as the agency deems appropriate.  The federal banking agencies have adopted Interagency Guidelines Prescribing Standards for Safety and Soundness.  The guidelines set forth the safety and soundness standards that the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired.  The guidelines address internal controls and information systems, internal audit systems, credit underwriting, loan documentation, interest rate risk exposure, asset growth, compensation, fees and benefits.  If the appropriate federal banking agency determines that an institution fails to meet any standard prescribed by the guidelines, the agency may require the institution to submit to the agency an acceptable plan to achieve compliance with the standard.  If the institution fails to submit an acceptable plan or implement an accepted compliance plan, the agency may take further enforcement action against the institution, including the issuance of a cease and desist order or the imposition of civil money penalties.

          Capital Requirements.  Office of Thrift Supervision regulations require savings banks to meet three minimum capital standards:  a 1.5% tangible capital ratio, a 4% leverage ratio (3% for institutions receiving the highest CAMELS rating) and an 8% risk-based capital ratio. 

          The risk-based capital standard for savings associations requires the maintenance of Tier 1 (core) and total capital (which is defined as core capital and supplementary capital) to risk-weighted assets of at least 4% and 8%, respectively. In determining the amount of risk-weighted assets, all assets, including certain off-balance sheet assets, are multiplied by a risk-weight factor of 0% to 100%, assigned by the Office of Thrift Supervision capital regulation based on the risks inherent in the type of asset. Core capital is defined as common stockholders’ equity (including retained earnings), certain noncumulative perpetual preferred stock and related surplus and minority interests in equity accounts of consolidated subsidiaries, less intangibles other than certain mortgage servicing rights and credit card relationships. The components of supplementary capital currently include cumulative preferred stock, long-term perpetual preferred stock, mandatory convertible securities, subordinated debt and intermediate preferred stock, allowance for loan and lease losses up to a maximum of 1.25% of risk-weighted assets, and up to 45% of net unrealized gains on available-for-sale equity securities with readily determinable fair market values. Overall, the amount of supplementary capital included as part of total capital cannot exceed 100% of core capital.

          In assessing an association’s capital adequacy, the Office of Thrift Supervision takes into consideration not only these numeric factors but also qualitative factors as well, and has the authority to establish higher capital requirements for individual associations where necessary.  Kaiser Federal Bank, as a matter of prudent management, targets as its goal the maintenance of capital ratios which exceed these minimum requirements and that are consistent with Kaiser Federal Bank’s risk profile.  At June 30, 2007, Kaiser Federal Bank exceeded each of its capital requirements.

          The Office of Thrift Supervision and other federal banking agencies risk-based capital standards also take into account interest rate risk, concentration of risk and the risks of non-traditional activities.  The Office of Thrift Supervision monitors the interest rate risk of individual institutions through the Office of Thrift Supervision requirements for interest rate risk management, the ability of the Office of Thrift Supervision to impose individual minimum capital requirements on institutions that exhibit a high degree of interest rate risk, and the requirements of Thrift Bulletin 13a, which provides guidance on the management of interest rate risk and the responsibility of boards of directors in that area.

          The Office of Thrift Supervision continues to monitor the interest rate risk of individual institutions through analysis of the change in net portfolio value.  Net portfolio value is defined as the net

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present value of the expected future cash flows of an entity’s assets and liabilities and, therefore, hypothetically represents the value of an institution’s net worth.  The Office of Thrift Supervision has also used this net portfolio value analysis as part of its evaluation of certain applications or notices submitted by savings banks.  The Office of Thrift Supervision, through its general oversight of the safety and soundness of savings associations, retains the right to impose minimum capital requirements on individual institutions to the extent the institution is not in compliance with certain written guidelines established by the Office of Thrift Supervision regarding net portfolio value analysis.  The Office of Thrift Supervision has not imposed any such requirements on Kaiser Federal Bank.

          At June 30, 2007, Kaiser Federal Bank’s capital exceeded all applicable requirements.  See “Historical and Pro Forma Regulatory Capital Compliance.”

          Prompt Corrective Action Regulations.  Under the prompt corrective action regulations, the Office of Thrift Supervision is authorized and, under certain circumstances, required to take supervisory actions against undercapitalized savings associations. For this purpose, a savings association is placed in one of the following five categories based on the savings association’s capital:

• well-capitalized (at least 5% leverage capital, 6% tier 1 risk-based capital and 10% total risk-based capital);

• adequately capitalized (at least 4% leverage capital, 4% tier 1 risk-based capital and 8% total risk-based capital);

• undercapitalized (less than 3% leverage capital, 4% tier 1 risk-based capital or 8% total risk-based capital);

• significantly undercapitalized (less than 3% leverage capital, 3% tier 1 risk-based capital or 6% total risk-based capital); or

• critically undercapitalized (less than 2% tangible capital).

          Generally, the Office of Thrift Supervision is required to appoint a receiver or conservator for a savings association that is “critically undercapitalized.”  The regulation also provides that a capital restoration plan must be filed with the Office of Thrift Supervision within 45 days of the date a savings association receives notice that it is “undercapitalized,” “significantly undercapitalized” or “critically undercapitalized” or is deemed to have notice and the plan must be guaranteed by any parent holding company.  The aggregate liability of a parent holding company is limited to the lesser of:

• an amount equal to 5% of the savings association’s total assets at the time it became “undercapitalized”; and

• the amount that is necessary (or would have been necessary) to bring the association into compliance with all capital standards applicable with respect to such association as of the time it fails to comply withy a capital restoration plan.

          If a savings association fails to submit an acceptable plan, it is treated as if it were “significantly undercapitalized.”  In addition, numerous mandatory supervisory restrictions become immediately applicable to the savings association, including, but not limited to, restrictions on growth, investment activities, capital distributions and affiliate transactions.  The Office of Thrift Supervision may also take any one of a number of discretionary supervisory actions against undercapitalized savings associations, including the issuance of a capital directive and the replacement of senior executive officers and directors. 

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          At June 30, 2007, Kaiser Federal Bank met the criteria for being considered “well-capitalized.”

          Deposit Insurance.  Kaiser Federal Bank is a member of the Deposit Insurance Fund, maintained by the FDIC, and Kaiser Federal Bank pays its deposit insurance assessments to the Deposit Insurance Fund.  The Deposit Insurance Fund was formed on March 31, 2006 following the merger of the Bank Insurance Fund and the Savings Association Insurance Fund in accordance with the Federal Deposit Insurance Reform Act of 2005 (the “Deposit Insurance Fund Act”).  In addition to merging the insurance funds, the Deposit Insurance Fund Act established a statutory minimum and maximum designated reserve ratio for the Deposit Insurance Fund and granted the FDIC greater flexibility in establishing the required reserve ratio.  In its regulations implementing the Deposit Insurance Fund Act, the FDIC has set the current annual designated reserve ratio for the Deposit Insurance Fund at 1.25%.

          In order to maintain the Deposit Insurance Fund, member institutions are assessed an insurance premium.  The amount of each institution’s premium is currently based on the balance of insured deposits and the degree of risk the institution poses to the Deposit Insurance Fund.  Under the assessment system, the FDIC assigns an institution to one of nine risk categories using a two-step process based first on capital ratios (the capital group assignment) and then on other relevant information (the supervisory subgroup assignment).  Each risk category is assigned an assessment rate.  Assessment rates currently range from .05% of deposits for an institution in the highest category (i.e., well-capitalized and financially sound, with no more than a few minor weaknesses) to 0.43% of deposits for an institution in the lowest category (i.e., undercapitalized and substantial supervisory concerns).  The FDIC is authorized to raise the assessment rates as necessary to maintain the Deposit Insurance Fund.  The Kaiser Federal Bank assessment rate at June 30, 2007 was .05% per $100 of deposits.  Any increase in insurance assessments could have an adverse effect on the earnings of insured institutions, including Kaiser Federal Bank.

          In addition, all FDIC -insured institutions are required to pay a pro rata portion of the interest due on obligations issued by the Financing Corporation to fund the closing and disposal of failed thrift institutions by the Resolution Trust Corporation.  At June 30, 2007, the FDIC assessed Deposit Insurance Fund-insured deposits 1.22 basis points (0.122%) per $100 of deposits to cover those obligations.  The Financing Corporation rate is adjusted quarterly to reflect changes in assessment bases of the Deposit Insurance Fund.  This obligation will continue until the Financing Corporation bonds mature in 2017.

          Assessments.  The Office of Thrift Supervision charges assessments to recover the cost of examining federal savings associations and their affiliates.  These assessments are based on three components: (i) the size of the institution on which the basic assessment is based; (ii) the institution’s supervisory condition, which results in an additional assessment based on a percentage of the basic assessment for any savings institution with a composite rating of 3, 4 or 5 in its most recent safety and soundness examination; and (iii) the complexity of the institution’s operations, which results in an additional assessment based on a percentage of the basic assessment for any savings institution that managed over $1 billion in trust assets, serviced for others loans aggregating more than $1 billion, or had certain off-balance sheet assets aggregating more than $1 billion. 

          The Office of Thrift Supervision also assesses fees against savings and loan holding companies, such as Kaiser Federal Financial Group, Inc.  The Office of Thrift Supervision semi-annual assessment for savings and loan holding companies includes a $3,000 base assessment with an additional assessment based on the holding company’s risk or complexity, organizational form and condition.

          Prohibitions Against Tying Arrangements.  Federal savings associations are prohibited, subject to some exceptions, from extending credit to or offering any other service, or fixing or varying the consideration for such extension of credit or service, on the condition that the customer obtain some

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additional service from the savings association or its affiliates or not obtain services of a competitor of the savings association.

          Federal Home Loan Bank System.  Kaiser Federal Bank is a member of the Federal Home Loan Bank System, which consists of 12 regional Federal Home Loan Banks each of which is subject to regulation and supervision of the Federal Housing Finance Board.  The Federal Home Loan Bank System provides a central credit facility primarily for member institutions as well as other entities involved in home mortgage lending.  It is funded primarily from proceeds derived from the sale of consolidated obligations of the Federal Home Loan Banks.  It makes loans or advances to members in accordance with policies and procedures, including collateral requirements, established by the respective boards of directors of the Federal Home Loan Banks.  These policies and procedures are subject to the regulation and oversight of the Federal Housing Finance Board.  All long-term advances are required to provide funds for residential home financing.  The Federal Housing Finance Board has also established standards of community or investment service that members must meet to maintain access to such long-term advances.  As a member of the Federal Home Loan Bank of San Francisco, Kaiser Federal Bank is required to acquire and hold shares of capital stock in the Federal Home Loan Bank.  As of June 30, 2007, Kaiser Federal Bank was in compliance with this requirement. 

Federal Reserve System

          Institutions must maintain a reserve of 3% against aggregate transaction accounts between $7.8 million and $48.3 million (subject to adjustment by the Federal Reserve Board) plus a reserve of 10% (subject to adjustment by the Federal Reserve Board between 8% and 14%) against that portion of total transaction accounts in excess of $48.3 million.  The first $7.8 million of otherwise reservable balances is exempt from the reserve requirements.  Kaiser Federal Bank is in compliance with the foregoing requirements.  Because required reserves must be maintained in the form of either vault cash, a non-interest-bearing account at a Federal Reserve Bank or a pass-through account as defined by the Federal Reserve Board, the effect of this reserve requirement is to reduce Kaiser Federal Bank’s interest-earning assets.  At June 30, 2007, Kaiser Federal Bank was in compliance with these reserve requirements.  The balances maintained to meet the reserve requirements imposed by the Federal Reserve Board may be used to satisfy liquidity requirements imposed by the Office of Thrift Supervision.

The USA PATRIOT Act

          The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 or the USA PATRIOT Act gives the federal government new powers to address terrorist threats through enhanced domestic security measures, expanded surveillance powers, increased information sharing and broadened anti-money laundering requirements.  Certain provisions of the Act impose affirmative obligations on a broad range of financial institutions, including federal savings associations, like Kaiser Federal Bank.  These obligations include enhanced anti-money laundering programs, customer identification programs and regulations relating to private banking accounts or correspondence accounts in the United States for non-United States persons or their representatives (including foreign individuals visiting the United States).

          Kaiser Federal Bank has established policies and procedures to ensure compliance with the USA PATRIOT Act’s provisions, and the impact of the USA PATRIOT Act on our operations has not been material.

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Privacy Requirements of the Gramm-Leach-Bliley Act

          The Gramm-Leach-Bliley Act of 1999 provided for sweeping financial modernization for commercial banks, savings banks, securities firms, insurance companies, and other financial institutions operating in the United States.  Among other provisions, the Gramm-Leach-Bliley Act places limitations on the sharing of consumer financial information with unaffiliated third parties.  Specifically, the Gramm-Leach-Bliley Act requires all financial institutions offering financial products or services to retail customers to provide such customers with the financial institution’s privacy policy and provide such customers the opportunity to “opt out” of the sharing of personal financial information with unaffiliated third parties.

Holding Company Regulation

          Upon completion of the conversion, Kaiser Federal Financial Group, Inc. will be a unitary savings and loan holding company, subject to regulation and supervision by the Office of Thrift Supervision.  The Office of Thrift Supervision will have enforcement authority over Kaiser Federal Financial Group, Inc. and its non-savings institution subsidiaries.  Among other things, this authority permits the Office of Thrift Supervision to restrict or prohibit activities that are determined to be a risk to Kaiser Federal Bank.

          Under federal law, unitary savings and loan holding companies not existing on, or applied for before, May 4, 1999, such as Kaiser Federal Financial Group, Inc., are limited to those activities permissible for financial holding companies or for multiple savings and loan holding companies.  A financial holding company may engage in activities that are financial in nature, including underwriting equity securities and insurance, incidental to financial activities or complementary to a financial activity.  A multiple savings and loan holding company is generally limited to activities permissible for bank holding companies under Section 4(c)(8) of the Bank Holding Company Act, subject to the prior approval of the Office of Thrift Supervision, and certain additional activities authorized by Office of Thrift Supervision regulations.

          Federal law prohibits a savings and loan holding company, directly or indirectly, or through one or more subsidiaries, from acquiring control of another savings institution or holding company thereof, without prior written approval of the Office of Thrift Supervision.  It also prohibits the acquisition or retention of, with specified exceptions, more than 5% of the equity securities of a company engaged in activities that are not closely related to banking or financial in nature or acquiring or retaining control of an institution that is not federally insured.  In evaluating applications by holding companies to acquire savings institutions, the Office of Thrift Supervision must consider the financial and managerial resources and future prospects of the savings institution involved, the effect of the acquisition on the risk to the insurance fund, the convenience and needs of the community and competitive factors.

Sarbanes-Oxley Act of 2002

          As a public company, Kaiser Federal Financial Group, Inc. is subject to the Sarbanes-Oxley Act, which implements a broad range of corporate governance and accounting measures for public companies designed to promote honesty and transparency in corporate America and better protect investors from corporate wrongdoing.  The Sarbanes-Oxley Act’s principal legislation and the derivative regulation and rule making promulgated by the SEC includes:

• the creation of an independent accounting oversight board;

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• auditor independence provisions which restrict non-audit services that accountants may provide to their audit clients;

• additional corporate governance and responsibility measures, including the requirement that the chief executive officer and chief financial officer certify financial statements;

• a requirement that companies establish and maintain a system of internal control over financial reporting and that a company’s management provide an annual report regarding its assessment of the effectiveness of such internal control over financial reporting to the company’s independent accountants and that such accountants provide an attestation report with respect to management’s assessment of the effectiveness of the company’s internal control over financial reporting;

• the forfeiture of bonuses or other incentive-based compensation and profits from the sale of an issuer’s securities by directors and senior officers in the twelve month period following initial publication of any financial statements that later require restatement;

• an increase in the oversight of, and enhancement of certain requirements relating to audit committees of public companies and how they interact with the company’s independent auditors;

• requirement that audit committee members must be independent and are absolutely barred from accepting consulting, advisory or other compensatory fees from the issuer;

• requirement that companies disclose whether at least one member of the committee is a “financial expert” (as such term is defined by the Securities and Exchange Commission) and if not, why not;

• expanded disclosure requirements for corporate insiders, including accelerated reporting of stock transactions by insiders and a prohibition  on insider  trading during pension blackout periods;

• a prohibition on personal loans to directors and officers, except certain loans made by insured financial institutions;

• disclosure of a code of ethics and filing a Form 8-K for a change or waiver of such code;

• mandatory disclosure by analysts of potential conflicts of interest; and

• a range of enhanced penalties for fraud and other violations.

          Section 402 of the Sarbanes-Oxley Act prohibits the extension of personal loans to directors and executive officers of issuers (as defined in Sarbanes-Oxley).  The prohibition, however, does not apply to loans made by an insured depository institution, such as Kaiser Federal Bank, that are subject to the insider lending restrictions of Regulation O of the Federal Reserve Board.

Federal Securities Laws

          Kaiser Federal Financial Group, Inc. has filed with the Securities and Exchange Commission a registration statement under the Securities Act of 1933, as amended, for the registration of the shares of common stock to be issued pursuant to the conversion and the offering. Upon completion of the

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conversion, shares of Kaiser Federal Financial Group, Inc. common stock will be registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended. Kaiser Federal Financial Group, Inc. will be subject to the information, proxy solicitation, insider trading restrictions and other requirements under the Securities Exchange Act of 1934.

          The registration under the Securities Act of 1933 of shares of common stock to be issued in the offering does not cover the resale of those shares. Shares of common stock purchased by persons who are not affiliates of Kaiser Federal Financial Group, Inc. may be resold without registration. Shares purchased by an affiliate of Kaiser Federal Financial Group, Inc. will be subject to the resale restrictions of Rule 144 under the Securities Act of 1933. If Kaiser Federal Financial Group, Inc. meets the current public information reporting requirements of Rule 144 under the Securities Act of 1933, each affiliate of Kaiser Federal Financial Group, Inc. that complies with the other conditions of Rule 144, including those that require the affiliate’s sale to be aggregated with those of other persons, would be able to sell in the public market, without registration, a number of shares not to exceed, in any three-month period, the greater of 1% of the outstanding shares of Kaiser Federal Financial Group, Inc., or the average weekly volume of trading in the shares during the preceding four calendar weeks.  In the future, Kaiser Federal Financial Group, Inc. may permit affiliates to have their shares registered for sale under the Securities Act of 1933.

TAXATION

Federal Taxation

          General.  Kaiser Federal Financial Group, Inc. and Kaiser Federal Bank are subject to federal income taxation in the same general manner as other corporations, with some exceptions discussed below.  The following discussion of taxation is intended only to summarize pertinent federal income tax matters and is not a comprehensive description of the tax rules applicable to K-Fed Bancorp or Kaiser Federal Bank.  Kaiser Federal Financial Group, Inc. has not yet filed a federal income tax return due to its recent organization.  Kaiser Federal Bank’s federal income tax returns have never been audited by the Internal Revenue Service.

          It is anticipated that Kaiser Federal Financial Group, Inc. and Kaiser Federal Bank will file separate federal and state income tax returns after completion of the offering.  It is anticipated that any cash distributions made by Kaiser Federal Financial Group, Inc. to its stockholders would be considered to be taxable dividends to the extent of current or accumulated earnings and profits.

          Method of Accounting.  For federal income tax purposes, Kaiser Federal Bank currently reports its income and expenses on the accrual method of accounting and uses a fiscal year ending on June 30, for filing its federal income tax return.

          Minimum Tax.  The Internal Revenue Code imposes an alternative minimum tax at a rate of 20% on a base of regular taxable income plus certain tax preferences, called alternative minimum taxable income.  The alternative minimum tax is payable to the extent such alternative minimum taxable income is in excess of an exemption amount.  Net operating losses can offset no more than 90% of alternative minimum taxable income.  Certain payments of alternative minimum tax may be used as credits against regular tax liabilities in future years.  Kaiser Federal Bank has not been subject to the alternative minimum tax, nor do we have any such amounts available as credits for carryover.

          Net Operating Loss Carryovers.  A financial institution may carryback net operating losses to the preceding two taxable years and forward to the succeeding 20 taxable years.  This provision applies to losses incurred in taxable years beginning after August 6, 1997.  At June 30, 2007, Kaiser Federal Bank had no net operating loss carryforwards for federal income tax purposes.

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          Corporate Dividends-Received Deduction.  K-Fed Bancorp may eliminate from its income dividends received from Kaiser Federal Bank as a wholly owned subsidiary of K-Fed Bancorp if it elects to file a consolidated return with Kaiser Federal Bank.  The corporate dividends-received deduction is 100% or 80%, in the case of dividends received from corporations with which a corporate recipient does not file a consolidated tax return, depending on the level of stock ownership of the payor of the dividend.  Corporations which own less than 20% of the stock of a corporation distributing a dividend may deduct 70% of dividends received or accrued on their behalf.

State Taxation

          K-Fed Bancorp and Kaiser Federal Bank are subject to the California Corporate (Franchise) tax which is assessed at the rate of 10.84%.  For this purpose, taxable income generally means federal taxable income subject to certain modifications provided for in California law.

          As a Maryland business corporation, Kaiser Federal Financial Group, Inc. will be required to file annual returns with the State of Maryland.

MANAGEMENT

Management of Kaiser Federal Financial Group, Inc.

          The Board of Directors of Kaiser Federal Financial Group, Inc. will consist of six individuals who currently serve as directors of K-Fed Bancorp, K-Fed Mutual Holding Company and Kaiser Federal Bank.  The Board of Directors of Kaiser Federal Financial Group, Inc. will be divided into three classes, as nearly equal as possible, with approximately one-third of the directors elected each year.  The directors will be elected by the stockholders of Kaiser Federal Financial Group, Inc. for three year terms, and until their successors are elected and have qualified.  The terms of the directors of each of Kaiser Federal Financial Group, Inc. and Kaiser Federal Bank are identical.  The executive officers of Kaiser Federal Financial Group, Inc. are also executive officers of K-Fed Bancorp. We expect that Kaiser Federal Financial Group, Inc. and Kaiser Federal Bank will continue to have common directors until there is a business reason to establish separate management structures.  

          The following individuals will serve as the executive officers of Kaiser Federal Financial Group, Inc. and hold the office set forth below opposite their name.

Executive	Position Held
Kay M. Hoveland	President and Chief Executive Officer
Dustin Luton	Senior Vice President and Chief Financial Officer

          Executive officers of Kaiser Federal Financial Group, Inc. are elected annually and hold office until their respective successors have been elected or until death, resignation or removal by the Board of Directors.

          Directors of Kaiser Federal Financial Group, Inc. initially will not be compensated by Kaiser Federal Financial Group, Inc. but will serve for and be compensated by Kaiser Federal Bank.  It is not anticipated that separate compensation will be paid to directors of Kaiser Federal Financial Group, Inc. until such time as these persons devote significant time to the separate management of Kaiser Federal Financial Group, Inc. affairs, which is not expected to occur until Kaiser Federal Financial Group, Inc. becomes actively engaged in additional businesses other than holding the stock of Kaiser Federal Bank.  Kaiser Federal Financial Group, Inc. may determine that such compensation is appropriate in the future.

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Indemnification of Directors and Officers

          The officers, directors, agents and employees of Kaiser Federal Financial Group, Inc. are indemnified with respect to certain actions pursuant to Kaiser Federal Financial Group, Inc.’s articles of incorporation and Maryland law. Maryland law allows Kaiser Federal Financial Group, Inc. to indemnify any person for expenses, liabilities, settlements, judgments and fines in suits in which such person has been made a party by reason of the fact that he or she is or was a director, officer or employee of Kaiser Federal Financial Group, Inc.  No such indemnification may be given (i) to the extent that it is proved that the person actually received an improper benefit or profit in money, property or services for the amount of the benefit or profit in money, property or services actually received; (ii) to the extent that a judgment or other final adjudication adverse to the person is entered in a proceeding based on a finding that the person’s action, or failure to act, was the result of active and deliberate dishonesty and was material to the cause of action adjudicated; or (iii) to the extent otherwise provided by Maryland law.  The right to indemnification includes the right to be paid the expenses incurred in advance of final disposition of a proceeding.

          Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to our directors, officers and controlling persons by our bylaws or otherwise, we have been advised that, in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable.

Benefits to be Considered Following Completion of the Conversion

          Stock-Based Incentive Plan.  Following the stock offering, we intend to adopt a new stock-based incentive plan that will provide for grants of stock options and restricted common stock awards.  The number of options granted or shares awarded under the plan may not exceed 3.7% and 9.3%, respectively, of the shares sold in the stock offering if the stock-based incentive plan is adopted within one year after the stock offering, in accordance with Office of Thrift Supervision policy. 

          The stock-based incentive plan will not be established sooner than six months after the stock offering and if adopted within one year after the stock offering would require the approval by stockholders owning a majority of the outstanding shares of Kaiser Federal Financial Group, Inc. common stock eligible to be cast.  If the stock-based incentive plan is established after one year after the stock offering, it would require the approval of our stockholders by a majority of votes cast.  The following additional restrictions would apply to our stock-based incentive plan if the plan is adopted within one year after the stock offering:

• non-employee directors in the aggregate may not receive more than 30% of the options and restricted stock awards authorized under the plan;

• any one non-employee director may not receive more than 5% of the options and restricted stock awards authorized under the plan;

• any officer or employee may not receive more than 25% of the options and restricted stock awards authorized under the plan;

• any tax-qualified employee stock benefit plans and management stock benefit plans, in the aggregate, may not hold more than 10% of the shares sold in the offering, unless Kaiser Federal Bank has tangible capital of 10% or more, in which case any tax-qualified employee stock benefit plans and management stock benefit plans, may be increased to up to 12% of the shares sold in the offering;

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• the options and restricted stock awards may not vest more rapidly than 20% per year, beginning on the first anniversary of the grant;

• accelerated vesting is not permitted except for death, disability or upon a change in control of Kaiser Federal Bank or Kaiser Federal Financial Group, Inc.; and

• our executive officers or directors must exercise or forfeit their options in the event that Kaiser Federal Bank becomes critically undercapitalized, is subject to enforcement action or receives a capital directive.

          In the event either federal or state regulators change their regulations or policies regarding stock-based incentive plans, including any regulations or policies restricting the size of awards and vesting of benefits as described above, the restrictions described above may not be applicable.

          Employment Agreements.  Following completion of the conversion and offering, Kaiser Federal Bank plans to enter into an employment agreement with Ms. Hoveland for a three-year term with an initial salary of $350,000.  In addition to the base salary, the agreement provides for, among other things, participation in bonus programs and other employee pension benefit and fringe benefit plans applicable to executive employees.  Upon each anniversary date of the agreement, the term will be extended for an additional year unless Kaiser Federal Bank notifies Ms. Hoveland at least 30 days prior to such date that it intends to not extend the term.  Under the agreement, Ms. Hoveland’s employment may be terminated for cause at an time, in which event she would have no right to receive compensation or other benefits for any period after termination.

          Certain events resulting in Ms. Hoveland’s termination or resignation will entitle her to payments of severance benefits following termination of employment.  Ms. Hoveland will be entitled to severance benefits under the employment agreement in the event (A) her employment is involuntarily terminated (for reasons other than cause, death, disability or retirement) or (B) she resigns during the term of the agreement within two years after any of the following events (i) a requirement that she report to a corporate officer instead of the Board of Directors, (ii) a material change in her functions, duties or responsibilities, which change would cause her position to become of lesser responsibility, importance or scope of authority, (iii) a material reduction in her base salary, or the budget over which she has authority (iv) a relocation of her principal place of employment by more than 25 miles from the location as of the date of the agreement, or (v) a material breach of the agreement by Federal Kaiser Bank, then she would be entitled to a severance payment equal to three times her highest annual rate of base salary at any time during the term of the agreement and three times her highest annual bonus received during the latest three calendar years prior to the termination.  In addition, she would be entitled, at no expense to her, to the continuation of substantially comparable life, medical and disability coverage for such period.  Notwithstanding any provision to the contrary in the agreement, payments under the agreement following a change in control are limited so that they will not constitute an excess parachute payment under Section 280G of the Internal Revenue Code.

          In addition, Kaiser Federal Bank plans to enter into employment agreements with Mr. Luton, Ms. Thompson and Ms. Huber upon completion of the conversion that contain similar terms as the agreement for Ms. Hoveland.  The agreement for each of Mr. Luton, Ms. Thompson and Ms. Huber provide for a term of two years with an initial salary of $226,600, $144,664 and $156,000, respectively.  In addition, the agreement for each of Mr. Luton, Ms. Thompson and Ms. Huber provide for a severance payment equal to two times their highest annual rate of base salary at any time during the term of the agreement and two times their highest annual bonus received during the latest three calendar years prior to the termination.

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SUBSCRIPTIONS BY DIRECTORS AND EXECUTIVE OFFICERS

          The table below sets forth, for each of Kaiser Federal Financial Group, Inc.’s directors and executive officers and for all of the directors and executive officers as a group, the following information:

(i)	the number of exchange shares to be held upon consummation of the conversion, based upon their beneficial ownership of K-Fed Bancorp common stock as of August 14, 2007;
(ii)	the proposed purchases of subscription shares, assuming sufficient shares of common stock are available to satisfy their subscriptions; and
(iii)	the total amount of Kaiser Federal Financial Group, Inc. common stock to be held upon consummation of the conversion.

          In each case, it is assumed that subscription shares are sold at the maximum of the offering range. See “Proposal 3 — Approval of the Plan of Conversion and Reorganization —Limitations on Common Stock Purchases.”  Regulations of the Office of Thrift Supervision prohibit our directors and officers from selling the shares they purchase in the offering for one year after the date of purchase.

			Proposed Purchases of Stock in the Offering (1)				Total Common Stock to be Held
Name of Beneficial Owner	Number of Exchange Shares to be Held (2)		Number of Shares		Amount		Number of Shares		Percentage of Total Outstanding
Directors:
James L. Breeden		93,859		5,000	$	50,000		98,859		*
Kay M. Hoveland		254,956		20,000		200,000		274,956		1.3	%
Rita H. Zwern		46,898		100		1,000		46,998		*
Gerald A. Murbach		72,203		—		—		72,203		*
Robert C. Steinbach		77,939		1,000		10,000		78,939		*
Executive Officers who are not Directors:
Dustin Luton		33,967		5,000		50,000		38,967		*
Nancy J. Huber		72,144		5,000		50,000		77,144		*
Jeanne R. Thompson		64,964		10,500		105,000		75,464		*
Total for Directors and Executive Officers		716,930		46,600		466,000		763,530		3.7	%

*	Less than 1%.
(1)	Includes proposed subscriptions, if any, by associates.
(2)	Based on information presented in “Beneficial Ownership of Common Stock” and assumes an exchange ratio of 1.6870 shares for each share of K-Fed Bancorp.

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COMPARISON OF STOCKHOLDERS’ RIGHTS FOR EXISTING STOCKHOLDERS OF K-FED BANCORP

          General. As a result of the conversion, existing stockholders of K-Fed Bancorp will become stockholders of Kaiser Federal Financial Group, Inc. There are differences in the rights of stockholders of K-Fed Bancorp and stockholders of Kaiser Federal Financial Group, Inc. caused by differences between federal and Maryland law and regulations and differences in K-Fed Bancorp’s federal stock charter and bylaws and Kaiser Federal Financial Group, Inc.’s Maryland articles of incorporation and bylaws.

          This discussion is not intended to be a complete statement of the differences affecting the rights of stockholders, but rather summarizes the material differences and similarities affecting the rights of stockholders. This discussion is qualified in its entirety by reference to the articles of incorporation and bylaws of Kaiser Federal Financial Group, Inc. and the Maryland General Corporation Law. See “Where You Can Find Additional Information” for procedures for obtaining a copy of Kaiser Federal Financial Group, Inc.’s articles of incorporation and bylaws.

          Authorized Capital Stock. K-Fed Bancorp’s authorized capital stock currently consists of 18,000,000 shares of common stock, par value $0.01 per share, and 2,000,000 shares of preferred stock. After the conversion, Kaiser Federal Financial Group, Inc.’s authorized capital stock will consist of 100,000,000 shares of common stock, $0.01 par value per share, and 25,000,000 shares of serial preferred stock, par value $0.01 per share. We authorized more capital stock than that which will be issued in the conversion in order to provide our Board of Directors with flexibility to effect, among other transactions, financings, acquisitions, stock dividends, stock splits and stock option grants. These additional authorized shares may also be used by our Board of Directors, consistent with its fiduciary duty, to deter future attempts to gain control of Kaiser Federal Financial Group, Inc.  Our Board of Directors also has sole authority to determine the terms of any one or more series of preferred stock, including voting rights, conversion rates and liquidation preferences. As a result of the ability to fix voting rights for a series of preferred stock, our Board of Directors has the power, to the extent consistent with its fiduciary duty, to issue a series of preferred stock to persons friendly to management in order to attempt to block a hostile tender offer, merger or other transaction by which a third party seeks control, and thereby assist management to retain its position. We currently have no plans for the issuance of additional shares, other than the issuance of additional shares through our stock benefit plans.

          Issuance of Capital Stock. Pursuant to applicable laws and regulations, K-Fed Mutual Holding Company is required to own not less than a majority of the outstanding shares of K-Fed Bancorp common stock. K-Fed Mutual Holding Company will no longer exist following consummation of the conversion.

          Kaiser Federal Financial Group, Inc.’s articles of incorporation do not contain restrictions on the issuance of shares of capital stock to directors, officers or controlling persons, whereas K-Fed Bancorp’s stock charter restricts such issuances to general public offerings, or to directors for qualifying shares, unless the share issuance or the plan under which they would be issued has been approved by a majority of the total votes eligible to be cast at a legal stockholders’ meeting. However, stock-based compensation plans, such as stock option plans and restricted stock plans, would have to be submitted for approval by Kaiser Federal Financial Group, Inc. stockholders due to requirements of the Nasdaq Stock Market and in order to qualify stock options for favorable federal income tax treatment.  The Office of Thrift Supervision regulations also require stockholder approval of stock-based compensation plans within one year of the completion of the conversion.

          Voting Rights. Neither K-Fed Bancorp’s stock charter or bylaws nor Kaiser Federal Financial Group, Inc.’s articles of incorporation or bylaws provide for cumulative voting for the election of

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directors. For additional information regarding voting rights, see “—Limitations on Voting Rights of Greater-than-10% Stockholders” below.

          Payment of Dividends. The ability of K-Fed Bancorp to pay dividends on its capital stock is restricted by Office of Thrift Supervision regulations and by federal income tax considerations related to federal savings associations such as Kaiser Federal Bank. See “Supervision and Regulation—Federal Banking Regulation—Capital Distributions.” Although Kaiser Federal Financial Group, Inc. is not subject to these restrictions as a Maryland corporation, such restrictions will indirectly affect Kaiser Federal Financial Group, Inc. because dividends from Kaiser Federal Bank will be the primary source of funds of Kaiser Federal Financial Group, Inc. for the payment of dividends to its stockholders.

          Certain restrictions generally imposed on Maryland corporations may also have an impact on Kaiser Federal Financial Group, Inc.’s ability to pay dividends.  Maryland law generally provides that Kaiser Federal Financial Group, Inc. is limited to paying dividends in an amount equal to our capital surplus over payments that would be owed upon dissolution to stockholders whose preferential rights upon dissolution are superior to those receiving the dividend, and to an amount that would not make us insolvent.

          Board of Directors. K-Fed Bancorp’s stock charter and bylaws and Kaiser Federal Financial Group, Inc.’s articles of incorporation and bylaws each require the Board of Directors to be divided into three classes and that the members of each class shall be elected for a term of three years and until their successors are elected and qualified, with one class being elected annually.

          Under K-Fed Bancorp’s bylaws, any vacancies on the Board of Directors of K-Fed Bancorp may be filled by the affirmative vote of a majority of the remaining directors although less than a quorum of the Board of Directors. Persons elected by the Board of Directors of K-Fed Bancorp to fill vacancies may only serve until the next annual meeting of stockholders. Under Kaiser Federal Financial Group, Inc.’s articles of incorporation, any vacancy occurring on the Board of Directors, including any vacancy created by reason of an increase in the number of directors, may be filled only by a majority of the remaining directors, and any director so chosen shall hold office for the remainder of the term to which the director has been elected and until his or her successor is elected and qualified.

          Under K-Fed Bancorp’s bylaws, any director may be removed for cause by the holders of a majority of the outstanding voting shares.  Kaiser Federal Financial Group, Inc.’s articles of incorporation provide that any director may be removed for cause by the holders of at least 80% of the outstanding voting shares of Kaiser Federal Financial Group, Inc.

          Limitations on Liability. The charter and bylaws of K-Fed Bancorp do not limit the personal liability of directors.

          Kaiser Federal Financial Group, Inc.’s articles of incorporation provide that directors will not be personally liable for monetary damages to Kaiser Federal Financial Group, Inc. for certain actions as directors, except for (i) receipt of an improper personal benefit from their positions as directors, or (ii) actions or omissions that are determined to have involved active and deliberate dishonesty, or (iii) to the extent allowed by Maryland law. These provisions might, in certain instances, discourage or deter stockholders or management from bringing a lawsuit against directors for a breach of their duties even though such an action, if successful, might benefit Kaiser Federal Financial Group, Inc.

          Indemnification of Directors, Officers, Employees and Agents. K-Fed Bancorp’s bylaws provide indemnification to directors, officers and employees to the fullest extent allowed by law. Under current Office of Thrift Supervision regulations, K-Fed Bancorp shall indemnify its directors, officers and

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employees for any costs incurred in connection with any litigation involving such person’s activities as a director, officer or employee if such person obtains a final judgment on the merits in his or her favor. In addition, indemnification is permitted in the case of a settlement, a final judgment against such person, or final judgment other than on the merits, if a majority of disinterested directors determines that such person was acting in good faith within the scope of his or her employment as he or she could reasonably have perceived it under the circumstances and for a purpose he or she could reasonably have believed under the circumstances was in the best interests of K-Fed Bancorp or its stockholders. K-Fed Bancorp also is permitted to pay ongoing expenses incurred by a director, officer or employee if a majority of disinterested directors concludes that such person may ultimately be entitled to indemnification. Before making any indemnification payment, K-Fed Bancorp is required to notify the Office of Thrift Supervision of its intention, and such payment cannot be made if the Office of Thrift Supervision objects to such payment.

          The officers, directors, agents and employees of Kaiser Federal Financial Group, Inc. are indemnified with respect to certain actions pursuant to Kaiser Federal Financial Group, Inc.’s articles of incorporation and Maryland law. Maryland law allows Kaiser Federal Financial Group, Inc. to indemnify any person for expenses, liabilities, settlements, judgments and fines in suits in which such person has been made a party by reason of the fact that he or she is or was a director, officer or employee of Kaiser Federal Financial Group, Inc.  No such indemnification may be given if the acts or omissions of the person are adjudged to be in bad faith and materials to the matter giving rise to the proceeding, if such person is liable to the corporation for an unlawful distribution, or if such person personally received a benefit to which he or she was not entitled.  The right to indemnification includes the right to be paid the expenses incurred in advance of final disposition of a proceeding.

          Special Meetings of Stockholders. K-Fed Bancorp’s bylaws provide that special meetings of K-Fed Bancorp’s stockholders may be called by the Chairman, the president, a majority of the members of the Board of Directors or the holders of not less than one-tenth of the outstanding capital stock of K-Fed Bancorp entitled to vote at the meeting. Kaiser Federal Financial Group, Inc.’s bylaws provide that special meetings of the stockholders of Kaiser Federal Financial Group, Inc. may be called by the president, by a majority vote of the total authorized directors, or upon the written request of stockholders entitled to cast at least a majority of all votes entitled to vote at the meeting.

          Stockholder Nominations and Proposals. K-Fed Bancorp’s bylaws generally provide that stockholders may submit nominations for election of directors at an annual meeting of stockholders and may propose any new business to be taken up at such a meeting by filing the proposal in writing with K-Fed Bancorp at least five days before the date of any such meeting.

          Kaiser Federal Financial Group, Inc.’s bylaws generally provide that any stockholder desiring to make a nomination for the election of directors or a proposal for new business at a meeting of stockholders must submit written notice to Kaiser Federal Financial Group, Inc. at least 90 days prior and not earlier than 120 days prior to the anniversary date of the mailing of proxy materials by Kaiser Federal Financial Group, Inc. in connection with the immediately preceding annual meeting of stockholders.  However, if the date of the annual meeting is advanced more than 20 days prior to or delayed by more than 60 days after the anniversary of the preceding year’s annual meeting, stockholders must submit such written notice no earlier than the 120^th day, and not later than the 90^th day, prior to the annual meeting, or alternatively, not later than the 10th day following the date on which notice of the meeting is mailed to stockholders or such public disclosure was made. Failure to comply with these advance notice requirements will preclude such nominations or new business from being considered at the meeting.

          Management believes that it is in the best interests of Kaiser Federal Financial Group, Inc. and its stockholders to provide sufficient time to enable management to disclose to stockholders information

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about a dissident slate of nominations for directors. This advance notice requirement may also give management time to solicit its own proxies in an attempt to defeat any dissident slate of nominations, should management determine that doing so is in the best interests of stockholders generally. Similarly, adequate advance notice of stockholder proposals will give management time to study such proposals and to determine whether to recommend to the stockholders that such proposals be adopted.  In certain instances, such provisions could make it more difficult to oppose management’s nominees or proposals, even if stockholders believe such nominees or proposals are in their best interests.

          Stockholder Action Without a Meeting. The bylaws of K-Fed Bancorp provide that any action to be taken or which may be taken at any annual or special meeting of stockholders may be taken if a consent in writing, setting forth the actions so taken, is given by the holders of all outstanding shares entitled to vote. Kaiser Federal Financial Group, Inc.’s bylaws provide similar authority of stockholders to act without a meeting.

          Stockholder’s Right to Examine Books and Records. A federal regulation, which is applicable to K-Fed Bancorp, provides that stockholders may inspect and copy specified books and records after proper written notice for a proper purpose. Maryland law provides that a stockholder may inspect a company’s bylaws, stockholder minutes, annual statement of affairs and any voting trust agreements. However, only a stockholder or group of stockholders who together, for at least six months, hold at least 5% of the company’s total shares, have the right to inspect a company’s stock ledger, list of stockholders and books of accounts.

          Limitations on Voting Rights of Greater-than-10% Stockholders.  K-Fed Bancorp’s charter provides that no record or beneficial owner, directly or indirectly, of more than 10% of the outstanding shares of common stock will be permitted to vote any shares in excess of such 10% limit.  Kaiser Federal Financial Group, Inc.’s articles of incorporation also has a similar provision.

          Mergers, Consolidations and Sales of Assets. A federal regulation applicable to K-Fed Bancorp generally requires the approval of two-thirds of the Board of Directors of K-Fed Bancorp and the holders of two-thirds of the outstanding stock of K-Fed Bancorp entitled to vote thereon for mergers, consolidations and sales of all or substantially all of K-Fed Bancorp’s assets. Such regulation permits K-Fed Bancorp to merge with another corporation without obtaining the approval of its stockholders if:

(i)	it does not involve an interim savings institution;
(ii)	K-Fed Bancorp’s federal stock charter is not changed;
(iii)	each share of K-Fed Bancorp’s stock outstanding immediately prior to the effective date of the transaction will be an identical outstanding share or a treasury share of K-Fed Bancorp after such effective date; and
(iv)	either:

(a)	no shares of voting stock of K-Fed Bancorp and no securities convertible into such stock are to be issued or delivered under the plan of combination; or
(b)	the authorized but unissued shares or the treasury shares of voting stock of K-Fed Bancorp to be issued or delivered under the plan of combination, plus those initially issuable upon conversion of any securities to be issued or delivered under such plan, do not exceed 15% of the total shares of voting stock of K-Fed Bancorp outstanding immediately prior to the effective date of the transaction.

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          Kaiser Federal Financial Group, Inc.’s articles of incorporation require the approval of the holders of at least 80% of Kaiser Federal Financial Group, Inc.’s outstanding shares of voting stock to approve certain “Business Combinations” involving an “Interested Stockholder” except where:

(i)	the proposed transaction has been approved by a majority of the members of the Board of Directors who are unaffiliated with the Interested Stockholder and who were directors prior to the time when the Interested Stockholder became an Interested Stockholder; or
(ii)	certain “fair price” provisions are complied with.
(iii)	The term “Interested Stockholder” includes any person or entity, other than Kaiser Federal Financial Group, Inc. or its subsidiary, which owns beneficially or controls, directly or indirectly, 10% or more of the outstanding shares of voting stock of Kaiser Federal Financial Group, Inc. This provision of the articles of incorporation applies to any “Business Combination,” which is defined to include, among other things, any merger or consolidation of Kaiser Federal Financial Group, Inc. or transfer, or other disposition of 25% or more of the assets of Kaiser Federal Financial Group, Inc. with an Interested Stockholder;

          Under Maryland law, absent this provision, business combinations, including mergers, consolidations and sales of substantially all of the assets of a corporation must, subject to certain exceptions, be approved by the vote of the holders of two-thirds of the corporation’s outstanding shares of common stock and any other affected class of stock. One exception under Maryland law to the two-thirds approval requirement applies to stockholders owning 10% or more of the common stock of a corporation for a period of less than five years. Such 10% stockholder, in order to obtain approval of a business combination, must obtain the approval of 80% of all outstanding stock and two-thirds of the outstanding stock excluding the stock owned by such 10% stockholder, or satisfy other requirements under Maryland law relating to Board of director approval of his or her acquisition of the shares of the corporation. The increased stockholder vote required to approve a business combination may have the effect of preventing mergers and other business combinations which a majority of stockholders deem desirable and placing the power to prevent such a merger or combination in the hands of a minority of stockholders.

          Kaiser Federal Financial Group, Inc.’s articles of incorporation provide that the Board of Directors may consider certain factors in addition to the amount of consideration to be paid when evaluating certain business combinations or a tender or exchange offer. These additional factors include the social and economic effects of the transaction on its customers and employees and the communities served by Kaiser Federal Financial Group, Inc.

          Dissenters’ Rights of Appraisal.  Office of Thrift Supervision regulations generally provide that a stockholder of a federally chartered corporation that engages in a merger, consolidation or sale of all or substantially all of its assets shall have the right to demand from such institution payment of the fair or appraised value of his or her stock in the corporation, subject to specified procedural requirements.   The regulations also provide, however, that a stockholder of a federally chartered corporation whose shares are listed on a national securities exchange or quoted on the Nasdaq stock market are not entitled to dissenters’ rights in connection with a merger if the stockholder is required to accept only “qualified consideration” for his or her stock, which is defined to include cash, shares of stock of any institution or corporation that at the effective date of the merger will be listed on a national securities exchange or quoted on the Nasdaq stock market, or any combination of such shares of stock and cash.

          Under Maryland law, stockholders of Kaiser Federal Financial Group, Inc. will not have dissenters’ appraisal rights in connection with a plan of merger or consolidation to which Kaiser Federal

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Financial Group, Inc. is a party as long as the common stock of Kaiser Federal Financial Group, Inc. trades on the Nasdaq Stock Market.   

          Amendment of Governing Instruments. No amendment of K-Fed Bancorp’s stock charter may be made unless it is first proposed by the Board of Directors of K-Fed Bancorp, then preliminarily approved by the Office of Thrift Supervision, and thereafter approved by the holders of a majority of the total votes eligible to be cast at a legal meeting. Kaiser Federal Financial Group, Inc.’s articles of incorporation may be amended by the vote of the holders of a majority of the outstanding shares of common stock if at least two-thirds of the members of the Board of Directors approves such amendment, except that the provisions of the articles of incorporation governing preferred stock, no cumulative voting, stockholder nominations and proposals, limitations on voting rights of 10% stockholders, the number and staggered terms of directors, vacancies on the Board of Directors and removal of directors, approval of certain business combinations, indemnification of officers and directors, limitations on the liability of directors and officers and the manner of amending the articles of incorporation and bylaws, may not be repealed, altered, amended or rescinded except by the vote of the holders of at least 80% of the outstanding shares common stock.

          The bylaws of K-Fed Bancorp may be amended by a majority vote of the full Board of Directors of K-Fed Bancorp or by a majority of the votes cast by the stockholders of K-Fed Bancorp at any legal meeting. Kaiser Federal Financial Group, Inc.’s bylaws may be amended only by a majority vote of the Board of Directors of Kaiser Federal Financial Group, Inc. or by the holders of at least 80% of the outstanding common stock.

          Residency Requirement for Directors.  Kaiser Federal Financial Group, Inc.’s bylaws provide that only persons who reside or work in California will be qualified to be appointed or elected to the Board of Directors of Kaiser Federal Financial Group, Inc. K-Fed Bancorp’s federal bylaws have no similar provision. 

          Purpose and Anti-Takeover Effects of Kaiser Federal Financial Group, Inc.’s Articles of Incorporation and Bylaws.  Our Board of Directors believes that the provisions described above or below are prudent and will reduce our vulnerability to takeover attempts and certain other transactions that have not been negotiated with and approved by our Board of Directors. These provisions also will assist us in the orderly deployment of the offering proceeds into productive assets during the initial period after the conversion. Our Board of Directors believes these provisions are in the best interests of Kaiser Federal Financial Group, Inc. and its stockholders. Our Board of Directors believes that it will be in the best position to determine the true value of Kaiser Federal Financial Group, Inc. and to negotiate more effectively for what may be in the best interests of its stockholders. Accordingly, our Board of Directors believes that it is in the best interests of Kaiser Federal Financial Group, Inc. and its stockholders to encourage potential acquirers to negotiate directly with the Board of Directors and that these provisions will encourage such negotiations and discourage hostile takeover attempts. It is also the view of our Board of Directors that these provisions should not discourage persons from proposing a merger or other transaction at a price reflective of the true value of Kaiser Federal Financial Group, Inc. and that is in the best interests of all stockholders.

          Takeover attempts that have not been negotiated with and approved by our Board of Directors present the risk of a takeover on terms that may be less favorable than might otherwise be available. A transaction that is negotiated and approved by our Board of Directors, on the other hand, can be carefully planned and undertaken at an opportune time in order to obtain maximum value of Kaiser Federal Financial Group, Inc. for our stockholders, with due consideration given to matters such as the management and business of the acquiring corporation and maximum strategic development of Kaiser Federal Financial Group, Inc.’s assets.

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          Although a tender offer or other takeover attempt may be made at a price substantially above the current market price, such offers are sometimes made for less than all of the outstanding shares of a target company.  As a result, stockholders may be presented with the alternative of partially liquidating their investment at a time that may be disadvantageous, or retaining their investment in an enterprise that is under different management and whose objectives may not be similar to those of the remaining stockholders.

          Despite our belief as to the benefits to stockholders of these provisions of Kaiser Federal Financial Group, Inc.’s articles of incorporation and bylaws, these provisions may also have the effect of discouraging a future takeover attempt that would not be approved by our Board of Directors, but pursuant to which stockholders may receive a substantial premium for their shares over then current market prices. As a result, stockholders who might desire to participate in such a transaction may not have any opportunity to do so. Such provisions will also make it more difficult to remove our Board of Directors and management. Our Board of Directors, however, has concluded that the potential benefits outweigh the possible disadvantages.

          Following the conversion, pursuant to applicable law and, if required, following the approval by stockholders, we may adopt additional anti-takeover provisions in our articles of incorporation or other devices regarding the acquisition of our equity securities that would be permitted for a Maryland business corporation.

          The cumulative effect of the restrictions on acquisition of Kaiser Federal Financial Group, Inc. contained in our articles of incorporation and bylaws and in Maryland law may be to discourage potential takeover attempts and perpetuate incumbent management, even though certain stockholders of Kaiser Federal Financial Group, Inc. may deem a potential acquisition to be in their best interests, or deem existing management not to be acting in their best interests.

RESTRICTIONS ON ACQUISITION OF KAISER FEDERAL FINANCIAL GROUP, INC.

          Although the Board of Directors of Kaiser Federal Financial Group, Inc. is not aware of any effort that might be made to obtain control of Kaiser Federal Financial Group, Inc. after the conversion, the Board of Directors believes that it is appropriate to include certain provisions as part of Kaiser Federal Financial Group, Inc.’s articles of incorporation to protect the interests of Kaiser Federal Financial Group, Inc. and its stockholders from takeovers which our Board of Directors might conclude are not in the best interests of Kaiser Federal Bank, Kaiser Federal Financial Group, Inc. or Kaiser Federal Financial Group, Inc.’s stockholders. 

          The following discussion is a general summary of the material provisions of Kaiser Federal Financial Group, Inc.’s articles of incorporation and bylaws, Kaiser Federal Bank’s charter and bylaws and certain other regulatory provisions that may be deemed to have an “anti-takeover” effect.  The following description of certain of these provisions is necessarily general and, with respect to provisions contained in Kaiser Federal Financial Group, Inc.’s articles of incorporation and bylaws and Kaiser Federal Bank’s stock charter and bylaws, reference should be made in each case to the document in question, each of which is part of K-Fed Mutual Holding Company’s application for conversion with the Office of Thrift Supervision and Kaiser Federal Financial Group, Inc.’s registration statement filed with the Securities and Exchange Commission.  See “Where You Can Find Additional Information.”

Kaiser Federal Financial Group, Inc.’s Articles of Incorporation and Bylaws

          Kaiser Federal Financial Group, Inc.’s articles of incorporation and bylaws contain a number of provisions relating to corporate governance and rights of stockholders that might discourage future

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takeover attempts.  As a result, stockholders who might desire to participate in such transactions may not have an opportunity to do so. In addition, these provisions will also render the removal of the Board of Directors or management of Kaiser Federal Financial Group, Inc. more difficult.

          Directors. The Board of Directors will be divided into three classes.  The members of each class will be elected for a term of three years and only one class of directors will be elected annually.  Thus, it would take at least two annual elections to replace a majority of our Board of Directors.  Further, the bylaws impose notice and information requirements in connection with the nomination by stockholders of candidates for election to the Board of Directors or the proposal by stockholders of business to be acted upon at an annual meeting of stockholders.

          Restrictions on Call of Special Meetings.  The articles of incorporation and bylaws provide that special meetings of stockholders can be called by the president, by a majority of the whole Board or upon the written request of stockholders entitled to cast at least a majority of all votes entitled to vote at the meeting.

          Prohibition of Cumulative Voting.  The articles of incorporation prohibit cumulative voting for the election of directors. 

          Limitation of Voting Rights.   The articles of incorporation provide that in no event will any person who beneficially owns more than 10% of the then-outstanding shares of common stock, be entitled or permitted to vote any of the shares of common stock held in excess of the 10% limit.

          Restrictions on Removing Directors from Office.  The articles of incorporation provide that directors may be removed only for cause, and only by the affirmative vote of the holders of at least 80% of the voting power of all of our then-outstanding common stock entitled to vote (after giving effect to the limitation on voting rights discussed above in “—Limitation of Voting Rights.”)

          Authorized but Unissued Shares.  After the conversion, Kaiser Federal Financial Group, Inc. will have authorized but unissued shares of common and preferred stock.  See “Description of Capital Stock of Kaiser Federal Financial Group, Inc. Following the Conversion.”  The articles of incorporation authorize 25 million shares of serial preferred stock.  Kaiser Federal Financial Group, Inc. is authorized to issue preferred stock from time to time in one or more series subject to applicable provisions of law, and the Board of Directors is authorized to fix the designations, and relative preferences, limitations, voting rights, if any, including without limitation, offering rights of such shares (which could be multiple or as a separate class).  In the event of a proposed merger, tender offer or other attempt to gain control of Kaiser Federal Financial Group, Inc. that the Board of Directors does not approve, it might be possible for the Board of Directors to authorize the issuance of a series of preferred stock with rights and preferences that would impede the completion of the transaction.  An effect of the possible issuance of preferred stock therefore may be to deter a future attempt to gain control of Kaiser Federal Financial Group, Inc.  The Board of Directors has no present plan or understanding to issue any preferred stock.

          Amendments to Articles of Incorporation and Bylaws. Amendments to the articles of incorporation must be approved by our Board of Directors and also by at least a majority of the outstanding shares of our voting stock; provided, however, that approval by at least 80% of the outstanding voting stock is generally required to amend the following provisions:

(i)	The limitation on voting rights of persons who directly or indirectly beneficially own more than 10% of the outstanding shares of common stock;
(ii)	Preferred stock;

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(iii)	Prohibition of cumulative voting;
(iv)	The division of the Board of Directors into three staggered classes;
(v)	The ability of the Board of Directors to fill vacancies on the Board;
(vi)	The inability to deviate from the manner prescribed in the bylaws by which stockholders nominate directors and bring other business before meetings of stockholders;
(vii)	The requirement that at least 80% of stockholders must vote to remove directors, and can only remove directors for cause;
(viii)	The ability of the Board of Directors to amend and repeal the bylaws; and
(ix)	The ability of the Board of Directors to evaluate a variety of factors in evaluating offers to purchase or otherwise acquire Kaiser Federal Financial Group, Inc.

          The bylaws may be amended by the affirmative vote of a majority of our directors or the affirmative vote of at least 80% of the total votes eligible to be voted at a duly constituted meeting of stockholders.

Conversion Regulations

          Office of Thrift Supervision regulations prohibit any person from making an offer, announcing an intent to make an offer or participating in any other arrangement to purchase stock or acquiring stock or subscription rights in a converting institution or its holding company from another person prior to completion of its conversion. Further, without the prior written approval of the Office of Thrift Supervision, no person may make an offer or announcement of an offer to purchase shares or actually acquire shares of a converted institution or its holding company for a period of three years from the date of the completion of the conversion if, upon the completion of such offer, announcement or acquisition, the person would become the beneficial owner of more than 10% of the outstanding stock of the institution or its holding company. The Office of Thrift Supervision has defined “person” to include any individual, group acting in concert, corporation, partnership, association, joint stock company, trust, unincorporated organization or similar company, a syndicate or any other group formed for the purpose of acquiring, holding or disposing of securities of an insured institution.  However, offers made exclusively to a bank or its holding company, or an underwriter or member of a selling group acting on the converting institution’s or its holding company’s behalf for resale to the general public are excepted. The regulation also provides civil penalties for willful violation or assistance in any such violation of the regulation by any person connected with the management of the converting institution or its holding company or who controls more than 10% of the outstanding shares or voting rights of a converted institution or its holding company.

Change in Control Regulations

          Under the Change in Bank Control Act, no person may acquire control of an insured federal savings bank or its parent holding company unless the Office of Thrift Supervision has been given 60 days’ prior written notice and has not issued a notice disapproving the proposed acquisition. In addition, Office of Thrift Supervision regulations provide that no company may acquire control of a savings bank without the prior approval of the Office of Thrift Supervision. Any company that acquires such control becomes a “savings and loan holding company” subject to registration, examination and regulation by the Office of Thrift Supervision.

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          Control, as defined under federal law, means ownership, control of or holding irrevocable proxies representing more than 25% of any class of voting stock, control in any manner of the election of a majority of the institution’s directors, or a determination by the Office of Thrift Supervision that the acquiror has the power to direct, or directly or indirectly to exercise a controlling influence over, the management or policies of the institution. Acquisition of more than 10% of any class of a savings bank’s voting stock, if the acquiror is also subject to any one of eight “control factors,” constitutes a rebuttable determination of control under the regulations. Such control factors include the acquiror being one of the two largest stockholders. The determination of control may be rebutted by submission to the Office of Thrift Supervision, prior to the acquisition of stock or the occurrence of any other circumstances giving rise to such determination, of a statement setting forth facts and circumstances which would support a finding that no control relationship will exist and containing certain undertakings. The regulations provide that persons or companies which acquire beneficial ownership exceeding 10% or more of any class of a savings bank’s stock who do not intend to participate in or seek to exercise control over a savings bank’s management or policies may qualify for a safe harbor by filing with the Office of Thrift Supervision a certification form that states, among other things, that the holder is not in control of such institution, is not subject to a rebuttable determination of control and will take no action which would result in a determination or rebuttable determination of control without prior notice to or approval of the Office of Thrift Supervision, as applicable. There are also rebuttable presumptions in the regulations concerning whether a group “acting in concert” exists, including presumed action in concert among members of an “immediate family.”

          The Office of Thrift Supervision may prohibit an acquisition of control if it finds, among other things, that:

(i)	the acquisition would result in a monopoly or substantially lessen competition;
(ii)	the financial condition of the acquiring person might jeopardize the financial stability of the institution; or
(iii)	the competence, experience or integrity of the acquiring person indicates that it would not be in the interest of the depositors or the public to permit the acquisition of control by such person.

DESCRIPTION OF CAPITAL STOCK OF KAISER FEDERAL FINANCIAL GROUP, INC. FOLLOWING THE CONVERSION

General

          At the effective date, Kaiser Federal Financial Group, Inc. is authorized to issue 100 million shares of common stock, par value of $0.01 per share, and 25 million shares of preferred stock, par value $0.01 per share. Kaiser Federal Financial Group, Inc. currently expects to issue in the offering up to 14,950,000 shares of common stock, subject to adjustment, and up to 8,582,229 shares, subject to adjustment, in exchange for the publicly held shares of K-Fed Bancorp.  Kaiser Federal Financial Group, Inc. will not issue shares of preferred stock in the conversion. Each share of Kaiser Federal Financial Group, Inc. common stock will have the same relative rights as, and will be identical in all respects to, each other share of common stock. Upon payment of the subscription price for the common stock, in accordance with the plan of conversion and reorganization, all of the shares of common stock will be duly authorized, fully paid and nonassessable.

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          The shares of common stock of Kaiser Federal Financial Group, Inc. will represent nonwithdrawable capital, will not be an account of an insurable type, and will not be insured by the Federal Deposit Insurance Corporation or any other government agency.

Common Stock

          Dividends. Kaiser Federal Financial Group, Inc. may pay dividends to an amount equal to the excess of our capital surplus over payments that would be owed upon dissolution to stockholders whose preferential rights upon dissolution are superior to those receiving the dividend, and to an amount that would not make us insolvent, as and when declared by our Board of Directors. The payment of dividends by Kaiser Federal Financial Group, Inc. is subject to limitations that are imposed by law and applicable regulation. The holders of common stock of Kaiser Federal Financial Group, Inc. will be entitled to receive and share equally in dividends as may be declared by our Board of Directors out of funds legally available therefor. If Kaiser Federal Financial Group, Inc. issues shares of preferred stock, the holders thereof may have a priority over the holders of the common stock with respect to dividends.

          Voting Rights. Upon consummation of the conversion, the holders of common stock of Kaiser Federal Financial Group, Inc. will have exclusive voting rights in Kaiser Federal Financial Group, Inc.  They will elect Kaiser Federal Financial Group, Inc.’s Board of Directors and act on other matters as are required to be presented to them under Maryland law or as are otherwise presented to them by the Board of Directors. Generally, each holder of common stock will be entitled to one vote per share and will not have any right to cumulate votes in the election of directors.  Any person who beneficially owns more than 10% of the then-outstanding shares of Kaiser Federal Financial Group, Inc.’s common stock, however, will not be entitled or permitted to vote any shares of common stock held in excess of the 10% limit.  If Kaiser Federal Financial Group, Inc. issues shares of preferred stock, holders of the preferred stock may also possess voting rights. Certain matters require an 80% stockholder vote.

          As a federal stock savings association, corporate powers and control of Kaiser Federal Bank are vested in its Board of Directors, who elect the officers of Kaiser Federal Bank and who fill any vacancies on the Board of Directors. Voting rights of Kaiser Federal Bank are vested exclusively in the owners of the shares of capital stock of Kaiser Federal Bank, which will be Kaiser Federal Financial Group, Inc., and voted at the direction of Kaiser Federal Financial Group, Inc.’s Board of Directors.  Consequently, the holders of the common stock of Kaiser Federal Financial Group, Inc. will not have direct control of Kaiser Federal Bank.

          Liquidation. In the event of any liquidation, dissolution or winding up of Kaiser Federal Bank, Kaiser Federal Financial Group, Inc., as the holder of 100% of Kaiser Federal Bank’s capital stock, would be entitled to receive all assets of Kaiser Federal Bank available for distribution, after payment or provision for payment of all debts and liabilities of Kaiser Federal Bank, including all deposit accounts and accrued interest thereon, and after distribution of the balance in the liquidation account to Eligible Account Holders and Supplemental Eligible Account Holders. In the event of liquidation, dissolution or winding up of Kaiser Federal Financial Group, Inc., the holders of its common stock would be entitled to receive, after payment or provision for payment of all its debts and liabilities, all of the assets of Kaiser Federal Financial Group, Inc. available for distribution. If preferred stock is issued, the holders thereof may have a priority over the holders of the common stock in the event of liquidation or dissolution.

          Preemptive Rights. Holders of the common stock of Kaiser Federal Financial Group, Inc. will not be entitled to preemptive rights with respect to any shares that may be issued. The common stock is not subject to redemption.

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Preferred Stock

          None of the shares of Kaiser Federal Financial Group, Inc.’s authorized preferred stock will be issued as part of the offering or the conversion. Preferred stock may be issued with preferences and designations as our Board of Directors may from time to time determine. Our Board of Directors may, without stockholder approval, issue shares of preferred stock with voting, dividend, liquidation and conversion rights that could dilute the voting strength of the holders of the common stock and may assist management in impeding an unfriendly takeover or attempted change in control.

TRANSFER AGENT

          The transfer agent and registrar for Kaiser Federal Financial Group, Inc.’s common stock is Registrar and Transfer Company, Cranford, New Jersey.

EXPERTS

          The consolidated financial statements of K-Fed Bancorp as of June 30, 2007 and 2006, and for each of the years in the three-year period ended June 30, 2007 included in this registration statement, have been audited by Crowe Chizek and Company, LLP, independent registered public accounting firm, as stated in their report, which is included and has been so included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.

          RP Financial, LC. has consented to the publication herein of the summary of its report to Kaiser Federal Financial Group, Inc. setting forth its opinion as to the estimated pro forma market value of the shares of common stock upon completion of the conversion and offering and its letter with respect to subscription rights.

LEGAL MATTERS

          Luse Gorman Pomerenk & Schick, P.C., Washington, D.C., counsel to Kaiser Federal Financial Group, Inc., K-Fed Mutual Holding Company, K-Fed Bancorp and Kaiser Federal Bank, will issue to Kaiser Federal Financial Group, Inc. its opinion regarding the legality of the common stock and the federal income tax consequences of the conversion. Certain matters relating to state taxation will be passed upon for us by Crowe Chizek and Company LLP.  Certain legal matters will be passed upon for Keefe Bruyette & Woods by Breyer & Associates PC.

WHERE YOU CAN FIND ADDITIONAL INFORMATION

          Kaiser Federal Financial Group, Inc. has filed with the Securities and Exchange Commission a registration statement under the Securities Act of 1933 with respect to the shares of common stock offered hereby. As permitted by the rules and regulations of the Securities and Exchange Commission, this proxy statement/prospectus does not contain all the information set forth in the registration statement.  Such information, including the appraisal report which is an exhibit to the registration statement, can be examined without charge at the public reference facilities of the Securities and Exchange Commission located at 100 F Street, N.E., Washington, D.C. 20549, and copies of such material can be obtained from the Securities and Exchange Commission at prescribed rates.  The Securities and Exchange Commission telephone number is 1-800-SEC-0330.  In addition, the Securities and Exchange Commission maintains a web site (http:/www.sec.gov) that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Securities and Exchange Commission, including Kaiser Federal Financial Group, Inc.  The statements contained in this proxy statement/prospectus as to the contents of any contract or other document filed as an exhibit to the

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registration statement are, of necessity, brief descriptions of the material terms of, and should be read in conjunction with, such contract or document.

          K-Fed Mutual Holding Company has filed with the Office of Thrift Supervision an Application on Form AC with respect to the conversion. This proxy statement/prospectus omits certain information contained in the application. The application may be examined at the principal office of the Office of Thrift Supervision, 1700 G Street, N.W., Washington, D.C. 20552, and at the West Regional Office of the Office of Thrift Supervision, 2001 Junipero Serra Boulevard, Suite 650, Daly City, California 94014. Our plan of conversion and reorganization is available, upon request, at each of our banking offices.

          In connection with the offering, Kaiser Federal Financial Group, Inc. will register its common stock under Section 12(b) of the Securities Exchange Act of 1934 and, upon such registration, Kaiser Federal Financial Group, Inc. and the holders of its common stock will become subject to the proxy solicitation rules, reporting requirements and restrictions on common stock purchases and sales by directors, officers and greater than 10% stockholders, the annual and periodic reporting and certain other requirements of the Securities Exchange Act of 1934.  Under the plan of conversion and reorganization, Kaiser Federal Financial Group, Inc. has undertaken that it will not terminate such registration for a period of at least three years following the offering.

ADVANCE NOTICE OF BUSINESS TO BE CONDUCTED
AT AN ANNUAL MEETING

          Our bylaws provide an advance notice procedure for certain business, or nominations to the board of directors, to be brought before an annual meeting. For business to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of K-Fed Bancorp. To be timely a stockholder’s notice must be delivered to or mailed and received at the principal executive offices of K-Fed Bancorp no later than five days before the date of the meeting.  A stockholder’s notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting (a) a brief description of the business desired to be brought before the annual meeting, (b) the name and address, as they appear on our books, of the stockholder proposing such business, (c) the class and number of shares of our common stock which are beneficially owned by the stockholder, and (d) any material interest of the stockholder in such business. The chairman of an annual meeting may, if the facts warrant, determine and declare to the meeting that certain business was not properly brought before the meeting in accordance with the provisions of our bylaws, and if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. This provision is not a limitation on any other applicable laws and regulations.  Accordingly, advance written notice of business or nominations to the board of directors to be brought before the 2008 Annual Meeting of Stockholders must be given to us no later than five days prior to the date of the meeting, as indicated above.

STOCKHOLDER PROPOSALS

          In order to be eligible for inclusion in our proxy materials for our 2008 Annual Meeting of Stockholders, any stockholder proposal to take action at such meeting must be received at K-Fed Bancorp’s executive office, 1359 North Grand Avenue, Covina, California 91724, no later than _______, 2008.  Any such proposals shall be subject to the requirements of the proxy rules adopted under the Securities Exchange Act of 1934, as amended.

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OTHER MATTERS

          As of the date of this document, the board of directors is not aware of any business to come before the annual meeting other than the matters described above in the proxy statement/prospectus.  However, if any matters should properly come before the annual meeting, it is intended that the holders of the proxies will act in accordance with their best judgment.

HOUSEHOLDING OF PROXY STATEMENT/PROSPECTUS AND ANNUAL REPORTS

          We intend to deliver only one proxy statement/prospectus to multiple registered stockholders sharing the same address unless it has received contrary instructions from one or more of the stockholders.  If individual stockholders wish to receive a separate copy of the proxy statement/prospectus they may call or write and request separate copies currently or in the future as follows:

Stockholder Relations

K-Fed Bancorp

1359 North Grand Avenue

Covina, California 91724

Phone:          (800) 524-2274

Fax:              (626) 858-5745

          Registered stockholders sharing the same address and receiving multiple copies of this proxy statement/prospectus may request the delivery of a single copy by writing or calling the above address or phone number.

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K-Fed Bancorp

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page
Management’s Report on Internal Control	F-2
Reports of Independent Registered Public Accounting Firm	F-3
Consolidated Statements of Financial Condition at June 30, 2007 and 2006	F-4
Consolidated Statements of Income for the Years Ended June 30, 2007, 2006, and 2005	F-5
Consolidated Statements of Stockholders’ Equity and Comprehensive Income for the Years Ended June 30, 2007, 2006, and 2005	F-6
Consolidated Statements of Cash Flows for the Years Ended June 30, 2007, 2006, and 2005	F-7
Notes to Consolidated Financial Statements	F-8 – F-39

The consolidated financial statements of Kaiser Federal Financial Group Inc. have been omitted because Kaiser Federal Financial Group Inc. has not conducted any business other than that of an organizational nature.

      

        F - 1       

    

MANAGEMENT’S REPORT ON INTERNAL CONTROL

The management of K-Fed Bancorp, Inc. (the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with generally accepted accounting principles. The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. All internal control systems, no matter how well designed, have inherent limitations, including the possibility of human error and the circumvention of overriding controls. Accordingly, even an effective system of internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that degree of compliance with the policies or procedures may deteriorate.

Management has assessed the effectiveness of the Company’s internal control over financial reporting as of June 30, 2007, based on the framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework. Based on that assessment, management concluded that, as of June 30, 2007, the Company’s internal control over financial reporting was effective.

The effectiveness of the Company’s internal control over financial reporting as of June 30, 2007, has been audited by Crowe Chizek and Company LLP, an independent registered public accounting firm. As stated in their attestation report, they express an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting as of June 30, 2007. See “Report of Independent Registered Public Accounting Firm.”

/s/ Kay M. Hoveland	/s/ Dustin Luton
Kay M. Hoveland	Dustin Luton
President and Chief Executive Officer	Chief Financial Officer

      

        F - 2      

    

REPORT OF INDEPENDENT

REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors

K-Fed Bancorp

Covina, California

We have audited the accompanying consolidated statements of financial condition of K-Fed Bancorp as of June 30, 2007 and 2006, and the related statements of income, stockholders' equity and comprehensive income, and cash flows for each of the years in the three-year period ended June 30, 2007.  We also have audited K-Fed Bancorp’s internal control over financial reporting as of June 30, 2007, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)."  K-Fed Bancorp's management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for it’s assessment of the effectiveness of internal control over financial reporting in the accompanying Management’s Report on Internal Control.  Our responsibility is to express an opinion on these financial statements and an opinion on the effectiveness of the company's internal control over financial reporting based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects.  Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation.  Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.  Our audits also included performing such other procedures as we considered necessary in the circumstances.  We believe that our audits provide a reasonable basis for our opinions.

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of K-Fed Bancorp as of June 30, 2007 and 2006, and the results of its operations and its cash flows for each of the years in the three-year period ended June 30, 2007 in conformity with accounting principles generally accepted in the United States of America.  Also, in our opinion, K-Fed Bancorp maintained, in all material respects, effective internal control over financial reporting as of June 30, 2007, based on criteria established in InternalControl—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

/s/ Crowe Chizek and Company LLP

Oak Brook, Illinois                                                    Crowe Chizek and Company LLP

August 25, 2007

      

        F - 3      

    

K-FED BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Dollars in thousands, except per share data)

	June 30 2007			June 30 2006
ASSETS
Cash and due from banks	$	10,982		$	7,244
Federal funds sold		15,750			18,335
Total cash and cash equivalents		26,732			25,579
Interest earning deposits in other financial institutions		2,970			9,010
Securities available-for-sale		13,579			11,289
Securities held-to-maturity, fair value of $20,514 and $23,939 at June 30, 2007 and June 30, 2006, respectively		21,096			24,738
Federal Home Loan Bank stock, at cost		9,870			8,746
Loans receivable		701,962			636,822
Deferred net loan origination fees		(134	)		(202	)
Net premium on purchased loans		120			195
Allowance for loan losses		(2,805	)		(2,722	)
Loans receivable, net		699,143			634,093
Accrued interest receivable		3,259			2,767
Premises and equipment, net		3,484			3,416
Core deposit intangible		323			437
Goodwill		3,950			3,950
Bank-owned life insurance		10,954			10,514
Other assets		4,265			4,360
Total assets	$	799,625		$	738,899
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities
Deposits
Noninterest bearing	$	43,169		$	43,137
Interest bearing		450,959			420,317
Total deposits		494,128			463,454
Federal Home Loan Bank advances, short-term		20,000			10,000
Federal Home Loan Bank advances, long-term		190,016			169,948
Accrued expenses and other liabilities		3,164			2,840
Total liabilities		707,308			646,242
Commitments and contingent liabilities		—			—
Stockholders’ equity
Nonredeemable serial preferred stock, $.01 par value; 2,000,000 shares authorized; issued and outstanding — none		—			—
Common stock, $0.01 par value; 18,000,000 authorized; June 30, 2007 — 14,724,760 shares issued. June 30, 2006 — 14,702,040 shares issued.		147			147
Additional paid-in capital		57,626			56,456
Retained earnings		49,084			46,224
Accumulated other comprehensive loss, net of tax		(126	)		(247	)
Unearned employee stock ownership plan shares		(3,071	)		(3,526	)
Treasury stock, at cost (June 30, 2007 — 775,815 shares; June 30, 2006 —495,970 shares)		(11,343	)		(6,397	)
Total stockholders’ equity		92,317			92,657
Total liabilities and stockholders’ equity	$	799,625		$	738,899

      

        The accompanying notes are an integral part of these financial statements      

      

        F- 4      

    

K-FED BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

(Dollars in thousands, except per share data)

	Years Ended June 30
	2007			2006			2005
Interest income
Interest and fees on loans	$	37,379		$	32,918		$	25,519
Interest on securities, taxable		1,365			1,611			1,935
Federal Home Loan Bank dividends		480			280			151
Other interest		1,942			1,012			563
Total interest income		41,166			35,821			28,168
Interest Expense
Interest on Federal Home Loan Bank advances		8,261			6,140			2,022
Interest on deposits		14,879			11,324			8,778
Total interest expense		23,140			17,464			10,800
Net interest income		18,026			18,357			17,368
Provision for loan losses		529			652			406
Net interest income after provision for loan losses		17,497			17,705			16,962
Noninterest income
Service charges and fees		2,013			1,827			1,845
ATM fees and charges		1,612			1,481			1,355
Referral commissions		259			238			207
Loss on equity investment		(99	)		(588	)		(505	)
Bank-owned life insurance		439			426			89
Other noninterest income		35			42			65
Total noninterest income		4,259			3,426			3,056
Noninterest expense
Salaries and benefits		7,619			7,298			6,562
Occupancy and equipment		2,091			1,775			1,459
ATM expense		1,249			1,135			1,049
Advertising and promotional		316			407			401
Professional services		913			751			754
Postage		315			295			268
Telephone		461			363			331
Other operating expense		1,554			1,452			1,217
Total noninterest expense		14,518			13,476			12,041
Income before income tax expense		7,238			7,655			7,977
Income tax expense		2,534			2,726			2,980
Net income	$	4,704		$	4,929		$	4,997
Earnings per common share:
Basic	$	0.35		$	0.36		$	0.36
Diluted	$	0.34		$	0.36		$	0.36

      

        The accompanying notes are an integral part of these financial statements      

      

        F- 5      

    

K-FED BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

AND COMPREHENSIVE INCOME

(Dollars in thousands, except per share data)

				Common Stock																			Treasury Stock
	Comprehensive Income			Shares		Amount		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss, net			Unearned ESOP Shares			Unearned Stock Awards			Shares		Amount			Total
Balance, June 30, 2004				14,548,500			146		55,083			38,513			(190	)		(4,436	)		—		—			—			89,116
Comprehensive income
Net income for the year ended June 30, 2005	$	4,997		—			—		—			4,997			—			—			—		—			—			4,997
Other comprehensive income – unrealized gain on securities, net of tax		22		—			—		—			—			22			—			—		—			—			22
Total comprehensive income	$	5,019
Dividends declared ($0.16 per share) *				—			—		—			(821	)		—			—			—		—			—			(821	)
Issuance of stock awards				166,300			1		2,344			—			—			—			(2,345	)	—			—			—
Purchase of treasury stock				—			—		—			—			—			—			—		(278,470	)		(3,453	)		(3,453	)
Allocation of stock awards				—			—		—			—			—			—			288		—			—			288
Forfeiture of stock awards				(3,000	)		—		(42	)		—			—			—			42		—			—			—
Allocation of ESOP common stock				—			—		156			—			—			455			—		—			—			611
Balance, June 30, 2005				14,711,800			147		57,541			42,689			(168	)		(3,981	)		(2,015	)	(278,470	)		(3,453	)	$	90,760
Comprehensive income
Net income for the year ended June 30, 2006	$	4,929		—			—		—			4,929			—			—			—		—			—			4,929
Other comprehensive income – unrealized loss on securities, net of tax		(79	)	—			—		—			—			(79	)		—			—		—			—			(79	)
Total comprehensive income	$	4,850
Dividends declared ($0.28 per share) *				—			—		—			(1,394	)		—			—			—		—			—			(1,394	)
Purchase of treasury stock				—			—		—			—			—			—			—		(217,500	)		(2,944	)		(2,944	)
Stock options earned				—			—		370			—			—			—			—		—			—			370
Allocation of stock awards				—			—		439			—			—			—			—		—			—			439
Forfeiture of stock awards				(9,760	)		—		—			—			—			—			—		—			—			—
Transfer due to adoption of SFAS 123R				—			—		(2,015	)		—			—			—			2,015		—			—			—
Allocation of ESOP common stock				—			—		121			—			—			455			—		—			—			576
Balance, June 30, 2006				14,702,040		$	147	$	56,456		$	46,224		$	(247	)	$	(3,526	)	$	—		(495,970	)	$	(6,397	)	$	92,657
Comprehensive income
Net income for the year ended June 30, 2007	$	4,704		—			—		—			4,704			—			—			—		—			—			4,704
Other comprehensive income – unrealized gain on securities, net of tax		121		—			—		—			—			121			—			—		—			—			121
Total comprehensive income	$	4,825
Dividends declared ($0.39 per share) *				—			—		—			(1,844	)		—			—			—		—			—			(1,844	)
Purchase of treasury stock				—			—		—			—			—			—			—		(279,845	)		(4,946	)		(4,946	)
Stock options earned				—			—		259			—			—			—			—		—			—			259
Allocation of stock awards				—			—		366			—			—			—			—		—			—			366
Issuance of stock awards				35,000			—		—			—			—			—			—		—			—			—
Forfeiture of stock awards				(24,000	)		—		—			—			—			—			—		—			—			—
Exercise of stock options				11,720			—		170			—			—			—			—		—			—			170
Tax benefit of stock awards and options				—			—		40			—			—			—			—		—			—			40
Allocation of ESOP common stock				—			—		335			—			—			455			—		—			—			790
Balance, June 30, 2007				14,724,760		$	147	$	57,626		$	49,084		$	(126	)	$	(3,071	)	$	—		(775,815	)	$	(11,343	)	$	92,317
* K-Fed Mutual Holding Company waived its receipt of dividends on the 8,861,750 shares it owns.

      

        The accompanying notes are an integral part of these financial statements      

      

        F - 6      

    

K-FED BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands, except per share data)

	Years Ended June 30
	2007			2006			2005
OPERATING ACTIVITIES
Net income	$	4,704		$	4,929		$	4,997
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of net premium on securities		248			94			164
Amortization of net premiums on loan purchases		39			547			1,357
Accretion of net loan origination fees		(51	)		(29	)		(53	)
Accretion of net premiums on purchased certificates of deposit		(43	)		(63	)		(99	)
Provision for loan losses		529			652			406
Federal Home Loan Bank stock dividend		(480	)		(280	)		(151	)
Depreciation and amortization		742			507			459
Amortization of core deposit intangible		114			131			108
Loss on equity investment		99			588			505
Increase in cash surrender value of bank-owned life insurance		(439	)		(426	)		(89	)
Amortization of debt exchange costs		68			171			250
Allocation of ESOP common stock		790			576			611
Allocation of stock awards		366			439			288
Stock options earned		259			370			—
Provision for deferred income taxes		85			54			(258	)
Net change in accrued interest receivable		(492	)		(457	)		(267	)
Net change in other assets		191			(519	)		(19	)
Net change in accrued expenses and other liabilities		324			(34	)		198
Net cash provided by operating activities		7,053			7,250			8,407
INVESTING ACTIVITIES
Purchases of held-to-maturity securities		—			(2,000	)		(5,000	)
Proceeds from maturities of held-to-maturity securities		3,425			8,051			15,428
Purchases of available-for-sale securities		(8,860	)		—			—
Proceeds from maturities of available-for-sale securities		6,745			7,375			2,127
Net change in interest bearing deposits with other financial institutions		6,040			—			(6,040	)
Purchases of loans		(109,794	)		(161,071	)		(151,145	)
Net change in loans, excluding loan purchases		43,989			63,375			108,098
Purchase of FHLB stock		(644	)		(4,439	)		(1,547	)
Redemption of FHLB stock		—			—			961
Purchase of equity investment		(128	)		(232	)		(229	)
Purchase of bank-owned life insurance		—			—			(10,000	)
Net cash received from branch acquisition		—			—			56,491
Purchases of premises and equipment		(810	)		(2,432	)		(408	)
Net cash (used in) provided by investing activities		(60,037	)		(91,373	)		8,736
FINANCING ACTIVITIES
Proceeds from FHLB advances		40,000			128,000			208,416
Repayment of FHLB advances		(10,000	)		(19,000	)		(207,416	)
Debt exchange costs		—			—			(473	)
Net change in deposits		30,717			(12,275	)		(8,239	)
Exercise of stock options		170			—			—
Tax benefit of stock awards and options		40			—			—
Dividends paid on common stock		(1,844	)		(1,394	)		(821	)
Purchase of treasury stock		(4,946	)		(2,944	)		(3,453	)
Net cash provided by (used in) financing activities		54,137			92,387			(11,986	)
NET CHANGE IN CASH AND CASH EQUIVALENTS		1,153			8,264			5,157
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR		25,579			17,315			12,158
CASH AND CASH EQUIVALENTS AT END OF YEAR	$	26,732		$	25,579		$	17,315
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid on deposits and FHLB advances	$	23,115		$	17,352		$	10,638
Income taxes paid		2,760			3,271			2,942
SUPPLEMENTAL NONCASH DISCLOSURES
Transfers from loans to real estate owned	$	238		$	—		$	—

      

        The accompanying notes are an integral part of these financial statements      

      

        F - 7      

    

      

        K-FED BANCORP AND SUBSIDIARY      

      

        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS      

      

        JUNE 30, 2007, 2006 AND 2005      

                  

1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

Nature of Business: K-Fed Bancorp (the Company) is a majority-owned subsidiary of K-Fed Mutual Holding Company (the Parent). The Company and its Parent are holding companies. The Company’s sole subsidiary, Kaiser Federal Bank (the Bank), is a federally chartered stock savings association, which provides retail and commercial banking services to individual and business customers from its nine branches throughout California. While the Bank originates many types of retail, and commercial real estate loans, the majority of its residential real estate loans have been purchased from other financial institutions. The accounting and reporting policies of the Company and the Bank conform to U.S. generally accepted accounting principles (GAAP) and general industry practices.

The Company’s business activities generally are limited to passive investment activities and oversight of its investment in the Bank. Unless the context otherwise requires, all references to the Company include the Bank and the Company on a consolidated basis.

Change in Reporting Entity: On July 1, 2003, the Bank consummated its reorganization into a federally chartered mutual holding company form of organization, whereby the Bank became the wholly owned subsidiary of the newly formed Company with the Company becoming a wholly owned subsidiary of the newly formed Parent. In accordance with Statement of Financial Accounting Standards No. 141, “Business Combinations,” when accounting for a transfer of assets or exchange of shares between entities under common control, the entity that receives the net assets or the equity interests shall initially recognize the assets and liabilities transferred at their carrying amounts in the accounts of the transferring entity at the date of transfer. Therefore, K-Fed Bancorp recorded the acquisition of the Bank at historical cost.

Execution of Plan of Stock Issuance:  On November 22, 2003, and amended on February 9, 2004, the Board of Directors adopted a plan of stock issuance to sell a minority interest of its common stock to eligible depositors of the Bank in a subscription offering, with the majority of the common stock owned by K-Fed Mutual Holding Company. The plan was accomplished through the sale to eligible depositors on March 30, 2004 of 5,686,750 shares (including shares allocated to the Employee Stock Ownership Plan), representing 39.09% of the Company’s stock.

The issued shares resulted in gross proceeds of $56.9 million. In connection with the offering, the Company loaned $4.5 million to the Bank’s Employee Stock Ownership Plan to purchase stock and incurred $1.7 million of expenses associated with the offering resulting in net proceeds of $50.7 million to the Company. The aggregate purchase price was determined by an independent appraisal. Consistent with the Company’s stated intent for use of the stock offering proceeds, one-half of the total proceeds less offering expenses ($27.6 million) was invested in the Bank and placed in the Bank’s general funds for general corporate purposes. In addition to the 5,686,750 shares issued to eligible depositors, the Company issued 8,861,750 additional shares to K-Fed Mutual Holding Company. As a result of the offering, purchasers in the offering owned 39.09% of K-Fed Bancorp’s common stock, and K-Fed Mutual Holding Company owned 60.91%.

Principles of Consolidation and Basis of Presentation:  The consolidated financial statements include the accounts of the Company and the Bank. All material intercompany balances and transactions have been eliminated in consolidation.

      

        F - 8      

    

      

        K-FED BANCORP AND SUBSIDIARY      

      

        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS      

      

        JUNE 30, 2007, 2006 AND 2005      

                  

Use of Estimates in the Preparation of Consolidated Financial Statements: The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of income and expenses during the reporting period. Changes in these estimates and assumptions are considered reasonably possible and may have a material impact on the consolidated financial statements and thus actual results could differ from the amounts reported and disclosed herein. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, the valuation of financial instruments, and mortgage-loan prepayment assumptions used to determine the effective interest amortization of loan premiums and discounts.

Cash and Cash Equivalents: Cash and cash equivalents consist of vault and ATM cash, daily federal funds sold, demand deposits due from other banks, and other certificates of deposit that have an original maturity of less than 90 days. For purposes of the Statement of Cash Flows, the Company reports net cash flows for customer loan transactions (excluding loan purchases) and deposit transactions, as well as transactions involving interest bearing deposits in other financial institutions.

Interest Bearing Deposits in Other Financial Institutions: Interest bearing deposits in other financial institutions consist of interest-bearing time deposits in depository institutions with an original maturity equal to or greater than 90 days and are carried at cost and have a weighted average life of less than one year.

Securities:  Securities available-for-sale represent securities that may be sold prior to maturity. These securities are stated at fair value, and any unrealized net gains and losses are reported as a separate component of equity until realized, net of any tax effect. Estimated fair values for investments are obtained from quoted market prices where available. Where quoted market prices are not available, estimated fair values are based on quoted market prices of comparable instruments. Premiums or discounts are recognized in interest income using the effective interest method over the estimated life of the investment. Gains and losses on sales are recorded on the trade date and determined using the specific identification method.

Securities available-for-sale may be sold in response to changes in market interest rates, repayment rates, the need for liquidity, and changes in the availability and the yield on alternative investments. Declines in the fair value of securities below their cost that are other than temporary are reflected as realized losses. In estimating other-than temporary losses, management considers:  (1) the length of time and extent that fair value has been less than cost, (2) the financial condition and near term prospectus of the issuer, and (3) the Company’s ability and intent to hold the security for a period sufficient to allow for any anticipated recovery in fair value.

Securities for which the Company has the positive intent and ability to hold until maturity are classified as securities held-to-maturity and are recorded at cost, adjusted for unamortized premiums or discounts.

Federal Home Loan Bank Stock: The Bank, as a member of the Federal Home Loan Bank of San Francisco (FHLB) system, is required to maintain an investment in capital stock of the FHLB in an amount equal to the greater of 1% of its outstanding mortgage loans or 4.7% of advances from the FHLB. No ready market exists for the FHLB stock, and it has no quoted market value. The Bank carries FHLB stock at cost.  Cash and stock dividends are reported as income.

      

        F - 9      

    

      

        K-FED BANCORP AND SUBSIDIARY      

      

        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS      

      

        JUNE 30, 2007, 2006 AND 2005      

                  

Loans: Loans are stated at the amount of unpaid principal, reduced by an allowance for loan losses and deferred net loan origination fees, and increased by net premiums on purchased loans. Interest on loans is recognized over the terms of the loans and is accrued as earned, using the effective interest method. Net premiums on purchased loans are recognized in interest income as a yield adjustment over the estimated lives of the loan pools using the effective interest method. The estimated lives of these loan pools are re-evaluated periodically based on actual prepayments. The current estimated lives of these loan pools range from two to eight years. Loan fees and certain direct loan origination costs are deferred, and the net fee or cost is recognized as an adjustment to interest income using the effective interest method over the estimated lives of the related loans.

We underwrite purchased loans in accordance with our underwriting standards. The majority of the loans that we purchase are acquired with servicing released to allow for greater investments in real-estate lending without having to significantly increase our servicing and operations costs.

A loan is considered to be delinquent when payments have not been made according to contractual terms, typically evidenced by non-payment of a monthly installment by the due date. Accrual of interest on loans is discontinued when the loan becomes past due 90 days as to either principal or interest. All interest accrued but not collected for loans that are placed on non-accrual status or subsequently charged off is reversed against interest income. Income is subsequently recognized on the cash basis until, in management’s judgment, the borrower’s ability to make periodic interest and principal payments is back to normal and future payments are reasonably assured, in which case the loan is returned to accrual status.

Allowance for Loan Losses:The allowance for loan losses is established through a provision for loan losses charged to expense. Loans are charged off against the allowance for loan losses when management believes that collectibility of the principal is unlikely. Subsequent recoveries, if any, are credited to the allowance.

The allowance is an amount that management believes will absorb probable incurred losses relating to specifically identified loans, as well as probable incurred credit losses inherent in the balance of the loan portfolio, based on an evaluation of the collectibility of existing loans and prior loss experience. This evaluation also takes into consideration such factors as changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans, and current economic conditions that may affect the borrower’s ability to pay. This evaluation does not include the effects of expected losses on specific loans or groups of loans that are related to future events or expected changes in economic conditions. While management uses the best information available to make its evaluation, future adjustments to the allowance may be necessary if there are significant changes in economic conditions. In addition, regulatory agencies, as an integral part of their examination process, periodically review the allowance for loan losses, and may require adjustments to the allowance based on their judgment about information available to them at the time of their examinations.

The allowance consists of specific and general components. The specific component relates to loans that are classified as doubtful, substandard, or special mention. For such loans that are also classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers non-classified loans and is based on historical loss experience for consumer loans and peer group loss experience for real estate loans adjusted for qualitative factors.

      

        F - 10      

    

      

        K-FED BANCORP AND SUBSIDIARY      

      

        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS      

      

        JUNE 30, 2007, 2006 AND 2005      

                  

A loan is impaired when it is probable, based on current information and events, the Bank will be unable to collect all contractual principal and interest payments due in accordance with the terms of the loan agreement. Commercial real estate loans are evaluated for impairment based on their past due status and are measured on an individual basis based on the present value of expected future cash flows discounted at the loan’s effective interest rate or, as a practical expedient, at the loan’s observable market price or the fair value of the collateral if the loan is collateral dependent. The amount of impairment, if any, and any subsequent changes are included in the allowance for loan losses.

Large groups of smaller balance homogenous loans are collectively evaluated for impairment. Accordingly, the Bank does not separately identify individual consumer and residential loans for impairment disclosures.

Transfers of Financial Assets:  Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

Premises and Equipment: Leasehold improvements and furniture and equipment are carried at cost, less accumulated depreciation and amortization.  Buildings are depreciated using the straight-line method with a useful live of 25 years. Furniture and equipment are depreciated using the straight-line method over the estimated useful lives of the assets, which is usually 3 to 5 years. The cost of leasehold improvements is amortized using the straight-line method over the lesser of the terms of the related leases or their useful life, which is usually 5 to 10 years.

Real Estate Owned:Real estate acquired in settlement of loans ("REO") consists of property acquired through foreclosure proceedings or by deed in lieu of foreclosure. Generally, all loans greater than 90 days delinquent are processed for foreclosure and, if necessary, a specific valuation allowance is established. The Bank acquires title to the property in most foreclosure actions that are not reinstated by the borrower. Once real estate is acquired in settlement of a loan, the property is recorded as REO at the lower of carrying value or fair market value, less estimated selling costs. Fair value is determined by an appraisal obtained at the of time foreclosure. The REO balance is reduced for any subsequent declines in fair value.

Bank-Owned Life Insurance:  The Bank has purchased life insurance policies on certain key employees. Bank-owned life insurance is recorded at its cash surrender value, or the amount that can be realized.

Investment in Limited Liability Partnership:  The Company has an investment in an affordable housing fund totaling $2,087,000 and $2,187,000 at June 30, 2007 and 2006, respectively, with a commitment to fund an additional $193,000 at June 30, 2007, for the purposes of obtaining tax credits and for Community Reinvestment Act purposes. The investment is recorded in other assets on the balance sheet and is accounted for using the equity method of accounting. Under the equity method of accounting, the Company recognizes its ownership share of the profits and losses of the fund. This investment is regularly evaluated for impairment by comparing the carrying value to the remaining tax credits and future tax benefit expected to be received. Tax credits received from the fund are accounted for in the period earned (the flow-through method) and are included in income as a reduction of income tax expense.

      

        F - 11      

    

      

        K-FED BANCORP AND SUBSIDIARY      

      

        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS      

      

        JUNE 30, 2007, 2006 AND 2005      

                  

Goodwill and Other Intangible Assets:  Goodwill results from business acquisitions and represents the excess of the purchase price over the fair value of acquired tangible assets and liabilities and identifiable intangible assets. Goodwill is assessed at least annually for impairment and any such impairment will be recognized in the period identified.

Other intangible assets consist of core deposit intangible assets arising from a branch acquisition. They are initially measured at fair value and then are amortized on an accelerated method over their estimated useful lives, which was determined to be 8 years.

Long-Term Assets:  Premises and equipment, core deposit and other long-term assets are reviewed for impairment when events indicate their carrying amount may not be recoverable from future undiscounted cash flows. If impaired, the assets are recorded at fair value.

Loan Commitments and Related Financial Instruments:  Financial instruments include off-balance-sheet credit instruments, such as commitments to make or purchase loans. 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.

Stock-Based Compensation: In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123R (FAS-123R), Share-Based Payment, which is a revision of Statement of Financial Accounting Standards No. 123 (FAS-123), Accounting for Stock-Based Compensation.

FAS-123R eliminates accounting for share-based compensation transactions using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25 (APB-25), Accounting for Stock Issued to Employees, and requires instead that such transactions be accounted for using a fair-value-based method. FAS-123R is effective as of the first interim or annual reporting period that begins after June 15, 2005. The Company adopted FAS-123R effective July 1, 2005 applying the modified prospective transition method. Under the modified prospective transition method, the financial statements will not reflect restated amounts.  The options become exercisable in equal installments over a five-year period beginning one year from the date of grant.  The options expire ten years from the date of grant and are subject to certain restrictions and limitations.  The Company assumes 10% on ISO stock options and 5% on NQSO options in forfeitures as a component for determining expense related to the Stock Option Plan.  The effect of this pronouncement on future operations will depend on the fair value of future options issued and accordingly, cannot be determined at this time.

      

        F - 12      

    

      

        K-FED BANCORP AND SUBSIDIARY      

      

        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS      

      

        JUNE 30, 2007, 2006 AND 2005      

                  

The following table illustrates the pro forma effect on net income and net income per share if the Company had applied the fair value recognition provisions of SFAS 123 and SFAS 148 to stock-based employee compensation for the year ended June 30, 2005 prior to the Company’s adoption of SFAS 123(R) (Dollars in thousands):

Net income as reported	$	4,997
Add: Stock-based compensation recorded, net of tax		—
Less: Total stock-based compensation costs determined under the fair value based method, net of tax		(206	)
Net income, pro forma	$	4,791
Earnings per share – as reported
Basic	$	0.36
Diluted	$	0.36
Earnings per share – pro forma
Basic	$	0.34
Diluted	$	0.34

Income Taxes: Deferred taxes are provided on an asset and liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

Employee Stock Ownership Plan (ESOP):  The cost of shares issued to the ESOP but not yet allocated to participants is shown as a reduction of stockholders’ equity. Compensation expense is based on the market price of shares as they are committed to be released to participant accounts. Dividends on allocated ESOP shares reduce retained earnings; dividends on unearned ESOP shares are used to service the debt.

Earnings per Common Share:  Basic earnings per common share is net income divided by the weighted average number of common shares outstanding during the period. ESOP shares are considered outstanding for this calculation unless unearned. Diluted earnings per common share includes the dilutive effect of additional potential common shares issuable under stock options and stock awards.

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 which are also recognized as separate components of equity.

Newly Issued But Not Yet Effective Accounting Standards: In June 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”) which supplements SFAS No. 109, Accounting for Income Taxes, by defining the confidence level that a tax position must meet in order to be recognized in the financial statements. The Interpretation requires that the

      

        F - 13      

    

      

        K-FED BANCORP AND SUBSIDIARY      

      

        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS      

      

        JUNE 30, 2007, 2006 AND 2005      

                  

 tax effects of a position be recognized only if it is “more-likely-than-not” to be sustained based solely on its technical merits as of the reporting date. The more-likely-than-not threshold represents a positive assertion by management that a company is entitled to economic benefits of a tax position. If a tax position is not considered more-likely-than-not to be sustained based solely on its technical merits, no benefits of the position are to be recognized. Moreover, the more-likely-than-not threshold must continue to be met in each reporting period to support continued recognition of a benefit.  At adoption, companies must adjust their financial statements to reflect only those tax positions that are more-likely-than-not to be sustained as of the adoption date. Any necessary adjustment would be recorded directly to retained earnings in the period of adoption and reported as a change in accounting principle.  FIN 48 is effective for fiscal years beginning after December 15, 2006.  The adoption of this standard on July 1, 2007 did not have a significant impact on our financial condition or results of operations.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” which clarifies the principle that fair value should be based on  the  assumptions market participants would use when pricing an asset or liability  and  establishes  a  fair  value  hierarchy that prioritizes the information  used  to  develop  those assumptions. Under the standard, fair value measurement would be separately disclosed by level within the fair value hierarchy. SFAS 157 is effective for financial statements issued for fiscal  years  beginning  after November 15, 2007 (July 1, 2008 for us), and  interim  periods  within  those  fiscal  years,  with  early  adoption permitted.  We do not expect the adoption of this standard will have a significant impact on the Company’s financial condition or results of operations.

In  September  2006, the SEC issued Staff Accounting Bulletin No. 108 “Considering  the  Effects  of  Prior  Year  Misstatements when Quantifying Misstatements  in  Current  Year Financial Statements” (“SAB 108”). SAB 108 requires the evaluation of prior-year misstatements using both the balance sheet approach and the income statement approach. In the initial year of adoption should either approach result in quantifying an error that is material in light of quantitative and qualitative factors, SAB 108 guidance allows for a one-time cumulative-effect adjustment to beginning retained earnings.  In years subsequent to adoption, previously undetected misstatements deemed material shall result in the restatement of previously issued financial statements in accordance with FAS 154.  SAB 108 is effective for fiscal years ending on or after November 15, 2006.  The adoption of this standard on July 1, 2007 did not have a significant impact on the Company’s financial condition or results of operations.

Under  Emerging  Issues  Task  Force  (“EITF”)  06-4:  Accounting for deferred  compensation  and  postretirement  benefit aspects of endorsement split dollar life insurance arrangements, the EITF reached a consensus that requires  the  recognition  of  a  liability  related to the postretirement benefits covered by an endorsement split-dollar life insurance arrangement.  The consensus highlights that the employer who is the policy holder has a liability for the benefit it is providing to the employee. If the employer has agreed to maintain the insurance policy in force for the employee's benefit during retirement, then the liability recognized during the employee's active service period should be based on the future cost of insurance to be incurred during the employee's retirement. Also, if the employer has agreed to provide the employee with a death benefit, then the liability for the future death benefit should be recognized under SFAS 106. As of September 20, 2006, this FASB board ratified the above. It is applicable for fiscal years beginning after December 15, 2006. We do not expect the adoption of this standard will have a significant impact on the Company’s financial condition or results of operations.

Under EITF 06-5: Accounting for Purchases of Life Insurance - Determining the Amount That Could be Realized in Accordance with FASB Technical Bulletin No. 85-4, "Accounting for Purchases of

      

        F - 14      

    

      

        K-FED BANCORP AND SUBSIDIARY      

      

        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS      

      

        JUNE 30, 2007, 2006 AND 2005      

                  

 Life Insurance", the Task Force reached a consensus that a policyholder should consider any additional amounts included in the contractual terms of the policy in determining the amount that could be realized under the insurance contract.  The task forces agreed that contractual limitations should be considered when determining the realizable amounts. Those amounts that are recoverable by the policyholder at the discretion of the insurance company should be excluded from the amount that could be realized. The task force also agreed that fixed amounts that are recoverable by the policyholder in future periods in excess of one year from the surrender of the policy should be recognized at their present value. The task force also reached a consensus that a policyholder should determine the amount that could be realized under the life insurance contract assuming the surrender of an individual life by individual life policy. The Task force also noted that any amount that is ultimately realized by the policyholder upon the assumed surrender of the final policy shall be included in the amount that could be realized under the insurance contract. The issue is effective for fiscal years beginning after December 15, 2006, but early adoption is permitted. This was ratified at the Task Force, September 20, 2006 meeting.  We do not expect the adoption of this standard to have a significant impact on the Company’s financial condition or results of operations.

In February 2007, the Financial Accounting Standards Board (the “FASB”) issued Statement No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities-Including an amendment of FASB Statement No. 115”, (“FAS 159”). FAS 159 provide companies with an option to report selected financial assets and liabilities at fair value. Most of the provisions of this statement apply only to entities that elect the fair value option. However, the amendment to FASB Statement No. 115, “Accounting for Certain Investments in Debt and Equity Securities”, applies to all entities with available-for-sale and trading securities. FAS 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. This statement is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the entity makes that election within the first 120 days of that fiscal year and also elects to apply the provisions of FASB Statement No. 157, “Fair Value Measurements”. We do not believe adoption of this Statement will have a material effect on the Company’s consolidated financial statements.

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.

Restrictions on Cash:  The Company is required to maintain reserve balances in cash or on deposit with the Federal Reserve Bank, based on a percentage of deposits. The total of those reserve balances was $1,174,000 and $1,101,000 at June 30, 2007 and 2006, respectively.

Fair Value of Financial Instruments:  Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in a separate note. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the estimates.

Operating Segments:  While the chief decision-makers monitor the revenue streams of the various products and services, the identifiable segments are not material and operations are managed and financial performance is evaluated on a Company-wide basis. Accordingly, all of the financial service operations are considered by management to be aggregated in one reportable operating segment.

      

        F - 15      

    

      

        K-FED BANCORP AND SUBSIDIARY      

      

        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS      

      

        JUNE 30, 2007, 2006 AND 2005      

                  

2. INVESTMENTS

The fair value of available for sale securities and the related gross unrealized gains and losses recognized in  accumulated other comprehensive loss were as follows:

	Fair Value		Gross Unrealized Gains		Gross Unrealized Losses
	(In thousands)
June 30, 2007
U.S. government agency and government sponsored entity bonds	$	2,994	$	─	$	(6	)
Mortgage-backed:
Freddie Mac		4,827		─		(139	)
Collateralized mortgage obligations:
Freddie Mac		5,758		─		(69	)
Total	$	13,579	$	─	$	(214	)
June 30, 2006
U.S. government agency and government sponsored entity bonds	$	5,392	$	─	$	(108	)
Mortgage-backed:
Freddie Mac		5,897		─		(313	)
Total	$	11,289	$	─	$	(421	)

      

        F - 16      

    

      

        K-FED BANCORP AND SUBSIDIARY      

      

        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS      

      

        JUNE 30, 2007, 2006 AND 2005      

                  

The carrying amount, unrecognized gains and losses, and fair value of securities held to maturity were as follows: 

	Carrying Amount		Gross Unrecognized Gains		Gross Unrecognized Losses			Fair Value
	(In thousands)
June 30, 2007
U.S. government agency and government sponsored entity bonds	$	12,000	$	─	$	(70	)	$	11,930
Mortgage-backed
Fannie Mae		303		1		─			304
Freddie Mac		217		─		(1	)		216
Ginnie Mae		146		─		─			146
Collateralized mortgage obligations
Fannie Mae		2,747		─		(126	)		2,621
Freddie Mac		4,926		─		(356	)		4,570
Ginnie Mae		757		─		(30	)		727
Total	$	21,096	$	1	$	(583	)	$	20,514
June 30, 2006
U.S. government agency and government sponsored entity bonds	$	12,000	$	─	$	(267	)	$	11,733
Mortgage-backed
Fannie Mae		408		2		─			410
Freddie Mac		269		1		─			270
Ginnie Mae		168		1		─			169
Collateralized mortgage obligations
Fannie Mae		3,372		1		(162	)		3,211
Freddie Mac		7,197		─		(374	)		6,823
Ginnie Mae		1,324		─		(1	)		1,323
Total	$	24,738	$	5	$	(804	)	$	23,939

There were no sales of securities during the years ending June 30, 2007, 2006, and 2005.

The fair value of debt securities and carrying amount, if different, at June 30, 2007 by contractual maturity were as follows:

	Held-to-Maturity				Available-for-Sale
	Carrying Amount		Fair Value		Fair Value
	(In thousands)
Due within one year	$	12,000	$	11,930	$	─
Due from one year to five years		─		─		2,994
Due from five years to ten years		─		─		─
Due after ten years		─		─		─
Mortgage-backed securities and Collateralized mortgage obligations		9,096		8,584		10,585
	$	21,096	$	20,514	$	13,579

      

        F - 17      

    

      

        K-FED BANCORP AND SUBSIDIARY      

      

        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS      

      

        JUNE 30, 2007, 2006 AND 2005      

                  

Securities not due at a single maturity date, primarily mortgage-backed securities, are shown separately.

Expected 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 with unrealized losses at June 30, 2007 and 2006, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, are as follows:

	Less than 12 months					12 months or more					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Loss			Value		Loss			Value		Loss
	(In thousands)
June 30, 2007
Description of Securities
U.S. government agency	$	─	$	─		$	14,924	$	(76	)	$	14,924	$	(76	)
Mortgage-backed		216		(1)			4,827		(139	)		5,043		(140	)
Collateralized mortgage obligations		972		(2	)		12,163		(579	)		13,135		(581	)
Total temporarily impaired	$	1,188	$	(3	)	$	31,914	$	(794	)	$	33,102	$	(797	)
June 30, 2006
Description of Securities
U.S. government agency	$	1,982	$	(18	)	$	15,143	$	(357	)	$	17,125	$	(375	)
Mortgage-backed		─		─			5,898		(312	)		5,898		(312	)
Collateralized mortgage obligations		2,914		(114	)		8,402		(424	)		11,316		(538	)
Total temporarily impaired	$	4,896	$	(132	)	$	29,443	$	(1,093	)	$	34,339	$	(1,225	)

The Company evaluates securities for other-than-temporary impairment-at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to the length of time and the extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer, and the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. In analyzing an issuer’s financial condition, the Company may consider whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuer’s financial condition.

At June 30, 2007, fifteen debt securities had unrealized losses with aggregate depreciation of 2.3% for the Company’s amortized cost basis.  At June 30, 2006, thirteen debt securities had unrealized losses with aggregate depreciation of 3.4% for the Company’s amortized cost basis. The unrealized losses

      

        F - 18      

    

      

        K-FED BANCORP AND SUBSIDIARY      

      

        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS      

      

        JUNE 30, 2007, 2006 AND 2005      

                  

 relate principally to the general change in interest rate levels that has occurred since the securities purchase dates, and such unrecognized losses or gains will continue to vary with general interest rate level fluctuations in the future. As management has the ability to hold debt securities until maturity, or for the foreseeable future if classified as available for sale, and fully expects to recover their value, no declines are deemed to be other than temporary.

3. LOANS

The composition of loans consists of the following:

	June 30,
	2007			2006
	(In thousands)
Real Estate:
One- to four-family residential, fixed rate	$	348,798		$	258,918
One- to four-family residential, variable rate		120,661			178,106
Multi-family residential, variable rate		88,112			89,220
Commercial real estate, variable rate		77,821			58,845
		635,392			585,089
Consumer:
Automobile		53,100			41,572
Home equity		1,446			1,787
Other consumer loans, primarily unsecured		12,024			8,374
		66,570			51,733
Total loans		701,962			636,822
Deferred net loan origination fees		(134	)		(202	)
Net premiums on purchased loans		120			195
Allowance for loan losses		(2,805	)		(2,722	)
	$	699,143		$	634,093

In addition to the above, the Company participates with other financial institutions in certain loans they have originated. The Company continues to service the participants’ balance, which at June 30, 2007 totaled $1.3 million and represented 2 loans. The Company receives a servicing fee of 25 basis points on these participated loans.

The Company has purchased real-estate loan participations originated by other financial institutions. All of these loan participations were purchased without recourse and are secured by real property. The originating financial institution performs all servicing functions on these loans.

The Company’s one- to four-family interest-only mortgages loans totaled $100,424,000 and $90,327,000 at June 30, 2007 and June 30, 2006, respectively.

      

        F - 19      

    

      

        K-FED BANCORP AND SUBSIDIARY      

      

        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS      

      

        JUNE 30, 2007, 2006 AND 2005      

                  

The following is an analysis of the changes in the allowance for loan losses:

	Years Ended June 30
	2007			2006			2005
	(In thousands)
Balance, beginning of year	$	2,722		$	2,408		$	2,328
Provision for loan losses		529			652			406
Recoveries		322			242			222
Loans charged off		(768	)		(580	)		(548	)
Balance, end of year	$	2,805		$	2,722		$	2,408

There were no loans individually classified as impaired during the periods or as of June 30, 2007 and 2006.

Loans on which accrual of interest has been discontinued or reduced amounted to $1,141,000, $67,000 and $787,000 at June 30, 2007, 2006, and 2005 respectively. If interest on those loans had been accrued, such income would have been $17,000, $1,000, and $25,000 for the years ended June 30, 2007, 2006, and 2005 respectively. The effects of troubled debt restructurings are not considered material to the Company’s financial position and results of operations.

4. CONCENTRATIONS OF CREDIT RISK

The Kaiser Permanente Medical Care Program employs a large percentage of the Bank’s account holders. Further, a significant concentration of the Bank’s borrowers resides in California. Although the Bank has a diversified loan portfolio, borrowers’ ability to repay loans may be affected by the economic climate of either the health care industry or the overall geographic region in which borrowers reside.

5. PREMISES AND EQUIPMENT

Premises and equipment are summarized as follows:

	June 30,
	2007			2006
	(In thousands)
Building	$	1,214		$	998
Leasehold improvements		915			827
Furniture and equipment		4,505			4,034
		6,634			5,859
Accumulated depreciation and amortization		(3,150	)		(2,443	)
	$	3,484		$	3,416

Depreciation expense on premises and equipment totaled $742,000, $507,000, and $459,000 for the years ended June 30, 2007, 2006, and 2005, respectively.

The Company leases office space in eight buildings. The operating leases contain renewal options and provisions requiring the Company to pay property taxes and operating expenses over base period amounts. All rental payments are dependent only upon the lapse of time.

      

        F - 20      

    

      

        K-FED BANCORP AND SUBSIDIARY      

      

        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS      

      

        JUNE 30, 2007, 2006 AND 2005      

                  

Minimum rental payments under operating leases with initial or remaining terms of one year or more at June 30, 2007 are as follows (in thousands):

Years ended June 30,
2008	$	845
2009		861
2010		784
2011		381
2012		147
Thereafter		423
	$	3,441

Rental expense, including property taxes and common area maintenance for the years ended June 30, 2007, 2006, and 2005 for all facilities leased under operating leases totaled $967,000, $874,000, and $683,000, respectively.

6. GOODWILL AND INTANGIBLE ASSETS

Goodwill

The activity in balance for goodwill during the year is as follows (in thousands):

	Year Ended June 30, 2007			Year Ended June 30, 2006
Beginning of year	$	3,950	$	3,950
Acquired goodwill		─		─
Impairment		─		─
End of year	$	3,950	$	3,950

Acquired Intangible Assets

Acquired intangible assets were as follows as of year end (in thousands):

	Year Ended June 30, 2007				Year Ended June 30, 2006
	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Core deposit intangibles	$	676	$	353	$	676	$	239

Aggregate amortization expense was $114,000, $131,000 and $108,000 for the years ended June 30, 2007, 2006, and 2005, respectively.

      

        F - 21      

    

      

        K-FED BANCORP AND SUBSIDIARY      

      

        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS      

      

        JUNE 30, 2007, 2006 AND 2005      

                  

Estimated amortization expense for each of the next five years is as follows (in thousands):

Years ended June 30,
2008	$	97
2009		80
2010		62
2011		45
2012		27

7. DEPOSITS

The following table shows the distribution of, and certain other information relating to, deposits by type of deposit, as of the dates indicated.

	June 30,
	2007		2006
	(In thousands)
Noninterest-bearing demand	$	43,169	$	43,137
Savings		136,643		91,199
Money Market		75,599		110,987
Certificates of deposit		238,717		218,131
Total deposits	$	494,128	$	463,454

Deposits by maturity are summarized as follows:

	June 30,
	2007		2006
	(In thousands)
No contractual maturity	$	255,411	$	245,323
0-1 year maturity		174,738		122,766
Over 1-2 year maturity		20,466		32,169
Over 2-3 year maturity		20,039		18,861
Over 3-4 year maturity		13,705		23,252
Over 4-5 year maturity		9,769		21,083
Total deposits	$	494,128	$	463,454

      

        F - 22      

    

      

        K-FED BANCORP AND SUBSIDIARY      

      

        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS      

      

        JUNE 30, 2007, 2006 AND 2005      

                  

The aggregate amount of certificates of deposit in denominations of $100,000 or more at June 30, 2007 and 2006 was $93,547,000 and $74,697,000, respectively.

Interest expense by major category is summarized as follows:

	Years Ended June 30
	2007		2006		2005
	(In thousands)
Savings	$	1,925	$	395	$	405
Money Market		2,700		2,343		1,396
Certificates of deposit		10,254		8,586		6,977
Total	$	14,879	$	11,324	$	8,778

8. FEDERAL HOME LOAN BANK ADVANCES

At June 30, 2007, the stated interest rates on the Bank’s advances from the FHLB ranged from 3.18% to 5.28%, with a weighted average stated rate of 4.44%.  At June 30, 2006, the stated interest rates on the Bank’s advances from the FHLB ranged from 2.74% to 4.77%, with a weighted average stated rate of 4.20%. The contractual maturities by year of the Bank’s advances are as follows:

	June 30,
	2007		2006
	(In thousands)
Years ended June 30,
2007	$	─	$	10,000
2008		20,000		20,000
2009		28,000		28,000
2010		70,000		70,000
2011		52,000		52,000
2012		40,000		─
Total advances		210,000		180,000
Deferred debt exchange costs		16		(52	)
Total	$	210,016	$	179,948

The Bank’s advances from the FHLB were collateralized by certain real estate loans of an aggregate unpaid principal balance of $623,792,000 and $597,051,000 as of the most recent notification date for June 30, 2007 and 2006, respectively. At June 30, 2007 and June 30, 2006, the amount available to borrow under this agreement was $101,407,000 and $109,455,000, respectively. Each advance is payable at its maturity date.  At June 30, 2007, the Bank had a $20,000,000 FHLB putable advance scheduled to mature on June 28, 2012.  The advance has a below-market, fixed initial coupon rate of 4.93% in exchange for the Bank selling FHLB the option to require repayment of the advance quarterly after June 28, 2009.  FHLB advances are subject to a prepayment penalty if repaid before the maturity date.

      

        F - 23      

    

      

        K-FED BANCORP AND SUBSIDIARY      

      

        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS      

      

        JUNE 30, 2007, 2006 AND 2005      

                  

The average balance of FHLB advances for the years ended June 30, 2007 and June 30, 2006 were $189,217,000 and $148,408,000 with average costs of 4.37% and 4.14%, respectively.

In August 2004, the Bank paid-off and replaced a $50 million advance from the Federal Home Loan Bank of San Francisco with five $10 million advances. The prepayment penalty of $473,000 assessed by the Federal Home Loan Bank of San Francisco is being amortized over the life of the new advances using the interest method in accordance with EITF 96-19, issued by the Financial Accounting Standards Board in 1996.

9. EMPLOYEE BENEFITS

401(k) Plan:  The Company has a 401(k) pension plan that allows eligible employees to defer a portion of their salary into the 401(k) plan. The Company matches 50% of the first 10% of employees’ wage reductions. The Company contributed $120,000, $145,000, and $136,000 respectively, to the plan for the years ended June 30, 2007, 2006, and 2005.

Deferred Compensation Plan:  The Company has an executive salary deferral program for the benefit of certain senior executives that have been designated to participate in the program. The program allows an additional opportunity for key executives to defer a portion of their compensation into a non-qualified deferral program to supplement their retirement earnings. At June 30, 2007 and 2006 the Company has accrued a liability for executive deferrals of $1,013,000 and $973,000, respectively.

Incentive Plan:  The Company maintains an Annual Incentive Plan for key employees. Participants are awarded a percentage of their base salary for attaining certain personal performance goals. The compensation expense related to these plans for the year ended June 2007, 2006, and 2005 totaled $71,000, $227,000 and $191,000 respectively.

10. EMPLOYEE STOCK COMPENSATION

Recognition and Retention Plan (“RRP”): The Company’s RRP provides for issue of shares to directors, officers, and employees.  Compensation expense is recognized over the vesting period of the shares based on the market value at date of grant.  These shares vest over a five year period.  Pursuant to the Company’s 2004 RRP, 227,470 shares of the Company’s common stock may be awarded.  There were 107,660 restricted shares outstanding and the Company had an aggregate of 62,930 restricted shares available for future issuance under the RRP at June 30, 2007.

A summary of changes in the Company’s RRP shares for the year follows:

	Shares			Weighted Average Grant Date Fair Value
RRP shares at July 1, 2006	120,880		$	14.10
Granted	35,000			17.58
Vested	(24,220	)		14.10
Forfeited	(24,000	)		14.10
RRP shares at June 30, 2007	107,660		$	15.23

      

        F - 24      

    

      

        K-FED BANCORP AND SUBSIDIARY      

      

        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS      

      

        JUNE 30, 2007, 2006 AND 2005      

                  

As of June 30, 2007, there was $1,349,000 of total unrecognized compensation cost related to nonvested shares under the plan.  The cost is expected to be recognized over a weighted average period of 3.1 years.  The total fair value of shares vested during the years ended June 30, 2007, 2006 and 2005 was $342,000, $461,000 and $0.

Stock Option Plan (“SOP”): The Company’s SOP provides for issue of options to directors, officers and employees.  Pursuant to the Company’s 2004 SOP, 568,675 shares of the Company’s common stock may be awarded.  The Company implemented the SOP to promote the long-term interest of the Company and its shareholders by providing an incentive to those key employees who contribute to the operational success of the Company.  The options become exercisable in equal installments over a five-year period beginning one year from the date of grant.  The options expire ten years from the date of grant and are subject to certain restrictions and limitations.  Compensation expense, net of tax effects related to the SOP was $228,000 and $329,000 for years ended June 30, 2007 and June 30, 2006, respectively.  A summary of the status of the Company’s stock option plan and changes is presented below:

	June 30, 2007
	Shares			Weighted Average Exercise Price	Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding at beginning of period	350,720		$	14.50
Granted	62,000			16.77
Exercised	(11,720	)		14.50
Forfeited or expired	(52,600	)		14.50
Outstanding at end of period	348,400		$	14.90	7.72 years	$	342,136
Options exercisable at end of period	114,560		$	14.50	7.38 years	$	136,326

Information related to the stock option plan during each year follows:

	June 30,  2007		June 30,  2006
	(In thousands)
Intrinsic value of stock options exercised	$	28	$	—
Cash received from options exercised		170		—
Tax benefit realized from option exercises		5		—
Weighted average fair value of stock options granted	$	4.25	$	—

      

        F - 25      

    

      

        K-FED BANCORP AND SUBSIDIARY      

      

        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS      

      

        JUNE 30, 2007, 2006 AND 2005      

                  

There were no options granted in the year ended June 30, 2006.  Stock options granted during the years ended June 30, 2007 and June 30, 2005 were computed using the Black-Scholes option pricing model to determine the fair value of options with the following assumptions as of the date of grant:

		June 30, 2007			June 30, 2006		June 30, 2005
Risk-free interest rate		4.67	%		—	%	3.54	%
Expected option life		6.52 years			—		5 Years
Expected price volatility		23.35	%		—	%	39.18	%
Expected dividend yield		2.33	%		—	%	1.33	%
Estimated fair value of stock options granted	$	4.25		$	—		5.10

At June 30, 2007, the Company had an aggregate of 208,555 options available for future issuance under the SOP.

As of June 30, 2007, there was $878,000 of unrecognized compensation cost related to nonvested stock options.  The cost is expected to be recognized over a weighted average period of 7.7 years.  Expense will vary based on actual forfeitures.

11. EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)

During 2004, the Company implemented the Employee Stock Ownership Plan (ESOP), which covers substantially all of its employees. In connection with the stock offering, the Company issued 454,940 shares of common stock for allocation under the ESOP in exchange for a ten-year note in the amount of $4.5 million. The $4.5 million for the ESOP purchase was borrowed from the Company. The ESOP shares initially were pledged as collateral for the loan.

The loan is secured by shares purchased with the loan proceeds and will be repaid by the ESOP with funds from the Company’s contributions to the ESOP and earnings on ESOP assets. Shares issued to the ESOP are allocated to ESOP participants based on the proportion of debt service paid in the year. Principal and interest payments are scheduled to occur over a ten-year period. Contributions to the ESOP were $417,000, $442,000, and $481,000 for the years ended June 30, 2007, 2006, and 2005, respectively.

During the year ended June 30, 2007, 45,494 shares of stock with an average fair value of $17.36 per share were committed to be released, resulting in ESOP compensation expense of $790,000.  During the year ended 2006, 45,494 shares of stock with an average fair value of $12.66 per share were committed to be released, resulting in ESOP compensation expense of $576,000. Shares held by the ESOP at June 30, 2007 and 2006 are as follows:

	2007		2006
Allocated shares		147,856		102,362
Unearned shares		307,084		352,578
Total ESOP shares		454,940		454,940
Fair value of unearned shares (in thousands)	$	4,818	$	5,109

      

        F - 26      

    

      

        K-FED BANCORP AND SUBSIDIARY      

      

        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS      

      

        JUNE 30, 2007, 2006 AND 2005      

                  

12. INCOME TAXES

The components of income tax expense are as follows:

	June 30
	2007		2006		2005
	(In thousands)
Current
Federal	$	1,674	$	1,941	$	2,375
State		775		731		863
		2,449		2,672		3,238
Deferred
Federal		62		49		(210	)
State		23		5		(48	)
		85		54		(258	)
Income tax expense	$	2,534	$	2,726	$	2,980

The income tax provision differs from the amount of income tax determined by applying the United States federal income tax rate to pretax income due to the following:

	June 30
	2007			2006			2005
	(Dollars in thousands)
Federal income tax at statutory rate	$	2,460		$	2,603		$	2,712
State taxes, net of federal tax benefit		525			487			532
Bank-owned life insurance		(149	)		(145	)		(30	)
ESOP expenses		117			41			53
General business credit		(311	)		(335	)		(295	)
Stock options		63			93			─
RRP expenses		─			(26	)		─
Other, net		(171	)		8			8
Total	$	2,534		$	2,726		$	2,980
Tax expense as a percentage of income before tax		35.0	%		35.6	%		37.4	%

      

        F - 27      

    

      

        K-FED BANCORP AND SUBSIDIARY      

      

        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS      

      

        JUNE 30, 2007, 2006 AND 2005      

                  

The Company’s total net deferred tax assets are as follows:

	June 30
	2007			2006
	(In thousands)
Deferred tax assets:
Allowance for loan losses	$	1,051		$	913
Accrued expenses		436			429
Accrued state income tax		276			268
Unrealized loss on securities available-for-sale		88			173
RRP Plan		85			110
Total deferred tax assets		1,936			1,893
Deferred tax liabilities:
Premises and equipment		(174	)		(221	)
Goodwill and other intangibles		(204	)		(124	)
Federal Home Loan Bank Stock dividends		(487	)		(290	)
Other		(34	)		(51	)
Total deferred tax liabilities		(899	)		(686	)
Net deferred tax asset, included in other assets	$	1,037		$	1,207

13. CAPITAL REQUIREMENTS AND RESTRICTIONS ON RETAINED EARNINGS

The Bank is subject to various regulatory capital requirements administered by federal banking agencies. 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 Bank’s financial statements. The regulations require the Bank to meet specific capital adequacy guidelines that involve quantitative measures of Bank’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank’s capital classification is also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the following table) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined) and Tier 1 capital to total assets (as defined). Management’s opinion, as of June 30, 2007, is that the Bank meets all capital adequacy requirements to which it is subject.

      

        F - 28      

    

      

        K-FED BANCORP AND SUBSIDIARY      

      

        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS      

      

        JUNE 30, 2007, 2006 AND 2005      

                  

As of June 30, 2007 and 2006, the most recent notification from the Office of Thrift Supervision, categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, an institution must maintain minimum total risk-based, Tier 1 risk based and Tier 1 leverage ratios as set forth in the table below. There are no conditions or events since the notification that management believes have changed the Bank’s category. The Bank’s actual capital amounts and ratios are presented in the following table.

	Actual			Minimum Capital Adequacy Requirements			Minimum Required to be Well Capitalized Under Prompt Corrective Actions Provisions
	Amount	Ratio		Amount	Ratio		Amount	Ratio
	(Dollars in thousands)
June 30, 2007:
Total capital (to risk-weighted assets)	$67,622	13.30	%	$40,660	8.00	%	$50,825	10.00	%
Tier 1 capital (to risk-weighted assets)	64,875	12.76		20,330	4.00		30,495	6.00
Tier 1 (core) capital (to adjusted tangible assets)	64,875	8.32		31,191	4.00		38,989	5.00
June 30, 2006:
Total capital (to risk-weighted assets)	$71,632	16.03	%	$35,741	8.00	%	$44,676	10.00	%
Tier 1 capital (to risk-weighted assets)	68,910	15.42		17,870	4.00		26,806	6.00
Tier 1 (core) capital (to adjusted tangible assets)	68,910	9.58		28,771	4.00		35,964	5.00

The following is a reconciliation of the Bank’s equity under accounting principles generally accepted in the United States of America (“GAAP”) to regulatory capital.

	June 30
	2007			2006
	(In thousands)
GAAP Equity	$	69,148		$	73,297
Goodwill and other intangibles		(4,273	)		(4,387	)
Tier 1 Capital		64,875			68,910
General allowance for loan losses		2,747			2,722
Total regulatory capital	$	67,622		$	71,632

Office of Thrift Supervision regulations impose various restrictions on savings institutions with respect to their ability to make distributions of capital, which include dividends, stock redemptions or repurchases, cash-out mergers and other transactions charged to the capital account.

Generally, savings institutions, such as Kaiser Federal Bank, that before and after the proposed distribution are well-capitalized, may make capital distributions during any calendar year up to 100% of net income for the year-to-date plus retained net income for the two preceding years. However, an institution deemed to be in need of more than normal supervision by the Office of Thrift Supervision

      

        F - 29      

    

      

        K-FED BANCORP AND SUBSIDIARY      

      

        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS      

      

        JUNE 30, 2007, 2006 AND 2005      

                  

 may have its dividend authority restricted by the Office of Thrift Supervision.  The amount of retained earnings available for dividends was $3.8 million at June 30, 2007.   Kaiser Federal Bank may pay dividends to K-Fed Bancorp in accordance with this general authority.

K-Fed Bancorp is not currently subject to prompt corrective action regulations.

14. LOAN COMMITMENTS AND OTHER RELATED ACTIVITIES

The Company is a party to various legal actions normally associated with collections of loans and other business activities of financial institutions, the aggregate effect of which, in management’s opinion, would not have a material adverse effect on the financial condition or results of operations of the Company.

At June 30, 2007 and 2006, there were was $14,285,000 and $15,466,000, respectively, in cash and cash equivalents with balances in excess of insured limits.

Outstanding mortgage loan commitments at June 30, 2007 and 2006 amounted to $7.5 million and $1.3 million, respectively.  As of June 30, 2007, $595,000 of commitments were issued at a fixed rate of 6.375%. There were no commitments to purchase mortgage loans at June 30, 2007 and 2006, respectively.

Available credit on home equity and unsecured lines of credit is summarized as follows:

	June 30
	2007		2006
	(In thousands)
Home equity	$	1,930	$	2,372
Other consumer		4,485		4,693
	$	6,415	$	7,065

Commitments for home equity and unsecured lines of credit may expire without being drawn upon. Therefore, the total commitment amount does not necessarily represent future cash requirements of the Company. These commitments are not reflected in the financial statements.

15. FAIR VALUE OF FINANCIAL INSTRUMENTS

The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is necessarily required to interpret market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize in a market exchange. The use of different assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

      

        F - 30      

    

      

        K-FED BANCORP AND SUBSIDIARY      

      

        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS      

      

        JUNE 30, 2007, 2006 AND 2005      

                  

The following methods and assumptions were used to estimate fair value of each class of financial instruments for which it is practicable to estimate fair value:

Investments

Estimated fair values for investments are obtained from quoted market prices where available. Where quoted market prices are not available, estimated fair values are based on quoted market prices of comparable instruments.

Loans

The estimated fair value for all fixed rate loans and variable rate loans with an initial fixed rate feature is determined by discounting the estimated cash flows using the current rate at which similar loans would be made to borrowers with similar credit ratings and maturities.

The estimated fair value for variable rate loans with no initial fixed rate feature is the carrying amount.

Deposits

The estimated fair value of deposit accounts (savings, non interest bearing demand and money market accounts) is the carrying amount. The fair value of fixed-maturity time certificates of deposit is estimated by discounting the estimated cash flows using the current rate at which similar certificates would be issued.

FHLB Advances

The fair values of the FHLB advances are estimated using discounted cash flow analyses, based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements.

Other On-Balance-Sheet Financial Instruments

Other on-balance-sheet financial instruments include cash and cash equivalents, accrued interest receivable, FHLB stock and accrued expenses and other liabilities. The carrying value of each of these financial instruments is a reasonable estimation of fair value.

Off-Balance-Sheet Financial Instruments

The fair values for the Company’s off-balance sheet loan commitments are estimated based on fees charged to others to enter into similar agreements taking into account the remaining terms of the agreements and credit standing of the Company’s customers. The estimated fair value of these commitments is not significant.

      

        F - 31      

    

      

        K-FED BANCORP AND SUBSIDIARY      

      

        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS      

      

        JUNE 30, 2007, 2006 AND 2005      

                  

The estimated fair values of the Company’s financial instruments are summarized as follows:

	June 30, 2007				June 30, 2006
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
	(In thousands)
Financial assets:
Cash and cash equivalents	$	26,732	$	26,732	$	25,579	$	25,579
Interest bearing deposits in other financial institutions		2,970		2,954		9,010		8,865
Securities available-for-sale		13,579		13,579		11,289		11,289
Securities held-to-maturity		21,096		20,514		24,738		23,939
Federal Home Loan Bank Stock		9,870		9,870		8,746		8,746
Loans, net		699,143		680,196		634,093		613,105
Accrued interest receivable		3,259		3,259		2,767		2,767
Financial liabilities:
Deposits		494,128		493,329		463,454		459,917
FHLB advances		210,016		204,745		179,948		172,372

      

        F - 32      

    

      

        K-FED BANCORP AND SUBSIDIARY      

      

        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS      

      

        JUNE 30, 2007, 2006 AND 2005      

                  

16. BUSINESS COMBINATION

On September 24, 2004, the Bank acquired the Panorama City branch of Pan American Bank. The acquisition was accounted for as a purchase and accordingly was included in the results of operations from the date of acquisition. The following table summarizes the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition (in thousands).

Assets acquired:
Teller and vault cash	$	128
Loans		23
Other assets / prepayment credits		38
Core deposit intangible		676
Total assets acquired		865
Liabilities assumed:
Deposit accounts		60,971
Discount on certificates of deposit		206
Accrued interest payable		1
Total liabilities assumed (net of assets acquired)		60,313
Cash received from Pan American Bank		56,363
Goodwill	$	3,950

The core deposit intangible is being amortized over 8 years on an accelerated basis and is deducted for tax purposes over 15 years using the straight line method. In accordance with Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, goodwill is not amortizable but is subject to annual impairment testing and is deducted for tax purposes over 15 years using the straight line method.

The Bank acquired the branch at this premium to further solidify its market share in the Los Angeles County market, expand its customer base to enhance deposit fee income, provide an opportunity to market additional products and services to new customers, and improve customer convenience by adding a new location.

      

        F - 33      

    

      

        K-FED BANCORP AND SUBSIDIARY      

      

        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS      

      

        JUNE 30, 2007, 2006 AND 2005      

                  

17. EARNINGS PER COMMON SHARE

The factors used in the earnings per share computation follow (dollars in thousands).

	June 30
	2007		2006		2005
	(In thousands, except per share data)
Basic
Net income	$	4,704	$	4,929	$	4,997
Weighted average common shares outstanding		13,627,566		13,867,645		14,071,992
Basic earnings per share	$	0.35	$	0.36	$	0.36
Diluted
Net income	$	4,704	$	4,929	$	4,997
Weighted average common shares outstanding for basic earnings per common share		13,627,566		13,867,645		14,071,992
Add:  Dilutive effects of stock awards		23,028		─		─
Add:  Dilutive effects of stock options		1,657		─		─
Average shares and dilutive potential common shares		13,652,251		13,867,645		14,071,992
Diluted earnings per common share	$	0.34	$	0.36	$	0.36

The effect of stock awards and stock options was not included in the calculation of diluted earnings per share for the years ended June 30, 2006 and June 30, 2005 because to do so would have been anti-dilutive.  For the years ended June 30, 2007, there were no antidilutive options or awards.

18. OTHER COMPREHENSIVE LOSS (INCOME)

Other comprehensive (loss) income components and related taxes were as follows:

	June 30
	2007			2006			2005
	(In thousands)
Unrealized holding gain (loss) on securities available-for-sale	$	207		$	(135	)	$	37
Tax effect		(86	)		56			(15	)
Other comprehensive income (loss)	$	121		$	(79	)	$	22

      

        F - 34      

    

      

        K-FED BANCORP AND SUBSIDIARY      

      

        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS      

      

        JUNE 30, 2007, 2006 AND 2005      

                  

19. CONDENSED CONSOLIDATED QUARTERLY RESULTS OF OPERATIONS (Unaudited)

The following table sets forth our Company’s unaudited results of operations for the four quarters ended 2007 and 2006.  The sum of the quarterly data may not be equal to the annual data.

	Three months ended
	September 30		December 31		March 31		June 30
	(In thousands, except share data)
Fiscal Year 2007
Interest income	$	9,725	$	10,245	$	10,468	$	10,728
Interest expense		5,153		5,859		5,938		6,190
Net interest income		4,572		4,386		4,530		4,538
Provision for loan losses		122		180		116		111
Noninterest income		1,076		1,009		1,093		1,081
Noninterest expense		3,427		3,533		3,851		3,707
Income before income tax		2,099		1,682		1,656		1,801
Income tax expense		784		537		543		670
Net income	$	1,315	$	1,145	$	1,113	$	1,131
Basic and Diluted earnings per share	$	0.10	$	0.08	$	0.08	$	0.08
Fiscal Year 2006
Interest income	$	7,686	$	9,013	$	9,474	$	9,648
Interest expense		3,316		4,429		4,772		4,947
Net interest income		4,370		4,584		4,702		4,701
Provision for loan losses		165		195		128		164
Noninterest income		745		951		873		857
Noninterest expense		3,307		3,251		3,369		3,549
Income before income tax		1,643		2,089		2,078		1,845
Income tax expense		589		767		723		647
Net income	$	1,054	$	1,322	$	1,355	$	1,198
Basic and Diluted earnings per share	$	0.08	$	0.10	$	0.10	$	0.09

      

        F - 35      

    

      

        K-FED BANCORP AND SUBSIDIARY      

      

        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS      

      

        JUNE 30, 2007, 2006 AND 2005      

                  

20.  PARENT COMPANY ONLY CONDENSED FINANCIAL STATEMENTS

Condensed financial information of K-Fed Bancorp follows:

CONDENSED BALANCE SHEET

(In thousands)

	June 30 2007		June 30 2006
Assets
Cash and cash equivalents	$	6,036	$	4,087
Securities available for sale		13,579		11,289
ESOP Loan		3,264		3,678
Investment in bank subsidiary		69,148		73,297
Accrued income receivable		78		50
Other assets		226		308
	$	92,331	$	92,709
Liabilities & Stockholders’ Equity
Accrued expenses and other liabilities	$	14	$	52
Stockholders’ equity		92,317		92,657
	$	92,331	$	92,709

      

        F - 36      

    

      

        K-FED BANCORP AND SUBSIDIARY      

      

        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS      

      

        JUNE 30, 2007, 2006 AND 2005      

                  

CONDENSED STATEMENT OF INCOME

 (Dollars in thousands)

	June 30
	2007			2006			2005
	(In thousands)
Income
Interest on ESOP Loan	$	3		$	46	$		102
Dividend from subsidiary		10,000			─			─
Interest on investment securities, taxable		405			513			604
Other interest and dividend income		351			44			39
Total income		10,759			603			745
Expenses
Other operating expenses		291			250			276
Income before income taxes and equity in undistributed earnings of bank subsidiary		10,468			353			469
Income taxes		160			145			182
Income before equity in undistributed earnings of bank subsidiary		10,308			208			287
Equity in undistributed earnings of bank subsidiary (dividends in excess of earnings)		(5,604	)		4,721			4,710
Net income	$	4,704		$	4,929	$		4,997

      

        F - 37      

    

      

        K-FED BANCORP AND SUBSIDIARY      

      

        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS      

      

        JUNE 30, 2007, 2006 AND 2005      

                  

CONDENSED STATEMENT OF CASH FLOWS

 (Dollars in thousands)

	June 30
	2007			2006			2005
	(In thousands)
OPERATING ACTIVITIES
Net income	$	4,704		$	4,929		$	4,997
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed earnings of bank subsidiary		5,604			(4,721	)		(4,710	)
Amortization of net premiums on investments		31			49			65
Net change in accrued income receivable		(28	)		26			7
Net change in other assets		(3	)		(74	)		(45	)
Net change in accrued expenses and other liabilities		(38	)		37			(90	)
Net cash provided by operating activities		10,270			246			224
INVESTING ACTIVITIES
Purchases of securities available-for-sale		(8,860	)		─			─
Proceeds from maturities of available-for-sale investments		6,745			7,375			2,127
Net change in ESOP loan receivable		414			397			382
Net cash (used in) provided by investing activities		(1,701	)		7,772			2,509
FINANCING ACTIVITIES
Dividends paid on common stock		(1,844	)		(1,394	)		(821	)
Exercise of stock options		170			─			─
Purchase of treasury stock		(4,946	)		(2,944	)		(3,453	)
Net cash used in financing activities		(6,620	)		(4,338	)		(4,274	)
NET CHANGE IN CASH AND CASH EQUIVALENTS		1,949			3,680			(1,541	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR		4,087			407			1,948
CASH AND CASH EQUIVALENTS AT END OF YEAR	$	6,036		$	4,087		$	407

      

        F - 38      

    

      

        K-FED BANCORP AND SUBSIDIARY      

      

        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS      

      

        JUNE 30, 2007, 2006 AND 2005      

                  

21.  STOCK CONVERSION

On June 26, 2007, the Board of Directors of K-Fed Mutual Holding Company approved a plan to convert the Mutual Holding Company from the mutual to stock form of organization. The Mutual Holding Company is a federally chartered mutual holding company and currently owns approximately 63.5% of the outstanding shares of common stock of K-Fed Bancorp, which owns 100% of the issued and outstanding shares of the capital stock of Kaiser Federal Bank (the “Bank”). Pursuant to the terms of K-Fed Mutual Holding Company’s plan of conversion and reorganization, K-Fed Mutual Holding Company will convert from the mutual holding company to the stock holding company corporate structure. As part of the conversion, we are offering for sale in a subscription offering, and possibly in a community and/or a syndicated community offering, the majority ownership interest of K-Fed Bancorp that is currently owned by K-Fed Mutual Holding Company. Upon the completion of the conversion and offering, K-Fed Mutual Holding Company will cease to exist, and we will complete the transition from partial to full public stock ownership. Upon completion of the conversion, existing public stockholders of K-Fed Bancorp will receive shares of common stock of Kaiser Federal Financial Group in exchange for their shares of K-Fed Bancorp common stock in order to maintain the public stockholders’ existing percentage ownership in our organization (excluding any new shares purchased by them in the offering).

In connection with the conversion, shares of common stock of a new successor holding company, representing the ownership interest of the Mutual Holding Company, will be offered for sale to depositors of the Bank. The following persons and employee benefit plan have subscription rights to purchase shares of common stock of the new holding company in the following order of priority: (1) depositors of record as of March 31, 2006; (2) the Bank’s employee stock ownership plan; (3) depositors of record as of the end of the calendar quarter preceding the commencement of the offering; and (4) depositors entitled to vote on the conversion proposal. If necessary, shares will be offered to the general public. In addition, upon completion of the conversion of the Mutual Holding Company, shares of the Company’s common stock held by public stockholders will be exchanged for shares of a new corporation, which will become the Bank’s new parent holding company. As a result of the conversion and offering, the Mutual Holding Company and Company will cease to exist.

The conversion is subject to approval of the Office of Thrift Supervision as well as the approval of the Mutual Holding Company’s members (depositors of the Bank) and the Company’s stockholders. Proxy materials setting forth information relating to the conversion and offering will be sent to the members of the Mutual Holding Company and stockholders of the Company for their consideration. The offering will be made only by means of a prospectus in accordance with federal law and all applicable state securities laws. The conversion and offering are expected to be completed in the fourth quarter of 2007.

      

        F - 39      

    

K-FED BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2007, 2006 AND 2005

21.	STOCK CONVERSION
	On June 26, 2007, the Board of Directors of K-Fed Mutual Holding Company approved a plan to convert the Mutual Holding Company from the mutual to stock form of organization. The Mutual Holding Company is a federally chartered mutual holding company and currently owns approximately 63.5% of the outstanding shares of common stock of K-Fed Bancorp, which owns 100% of the issued and outstanding shares of the capital stock of Kaiser Federal Bank (the “Bank”). Pursuant to the terms of K-Fed Mutual Holding Company’s plan of conversion and reorganization, K-Fed Mutual Holding Company will convert from the mutual holding company to the stock holding company corporate structure. As part of the conversion, we are offering for sale in a subscription offering, and possibly in a community and/or a syndicated community offering, the majority ownership interest of K-Fed Bancorp that is currently owned by K-Fed Mutual Holding Company. Upon the completion of the conversion and offering, K-Fed Mutual Holding Company will cease to exist, and we will complete the transition from partial to full public stock ownership. Upon completion of the conversion, existing public stockholders of K-Fed Bancorp will receive shares of common stock of Kaiser Federal Financial Group in exchange for their shares of K-Fed Bancorp common stock in order to maintain the public stockholders’ existing percentage ownership in our organization (excluding any new shares purchased by them in the offering).
	In connection with the conversion, shares of common stock of a new successor holding company, representing the ownership interest of the Mutual Holding Company, will be offered for sale to depositors of the Bank. The following persons and employee benefit plan have subscription rights to purchase shares of common stock of the new holding company in the following order of priority: (1) depositors of record as of March 31, 2006; (2) the Bank’s employee stock ownership plan; (3) depositors of record as of the end of the calendar quarter preceding the commencement of the offering; and (4) depositors entitled to vote on the conversion proposal. If necessary, shares will be offered to the general public. In addition, upon completion of the conversion of the Mutual Holding Company, shares of the Company’s common stock held by public stockholders will be exchanged for shares of a new corporation, which will become the Bank’s new parent holding company. As a result of the conversion and offering, the Mutual Holding Company and Company will cease to exist.
	The conversion is subject to approval of the Office of Thrift Supervision as well as the approval of the Mutual Holding Company’s members (depositors of the Bank) and the Company’s stockholders. Proxy materials setting forth information relating to the conversion and offering will be sent to the members of the Mutual Holding Company and stockholders of the Company for their consideration. The offering will be made only by means of a prospectus in accordance with federal law and all applicable state securities laws. The conversion and offering are expected to be completed in the fourth quarter of 2007.

F-40

PART II:          INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13.            Other Expenses of Issuance and Distribution

		Amount (1)
*	Registrant’s Legal Fees and Expenses	$	450,000
*	Registrant’s Accounting Fees and Expenses		155,000
*	Marketing Agent Fees and Expenses(1)		4,132,000
*	Appraisal Fees and Expenses		110,000
*	Business Plan Fees and Expenses		65,000
*	Printing, Postage and Mailing		330,000
*	Filing Fees (NASD, Nasdaq, SEC and OTS)		55,372
*	Transfer Agent and registrar fees and expenses		6,400
*	Certificate Printing		10,000
*	Other		18,228
*	Total	$	5,332,000

*	Estimated
(1)	Fees are estimated at the midpoint of the offering range. Kaiser Federal Financial Group, Inc. has retained Keefe, Bruyette & Woods, Inc. to assist in the sale of common stock on a best efforts basis in the offerings.

Item 14.          Indemnification of Directors and Officers 

          Articles 11 and 12 of the Articles of Incorporation of Kaiser Federal Financial Group, Inc. (the “Corporation”) set forth circumstances under which directors, officers, employees and agents of the Corporation may be insured or indemnified against liability which they incur in their capacities as such:

          ARTICLE 11.  Indemnification, etc. of Directors and Officers.

          A.          Indemnification.  The Corporation shall indemnify (1) its current and former directors and officers, whether serving the Corporation or at its request any other entity, to the fullest extent required or permitted by the MGCL now or hereafter in force, including the advancement of expenses under the procedures and to the fullest extent permitted by law, and (2) other employees and agents to such extent as shall be authorized by the Board of Directors and permitted by law; provided, however, that, except as provided in Section B hereof with respect to proceedings to enforce rights to indemnification, the Corporation shall indemnify any such indemnitee in connection with a proceeding (or part thereof) initiated by such indemnitee only if such proceeding (or part thereof) was authorized by the Board of Directors of the Corporation.

          B.          Procedure.  If a claim under Section A of this Article 11 is not paid in full by the Corporation within 60 days after a written claim has been received by the Corporation, except in the case of a claim for an advancement of expenses, in which case the applicable period shall be 20 days, the indemnitee may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim.  If successful in whole or in part in any such suit, or in a suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the indemnitee shall also be entitled to be reimbursed the expense of prosecuting or defending such suit.  It shall be a defense to any action for advancement of expenses that the Corporation has not received both (i) an undertaking as required by law to repay such advances in the event it shall ultimately be determined that the standard of conduct has not been met and (ii) a written affirmation by the indemnitee of his good faith belief that the standard of conduct necessary for indemnification by the Corporation has been met.  In (i) any suit brought by the indemnitee to enforce a right to indemnification hereunder (but not in a suit brought by the indemnitee to enforce a right to an advancement of expenses) it shall be a defense that, and (ii) any suit by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking the Corporation shall be entitled to recover such expenses upon a final adjudication that, the indemnitee has not met the applicable

II-1

standard for indemnification set forth in the MGCL.  Neither the failure of the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such suit that indemnification of the indemnitee is proper in the circumstances because the indemnitee has met the applicable standard of conduct set forth in the MGCL, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the indemnitee has not met such applicable standard of conduct, shall create a presumption that the indemnitee has not met the applicable standard of conduct or, in the case of such a suit brought by the indemnitee, be a defense to such suit.  In any suit brought by the indemnitee to enforce a right to indemnification or to an advancement of expenses hereunder, or by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the burden of proving that the indemnitee is not entitled to be indemnified, or to such advancement of expenses, under this Article 11 or otherwise shall be on the Corporation.

          C.          Non-Exclusivity.  The rights to indemnification and to the advancement of expenses conferred in this Article 11 shall not be exclusive of any other right which any Person may have or hereafter acquire under any statute, these Articles, the Corporation’s Bylaws, any agreement, any vote of stockholders or the Board of Directors, or otherwise.

          D.          Insurance.  The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the Corporation would have the power to indemnify such Person against such expense, liability or loss under the MGCL.

          E.          Miscellaneous.  The Corporation shall not be liable for any payment under this Article 11 in connection with a claim made by any indemnitee to the extent such indemnitee has otherwise actually received payment under any insurance policy, agreement, or otherwise, of the amounts otherwise indemnifiable hereunder.  The rights to indemnification and to the advancement of expenses conferred in Sections A and B of this Article 11 shall be contract rights and such rights shall continue as to an indemnitee who has ceased to be a director or officer and shall inure to the benefit of the indemnitee’s heirs, executors and administrators.

          Any repeal or modification of this Article 11 shall not in any way diminish any rights to indemnification or advancement of expenses of such director or officer or the obligations of the Corporation arising hereunder with respect to events occurring, or claims made, while this Article 11 is in force.

          ARTICLE 12.  Limitation of Liability.  An officer or director of the Corporation, as such, shall not be liable to the Corporation or its stockholders for money damages, except (A) to the extent that it is proved that the Person actually received an improper benefit or profit in money, property or services for the amount of the benefit or profit in money, property or services actually received; (B) to the extent that a judgment or other final adjudication adverse to the Person is entered in a proceeding based on a finding in the proceeding that the Person’s action, or failure to act, was the result of active and deliberate dishonesty and was material to the cause of action adjudicated in the proceeding; or (C) to the extent otherwise provided by the MGCL.  If the MGCL is amended to further eliminate or limit the Personal liability of officers and directors, then the liability of officers and directors of the Corporation shall be eliminated or limited to the fullest extent permitted by the MGCL, as so amended.

Any repeal or modification of the foregoing paragraph by the stockholders of the Corporation shall not adversely affect any right or protection of a director or officer of the Corporation existing at the time of such repeal or modification.

Item 15.          Recent Sales of Unregistered Securities

                        Not Applicable.

II-2

Item 16.          Exhibits and Financial Statement Schedules:

                        The exhibits and financial statement schedules filed as part of this registration statement are as follows:

          (a)          List of Exhibits

1.1	Engagement Letter between Kaiser Federal Financial Group, Inc. and Keefe, Bruyette & Woods, Inc.
1.2	Form of Agency Agreement between Kaiser Federal Financial Group, Inc. and Keefe, Bruyette & Woods, Inc. *
2	Kaiser Federal Financial Group, Inc. Plan of Conversion and Reorganization
3.1	Articles of Incorporation of Kaiser Federal Financial Group, Inc.
3.2	Bylaws of Kaiser Federal Financial Group, Inc.
4	Form of Common Stock Certificate of Kaiser Federal Financial Group, Inc.
5	Opinion of Luse Gorman Pomerenk & Schick regarding legality of securities being registered
8	Federal Tax Opinion of Luse Gorman Pomerenk & Schick
10.1	Employee Stock Ownership Plan (1)
10.2	K-Fed Bancorp 2004 Stock Option Plan (2)
10.3	K-Fed Bancorp 2004 Recognition and Retention Plan (2)
10.4	Deferred Compensation Agreement (1)
10.5	Form of Employment Agreement with Kay M. Hoveland
10.6	Form of Employment Agreement with Dustin Luton
10.7	Form of Employment Agreement with Nancy J. Huber
10.8	Form of Employment Agreement with Jeanne R. Thompson
10.9	Form of Annual Incentive Plan
21	Subsidiaries of Registrant
23.1	Consent of Luse Gorman Pomerenk & Schick (contained in Opinions included as Exhibits 5 and 8)
23.2	Consent of Crowe Chizek and Company LLC
23.3	Consent of RP Financial, LC.
24	Power of Attorney (set forth on signature page)
99.1	Appraisal Agreement between Kaiser Federal Financial Group, Inc. and RP Financial, LC.
99.2	Business Plan Agreement between Kaiser Federal Financial Group, Inc. and Feldman Financial Advisors, Inc.
99.3	Appraisal Report of RP Financial, LC. **
99.4	Letter of RP Financial, LC. with respect to Subscription Rights
99.5	Marketing Materials*
99.6	Order and Acknowledgment Form*

*	To be filed supplementally or by amendment.
**	Supporting financial schedules filed in paper format only pursuant to Rule 202 of Regulation S-T. Available for inspection, during business hours, at the principal offices of the SEC in Washington, D.C.
(1)	Incorporated by reference to K-Fed Bancorp’s Registration Statement on Form S-1, and any amendments thereto, originally filed with the Securities and Exchange Commission on December 9, 2003 (Registration No. 333-111029).
(2)	Incorporated by reference to the Registrant’s Proxy Statement for the 2004 Annual Meeting of Stockholders filed with the Securities and Exchange Commission on September 23, 2004.

          (b)          Financial Statement Schedules

No financial statement schedules are filed because the required information is not applicable or is included in the consolidated financial statements or related notes.

II-3

Item 17.          Undertakings

                         The undersigned Registrant hereby undertakes:

                         (1)    To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:

               (i)     To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;

               (ii)    To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement;

               (iii)   To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.

                         (2)     That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

                         (3)     To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

                         (4)     The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:

              i.          Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424 (§230.424 of this chapter);

              ii.         Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;

              iii.        The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and

               iv.       Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.

                         (5)     Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act, and is, therefore, unenforceable.  In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a

II-4

director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

II-5

SIGNATURES

          Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Covina, State of California on September 27, 2007.

KAISER FEDERAL FINANCIAL GROUP, INC.
By:	/s/ Kay M. Hoveland
	Kay M. Hoveland
	President, Chief Executive Officer and Director
	(Duly Authorized Representative)

POWER OF ATTORNEY

          We, the undersigned directors and officers of Kaiser Federal Financial Group, Inc. (the “Company”) hereby severally constitute and appoint Kay M. Hoveland as our true and lawful attorney and agent, to do any and all things in our names in the capacities indicated below which said Kay M. Hoveland may deem necessary or advisable to enable the Company to comply with the Securities Act of 1933, and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with the registration statement on Form S-1 relating to the offering of the Company=s common stock, including specifically, but not limited to, power and authority to sign for us in our names in the capacities indicated below the registration statement and any and all amendments (including post-effective amendments) thereto; and we hereby approve, ratify and confirm all that said Kay M. Hoveland shall do or cause to be done by virtue thereof.

          Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.

Signatures	Title	Date
/s/ Kay M. Hoveland	President, Chief Executive Officer and Director (Principal Executive Officer)	September 27, 2007
Kay M. Hoveland
/s/ Dustin Luton	Chief Financial Officer (Principal Financial Officer)	September 27, 2007
Dustin Luton
/s/ Frank Wong	Controller (Principal Accounting Officer)	September 27, 2007
Frank Wong
/s/ James L. Breeden	Chairman of the Board	September 27, 2007
James L. Breeden
/s/ Gerald A. Murbach	Director	September 27, 2007
Gerald A. Murbach
/s/ Robert C. Steinbach	Director	September 27, 2007
Robert C. Steinbach
/s/ Rita H. Zwern	Director	September 27, 2007
Rita H. Zwern

As filed with the Securities and Exchange Commission on September 27, 2007

Registration No. 333-________

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

EXHIBITS
TO
REGISTRATION STATEMENT
ON
FORM S-1

Kaiser Federal Financial Group, Inc. and
Kaiser Federal Bank 401(k) Plan
Covina, California

EXHIBIT INDEX

1.1	Engagement Letter between Kaiser Federal Financial Group, Inc. and Keefe, Bruyette & Woods, Inc.
1.2	Form of Agency Agreement between Kaiser Federal Financial Group, Inc. and Keefe, Bruyette & Woods, Inc. *
2	Kaiser Federal Financial Group, Inc. Plan of Conversion and Reorganization
3.1	Articles of Incorporation of Kaiser Federal Financial Group, Inc.
3.2	Bylaws of Kaiser Federal Financial Group, Inc.
4	Form of Common Stock Certificate of Kaiser Federal Financial Group, Inc.
5	Opinion of Luse Gorman Pomerenk & Schick regarding legality of securities being registered
8	Federal Tax Opinion of Luse Gorman Pomerenk & Schick
10.1	Employee Stock Ownership Plan (1)
10.2	K-Fed Bancorp 2004 Stock Option Plan (2)
10.3	K-Fed Bancorp 2004 Recognition and Retention Plan (2)
10.4	Deferred Compensation Agreement (1)
10.5	Form of Employment Agreement with Kay M. Hoveland
10.6	Form of Employment Agreement with Dustin Luton
10.7	Form of Employment Agreement with Nancy J. Huber
10.8	Form of Employment Agreement with Jeanne R. Thompson
10.9	Form of Annual Incentive Plan
21	Subsidiaries of Registrant
23.1	Consent of Luse Gorman Pomerenk & Schick (contained in Opinions included as Exhibits 5 and 8)
23.2	Consent of Crowe Chizek and Company LLC
23.3	Consent of RP Financial, LC.
24	Power of Attorney (set forth on signature page)
99.1	Appraisal Agreement between Kaiser Federal Financial Group, Inc. and RP Financial, LC.
99.2	Business Plan Agreement between Kaiser Federal Financial Group, Inc. and Feldman Financial Advisors, Inc.
99.3	Appraisal Report of RP Financial, LC. **
99.4	Letter of RP Financial, LC. with respect to Subscription Rights
99.5	Marketing Materials*
99.6	Order and Acknowledgment Form*

*	To be filed supplementally or by amendment.
**	Supporting financial schedules filed in paper format only pursuant to Rule 202 of Regulation S-T. Available for inspection, during business hours, at the principal offices of the SEC in Washington, D.C.
(1)	Incorporated by reference to K-Fed Bancorp’s Registration Statement on Form S-1, and any amendments thereto, originally filed with the Securities and Exchange Commission on December 9, 2003 (Registration No. 333-111029).
(2)	Incorporated by reference to the Registrant’s Proxy Statement for the 2004 Annual Meeting of Stockholders filed with the Securities and Exchange Commission on September 23, 2004.

EX-1.1

Exhibit 1.1

May 29, 2007

Mrs. Kay M. Hoveland
President  & CEO
K-Fed Bancorp
1359 North Grand Avenue
Covina, CA 91724-0116

Dear Mrs. Hoveland:

This proposal is being submitted in connection with K-FED l Bancorp, (“K-FED” or “Bank”) intention to have the mutual holding company component of its organization reorganize from a mutual to a capital stock form of organization (the “Reorganization”).  In order to effect the Reorganization, it is contemplated that all of K-FED’s common stock to be outstanding pursuant to the Reorganization will be issued to a  new holding company (the “Company”) to be formed by K-FED, and that the Company will offer and sell shares of its common stock first to eligible persons (pursuant to K-FED’s Plan of Reorganization) in a Subscription and Community Offering, with any remaining shares offered to the general public in a Community and/or Syndicated Offering.

Keefe, Bruyette and Woods, Inc. (“KBW”) will act as K-FED’s and the Company’s exclusive financial advisor and marketing agent in connection with the Reorganization.  This letter sets forth selected terms and conditions of our engagement.

1.          Advisory/Reorganization Services.  As the Company’s financial advisor and marketing agent, KBW will provide the Company with a comprehensive program of services designed to promote an orderly, efficient, cost-effective and long-term stock distribution.  KBW will provide financial and logistical advice to Company concerning the Reorganization and related issues.  KBW will provide services intended to maximize stock sales in the Subscription and the Community Offering, working closely with the management and the board to develop an appropriate sales strategy.

KBW shall provide financial advisory services to the Company which are typical in connection with an equity offering and include, but are not limited to, overall financial analysis of the Company with a focus on identifying factors which impact the valuation of the common stock.

Additionally, post-Reorganization financial advisory services will include advice on shareholder relations, after-market trading, dividend policy (for both regular and special dividends), stock repurchase strategies and communication with market makers.  Prior to the closing of the Reorganization, KBW shall furnish to client a Post-Reorganization reference manual, which will

May 29, 2007
Mrs. Kay M. Hoveland
Page 2 of 5

include specifics relative to these items.  (The nature of the services to be provided by KBW as the Company’s financial advisor and marketing agent is further described in Exhibit A attached hereto.)

2.          Preparation of Reorganization Documents.  The Company and its counsel will draft the registration statement, Reorganization application, prospectus and other documents to be used in connection with the Reorganization.  KBW will attend meetings to review these documents and will advise you on their form and content.  KBW and its counsel will draft an appropriate agency agreement and related documents as well as marketing materials other than the prospectus.

3.          Due Diligence Review.  Prior to filing the registration statement, Reorganization application or any Reorganization or other documents naming KBW as the Company’s financial advisor and marketing agent, KBW and its representatives will undertake substantial investigations to learn about the Bank’s and Company’s business and operations (“due diligence review”) in order to confirm information provided to us and to evaluate information to be contained in the Company’s Reorganization documents.  The Company and the Bank agree that they will make available to KBW all relevant information, whether or not publicly available, which KBW reasonably requests, and will permit KBW to discuss with management the operations and prospects of the Bank.  KBW will treat all material non-public information as confidential.  The Company acknowledges that KBW will rely upon the accuracy and completeness of all information received from the Company, its officers, directors, employees, agents and representatives, accountants and counsel, including this letter to serve as the Company’s financial advisor and marketing agent.

4.          Regulatory Filings.  The Bank and/or the Company will cause appropriate Reorganization documents to be filed with all applicable regulatory agencies which might include, among others,  the Securities and Exchange Commission (“SEC”), the National Association of Securities Dealers (“NASD”), the Office of Thrift Supervision (“OTS”), the Pennsylvania Department of Banking, and such state securities commissioners as may be determined by the Company.

5.          Agency Agreement.  The specific terms of KBW’s services contemplated in this letter shall be set forth in a mutually agreed upon Agency Agreement between KBW and the Bank and the Company to be executed prior to commencement of the Reorganization, and dated the date that the Company’s prospectus is declared effective and/or authorized to be disseminated by the appropriate regulatory agencies, the SEC, the NASD, the OTS and such state securities commissioners and other regulatory agencies as required by applicable law.

6.          Representations, Warranties and Covenants.  The Agency Agreement will include representations, warranties and covenants mutually agreeable to the Company and KBW, and will provide that the Company will indemnify KBW and its controlling persons (and, if applicable, the members of the selling group and their controlling persons), and that KBW will indemnify the Bank and the Company against certain liabilities including, without limitation, liabilities under the Securities Act of 1933.

May 29, 2007
Mrs. Kay M. Hoveland
Page 3 of 5

7.          Fees.  For the services hereunder, the Company shall pay the following fees to KBW at   closing unless stated otherwise:

(a)	Management Fee.  A Management Fee of $50,000 payable in four consecutive monthly installments of $12,500 commencing with the adoption of the Plan of Reorganization.  Such fees shall be deemed to have been earned when due.  Should the Reorganization be terminated for any reason not attributable to the action or inaction of KBW, KBW shall have earned and be entitled to be paid fees accruing through the stage at which point the termination occurred.
(b)	Success Fee:  A Success Fee of 1.00% shall be charged based on the aggregate Purchase Price of Common Stock sold in the Reorganization excluding shares purchased by the Bank’s officers, directors, or employees (or members of their immediate family) plus any ESOP, tax-qualified or stock based compensation plans (except IRA’s) or similar plan created by the Bank or the Company for some or all of their directors or employees.  It is understood and agreed to by the parties that shares held by shareholders of K-FED, other than by United Financial Bancorp, Inc., which are exchanged for Company shares shall not be subject to the Success Fee.  The Management Fee described in 7(a) will be applied against the Success Fee.
(c)	Broker-Dealer Pass-Through.  If any shares of the Company’s stock remain available after the Subscription Reorganization and Community Reorganization, at the request of the Company, KBW will seek to form a syndicate of registered broker-dealers to assist in the sale of such common stock on a best efforts basis, subject to the terms and conditions set forth in the selected dealers agreement.  KBW will endeavor to distribute the common stock among dealers in a fashion which best meets the distribution objectives of the Company and the Plan.  KBW will be paid a fee not to exceed 5.5% of the aggregate Purchase Price of the shares of common stock sold by them.  From this fee, KBW will pass onto selected broker-dealers, who assist in the syndicated community, an amount competitive with gross underwriting discounts charged at such time for comparable amounts of stock sold at a comparable price per share in a similar market environment.  Fees with respect to purchases effected with the assistance of a broker/dealer other than KBW shall be transmitted by KBW to such broker/dealer.  The decision to utilize selected broker-dealers will be made by the Company upon consultation with KBW.  In the event, with respect to any stock purchases, fees are paid pursuant to this subparagraph 7(c), such fees shall be in lieu of, and not in addition to, payment pursuant to subparagraph 7(b).

8.          Additional Services.  KBW further agrees to provide financial advisory assistance to the Company and the Bank for a period of one year following completion of the Reorganization, including formation of a dividend policy and share repurchase program, assistance with

May 29, 2007
Mrs. Kay M. Hoveland
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shareholder reporting and shareholder relations matters, general advice on mergers and acquisitions and other related financial matters, without the payment by the Company or the Bank of any fees in addition to those set forth in Section 7 hereof.  Nothing in this letter agreement shall require the Company or the Bank to obtain such services from KBW.  Following this initial one year term, if both parties wish to continue the relationship, a fee will be negotiated and an agreement entered into at that time. 

9.          Expenses.  The Company will bear those expenses of the proposed Reorganization customarily borne by issuers, including, without limitation, regulatory filing fees, SEC, “Blue Sky,” and NASD filing and registration fees; the fees of the Company’s accountants, attorneys, appraiser, transfer agent and registrar, printing, mailing and marketing and syndicate expenses associated with the Reorganization; the fees set forth in Section 7; and fees for “Blue Sky” legal work.  If KBW incurs expenses on behalf of Company, the Company will reimburse KBW for such expenses.

KBW shall be reimbursed for reasonable out-of-pocket expenses, including costs of travel, meals and lodging, photocopying, telephone, facsimile and couriers, provided such expenses do not  exceed $30,000. The selection of KBW’s counsel will be done by KBW, with the approval of the Company.  The Company will reimburse KBW for the fees of its counsel which will not exceed $50,000 plus reasonable out-of-pocket expenses of such counsel which will not exceed $5,000.

10.        Conditions.  KBW’s willingness and obligation to proceed hereunder shall be subject to, among other things, satisfaction of the following conditions in KBW’s opinion, which opinion shall have been formed in good faith by KBW after reasonable determination and consideration of all relevant factors: (a) full and satisfactory disclosure of all relevant material, financial and other information in the disclosure documents and a determination by KBW, in its sole discretion, that the sale of stock on the terms proposed is reasonable given such disclosures; (b) no material adverse change in the condition or operations of the Bank subsequent to the execution of the agreement; and (c) no adverse market conditions at the time of Reorganization which in KBW’s opinion make the sale of the shares by the Company inadvisable.

11.        Benefit.  This letter agreement shall inure to the benefit of the parties hereto and their respective successors and to the parties indemnified pursuant to the terms and conditions of the Agency Agreement and their successors, and the obligations and liabilities assumed hereunder by the parties hereto shall be binding upon their respective successors; provided, however, that this letter agreement shall not be assignable by KBW.

12.        Definitive Agreement.  This letter agreement reflects KBW’s present intention of proceeding to work with the Company on its proposed Reorganization.  It does not create a binding obligation on the part of the Bank, the Company or KBW except as to the agreement to maintain the confidentiality of non-public information set forth in Section 3, the payment of certain fees as set forth in Section 7(a) and 7(b) and the assumption of expenses as set forth in Section 9, all of which shall constitute the binding obligations of the parties hereto and which shall survive the

May 29, 2007
Mrs. Kay M. Hoveland
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termination of this letter agreement or the completion of the services furnished hereunder and shall remain operative and in full force and effect.  You further acknowledge that any report or analysis rendered by KBW pursuant to this engagement is rendered for use solely by the Company and its agents in connection with the Reorganization.  Accordingly, you agree that you will not provide any such information to any other person without our prior written consent.

KBW acknowledges that in connection with the Reorganization and the Offering of the Company’s stock no person will be authorized to give any information or to make any representation not contained in the Reorganization prospectus and related Reorganization materials filed as part of a registration statement to be declared effective in connection with the Reorganization.  Accordingly, KBW agrees that in connection with the Reorganization it will not give any unauthorized information or make any unauthorized representation.  We will be pleased to elaborate on any of the matters discussed in this letter at your convenience.

If the foregoing correctly sets forth our mutual understanding, please so indicate by signing and returning the original copy of this letter to the undersigned.

Very truly yours,

KEEFE, BRUYETTE & WOODS, INC.

By:	/s/ Patricia A. McJoynt
	Patricia A. McJoynt
	Managing Director
K-Fed MHC
By:	/s/ Kay M. Hoveland	Date:  June 27, 2007
	Kay M. Hoveland
	President & CEO
K-Fed Bancorp
By:	/s/ Kay M. Hoveland	Date:  June 27, 2007
	Kay M. Hoveland
	President & CEO
Kaiser Federal Bank
By:	/s/ Kay M. Hoveland	Date:  June 27, 2007
	Kay M. Hoveland
	President & CEO

EXHIBIT A

STOCK REORGANIZATION SERVICES PROPOSAL
TO K-FED BANCORP

KBW provides companies thrift institutions with a comprehensive program of stock issuance services designed to promote an orderly, efficient, cost-effective and long-term stock distribution.  The following list is representative of the stock issuance services, if appropriate, we propose to perform on behalf of the Company.

General Services

Assist management and legal counsel in structuring the transaction.

Review and comment on the Stock Issuance Plan.

Analyze and make recommendations on bids from printing, transfer agent, and appraisal firms.

Assist officers and directors in obtaining bank loans to purchase stock, if requested.

Assist in drafting and distribution of press releases as required or appropriate.

Review and comment on the prospectus and any business plan prepared in connection with the Reorganization.

Stock Reorganization Enhancement Services

Establish and manage Stock Information Center at the Bank.  Stock Information Center personnel will track prospective investors; record stock orders; mail order confirmations; provide the Bank’s senior management with daily reports; answer customer inquiries; and handle special situations as they arise.

Assign KBW’s personnel to be at the Bank through completion of the Subscription and Community Offerings to manage the Stock Information Center, meet with prospective shareholders at individual and community information meetings (if applicable), solicit local investor interest through a tele-marketing campaign, answer inquiries, and otherwise assist in the sale of stock in the Subscription and Community Offerings.  This effort will be led by a Principal of KBW.

Stock  Reorganization Enhancement Services- Continued

Create target investor list based upon review of the Bank’s depositor base.

Provide intensive financial and marketing input for drafting of the prospectus.

Prepare other marketing materials, including prospecting letters and brochures, and media advertisements.

Arrange logistics of community information meeting(s) as required.

Prepare audio-visual presentation by senior management for community information meeting(s).

Prepare management for question-and-answer period at community information meeting(s).

Attend and address community information meeting(s) and be available to answer questions.

Broker-Assisted Sales Services. 

Arrange for broker information meeting(s) as required.

Prepare audio-visual presentation for broker information meeting(s).

Prepare script for presentation by senior management at broker information meeting(s).

Prepare management for question-and-answer period at broker information meeting(s).

Attend and address broker information meeting(s) and be available to answer questions.

Produce confidential broker memorandum to assist participating brokers in selling the Bank’s common stock.

After-market Support Services.

KBW will use their best efforts to secure trading and on-going research commitment from at least two NASD firms, one of which will be Keefe, Bruyette & Woods, Inc.

EX-2

Exhibit 2

AMENDED AND RESTATED

PLAN OF CONVERSION AND REORGANIZATION

OF

K-FED MUTUAL HOLDING COMPANY
K-FED BANCORP

TABLE OF CONTENTS

1.	INTRODUCTION	1
2.	DEFINITIONS	1
3.	PROCEDURES FOR CONVERSION	7
4.	HOLDING COMPANY APPLICATIONS AND APPROVALS	10
5.	SALE OF SUBSCRIPTION SHARES	10
6.	PURCHASE PRICE AND NUMBER OF SUBSCRIPTION SHARES	10
7.	RETENTION OF CONVERSION PROCEEDS BY THE HOLDING COMPANY	11
8.	SUBSCRIPTION RIGHTS OF ELIGIBLE ACCOUNT HOLDERS (FIRST PRIORITY)	12
9.	SUBSCRIPTION RIGHTS OF EMPLOYEE PLANS (SECOND PRIORITY)	12
10.	SUBSCRIPTION RIGHTS OF SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS (THIRD PRIORITY)	13
11.	SUBSCRIPTION RIGHTS OF OTHER MEMBERS (FOURTH PRIORITY)	13
12.	COMMUNITY OFFERING	14
13.	SYNDICATED COMMUNITY OFFERING	14
14.	LIMITATION ON PURCHASES	15
15.	PAYMENT FOR SUBSCRIPTION SHARES	17
16.	MANNER OF EXERCISING SUBSCRIPTION RIGHTS THROUGH ORDER FORMS	17
17.	UNDELIVERED, DEFECTIVE OR LATE ORDER FORM; INSUFFICIENT PAYMENT	19
18.	RESIDENTS OF FOREIGN COUNTRIES AND CERTAIN STATES	19
19.	ESTABLISHMENT OF LIQUIDATION ACCOUNT	19
20.	VOTING RIGHTS OF STOCKHOLDERS	21
21.	RESTRICTIONS ON RESALE OR SUBSEQUENT DISPOSITION	21
22.	REQUIREMENTS FOR STOCK PURCHASES BY DIRECTORS AND OFFICERS FOLLOWING THE CONVERSION	21
23.	TRANSFER OF DEPOSIT ACCOUNTS	22
24.	REGISTRATION AND MARKETING	22
25.	TAX RULINGS OR OPINIONS	22
26.	STOCK BENEFIT PLANS AND EMPLOYMENT AGREEMENTS	22
27.	RESTRICTIONS ON ACQUISITION OF BANK AND HOLDING COMPANY	23
28.	PAYMENT OF DIVIDENDS AND REPURCHASE OF STOCK	24
29.	ARTICLES OF INCORPORATION AND BYLAWS	25
30.	CONSUMMATION OF CONVERSION AND EFFECTIVE DATE	25
31.	EXPENSES OF CONVERSION	25
32.	AMENDMENT OR TERMINATION OF PLAN	25
33.	CONDITIONS TO CONVERSION	26
34.	INTERPRETATION	26

(i)

EXHIBIT A	AGREEMENT OF MERGER BETWEEN K-FED BANCORP AND KAISER FEDERAL BANK
EXHIBIT B	AGREEMENT OF MERGER BETWEEN K-FED MUTUAL HOLDING COMPANY AND KAISER FEDERAL BANK
EXHIBIT C	AGREEMENT OF MERGER BETWEEN KAISER FEDERAL BANK AND KAISER FEDERAL INTERIM BANK III
EXHIBIT D	ARTICLES OF INCORPORATION OF THE HOLDING COMPANY
EXHIBIT E	BYLAWS OF THE HOLDING COMPANY

(ii)

PLAN OF CONVERSION AND REORGANIZATION OF
K-FED MUTUAL HOLDING COMPANY

1. INTRODUCTION

          This Plan of Conversion and Reorganization (the “Plan”) provides for the conversion of K-Fed Mutual Holding Company, a federal mutual holding company (the “Mutual Holding Company”), into the capital stock form of organization.  The Mutual Holding Company currently owns a majority of the common stock of K-Fed Bancorp, a federal stock corporation (the “Mid-Tier Holding Company”) which owns 100% of the common stock of Kaiser Federal Bank (the “Bank”), a federal stock savings bank.  A new Maryland stock holding company (the “Holding Company”) will be established as part of the Conversion and will succeed to all the rights and obligations of the Mutual Holding Company and the Mid-Tier Holding Company and issue Holding Company Common Stock in the Conversion.  The purpose of the Conversion is to convert the Mutual Holding Company to the capital stock form of organization which will provide the Bank and the Holding Company with additional capital to grow and to respond to changing regulatory and market conditions, and with greater flexibility to effect corporate transactions, including mergers, acquisitions and branch expansions.  The Holding Company Common Stock will be offered in the Offering upon the terms and conditions set forth herein.  The subscription rights granted to Participants in the Subscription Offering are set forth in Sections 8 through 11 hereof.  All sales of Holding Company Common Stock in the Community Offering or the Syndicated Community Offering will be at the sole discretion of the Board of Directors of the Bank and the Holding Company.  As part of the Conversion, each Minority Stockholder will receive Holding Company Common Stock in exchange for Minority Shares.  The Conversion will have no impact on depositors, borrowers or other customers of the Bank.  After the Conversion, the Bank’s insured deposits will continue to be insured by the FDIC to the extent provided by applicable law.

          This Plan has been adopted by the Boards of Directors of the Mutual Holding Company, the Mid-Tier Holding Company and the Bank.  This Plan also must be approved by (i) a majority of the total number of outstanding votes entitled to be cast by Voting Members of the Mutual Holding Company at a Special Meeting of Members to be called for that purpose, and (ii) at least two-thirds of the outstanding common stock of the Mid-Tier Holding Company at a Meeting of Stockholders to be called for that purpose, including at least a majority of the outstanding shares owned by Minority Stockholders.  The OTS must approve this Plan before it is presented to Voting Members and Minority Stockholders of the Mid-Tier Holding Company for their approval.

2. DEFINITIONS

          For the purposes of this Plan, the following terms have the following meanings:

          Account Holder – Any Person holding a Deposit Account in the Bank.

          Acting in Concert – The term Acting in Concert means (i) knowing participation in a joint activity or interdependent conscious parallel action towards a common goal whether or not pursuant to an express agreement; or (ii) a combination or pooling of voting or other interests in

the securities of an issuer for a common purpose pursuant to any contract, understanding, relationship, agreement or other arrangement, whether written or otherwise.  A person or company which acts in concert with another person or company (“other party”) shall also be deemed to be acting in concert with any person or company who is also acting in concert with that other party, except that any tax-qualified employee stock benefit plan will not be deemed to be acting in concert with its trustee or a person who serves in a similar capacity solely for the purpose of determining whether stock held by the trustee and stock held by the plan will be aggregated.

          Affiliate – Any Person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with another Person.

          Appraised Value Range – The range of the estimated consolidated pro forma market value of the Holding Company, which shall also be equal to the estimated pro forma market value of the total number of shares of Conversion Stock to be issued in the Conversion, as determined by the Independent Appraiser prior to the Subscription Offering and as it may be amended from time to time thereafter.  The maximum and minimum of the Appraised Value Range may vary as much as 15% above and 15% below, respectively, the midpoint of the Appraised Value Range. 

          Associate – The term Associate when used to indicate a relationship with any person, means (i) any corporation or organization (other than the Mid-Tier Holding Company, the Bank or a majority-owned subsidiary of the Bank) if the person is a senior officer or partner or beneficially owns, directly or indirectly, 10% or more of any class of equity securities of the corporation or organization, (ii) any trust or other estate, if the person has a substantial beneficial interest in the trust or estate or is a trustee or fiduciary of the trust or estate except that for the purposes of this Plan relating to subscriptions in the Offering and the sale of Subscription Shares following the Conversion, a person who has a substantial beneficial interest in any Non-Tax-Qualified Employee Stock Benefit Plan or any Tax-Qualified Employee Stock Benefit Plan, or who is a trustee or fiduciary of such plan, is not an associate of such plan, and except that, for purposes of aggregating total shares that may be held by Officers and Directors the term “Associate” does not include any Tax-Qualified Employee Stock Benefit Plan, and (iii) any person who is related by blood or marriage to such person and (A) who lives in the same home as such person or (B) who is a Director or Officer of the Mid-Tier Holding Company, the Bank or the Holding Company, or any of its parents or subsidiaries.

          Bank – Kaiser Federal Bank, Covina, California.

          Bank Merger – The merger of Interim with the Bank as set forth in this Plan.

          Code – The Internal Revenue Code of 1986, as amended.

          Community – Los Angeles, San Bernardino, Riverside and Santa Clara Counties, California.

          Community Offering – The offering for sale to certain members of the general public directly by the Holding Company of Subscription Shares not subscribed for in the Subscription Offering.

2

          Control – (including the terms “controlling,” “controlled by,” and “under common control with”) means the director or indirect power to direct or exercise a controlling influence over the management or policies of a Person, whether through the ownership of voting securities, by contract or otherwise as described in 12 C.F.R. Part 574.

          Conversion – The conversion and reorganization of the Mutual Holding Company to stock form pursuant to this Plan, and all steps incident or necessary thereto, including the Offering and the Exchange Offering.

          Conversion Stock – The Subscription Shares and the Exchange Shares.

          Deposit Account – Any withdrawable account, including, without limitation, savings, time, demand, NOW accounts, money market, certificate and passbook accounts.

          Director – A member of the Board of Directors of the Bank, the Mid-Tier Holding Company, the Holding Company or the Mutual Holding Company, as appropriate in the context.

          Eligible Account Holder – Any Person holding a Qualifying Deposit on the Eligibility Record Date for purposes of determining subscription rights and establishing subaccount balances in the Liquidation Account.

          Eligibility Record Date – The date for determining Eligible Account Holders of the Bank, which is March 31, 2006.

          Employees – All Persons who are employed by the Bank, the Mid-Tier Holding Company or the Mutual Holding Company.

          Employee Plans – Any one or more Tax-Qualified Employee Stock Benefit Plans of the Bank or the Holding Company, including any ESOP and 401(k) Plan.

          ESOP – The Bank’s Employee Stock Ownership Plan and related trust.

          Exchange Offering – The offering of Holding Company Common Stock to Minority Stockholders in exchange for Minority Shares.

          Exchange Ratio – The rate at which shares of Holding Company Common Stock are exchanged for Minority Shares upon consummation of the Conversion.  The Exchange Ratio shall be determined as of the closing of the Conversion and shall be the rate that will result in the Minority Stockholders owning in the aggregate the same percentage of the outstanding shares of Holding Company Common Stock immediately upon completion of the Conversion as the percentage of Mid-Tier Holding Company common stock owned by them in the aggregate immediately prior to the consummation of the Conversion.

          Exchange Shares – The shares of Holding Company Common Stock issued to Minority Stockholders in the Exchange Offering.

          FDIC – The Federal Deposit Insurance Corporation.

3

          Holding Company – The Maryland corporation formed for the purpose of acquiring all of the shares of capital stock of the Bank in connection with the Conversion.  Shares of Holding Company Common Stock will be issued in the Conversion to Participants and others in the Conversion.

          Holding Company Common Stock – The common stock, par value $0.01 per share, of the Holding Company.

          Independent Appraiser – The appraiser retained by the Mutual Holding Company, Mid-Tier Holding Company and the Bank to prepare an appraisal of the pro forma market value of the Holding Company.

          Interim – Kaiser Federal Interim Bank III, the interim federal savings bank subsidiary of the Holding Company established to effect the Conversion.

          Liquidation Account – The interest in the Bank received by Eligible Account Holders and Supplemental Account Holders in exchange for their interest in the Mutual Holding Company in connection with the Conversion.

          Majority Ownership Interest – The percentage of common stock of the Mid–Tier Holding Company owned by the Mutual Holding Company immediately prior to the completion of the Conversion.

          Meeting of Stockholders – The special or annual meeting of stockholders of the Mid-Tier Holding Company and any adjournments thereof held to consider and vote upon this Plan.

          Member – Any Person or entity who qualifies as a member of the Mutual Holding Company pursuant to is charter and bylaws.

          MHC Merger – The conversion of the Mutual Holding Company into an interim stock savings bank and subsequent merger with and into the Bank, which shall occur immediately prior to completion of the Conversion, as set forth in this Plan.

          Mid-Tier Holding Company – K-Fed Bancorp, the federal corporation that owns 100% of the Bank’s common stock and any successor thereto.

          Mid-Tier Merger – The conversion of the Mid-Tier Holding Company into an interim stock savings bank and subsequent merger with and into the Bank, which shall occur immediately prior to completion of the Conversion, as set forth in this Plan.

          Minority Shares – Any outstanding common stock of the Mid-Tier Holding Company, or shares of common stock of the Mid-Tier Holding Company issuable upon the exercise of options or grant of stock awards, owned by persons other than the Mutual Holding Company.

          Minority Ownership Interest – The percentage of the Mid-Tier Holding Company’s common stock held by stockholders other than the Mutual Holding Company immediately prior to the completion of the Conversion.

4

          Minority Stockholder – Any owner of Minority Shares.

          Mutual Holding Company – K-Fed Mutual Holding Company, the mutual holding company of the Mid-Tier Holding Company.

          Offering – The offering and issuance, pursuant to this Plan, of Holding Company Common Stock in a Subscription Offering, Community Offering and/or Syndicated Community Offering, as the case may be.  The term “Offering” does not include Holding Company Common Stock issued in the Exchange Offering.

          Offering Range – The range of the number of shares of Holding Company Stock offered for sale in the Offering multiplied by the Subscription Price.  The Offering Range shall be equal to the Appraised Value Range multiplied by the Majority Ownership Interest, divided by the Subscription Price.  The maximum and minimum of the Offering Range may vary as much as 15% above and 15% below, respectively, the midpoint of the Offering Range.

          Officer – An executive officer of the Bank, the Mid-Tier Holding Company, the Holding Company or the Mutual Holding Company as appropriate in the context, which includes the Chief Executive Officer, President, Senior Vice Presidents, Executive Vice President in charge of principal business functions, Secretary and Controller and any Person performing functions similar to those performed by the foregoing persons.

          Order Form – Any form (together with any cover letter and acknowledgments) sent to any Participant or Person containing among other things a description of the alternatives available to such Person under the Plan and by which any such Person may make elections regarding subscriptions for Subscription Shares.

          Other Member – Any person holding a Deposit Account on the Voting Record Date who is not an Eligible Account Holder or Supplemental Eligible Account Holder.

          OTS – The Office of Thrift Supervision, a bureau of the United States Department of Treasury.

          Participant – Any Eligible Account Holder, Employee Plan, Supplemental Eligible Account Holder, or Other Member.

          Person – An individual, a corporation, a partnership, an association, a joint-stock company, a limited liability company, a trust, an unincorporated organization, or a government or political subdivision of a government.

          Plan – This Plan of Conversion and Reorganization of the Mutual Holding Company as it exists on the date hereof and as it may hereafter be amended in accordance with its terms.

          Prospectus – The one or more documents used in offering the Conversion Stock.

          Qualifying Deposit – The aggregate balance of all Deposit Accounts in the Bank of (i) an Eligible Account Holder at the close of business on the Eligibility Record Date, provided such aggregate balance is not less than $50, and (ii) a Supplemental Eligible Account Holder at the

5

close of business on the Supplemental Eligibility Record Date, provided such aggregate balance is not less than $50.

          Resident – Any Person who occupies a dwelling within the Community, has a present intent to remain within the Community for a period of time, and manifests the genuineness of that intent by establishing an ongoing physical presence within the Community together with an indication that such presence within the Community is something other than merely transitory in nature.  To the extent the person is a corporation or other business entity, the principal place of business or headquarters shall be in the Community.  To the extent a person is a personal benefit plan, the circumstances of the beneficiary shall apply with respect to this definition.  In the case of all other benefit plans, circumstances of the trustee shall be examined for purposes of this definition.  The Mutual Holding Company and the Bank may utilize deposit or loan records or such other evidence provided to it to make a determination as to whether a person is a resident.  In all cases, however, such a determination shall be in the sole discretion of the Mutual Holding Company and the Bank.  A Participant must be a “Resident” for purposes of determining whether such person “resides” in the Community as such term is used in this Plan.

          SEC – The U.S. Securities and Exchange Commission.

          Special Meeting of Members – The special meeting of Voting Members and any adjournments thereof held to consider and vote upon this Plan.

          Subscription Offering – The offering of Subscription Shares to Participants.

          Subscription Price – The price per Subscription Share to be paid by Participants and others in the Offering.  The Subscription Price will be determined by the Board of Directors of the Holding Company and fixed prior to the commencement of the Subscription Offering.

          Subscription Shares – Shares of Holding Company Common Stock offered for sale in the Offering.  Subscription Shares do not include shares of Holding Company Common Stock issued in exchange for Minority Shares in the Exchange Offering.

          Supplemental Eligible Account Holder – Any Person, other than Directors and Officers of the Bank and the Mid-Tier Holding Company and their Associates, holding a Qualifying Deposit on the Supplemental Eligibility Record Date, who is not an Eligible Account Holder.

          Supplemental Eligibility Record Date – The date for determining Supplemental Eligible Account Holders, which shall be the last day of the calendar quarter preceding OTS approval of the application for conversion.

          Syndicated Community Offering – The offering of Subscription Shares, at the sole discretion of the Holding Company, following the Subscription and Community Offerings through a syndicate of broker-dealers.

          Tax-Qualified Employee Stock Benefit Plan – Any defined benefit plan or defined contribution plan, such as an employee stock ownership plan, stock bonus plan, profit-sharing plan or other plan, which, with its related trust, meets the requirements to be “qualified” under Section 401 of the Internal Revenue Code.  The Bank may make scheduled discretionary

6

contributions to a tax-qualified employee stock benefit plan, provided such contributions do not cause the Bank to fail to meet its regulatory capital requirements.  A “Non-Tax-Qualified Employee Stock Benefit Plan” is any defined benefit plan or defined contribution plan which is not so qualified.

          Voting Member – Any Person who at the close of business on the Voting Record Date is entitled to vote as a Member of the Mutual Holding Company pursuant to its charter and bylaws.

          Voting Record Date – The date fixed by the Directors for determining eligibility to vote at the Special Meeting of Members and/or the Meeting of Stockholders.

3. PROCEDURES FOR CONVERSION

                    1.     After approval of the Plan by the Boards of Directors of the Bank, the Mid-Tier Holding Company, the Holding Company and the Mutual Holding Company, the Plan together with all other requisite material shall be submitted to the OTS for approval.  Notice of the adoption of the Plan by the Board of Directors of the Bank and the Board of Directors of the Mutual Holding Company and the Mid-Tier Holding Company and the submission of the Plan to the OTS for approval will be published in a newspaper having general circulation in each community in which an office of the Bank is located, and copies of the Plan will be made available at each office of the Bank for inspection by depositors.  The Mutual Holding Company also will publish a notice of the filing with the OTS of an application to convert in accordance with the provisions of the Plan. 

                    2.     Promptly following approval by the OTS, the Plan will be submitted to a vote of (i) the Voting Members at the Special Meeting of Members, and (ii) the Minority Stockholders of the Mid-Tier Holding Company at the Meeting of Stockholders.  The Mutual Holding Company will mail to all Voting Members, at their last known address appearing on the records of the Bank, a proxy statement in either long or summary form describing the Plan, which will be submitted to a vote of Voting Members at the Special Meeting of Members.  The Mid-Tier Holding Company will mail to all Minority Stockholders a proxy statement describing the Plan, which will be submitted to a vote of Minority Stockholders at the Meeting of Stockholders. The Holding Company also will mail to all Participants either a Prospectus and Order F orm for the purchase of Subscription Shares or a letter informing them of their right to receive a Prospectus and Order Form and a postage prepaid card to request such materials, subject to other provisions of this Plan.  In addition, all Participants will receive, or be given the opportunity to request by either telephone or by letter addressed to the Bank’s Secretary, a copy of the Plan as well as the articles of incorporation or bylaws of the Holding Company.  Upon approval of the Plan by at least (i) a majority of the total number of votes entitled to be cast by Voting Members, (ii) two-thirds of the outstanding common stock of the Mid-Tier Holding Company, and (iii) a majority vote of the outstanding shares owned by Minority Stockholders, the Mutual Holding Company, the Holding Company and the Bank will take all other necessary steps pursuant to applicable laws and regulations to consummate the Conversion.  The Conversion must be completed within 24 months of the approval of the Plan by Voting Members, unless a longer time period is permitted by governing laws and regulations.

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                    3.     The period for the Subscription Offering will be not less than 20 days nor more than 45 days and the period for the Community Offering will be not more than 45 days, unless extended by the Holding Company and the Bank.  If, upon completion of the Subscription Offering and any Community Offering, any shares of Common Stock remain available for sale, such shares will, if feasible, be offered for sale in a Syndicated Community Offering.  If for any reason the Syndicated Community Offering of all shares not sold in the Subscription Offering and Community Offering cannot be effected, the Holding Company and the Bank will use their best efforts to obtain other purchasers, subject to OTS approval.  Completion of the sale of all shares of Holding Company Common Stock not sold in the Subscription Offering and Community Offering is required within 45 days after termination of the Subscription Offering, subject to extension of such 45-day period by the Holding Company and the Bank with the approval of the OTS.

                    4.     The Conversion will be effected as follows, or in any other manner that is consistent with the purposes of this Plan and applicable laws and regulations, including a merger of the Mutual Holding Company into the Mid-Tier Holding Company followed immediately by the Offering.  The choice of which method to use to effect the Conversion will be made by the Board of Directors of the Mutual Holding Company immediately prior to the closing of the Conversion.  Each of the steps set forth below shall be deemed to occur in such order as is necessary to consummate the Conversion pursuant to the Plan, the intent of the Boards of Directors of the Mutual Holding Company, the Mid-Tier Holding Company and the Bank, and applicable federal and state regulations and policy.  Approval of the Plan by Voting Mem bers and Minority Stockholders of the Mid-Tier Holding Company also shall constitute approval of each of the transactions necessary to implement the Plan.

(a)	The Bank will establish the Holding Company as a first-tier Maryland-chartered stock holding company subsidiary.
(b)	The Holding Company will charter Interim.
(c)	The Mid-Tier Holding Company will convert to an interim stock savings bank and merge with and into the Bank (the “Mid-Tier Merger”) with the Bank as the resulting entity pursuant to the Agreement of Merger attached hereto as Exhibit A between the Mid-Tier Holding Company and the Bank, whereby the Mutual Holding Company will receive, and Minority Stockholders will constructively receive, shares of Bank common stock in exchange for their Mid-Tier Holding Company common stock.
(d)	Immediately after the Mid-Tier Merger, the Mutual Holding Company will convert to an interim stock savings bank and will merge with and into the Bank (the “MHC Merger”) pursuant to the Agreement of Merger attached hereto as Exhibit B between the Mutual Holding Company and the Bank, whereby the shares of Bank common stock held by the Mutual Holding Company will be canceled and each Eligible Account Holder and Supplemental Eligible Account Holder will receive an interest in a Liquidation Account of the Bank in exchange for such person’s interest in the Mutual Holding Company.

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(e)

Immediately after the Mid-Tier Merger and the MHC Merger, Interim will merge with and into the Bank with the Bank as the surviving entity (the “Bank Merger”) pursuant to the Agreement of Merger between the Bank and Interim attached hereto as Exhibit C, whereby the Bank will become the subsidiary of the Holding Company.  Constructive shareholders of the Bank (i.e., Minority Stockholders immediately prior to the Conversion) will exchange the shares of Bank common stock that they constructively received in the Mid-Tier Merger for Holding Company Common Stock.

(f)

Immediately after the Bank Merger, the Holding Company will sell the Subscription Shares in the Offering.

                    5.     As part of the Conversion, each of the Minority Shares shall automatically, without further action of the holder thereof, be converted into and become the right to receive Holding Company Common Stock based upon the Exchange Ratio.  The basis for exchange of Minority Shares for Holding Company Common Stock shall be fair and reasonable.  Options to purchase shares of Mid-Tier Holding Company common stock which are outstanding immediately prior to the consummation of the Conversion shall be converted into options to purchase shares of Holding Company Common Stock, with the number of shares subject to the option and the exercise price per share to be adjusted based upon the Exchange Ratio so that the aggregate exercise price remains unchanged, and with the duration of the option remaining unchanged.

                    6.     The Holding Company shall register the Conversion Stock with the SEC and any appropriate state securities authorities.  In addition, the Mid-Tier Holding Company shall prepare preliminary proxy materials as well as other applications and information for review by the SEC in connection with the solicitation of Minority Stockholder approval of the Plan.

                    7.     All assets, rights, interests, privileges, powers, franchises and property (real, personal and mixed) of the Mid-Tier Holding Company shall be automatically transferred to and vested in the Holding Company by virtue of the Conversion without any deed or other document of transfer.  The Holding Company, without any order or action on the part of any court or otherwise and without any documents of assumption or assignment, shall hold and enjoy all of the properties, franchises and interests, including appointments, powers, designations, nominations and all other rights and interests as the agent or other fiduciary in the same manner and to the same extent as such rights, franchises, and interests and powers were held or enjoyed by the Mid-Tier Holding Company.  The Holding Company shall be responsible for all of the liabilities, restrictions and duties of every kind and description of the Mid-Tier Holding Company immediately prior to the Conversion, including liabilities for all debts, obligations and contracts of the Mid-Tier Holding Company, matured or unmatured, whether accrued, absolute, contingent or otherwise and whether or not reflected or reserved against on balance sheets, books of accounts or records of the Mid-Tier Holding Company.

                    8.     The Articles of Incorporation and Bylaws of the Holding Company shall read in the form of Exhibit D and Exhibit E, respectively.

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                    9.     The home office and branch office of the Bank shall be unaffected by the Conversion.  The executive offices of the Holding Company shall be located at the current offices of the Mutual Holding Company and Mid-Tier Holding Company.

4. HOLDING COMPANY APPLICATIONS AND APPROVALS

          The Boards of Directors of the Mutual Holding Company, the Mid-Tier Holding Company, the Holding Company and the Bank will take all necessary steps to convert the Mutual Holding Company to stock form, form the Holding Company and complete the Offering.  The Holding Company shall make timely applications to the OTS and filings with the SEC for any requisite regulatory approvals to complete the Conversion.

5. SALE OF SUBSCRIPTION SHARES

          The Subscription Shares will be offered simultaneously in the Subscription Offering to the Participants in the respective priorities set forth in this Plan.  The Subscription Offering may begin as early as the mailing of the proxy statement for the Special Meeting of Members.  The Holding Company Common Stock will not be insured by the FDIC.  The Bank will not extend credit to any Person to purchase shares of Holding Company Common Stock.

          Any shares of Holding Company Common Stock for which subscriptions have not been received in the Subscription Offering may be issued in the Community Offering, subject to the terms and conditions of this Plan.  The Community Offering may begin simultaneously or later than the Subscription Offering. The offer and sale of Holding Company Common Stock prior to the Special Meeting of Members, however, is subject to the approval of the Plan by Voting Members and Minority Stockholders of the Mid-Tier Holding Company.

          If feasible, any shares of Holding Company Common Stock remaining after the Subscription Offering period, and the Community Offering period, should one be conducted, may be sold in a Syndicated Community Offering or in any manner that will achieve the widest distribution of the Holding Company Common Stock.  The Syndicated Community Offering may be conducted in addition to, or instead of, a Community Offering.  The issuance of Holding Company Common Stock in the Subscription Offering and any Community Offering will be consummated simultaneously on the date the sale of Holding Company Common Stock in the Syndicated Community Offering is consummated and only if the required minimum number of shares of Holding Company Common Stock has been issued.

6. PURCHASE PRICE AND NUMBER OF SUBSCRIPTION SHARES

          The total number of shares of Conversion Stock to be offered in the Conversion will be determined jointly by the Boards of Directors of the Mutual Holding Company, the Mid-Tier Holding Company and the Holding Company immediately prior to the commencement of the Subscription Offering, and will be based on the Appraised Value Range and the Subscription Price.  The Offering Range will be equal to the Appraised Value Range multiplied by the Majority Ownership Percentage.  The estimated pro forma consolidated market value of the Holding Company will be subject to adjustment within the Appraised Value Range if necessitated by market or financial conditions, with the receipt of any required approvals of the OTS, and the maximum of the Appraised Value Range may be increased by up to 15%

10

subsequent to the commencement of the Subscription Offering to reflect changes in market and financial conditions or demand for the shares.  The number of shares of Conversion Stock issued in the Conversion will be equal to the estimated pro forma consolidated market value of the Holding Company, as may be amended, divided by the Subscription Price, and the number of Subscription Shares issued in the Offering will be equal to the product of (i) the estimated pro forma consolidated market value of the Holding Company, as may be amended, divided by the Subscription Price, and (ii) the Majority Ownership Interest.

          In the event that the Subscription Price multiplied by the number of shares of Conversion Stock to be issued in the Conversion is below the minimum of the Appraised Value Range, or materially above the maximum of the Appraised Value Range, a resolicitation of purchasers may be required, provided that up to a 15% increase above the maximum of the Appraised Value Range will not be deemed material so as to require a resolicitation.  Any such resolicitation shall be effected in such manner and within such time as the Mutual Holding Company, Mid-Tier Holding Company, the Holding Company and the Bank shall establish, if all required regulatory approvals are obtained. 

          Notwithstanding the foregoing, shares of Conversion Stock will not be issued unless, prior to the consummation of the Conversion, the Independent Appraiser confirms to the Bank, the Mutual Holding Company, the Holding Company, and the OTS, that, to the best knowledge of the Independent Appraiser, nothing of a material nature has occurred which, taking into account all relevant factors, would cause the Independent Appraiser to conclude that the number of shares of Conversion Stock issued in the Conversion multiplied by the Subscription Price is incompatible with its estimate of the aggregate consolidated pro forma market value of the Holding Company.  If such confirmation is not received, the Holding Company may cancel the Offering and the Exchange Offering, extend the Offering and establish a new Subscription Price and/or Appraised Value Range, or hold a new Offering and Exchange Offering o r take such other action as the OTS may permit.

          The Holding Company to be issued in the Conversion shall be fully paid and nonassessable.

7. RETENTION OF CONVERSION PROCEEDS BY THE HOLDING COMPANY

          The Holding Company may retain up to 50% of the net proceeds of the Offering.  The Holding Company believes that the Offering proceeds will provide economic strength to the Holding Company and the Bank for the future in a highly competitive and regulated financial services environment and would facilitate the continued expansion through increased lending, acquisitions of financial service organizations, diversification into other related businesses and for other business and investment purposes, including the possible payment of dividends and possible future repurchases of the Holding Company Common Stock as permitted by applicable federal and state regulations and policy. 

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8. SUBSCRIPTION RIGHTS OF ELIGIBLE ACCOUNT HOLDERS (FIRST PRIORITY)

                    1.     Each Eligible Account Holder shall have nontransferable subscription rights to subscribe for in the Subscription Offering up to the greater of 5% of Holding Company Common Stock sold in the Offering, 0.10% of the total number of shares of Holding Company Common Stock issued in the Offering, or fifteen times the product (rounded down to the next whole number) obtained by multiplying the number of Subscription Shares offered in the Offering by a fraction of which the numerator is the amount of the Eligible Account Holder’s Qualifying Deposit and the denominator is the total amount of Qualifying Deposits of all Eligible Account Holders, in each case on the Eligibility Record Date, subject to the provisions of Section 14.

                    2.     In the event that Eligible Account Holders exercise subscription rights for a number of Subscription Shares in excess of the total number of such shares eligible for subscription, the Subscription Shares shall be allocated among the subscribing Eligible Account Holders so as to permit each subscribing Eligible Account Holder to purchase a number of shares sufficient to make his or her total allocation of Subscription Shares equal to the lesser of 100 shares or the number of shares for which such Eligible Account Holder has subscribed.  Any remaining shares will be allocated among the subscribing Eligible Account Holders whose subscriptions remain unsatisfied in the proportion that the amount of the Qualifying Deposit of each Eligible Account Holder whose subscription remains unsatisfied bears to the total amount of the Qualifying Deposits of all Eligible Account Holders whose subscriptions remain unsatisfied.  If the amount so allocated exceeds the amount subscribed for by any one or more Eligible Account Holders, the excess shall be reallocated (one or more times as necessary) among those Eligible Account Holders whose subscriptions are still not fully satisfied on the same principle until all available shares have been allocated.

                    3.     Subscription rights as Eligible Account Holders received by Directors and Officers and their Associates that are based on deposits made by such persons during the 12 months preceding the Eligibility Record Date shall be subordinated to the subscription rights of all other Eligible Account Holders.

9. SUBSCRIPTION RIGHTS OF EMPLOYEE PLANS (SECOND PRIORITY)

          The Employee Plans of the Holding Company and the Bank shall have subscription rights to purchase in the aggregate up to 10% of the Subscription Shares issued in the Offering, including any Subscription Shares to be issued as a result of an 15% increase in the maximum of the Offering Range after commencement of the Subscription Offering and prior to completion of the Conversion.  Consistent with applicable laws and regulations and practices and policies, the Employee Plans may use funds contributed by the Holding Company or the Bank and/or borrowed from an independent financial institution to exercise such subscription rights, and the Holding Company and the Bank may make scheduled discretionary contributions thereto, provided that such contributions do not cause the Holding Company or the Bank to fail to meet any applicable regulatory capital requirements.  The Employee Plans shall not be deemed to be Associates or Affiliates of or Persons Acting in Concert with any Director or Officer of the

12

Holding Company or the Bank.  Alternatively, if permitted by the OTS, the Employee Plans may purchase all or a portion of such shares in the open market.

10. SUBSCRIPTION RIGHTS OF SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS (THIRD PRIORITY)

                    1.     Each Supplemental Eligible Account Holder shall have nontransferable subscription rights to subscribe for in the Subscription Offering up to the greater of 5% of Holding Company Common Stock sold in the Offering, 0.10% of the total number of shares of Holding Company Common Stock issued in the Offering, or fifteen times the product (rounded down to the next whole number) obtained by multiplying the number of Subscription Shares offered in the Offering by a fraction of which the numerator is the amount of the Supplemental Eligible Account Holder’s Qualifying Deposit and the denominator is the total amount of Qualifying Deposits of all Supplemental Eligible Account Holders, in each case on the Supplemental Eligibility Record Date, subject to the availability of sufficient shares after filling in full all subscription orders of the Eligible Account Holders and Employee Plans and to the purchase limitations specified in Section 14.

                    2.     In the event that Supplemental Eligible Account Holders exercise subscription rights for a number of Subscription Shares in excess of the total number of such shares eligible for subscription, the Subscription Shares shall be allocated among the subscribing Supplemental Eligible Account Holders so as to permit each such subscribing Supplemental Eligible Account Holder, to the extent possible, to purchase a number of shares sufficient to make his or her total allocation of Subscription Shares equal to the lesser of 100 shares or the number of shares for which each such Supplemental Eligible Account Holder has subscribed.  Any remaining shares will be allocated among the subscribing Supplemental Eligible Account Holders whose subscriptions remain unsatisfied in the proportion that the amount of the Qualifying Deposit of each such Supplemental Eligible Account Holder bears to the total amount of the Qualifying Deposits of all Supplemental Eligible Account Holders whose subscriptions remain unsatisfied.  If the amount so allocated exceeds the amount subscribed for by any one or more Supplemental Eligible Account Holders, the excess shall be reallocated (one or more times as necessary) among those Supplemental Eligible Account Holders whose subscriptions are still not fully satisfied on the same principle until all available shares have been allocated.

11. SUBSCRIPTION RIGHTS OF OTHER MEMBERS (FOURTH PRIORITY)

                    1.     Each Other Member shall have nontransferable subscription rights to subscribe for in the Subscription Offering up to the greater of 5% of Holding Company Common Stock sold in the Offering or 0.10% of the total number of shares of Holding Company Common Stock issued in the Offering, subject to the availability of sufficient shares after filling in full all subscription orders of Eligible Account Holders, Employee Plans and Supplemental Eligible Account Holders and to the purchase limitations specified in Section 14.

                    2.     In the event that such Other Members subscribe for a number of Subscription Shares which, when added to the Subscription Shares subscribed for by the Eligible Account Holders, Employee Plans and Supplemental Eligible Account Holders, is in excess of the total

13

number of Subscription Shares to be issued, the available shares will be allocated to Other Members so as to permit each such subscribing Other Member, to the extent possible, to purchase a number of shares sufficient to make his or her total allocation of Subscription Shares equal to the lesser of 100 shares or the number of shares for which each such Other Member has subscribed.  Any remaining shares will be allocated among the subscribing Other Members whose subscriptions remain unsatisfied in the proportion that the amount of the subscription of each such Other Member bears to the total amount of the subscriptions of all Other Members whose subscriptions remain unsatisfied.

12. COMMUNITY OFFERING

          If subscriptions are not received for all Subscription Shares offered for sale in the Subscription Offering, shares for which subscriptions have not been received may be issued for sale in the Community Offering through a direct community marketing program which may use a broker, dealer, consultant or investment banking firm experienced and expert in the sale of savings institutions securities.  Such entities may be compensated on a fixed fee basis or on a commission basis, or a combination thereof.  In the event orders for Holding Company Common Stock in the Community Offering exceed the number of shares available for sale, shares may be allocated (to the extent shares remain available) first to cover orders of natural persons residing in the Community, next to cover orders of Minority Stockholders as of the Voting Record Date, and thereafter to cover orders of other members of the general public. In the event orders for Holding Company Common Stock exceed the number of shares available for sale in a category pursuant to the distribution priorities described above, shares will be allocated within the category so that each member of that category will receive the lesser of 100 shares or their ordered amount and thereafter, remaining shares will be allocated on an equal number of shares basis per order. In addition, orders received for Holding Company Common Stock in the Community Offering will first be filled up to a maximum of two percent (2%) of the shares sold in the Offering, and thereafter any remaining shares will be allocated on an equal number of shares basis per order. The Holding Company shall use its best efforts consistent with this Plan to distribute Holding Company Common Stock sold in the Community Offering in such a manner as to promote the widest distribution practicable of such stock.  The Holding Company reserves the right to reject any or all orders, in whole or in part, which are received in the Community Offering.  Any Person may purchase up to 5% of Holding Company Common Stock in the Community Offering, subject to the purchase limitations specified in Section 14.

13. SYNDICATED COMMUNITY OFFERING

          If feasible, the Board of Directors may determine to offer Subscription Shares not issued in the Subscription Offering or the Community Offering in a Syndicated Community Offering, subject to such terms, conditions and procedures as may be determined by the Holding Company, in a manner that will achieve the widest distribution of Holding Company Common Stock, subject to the right of the Holding Company to accept or reject in whole or in part any subscriptions in the Syndicated Community Offering. In the Syndicated Community Offering, any Person may purchase up to 5% of Holding Company Common Stock sold in the Offering, subject to the purchase limitations specified in Section 14.  In addition, orders received for Holding Company Common Stock in the Community Offering will first be filled up to a maximum of two percent (2%) of the shares sold in the Offering, and thereafter any remaining

14

shares will be allocated on an equal number of shares basis per order.  The Holding Company reserves the right to reject any or all orders, in whole or in part, which are received in the Syndicated Community Offering. 

          Provided that the Subscription Offering has begun, the Holding Company may begin the Syndicated Community Offering at any time.  If the Syndicated Community Offering does not begin pursuant to the provisions of the preceding sentence, such offering will begin as soon as practicable following the date upon which the Subscription and Community Offerings terminate.

          If for any reason a Syndicated Community Offering of shares of Holding Company Common Stock not sold in the Subscription and Community Offerings cannot be effected, or in the event that any insignificant residue of shares of Holding Company Common Stock is not sold in the Subscription and Community Offerings or in the Syndicated Community Offering, if possible the Holding Company will make other arrangements for the disposition of unsubscribed shares so that the aggregate shares sold equal at least the minimum of the Offering Range.  Such other purchase arrangements will be subject to receipt of any required approval of the OTS.

14. LIMITATION ON PURCHASES

          The following limitations shall apply to all purchases and issuances of shares of Conversion Stock:

                    1.     The maximum dollar amount of shares of Holding Company Common Stock that may be subscribed for in the Subscription Offering by any person, through one or more similarly titled individual Deposit Account(s), or Participant is 5% of the Holding Company Common Stock sold in the Offering.  The maximum dollar amount of shares of Holding Company Common Stock that may be subscribed for in the Subscription Offering by a group of persons through one Deposit Account is 5% of the Holding Company Common Stock sold in the Offering.  The maximum dollar amount of shares of Holding Company Common Stock that may be subscribed for or purchased in all categories in the Offering by any Person or Participant, together with any Associate or group of Persons Acting in Concert, shall not exceed 5% of the Holding Company Common Stock sold in the Offering, except that this ownership limitation shall not apply to the Employee Plans of Holding Company Common Stock, except that the Employee Plans may subscribe for up to 10% of the Holding Company Common Stock issued in the Offering (including shares issued in the event of an increase in the maximum of the Offering Range of 15%).

                    2.     The maximum number of shares of Holding Company Common Stock which may be issued to or purchased in all categories of the Offering by Officers and Directors and their Associates in the aggregate, when combined with Exchange Shares received by such persons, shall not exceed 25% of the shares of Holding Company Common Stock issued in the Conversion.

                    3.     A minimum of 25 shares of Holding Company Common Stock must be purchased by each Person or Participant purchasing shares in the Offering to the extent those shares are available; provided, however, that in the event the minimum number of shares of Holding Company Common Stock purchased times the Subscription Price exceeds $500, then such

15

minimum purchase requirement shall be reduced to such number of shares which when multiplied by the price per share shall not exceed $500, as determined by the Board.

                    4.     The maximum number of shares of Holding Company Common Stock that may be subscribed for or purchased in the Offering by any Person or Participant together with purchases by any Associate or group of Persons Acting in Concert, combined with Exchange Shares received by any such Person or Participant together with any Associate or group of Persons Acting in Concert, shall not exceed 5.0% of the shares of Holding Company Common Stock issued and outstanding at the completion of the Conversion, except that this ownership limitation shall not apply to the Employee Plans.

          If the number of shares of Holding Company Common Stock otherwise allocable pursuant to Sections 8 through 13, inclusive, to any Person or that Person’s Associates would be in excess of the maximum number of shares permitted as set forth above, the number of shares of Holding Company Common Stock allocated to each such person shall be reduced to the lowest limitation applicable to that Person, and then the number of shares allocated to each group consisting of a Person and that Person’s Associates shall be reduced so that the aggregate allocation to that Person and his or her Associates complies with the above limits.

          Depending upon market or financial conditions, the Board of Directors of the Holding Company, with the receipt of any required approvals of the OTS and without further approval of Voting Members, may decrease or increase the purchase limitations in this Plan, provided that the maximum purchase limitations may not be increased to a percentage in excess of 5% of the shares issued in the Offering except as provided below.  If the Holding Company increases the maximum purchase limitations, the Holding Company is only required to resolicit Persons who subscribed for the maximum purchase amount in the Subscription Offering and may, in the sole discretion of the Holding Company, resolicit certain other large subscribers.  In the event that the maximum purchase limitation is increased to 5% of the shares issued in the Offering, such limitation may be further increased to 9.99%, provided that orders for Holding Company Common Stock exceeding 5% of the shares of Holding Company Common Stock issued in the Offering shall not exceed in the aggregate 10% of the total shares of Holding Company Common Stock issued in the Offering.  Requests to purchase additional shares of the Holding Company Common Stock in the event that the purchase limitation is so increased will be determined by the Board of Directors of the Holding Company in its sole discretion.

          In the event of an increase in the total number of shares offered in the Offering due to an increase in the maximum of the Offering Range of up to 15% (the “Adjusted Maximum”), the additional shares may be used to fill the Employee Plans orders and then will be allocated in accordance with the priorities set forth in this Plan.

          For purposes of this Section 14, the Directors of the Bank, the Mid-Tier Holding Company and the Holding Company shall not be deemed to be Associates or a group affiliated with each other or otherwise Acting in Concert solely as a result of their being Directors of the Bank, the Mid-Tier Holding Company or the Holding Company.

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          Each Person purchasing Holding Company Common Stock in the Offering shall be deemed to confirm that such purchase does not conflict with the above purchase limitations contained in this Plan.

15. PAYMENT FOR SUBSCRIPTION SHARES

          All payments for Holding Company Common Stock subscribed for in the Subscription Offering and Community Offering must be delivered in full to the Bank or Holding Company, together with a properly completed and executed Order Form, on or prior to the expiration date of the Offering; provided, however, that if the Employee Plans subscribe for shares in the Subscription Offering, such plans will not be required to pay for the shares at the time they subscribe but rather may pay for such shares of Holding Company Common Stock subscribed for by such plans at the Subscription Price upon consummation of the Conversion.

          Payment for Holding Company Common Stock subscribed for shall be made by check, money order or bank draft.  Alternatively, subscribers in the Subscription and Community Offerings may pay for the shares for which they have subscribed by authorizing the Bank on the Order Form to make a withdrawal from the designated types of Deposit Accounts at the Bank in an amount equal to the aggregate Subscription Price of such shares.  Such authorized withdrawal shall be without penalty as to premature withdrawal.  If the authorized withdrawal is from a certificate account, and the remaining balance does not meet the applicable minimum balance requirement, the certificate shall be canceled at the time of withdrawal, without penalty, and the remaining balance will earn interest at the passbook rate.  Funds for which a withdrawal is authorized will remain in the subscriber’s Deposit Account but may not be used by the subscriber during the Subscription and Community Offerings.  Thereafter, the withdrawal will be given effect only to the extent necessary to satisfy the subscription (to the extent it can be filled) at the Subscription Price per share.  Interest will continue to be earned on any amounts authorized for withdrawal until such withdrawal is given effect.  Interest on funds received by check or money order will be paid by the Bank at not less than the passbook rate.  Such interest will be paid from the date payment is received by the Bank until consummation or termination of the Conversion.  If for any reason the Conversion is not consummated, all payments made by subscribers in the Subscription and Community Offerings will be refunded to them, with interest.  In case of amounts authorized for withdrawal from Deposit Accounts, refunds will be made by canceling the authorization for withdrawal.  The Bank is prohibited by regulation from knowingly making any loans or granting any lines of credit for the purchase of stock in the Offering, and therefore, will not do so.

16. MANNER OF EXERCISING SUBSCRIPTION RIGHTS THROUGH ORDER FORMS

          As soon as practicable after the Prospectus prepared by the Holding Company and Bank has been declared effective by the SEC, Order Forms will be distributed to the Eligible Account Holders, Employee Plans, Supplemental Eligible Account Holders and Other Members at their last known addresses appearing on the records of the Bank for the purpose of subscribing for shares of Holding Company Common Stock in the Subscription Offering and will be made available for use by those Persons to whom a Prospectus is delivered.  Notwithstanding the foregoing, the Holding Company may elect to send Order Forms only to those Participants who

17

request them after receipt of such notice in a form approved by the OTS and which is adequate to apprise the Eligible Account Holders, Supplemental Eligible Account Holders and Other Members of the pendency of the Subscription Offering.  Such notice may be included with the proxy statement for the Special Meeting of Members sent to all Eligible Account Holders, Supplemental Eligible Account Holders, and Voting Members in accordance with regulations and policy of the OTS.

          Each Order Form will be preceded or accompanied by a Prospectus describing the Holding Company, the Bank, the Holding Company Common Stock and the Offering.  Each Order Form will contain, among other things, the following:

                    1.     A specified date by which all Order Forms must be received by the Bank or the Holding Company, which date shall be not less than 20 days, nor more than 45 days, following the date on which the Order Forms are mailed by the Holding Company, and which date will constitute the termination of the Subscription Offering unless extended;

                    2.     The Subscription Price per share for shares of Holding Company Common Stock to be sold in the Offering;

                    3.     A description of the minimum and maximum number of Subscription Shares which may be subscribed for pursuant to the exercise of subscription rights or otherwise purchased in the Subscription and Community Offering;

                    4.     Instructions as to how the recipient of the Order Form is to indicate thereon the number of Subscription Shares for which such person elects to subscribe and the available alternative methods of payment therefor;

                    5.     An acknowledgment that the recipient of the Order Form has received a final copy of the Prospectus prior to execution of the Order Form;

                    6.     A statement to the effect that all subscription rights are nontransferable, will be void at the end of the Subscription Offering, and can only be exercised by delivering to the Holding Company within the subscription period such properly completed and executed Order Form, together with payment in the full amount of the aggregate purchase price as specified in the Order Form for the shares of Holding Company Common Stock for which the recipient elects to subscribe in the Subscription Offering (or by authorizing on the Order Form that the Bank withdraw said amount from the subscriber’s Deposit Account at the Bank); and

                    7.     A statement to the effect that the executed Order Form, once received by the Holding Company, may not be modified or amended by the subscriber without the consent of the Holding Company.

          Notwithstanding the above, the Holding Company reserves the right in its sole discretion to accept or reject orders received on photocopied or facsimiled order forms.

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17. UNDELIVERED, DEFECTIVE OR LATE ORDER FORM; INSUFFICIENT PAYMENT

          In the event Order Forms (a) are not delivered by the United States Postal Service, (b) are defectively filled out or executed, (c) are not accompanied by the full required payment, unless waived by the Holding Company, for the shares of Holding Company Common Stock subscribed for (including cases in which deposit accounts from which withdrawals are authorized are insufficient to cover the amount of the required payment), or (d) are not mailed pursuant to a “no mail” order placed in effect by the account holder, the subscription rights of the Person to whom such rights have been granted will lapse as though such Person failed to return the completed Order Form within the time period specified thereon; provided, however, that the Holding Company may, but will not be required to, waive any immaterial irregularity on any Order Form or require the submission of corrected Order Forms or the remittance of full payment for subscribed shares by such date as the Holding Company may specify.  The interpretation of the Holding Company of terms and conditions of this Plan and of the Order Forms will be final, subject to the authority of the OTS.

18. RESIDENTS OF FOREIGN COUNTRIES AND CERTAIN STATES

          The Holding Company will make reasonable efforts to comply with the securities laws of all states in the United States in which Persons entitled to subscribe for shares of Holding Company Common Stock pursuant to this Plan reside.  However, no such Person will be issued subscription rights or be permitted to purchase shares of Holding Company Common Stock in the Subscription Offering if such Person resides in a foreign country; or in a state of the United States with respect to which any of the following apply: (a) a small number of Persons otherwise eligible to subscribe for shares under the Plan reside in such state; (b) the issuance of subscription rights or the offer or sale of shares of Holding Company Common Stock to such Persons would require the Holding Company under the securities laws of such state, to register as a broker, dealer, salesman or agent or to register or otherwise qualify its securities for sale in such state; and (c) such registration or qualification would be impracticable for reasons of cost or otherwise.

19. ESTABLISHMENT OF LIQUIDATION ACCOUNT

          The Bank shall establish at the time of the MHC Merger, a Liquidation Account in an amount equal to the greater of: (a) the percentage of the outstanding shares of the common stock of the Mid-Tier Holding Company owned by the Mutual Holding Company multiplied by the Mid-Tier Holding Company’s total stockholders’ equity as reflected in the latest statement of financial condition contained in the final Prospectus used in the Conversion; or (b) the retained earnings of the Bank as of the latest financial statements set forth in the prospectus used in connection with the Bank’s initial mutual holding company reorganization and minority stock offering.  Following the Conversion, the Liquidation Account will be maintained by the Bank for the benefit of the Eligible Account Holders and Supplemental Eligible Account Holders who continue to maintain their Deposit Accounts at the Bank.   Each Eligible Account Holder and Supplemental Eligible Account Holder shall, with respect to his Deposit Account, hold a related inchoate interest in a portion of the Liquidation Account balance, in relation to his Deposit

19

Account balance at the Eligibility Record Date or Supplemental Eligibility Record Date, respectively, or to such balance as it may be subsequently reduced, as hereinafter provided.

          In the unlikely event of a complete liquidation of the Bank (and only in such event) following all liquidation payments to creditors (including those to Account Holders to the extent of their Deposit Accounts), each Eligible Account Holder and Supplemental Eligible Account Holder shall be entitled to receive a liquidating distribution from the Liquidation Account, in the amount of the then adjusted subaccount balance for his Deposit Account then held, before any liquidation distribution may be made to any holders of the Bank’s capital stock.  No merger, consolidation, purchase of bulk assets with assumption of Deposit Accounts and other liabilities, or similar transactions with an FDIC-insured institution, in which the Bank is not the surviving institution, shall be deemed to be a complete liquidation for this purpose.  In such transactions, the Liquidation Account shall be assumed by the surviving institution.

          The initial subaccount balance for a Deposit Account held by an Eligible Account Holder and Supplemental Eligible Account Holder shall be determined by multiplying the opening balance in the Liquidation Account by a fraction, the numerator of which is the amount of the Qualifying Deposits of such account holder and the denominator of which is the total amount of all Qualifying Deposits of all Eligible Account Holders and Supplemental Account Holders.  For Deposit Accounts in existence at both the Eligibility Record Date and the Supplemental Eligibility Record Date, separate initial subaccount balances shall be determined on the basis of the Qualifying Deposits in such Deposit Account on each such record date.  Such initial subaccount balance shall not be increased, but shall be subject to downward adjustment as described below.

          If, at the close of business on any June 30 annual closing date, commencing on or after the effective date of the Conversion, the deposit balance in the Deposit Account of an Eligible Account Holder or Supplemental Eligible Account Holder is less than the lesser of (i) the balance in the Deposit Account at the close of business on any other annual closing date subsequent to the Eligibility Record Date or Supplemental Eligibility Record Date, or (ii) the amount of the Qualifying Deposit in such Deposit Account as of the Eligibility Record Date or Supplemental Eligibility Record Date, the subaccount balance for such Deposit Account shall be adjusted by reducing such subaccount balance in an amount proportionate to the reduction in such deposit balance.  In the event of such downward adjustment, the subaccount balance shall not be subsequently increased, notwithstanding any subsequent increase in the deposit balance of the related Deposit Account.  If any such Deposit Account is closed, the related subaccount shall be reduced to zero.

          The creation and maintenance of the Liquidation Account shall not operate to restrict the use or application of any of the equity accounts of the Bank, except that the Bank shall not declare or pay a cash dividend on, or repurchase any of, its capital stock if the effect thereof would cause its equity to be reduced below (i) the amount required for the Liquidation Account; or (ii) the regulatory capital requirements of the Bank.

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20. VOTING RIGHTS OF STOCKHOLDERS

          Following consummation of the Conversion, the holders of the voting capital stock of the Holding Company shall have the exclusive voting rights with respect to the Holding Company.

21. RESTRICTIONS ON RESALE OR SUBSEQUENT DISPOSITION

                    1.     All Subscription Shares purchased by Directors or Officers of the Holding Company or the Bank in the Offering shall be subject to the restriction that, except as provided in this Section or as may be approved by the OTS, no interest in such shares may be sold or otherwise disposed of for value for a period of one year following the date of purchase in the Offering.

                    2.     The restriction on disposition of Subscription Shares set forth above in this Section shall not apply to the following:

(a)	Any exchange of such shares in connection with a merger or acquisition involving the Bank or the Holding Company, as the case may be, which has been approved by the appropriate federal regulatory agency; and
(b)	Any disposition of such shares following the death of the person to whom such shares were initially sold under the terms of the Plan.

                    3.     With respect to all Subscription Shares subject to restrictions on resale or subsequent disposition, each of the following provisions shall apply:

(a)	Each certificate representing shares restricted by this section shall bear a legend prominently stamped on its face giving notice of the restriction;
(b)	Instructions shall be issued to the stock transfer agent for the Holding Company not to recognize or effect any transfer of any certificate or record of ownership of any such shares in violation of the restriction on transfer; and
(c)	Any shares of capital stock of the Holding Company issued with respect to a stock dividend, stock split, or otherwise with respect to ownership of outstanding Subscription Shares subject to the restriction on transfer hereunder shall be subject to the same restriction as is applicable to such Subscription Shares.

22. REQUIREMENTS FOR STOCK PURCHASES BY DIRECTORS AND OFFICERS FOLLOWING THE CONVERSION

          For a period of three years following the Conversion, no Officer, Director or their Associates shall purchase, without the prior written approval of the OTS, any outstanding shares of Holding Company Common Stock except from a broker-dealer registered with the SEC.  This provision shall not apply to negotiated transactions involving more than 1% of the outstanding shares of Holding Company Common Stock, the exercise of any options pursuant to a stock option plan or purchases of Holding Company Common Stock made by or held by any Tax-

21

Qualified Employee Stock Benefit Plan or Non-Tax-Qualified Employee Stock Benefit Plan of the Bank or the Holding Company (including the Employee Plans) which may be attributable to any Officer or Director.  As used herein, the term “negotiated transaction” means a transaction in which the securities are offered and the terms and arrangements relating to any sale are arrived at through direct communications between the seller or any person acting on its behalf and the purchaser or his investment representative.  The term “investment representative” shall mean a professional investment advisor acting as agent for the purchaser and independent of the seller and not acting on behalf of the seller in connection with the transaction.

23. TRANSFER OF DEPOSIT ACCOUNTS

          Each person holding a Deposit Account at the Bank at the time of Conversion shall retain an identical Deposit Account at the Bank following Conversion in the same amount and subject to the same terms and conditions (except as to voting and liquidation rights).

24. REGISTRATION AND MARKETING

          Within the time period required by applicable laws and regulations, the Holding Company will register the securities issued in connection with the Conversion pursuant to the Securities Exchange Act of 1934 and will not deregister such securities for a period of at least three years thereafter, except that the maintenance of registration for three years requirement may be fulfilled by any successor to the Holding Company.  In addition, the Holding Company will use its best efforts to encourage and assist a market-maker to establish and maintain a market for the Conversion Stock and to list those securities on a national or regional securities exchange or the Nasdaq Stock Market.

25. TAX RULINGS OR OPINIONS

          Consummation of the Conversion is expressly conditioned upon prior receipt by the Mutual Holding Company, the Mid-Tier Holding Company, the Holding Company and the Bank of either a ruling or an opinion of counsel with respect to federal tax laws, and either a ruling, an opinion of counsel, or a letter of advice from their tax advisor with respect to applicable state tax laws, to the effect that consummation of the transactions contemplated by the Conversion and this Plan will not result in a taxable reorganization under the provisions of the applicable codes or otherwise result in any adverse tax consequences to the Mutual Holding Company, the Mid-Tier Holding Company, the Holding Company or the Bank, or the account holders receiving subscription rights before or after the Conversion, except in each case to the extent, if any, that subscription rights are deemed to have value on the date such rights are issued.

26. STOCK BENEFIT PLANS AND EMPLOYMENT AGREEMENTS

                    1.     The Holding Company and the Bank are authorized to adopt Tax-Qualified Employee Stock Benefit Plans in connection with the Conversion, including without limitation, an ESOP.  Existing as well as any newly created Tax-Qualified Employee Stock Benefit Plans may purchase shares of Holding Company Common Stock in the Offering, to the extent permitted by the terms of such benefit plans and this Plan.

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                    2.     As a result of the Conversion, the Holding Company shall be deemed to have ratified and approved all employee stock benefit plans maintained by the Bank and the Mid-Tier Holding Company and shall have agreed to issue (and reserve for issuance) Holding Company Common Stock in lieu of common stock of the Mid-Tier Holding Company pursuant to the terms of such benefit plans.  Upon consummation of the Conversion, the Mid-Tier Holding Company common stock held by such benefit plans shall be converted into Holding Company Common Stock based upon the Exchange Ratio.  Also upon consummation of the Conversion, (i) all rights to purchase, sell or receive Mid-Tier Holding Company common stock and all rights to elect to make payment in Mid-Tier Holding Company common stock under any agreement between the Bank or the Mid-Tier Holding Company and any Director, Officer or Employee thereof or under any plan or program of the Bank or the Mid-Tier Holding Company, shall automatically, by operation of law, be converted into and shall become an identical right to purchase, sell or receive Holding Company Common Stock and an identical right to make payment in Holding Company Common Stock under any such agreement between the Bank or the Mid-Tier Holding Company and any Director, Officer or Employee thereof or under such plan or program of the Bank, and (ii) rights outstanding under all stock option plans shall be assumed by the Holding Company and thereafter shall be rights only for shares of Holding Company Common Stock, with each such right being for a number of shares of Holding Company Common Stock based upon the Exchange Ratio and the number of shares of Mid-Tier Holding Company common stock that were available thereunder immediately prior to consummation of the Conversion, with the price adjusted to reflect the Exchange Ratio but with no change in any other term or condition of such right.

                    3.     The Holding Company and the Bank are authorized to adopt stock option plans, restricted stock award plans and other Non-Tax-Qualified Employee Stock Benefit Plans, provided that such plans conform to any applicable requirements of federal regulations. The Holding Company and the Bank intend to implement a stock option plan and a restricted stock award plan no earlier than six months after completion of the Conversion.  Stockholder approval of these plans will be required.  If adopted within 12 months following the completion of the Conversion, the stock option plan will reserve a number of shares equal to up to 10% of the shares sold in the Offering and the stock award plan will reserve a number of shares equal to up to 4% of the shares sold in the Offering (unless the Bank’s tangible capital is less than 10% upon completion of the Offering in which case the stock award plan will reserve a number of shares equal to up to 3% of the shares sold in the Offering)  for awards to employees and directors at no cost to the recipients.  Shares for such plans may be issued out of authorized but unissued shares, treasury shares or repurchased shares.

                    4.     The Holding Company and the Bank are authorized to enter into employment agreements and/or change in control agreements with their executive officers.

27. RESTRICTIONS ON ACQUISITION OF BANK AND HOLDING COMPANY

     1. (a) The charter of the Bank may contain a provision stipulating that no person, except the Holding Company, for a period of five years following the closing date of the Conversion, may directly or indirectly acquire or offer to acquire the beneficial ownership of more than 10% of any class of

23

equity security of the Bank, without the prior written approval of the OTS.  In addition, such charter may also provide that for a period of five years following the closing date of the Conversion, shares beneficially owned in violation of the above-described charter provision shall not be entitled to vote and shall not be voted by any person or counted as voting stock in connection with any matter submitted to stockholders for a vote.  In addition, special meetings of the stockholders relating to changes in control or amendment of the charter may only be called by the Board of Directors, and shareholders shall not be permitted to cumulate their votes for the election of Directors.

(b)

For a period of three years from the date of consummation of the Conversion, no person, other than the Holding Company, shall directly or indirectly offer to acquire or acquire the beneficial ownership of more than 10% of any class of equity security of the Bank without the prior written consent of the OTS.

                    2.     The Articles of Incorporation of the Holding Company may contain a provision stipulating that in no event shall any record owner of any outstanding shares of Holding Company Common Stock who beneficially owns in excess of 10% of such outstanding shares be entitled or permitted to any vote with respect to any shares held in excess of 10%.  In addition, the Articles of Incorporation and Bylaws of the Holding Company may contain provisions which provide for staggered terms of the directors, noncumulative voting for directors, limitations on the calling of special meetings, a fair price provision for certain business combinations and certain notice requirements.

                    3.     For the purposes of this section:

(a)	The term “person” includes an individual, a firm, a corporation or other entity;
(b)	The term “offer” includes every offer to buy or acquire, solicitation of an offer to sell, tender offer for, or request or invitation for tenders of, a security or interest in a security for value;
(c)	The term “acquire” includes every type of acquisition, whether effected by purchase, exchange, operation of law or otherwise; and
(d)	The term “security” includes non-transferable subscription rights issued pursuant to a plan of conversion as well as a “security” as defined in 15 U.S.C. § 8c(a)(10).

28. PAYMENT OF DIVIDENDS AND REPURCHASE OF STOCK

                    1.     The Holding Company shall comply with any applicable regulation in the repurchase of any shares of its capital stock following consummation of the Conversion.

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                    2.     The Bank shall not declare or pay a cash dividend on, or repurchase any of, its capital stock if the effect thereof would cause its regulatory capital to be reduced below (i) the amount required for the Liquidation Account or (ii) the federal regulatory capital requirements.

29. ARTICLES OF INCORPORATION AND BYLAWS

          By voting to adopt this Plan, Voting Members will be voting to adopt the Articles of Incorporation and Bylaws for the Holding Company attached as Exhibits D and E to this Plan.

30. CONSUMMATION OF CONVERSION AND EFFECTIVE DATE

          The Effective Date of the Conversion shall be the date upon which the Articles of Combination (or similar documents) shall be filed with OTS with respect to the Mid-Tier  Merger, the MHC Merger and the Bank Merger.  The Articles of Combination shall be filed after all requisite regulatory, depositor and stockholder approvals have been obtained, all applicable waiting periods have expired, and sufficient subscriptions and orders for Subscription Shares have been received.  The closing of the sale of all shares of Holding Company Common Stock sold in the Offering and the Exchange Offering shall occur simultaneously on the effective date of the closing.

31. EXPENSES OF CONVERSION

          The Mutual Holding Company, the Mid-Tier Holding Company, the Bank and the Holding Company may retain and pay for the services of legal, financial and other advisors to assist in connection with any or all aspects of the Conversion, including the Offering, and such parties shall use their best efforts to assure that such expenses shall be reasonable.

32. AMENDMENT OR TERMINATION OF PLAN

          If deemed necessary or desirable, this Plan may be substantively amended as a result of comments from the OTS or otherwise at any time prior to solicitation of proxies from Voting Members and Mid-Tier Holding Company stockholders to vote on this Plan by the Board of Directors of the Mutual Holding Company, and at any time thereafter by the Board of Directors of the Mutual Holding Company with the concurrence of the OTS.  Any amendment to this Plan made after approval by Voting Members and Mid-Tier Holding Company stockholders with the approval of the OTS shall not necessitate further approval by Voting Members unless otherwise required by the OTS.  The Board of Directors of the Mutual Holding Company may terminate this Plan at any time prior to the Special Meeting of Members and the Meeting of Stockholders to vote on this Plan, and at any time thereafter with the concurrence of the OTS.

          By adoption of the Plan, Voting Members of the Mutual Holding Company authorize the Board of Directors of the Mutual Holding Company to amend or terminate the Plan under the circumstances set forth in this Section.

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33. CONDITIONS TO CONVERSION

          Consummation of the Conversion pursuant to this Plan is expressly conditioned upon the following:

                    1.     Prior receipt by the Mutual Holding Company, the Mid-Tier Holding Company, the Stock Holding Company and the Bank of rulings of the United States Internal Revenue Service and the state taxing authorities, or opinions of counsel or tax advisers as described in Section 25 hereof;

                    2.     The issuance of the Subscription Shares offered in the Conversion;

                    3.     The issuance of Exchange Shares; and

                    4.     The completion of the Conversion within the time period specified in Section 3 of this Plan.

34. INTERPRETATION

          All interpretations of this Plan and application of its provisions to particular circumstances by a majority of the Board of Directors of the Mutual Holding Company shall be final, subject to the authority of the OTS.

Dated:  September 25, 2007

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EXHIBIT A

FORM OF AGREEMENT OF MERGER BETWEEN
K-FED BANCORP,
KAISER FEDERAL INTERIM BANK I,
AND KAISER FEDERAL BANK

FORM OF
FORM OF AGREEMENT OF MERGER BETWEEN
K-FED BANCORP,
KAISER FEDERAL INTERIM BANK I,
AND KAISER FEDERAL BANK

          THIS AGREEMENT OF MERGER (the “Mid-Tier Merger Agreement”) dated as of ____ __, 2007, is made by and among K-Fed Bancorp, a federal corporation (the “Mid-Tier Holding Company”), Kaiser Federal Bank, a federal savings bank (the “Bank”), and Kaiser Federal Interim Bank I, an interim federal savings bank (“Interim I”).

R E C I T A L S:

          1.          The Mid-Tier Holding Company is a federal corporation that owns 100% of the common stock of the Bank. 

          2.          Contemporaneously with the transactions contemplated by this Mid-Tier Merger Agreement, the Mid-Tier Holding Company will exchange its charter for that of Interim I and Interim I will merge with and into the Bank with the Bank as the surviving entity.

          3.          At least two-thirds of the members of the boards of directors of the Bank and the Mid-Tier Holding Company have approved this Mid-Tier Merger Agreement whereby Interim I shall be merged with and into the Bank with the Bank as the surviving or resulting institution (the “Mid-Tier Merger”), and have authorized the execution and delivery thereof.

          NOW, THEREFORE, in consideration of the premises and mutual agreements contained herein, the parties hereto have agreed as follows:

          1.          Merger.  At and on the Effective Date of the Mid-Tier Merger, (i) the Mid-Tier Holding Company will exchange its charter for that of Interim I, and will merge with and into the Bank with the Bank as the resulting entity (the “Resulting Institution”), and (ii) the Minority Stockholders of the Mid-Tier Holding Company shall constructively receive shares of Bank common stock in exchange for their Mid-Tier Holding Company common stock and the Mutual Holding Company shall receive shares of Bank common stock in exchange for its Mid-Tier Holding Company common stock.

          2.          Effective Date.  The Mid-Tier Merger shall not be effective until and unless the Plan is approved by the Office of Thrift Supervision (the “OTS”) after approval by at least (i) two-thirds of the outstanding common stock of the Mid-Tier Holding Company, (ii) a majority vote of the shares held by Minority Stockholders, and (iii) a majority of Voting Members, and the Articles of Combination shall have been filed with the OTS with respect to the Mid-Tier Merger.  Approval of the Plan by the Voting Members shall constitute approval of the Mid-Tier Merger Agreement by the Voting Members.  Approval of the Plan by Minority Stockholders of the Mid-Tier Holding Company, including the Minority Stockholders, shall constitute approval of the Mid-Tier Merger Agreement by such stockholders.

          3.          Name.  The name of the Resulting Institution shall be Kaiser Federal Bank

          4.          Offices.  The main banking office of the Resulting Institution shall be 1359 North Grand Avenue, Covina, California.  The branch offices of the Bank that were in lawful operation prior to the Mid-Tier Merger shall be operated as branch offices of the Resulting Institution.

          5.          Directors and Officers.  The directors and officers of the Bank immediately prior to the Effective Date shall be the directors and officers of the Resulting Institution after the Effective Date.

          6.          Rights and Duties of the Resulting Institution.  At the Effective Date, the Mid-Tier Holding Company shall exchange its charter for Interim I, which shall be merged with and into the Bank with the Bank as the Resulting Institution.  The business of the Resulting Institution shall be that of a federal savings bank as provided in its Charter.  All assets, rights, interests, privileges, powers, franchises and property (real, personal and mixed) of the Mid-Tier Holding Company, the Bank and Interim I shall be transferred automatically to and vested in the Resulting Institution by virtue of the Mid-Tier Merger without any deed or other document of transfer.  The Resulting Institution, without any order or action on the part of any court or otherwise and without any documents of assumption or assignment, shall hold and enjoy all of the properties, franchises and interests, including appointments, powers, designations, nominations and all other rights and interests as the agent or other fiduciary in the same manner and to the same extent as such rights, franchises, and interests and powers were held or enjoyed by the Bank, the Mid-Tier Holding Company and Interim I.  The Resulting Institution shall be responsible for all of the liabilities, restrictions and duties of every kind and description of the Mid-Tier Holding Company, the Bank and Interim I immediately prior to the Merger, including liabilities for all debts, obligations and contracts of the Mid-Tier Holding Company, the Bank and Interim I, matured or unmatured, whether accrued, absolute, contingent or otherwise and whether or not reflected or reserved against on balance sheets, books of accounts or records of the Mid-Tier Holding Company, the Bank or Interim I.  The stockholders of the Bank shall possess all voting rights with respect to the shares of stock of Interim I and the Mid-Tier Holding Company.  All rights of creditors and other obligees and all liens on property of the Bank, the Mid-Tier Holding Company and Interim I shall be preserved and shall not be released or impaired.

          7.          Other Terms.  All terms used in this Mid-Tier Merger Agreement shall, unless defined herein, have the meanings set forth in the Plan.  The Plan is incorporated herein by this reference and made a part hereof to the extent necessary or appropriate to effect and consummate the terms of this Mid-Tier Merger Agreement and the Conversion.

A-2

          IN WITNESS WHEREOF, the Mid-Tier Holding Company, Interim I and the Bank have caused this Mid-Tier Merger Agreement to be executed as of the date first above written.

ATTEST:	K-Fed Bancorp
	(a federal corporation)
	By:
Rita H. Zwern, Secretary		Kay M. Hoveland, President and
		Chief Executive Officer
ATTEST:	Kaiser Federal Bank
	(a federal savings bank)
	By:
Rita H. Zwern, Secretary		Kay M. Hoveland, President and
		Chief Executive Officer
ATTEST:	Kaiser Federal Interim Bank I
	(an interim federal savings bank)
	By:
Rita H. Zwern, Secretary		Kay M. Hoveland, President and
		Chief Executive Officer

A-3

EXHIBIT B

FORM OF AGREEMENT OF MERGER BETWEEN
K-FED MUTUAL HOLDING COMPANY, KAISER FEDERAL INTERIM BANK II
AND KAISER FEDERAL BANK

EXHIBIT B

FORM OF
AGREEMENT OF MERGER BETWEEN
K-FED MUTUAL HOLDING COMPANY,
KAISER FEDERAL INTERIM BANK II, AND KAISER FEDERAL BANK

          THIS AGREEMENT OF MERGER (the “MHC Merger Agreement”), dated as of ____ __, 2007, is made by and among K-Fed Mutual Holding Company, a federal mutual holding company (the “Mutual Holding Company”), Kaiser Federal Bank, a federal savings bank (the “Bank”), and Kaiser Federal Interim Bank II, an interim federal savings bank (“Interim II”).

R E C I T A L S:

          1.          The Mutual Holding Company is a federal corporation that owns a majority of the common stock of the Bank as a result of the merger of K-Fed Bancorp, a federal corporation, into the Bank (the “Mid-Tier Merger”) immediately prior to the merger provided for in this MHC Merger Agreement.

          2.          Contemporaneously with the transactions contemplated by this MHC Merger Agreement, the Mutual Holding Company will exchange its charter for that of Interim II and Interim II will merge with and into the Bank with the Bank as the resulting entity.

          3.          At least two-thirds of the members of the boards of directors of the Bank and the Mutual Holding Company have approved this MHC Merger Agreement whereby Interim II will be merged with and into the Bank with the Bank as the surviving or resulting institution (the “MHC Merger”), and authorized the execution and delivery thereof.

          NOW, THEREFORE, in consideration of the premises and mutual agreements contained herein, the parties hereto have agreed as follows:

          1.          Merger.  At and on the Effective Date of the MHC Merger, (i) the Mutual Holding Company shall exchange its charter for that of Interim II, and will merge with and into the Bank with the Bank as the resulting entity (the “Resulting Institution”), whereupon shares of Bank common stock owned by the Mutual Holding Company shall be canceled.  As part of the MHC Merger, each Eligible Account Holder and Supplemental Eligible Account Holder (as defined in the Plan of Conversion and Reorganization (the “Plan”)), shall automatically receive an interest in the Liquidation Account established in the Bank, in exchange for such person’s interest in the Mutual Holding Company set forth in the Plan.

          2.          Effective Date.  The MHC Merger shall not be effective until and unless the Plan is approved by the Office of Thrift Supervision (the “OTS”) after approval by at least (i) two-thirds of the outstanding common stock of the Mid-Tier Holding Company, (ii) a majority vote of the shares held by Minority Stockholders, and (iii) a majority of Voting Members, and the Articles of Combination shall have been filed with the OTS with respect to the MHC Merger.  Approval of the Plan by the Voting Members shall constitute approval of the MHC Merger Agreement by the Voting Members.  Approval of the Plan by the stockholders of the Mid-Tier

Holding Company, including the Minority Stockholders, shall constitute approval of the MHC Merger Agreement by such stockholders.

          3.          Name.  The name of the Resulting Institution shall be Kaiser Federal Bank

          4.          Offices.  The main banking office of the Resulting Institution shall be 1359 North Grand Avenue, Covina, California.  The branch offices of the Bank that were in lawful operation prior to the MHC Merger shall be operated as branch offices of the Resulting Institution.

          5.          Directors and Officers.  The directors and officers of the Bank immediately prior to the Effective Date shall be the directors and officers of the Resulting Institution after the Effective Date.

          6.          Rights and Duties of the Resulting Institution.  At the Effective Date, the Mutual Holding Company shall convert to Interim II, which shall be merged with and into the Bank with the Bank as the Resulting Institution.  The business of the Resulting Institution shall be that of a federal savings bank as provided in its Charter.  All assets, rights, interests, privileges, powers, franchises and property (real, personal and mixed) of the Mutual Holding Company, the Bank and Interim II shall be transferred automatically to and vested in the Resulting Institution by virtue of the MHC Merger without any deed or other document of transfer.  The Resulting Institution, without any order or action on the part of any court or otherwise and without any documents of assumption or assignment, shall hold and enjoy all of the properties, franchises and interests, including appointments, powers, designations, nominations and all other rights and interests as the agent or other fiduciary in the same manner and to the same extent as such rights, franchises, and interests and powers were held or enjoyed by the Bank, the Mutual Holding Company and Interim II.  The Resulting Institution shall be responsible for all of the liabilities, restrictions and duties of every kind and description of the Mutual Holding Company, the Bank and Interim II immediately prior to the MHC Merger, including liabilities for all debts, obligations and contracts of the Mutual Holding Company, the Bank and Interim II, matured or unmatured, whether accrued, absolute, contingent or otherwise and whether or not reflected or reserved against on balance sheets, books of accounts or records of the Mutual Holding Company, the Bank or Interim II.  The stockholders of the Bank shall possess all voting rights with respect to the shares of stock of the Bank.  All rights of creditors and other obligees and all liens on property of the Mutual Holding Company, the Bank and Interim II shall be preserved and shall not be released or impaired.

          7.          Other Terms.  All terms used in this MHC Merger Agreement shall, unless defined herein, have the meanings set forth in the Plan.  The Plan is incorporated herein by this reference and made a part hereof to the extent necessary or appropriate to effect and consummate the terms of this MHC Merger Agreement and the Conversion.

B-2

IN WITNESS WHEREOF, the Mutual Holding Company, Interim II and the Bank have caused this MHC Merger Agreement to be executed as of the date first above written.

ATTEST:	K-Fed Mutual Holding Company
	(a federal corporation)
	By:
Rita H. Zwern, Secretary		Kay M. Hoveland, President and Chief Executive Officer
ATTEST:	Kaiser Federal Bank
	(a federal savings bank)
	By:
Rita H. Zwern, Secretary		Kay M. Hoveland, President and
		Chief Executive Officer
ATTEST:	Kaiser Federal Interim Bank II
	(an interim federal savings bank)
	By:
Rita H. Zwern, Secretary		Kay M. Hoveland, President and Chief Executive Officer

B-3

EXHIBIT C

FORM OF AGREEMENT OF MERGER BETWEEN
KAISER FEDERAL BANK,
KAISER FEDERAL INTERIM BANK III,
AND
K-FED BANCORP

EXHIBIT C

FORM OF AGREEMENT OF MERGER BETWEEN
KAISER FEDERAL BANK,
KAISER FEDERAL INTERIM BANK III
AND
KAISER FEDERAL FINANCIAL GROUP, INC.

          THIS AGREEMENT OF MERGER (the “Bank Merger Agreement”) dated as of _________, 2007, is made by and among Kaiser Federal Bank, a federal savings bank (the “Bank”), Kaiser Federal Financial Group, Inc., a Maryland corporation (the “Holding Company”), and Kaiser Federal Interim Bank III, an interim federal savings bank (“Interim III”).

R E C I T A L S:

          1.          The Bank is a federal savings bank that prior to the transactions contemplated by this Bank Merger Agreement and the Plan of Conversion and Reorganization of K-Fed Mutual Holding Company (the “Plan”), was a wholly-owned subsidiary of K-Fed Bancorp (the “Mid-Tier Holding Company”), a federal corporation.

          2.          The Holding Company was formed as a wholly-owned subsidiary of the Bank to facilitate and effect the Conversion.

          3.          The Holding Company has organized Interim III as a wholly-owned subsidiary to effect and facilitate the Conversion.

          4.          Immediately prior to the transactions contemplated by this Bank Merger Agreement, (i) the Mid-Tier Holding Company will exchange its charter for Kaiser Federal Interim Bank I, an interim federal savings bank, and merge with and into the Bank (the “Mid-Tier Merger”) with the Bank as the resulting entity, (ii) the Minority Stockholders will constructively receive, and the Mutual Holding Company will receive, shares of Bank common stock in exchange for their Mid-Tier Holding Company common stock, and (iii) K-Fed Mutual Holding Company will convert to Interim Savings Bank II, an interim federal savings bank, and merge with and into the Bank with the Bank as the resulting entity (the “MHC Merger”).

          5.          At least two-thirds of the members of the boards of directors of the Bank and Interim III have approved this Bank Merger Agreement under which Interim III will merge with and into the Bank with the Bank as the surviving or resulting institution (the “Bank Merger”), and have authorized the execution and delivery thereof.

          NOW, THEREFORE, in consideration of the premises and mutual agreements contained herein, the parties hereto have agreed as follows:

          1.          Merger.  At and on the Effective Date of the Bank Merger and immediately after the Mid-Tier Merger and the MHC Merger, Interim III will merge with and into the Bank with the Bank as the surviving entity (the “Resulting Institution”).  Stockholders of the Bank will exchange the shares of Bank common stock that they either actually or constructively received in

the Mid-Tier Merger for Holding Company Common Stock.  As a result of the Bank Merger, the Holding Company will own 100% of the common stock of the Bank.

          2.          Stock Offering.  Contemporaneously with the Bank Merger, the Holding Company will sell shares of its common stock in the Offering as described in the Plan.

          3.          Effective Date.  The Bank Merger shall not be effective until and unless the Plan is approved by the Office of Thrift Supervision (the “OTS”) after approval by at least (i) two-thirds of the outstanding common stock of the Mid-Tier Holding Company, (ii) a majority of the shares held by Minority Stockholders, and (iii) a majority of the Voting Members, and the Articles of Combination shall have been filed with the OTS with respect to the Bank Merger.  Approval of the Plan by the Voting Members shall constitute approval of this Bank Merger Agreement by the Voting Members.

          4.          Name.  The name of the Resulting Institution shall be Kaiser Federal Bank

          5.          Offices.  The main banking office of the Resulting Institution shall be 1359 North Grand Avenue, Covina, California.  The branch office of the Bank that was in lawful operation prior to the Bank Merger shall be operated as branch office of the Resulting Institution.

          6.          Directors and Officers.  The directors and officers of the Bank immediately prior to the Effective Date shall be the directors and officers of the Resulting Institution after the Effective Date.

          7.          Rights and Duties of the Resulting Institution.  At the Effective Date, Interim III shall be merged with and into the Bank with the Bank as the Resulting Institution.  The business of the Resulting Institution shall be that of a federal savings bank as provided in its Charter.  All assets, rights, interests, privileges, powers, franchises and property (real, personal and mixed) of Interim III and the Bank shall be transferred automatically to and vested in the Resulting Institution by virtue of such Bank Merger without any deed or other document of transfer.  The Resulting Institution, without any order or action on the part of any court or otherwise and without any documents of assumption or assignment, shall hold and enjoy all of the properties, franchises and interests, including appointments, powers, designations, nominations and all other rights and interests as the agent or other fiduciary in the same manner and to the same extent as such rights, franchises, and interests and powers were held or enjoyed by the Bank and Interim III.  The Resulting Institution shall be responsible for all of the liabilities, restrictions and duties of every kind and description of both Interim III and the Bank immediately prior to the Bank Merger, including liabilities for all debts, obligations and contracts of Interim III and the Bank, matured or unmatured, whether accrued, absolute, contingent or otherwise and whether or not reflected or reserved against on balance sheets, books of accounts or records of Interim III or the Bank.  The stockholders of the Resulting Institution shall possess all voting rights with respect to the shares of stock of the Bank and Interim III.  All rights of creditors and other obligees and all liens on property of Interim III and the Bank shall be preserved and shall not be released or impaired.

          8.          Other Terms.  All terms used in this Bank Merger Agreement shall, unless defined herein, have the meanings set forth in the Plan.  The Plan is incorporated herein by this

C-2

reference and made a part hereof to the extent necessary or appropriate to effect and consummate the terms of the Bank Merger Agreement and the Conversion.

C-3

          IN WITNESS WHEREOF, the Bank, the Holding Company and Interim III have caused this Bank Merger Agreement to be executed as of the date first above written.

ATTEST:	Kaiser Federal Bank
	(a federal savings bank)
	By:
Rita H. Zwern, Secretary		Kay M. Hoveland, President and Chief Executive Officer
ATTEST:	Kaiser Federal Interim Bank III
	(a federal savings bank)
	By:
Rita H. Zwern, Secretary		Kay M. Hoveland, President and
		Chief Executive Officer
ATTEST:	Kaiser Federal Financial Group, Inc.
	By:
Rita H. Zwern, Secretary		Kay M. Hoveland, President and Chief Executive Officer

C-4

EXHIBIT D

ARTICLES OF INCORPORATION OF THE HOLDING COMPANY

[See Exhibit 3.1]

EXHIBIT E

BYLAWS OF THE HOLDING COMPANY

[See Exhibit 3.2]

EX-3.1

Exhibit 3.1

ARTICLES OF INCORPORATION
OF
KAISER FEDERAL FINANCIAL GROUP, INC.

          The undersigned, Richard S. Garabedian, whose address is 5335 Wisconsin Avenue, N.W., Suite 400, Washington, DC 20015, being at least eighteen years of age, acting as incorporator, does hereby form a corporation under the general laws of the State of Maryland, having the following Articles of Incorporation (the “Articles”):

          ARTICLE 1.  Name.  The name of the corporation is Kaiser Federal Financial Group, Inc. (herein the “Corporation”).

          ARTICLE 2.  Principal Office.  The address of the principal office of the Corporation in the State of Maryland is c/o CSC-Lawyers Incorporating Service Company, 7 St. Paul Street, Suite 1660, Baltimore, Maryland 21202, as resident agent.

          ARTICLE 3.  Purpose.  The purpose for which the Corporation is formed is to engage in any lawful act or activity for which corporations may be organized under the general laws of the State of Maryland as now or hereafter in force.

          ARTICLE 4.  Resident Agent.  The name and address of the registered agent of the Corporation in the State of Maryland is c/o CSC-Lawyers Incorporating Service Company, 7 St. Paul Street, Suite 1660, Baltimore, Maryland 21202. Said resident agent is a Maryland corporation.

          ARTICLE 5.

          A.          Capital Stock.  The total number of shares of capital stock of all classes which the Corporation has authority to issue is one hundred twenty-five million (125,000,000) shares, consisting of:

                         1.          Twenty-five million (25,000,000) shares of preferred stock, par value one cent ($0.01) per share (the “Preferred Stock”); and

                         2.          One hundred million (100,000,000) shares of common stock, par value one cent ($0.01) per share (the “Common Stock”).

          The aggregate par value of all the authorized shares of capital stock is one million two hundred fifty thousand dollars ($1,250,000).  Except to the extent required by governing law, rule or regulation, the shares of capital stock may be issued from time to time by resolution approved by a majority of the Whole Board (rounded up to the nearest whole number) without further approval of the stockholders of the Corporation.  The Corporation shall have the authority to purchase its capital stock out of funds lawfully available therefor which funds shall include, without limitation, the Corporation’s unreserved and unrestricted capital surplus.  For the purposes of these Articles, the term “Whole Board” shall mean the total number of directors that the Corporation would have if there were no vacancies on the Board of Directors at the time any such resolution is presented to the Board of Directors for adoption.

          B.          Common Stock.  Except as provided under the terms of any series of Preferred Stock and as limited by Section D of this Article 5, the exclusive voting power shall be vested in the Common Stock, the holders thereof being entitled to one vote for each share of such Common Stock standing in the holder’s name on the books of the Corporation.  Subject to any rights and preferences of any series of Preferred Stock, holders of Common Stock shall be entitled to such dividends as may be declared by the Board of Directors out of funds lawfully available therefor.  Upon any liquidation, dissolution or winding up of the affairs of the Corporation, whether voluntary or involuntary, holders of Common Stock shall be entitled to receive pro rata the remaining assets of the Corporation after payment or provision for payment of all debts and liabilities of the Corporation and payment or provision for payment of any amounts owed to the holders of any series of Preferred Stock having preference over the Common Stock on distributions on liquidation, dissolution or winding up of the Corporation.

          C.          Preferred Stock.  The Board of Directors is hereby expressly authorized, subject to any limitations prescribed by law, to provide for the issuance of the shares of Preferred Stock in series, to establish from time to time the number of shares to be included in each such series, and to fix the designation, powers, preferences and rights of the shares of each such series and any qualifications, limitations or restrictions thereof.  The number of authorized shares of the Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the Common Stock, without a vote of the holders of the Preferred Stock, or of any series thereof, unless a vote of any such holders is required by law or pursuant to the terms of such Preferred Stock.

          D.          Restrictions on Voting Rights of the Corporation’s Equity Securities.

                    1.          Notwithstanding any other provision of these Articles, in no event shall any record owner of any outstanding Common Stock which is beneficially owned, directly or indirectly, by a Person who, as of any record date for the determination of stockholders entitled to vote on any matter, beneficially owns in excess of 10% of the then-outstanding shares of Common Stock (the “Limit”), be entitled, or permitted to any vote in respect of the shares held in excess of the Limit.  The Limit shall not apply to any tax qualified employee benefit plan of the Corporation or any subsidiary or trustee of a plan.  The number of votes which may be cast by any record owner by virtue of the provisions hereof in respect of Common Stock beneficially owned by such Person owning shares in excess of the Limit shall be a number equal to the total number of votes which a single record owner of all Common Stock owned by such Person would be entitled to cast after giving effect to the provisions hereof, multiplied by a fraction, the numerator of which is the number of shares of such class or series beneficially owned by such Person and owned of record by such record owner and the denominator of which is the total number of shares of Common Stock beneficially owned by such Person owning shares in excess of the Limit. 

                    2.          The following definitions shall apply to this Section D of this Article 5. 

(a) An “affiliate” of a specified Person shall mean a Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the Person specified.

2

(b)	“Beneficial ownership” shall be determined pursuant to Rule 13d-3 of the General Rules and Regulations under the Securities Exchange Act of 1934 (or any successor rule or statutory provision), or, if said Rule 13d-3 shall be rescinded and there shall be no successor rule or statutory provision thereto, pursuant to said Rule 13d-3 as in effect on March, 31, 2007; provided, however, that a Person shall, in any event, also be deemed the “beneficial owner” of any Common Stock:
	(1)	which such Person or any of its affiliates beneficially owns, directly or indirectly; or
	(2)	which such Person or any of its affiliates has (i) the right to acquire (whether such right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement or understanding (but shall not be deemed to be the beneficial owner of any voting shares solely by reason of an agreement, contract, or other arrangement with the Corporation to effect any transaction which is described in any one or more of the clauses of Section A of Article 9 hereof) or upon the exercise of conversion rights, exchange rights, warrants, or options or otherwise, or (ii) sole or shared voting or investment power with respect thereto pursuant to any agreement, arrangement, understanding, relationship or otherwise (but shall not be deemed to be the beneficial owner of any voting shares solely by reason of a revocable proxy granted for a particular meeting of stockholders, pursuant to a public solicitation of proxies for such meeting, with respect to shares of which neither such Person nor any such affiliate is otherwise deemed the beneficial owner); or
	(3)	which are beneficially owned, directly or indirectly, by any other Person with which such first mentioned Person or any of its affiliates acts as a partnership, limited partnership, syndicate or other group pursuant to any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of capital stock of the Corporation; and provided further, however, that (i) no director or officer of the Corporation (or any affiliate of any such director or officer) shall, solely by reason of any or all of such directors or officers acting in their capacities as such, be deemed, for any purposes hereof, to beneficially own any Common Stock beneficially owned by any other such director or officer (or any affiliate thereof), and (ii) neither any employee stock ownership or similar plan of the Corporation or any subsidiary of the Corporation nor any trustee with respect thereto (or any affiliate of such trustee) shall, solely by reason of such capacity of such trustee, be deemed, for any purposes hereof, to beneficially own any Common Stock held under any such plan.  For purposes of computing the percentage beneficial ownership of Common Stock of a Person, the outstanding Common Stock shall include shares deemed owned by such Person

3

		through application of this subsection but shall not include any other Common Stock which may be issuable by the Corporation pursuant to any agreement, or upon exercise of conversion rights, warrants or options, or otherwise.  For all other purposes, the outstanding Common Stock shall include only Common Stock then outstanding and shall not include any Common Stock which may be issuable by the Corporation pursuant to any agreement, or upon the exercise of conversion rights, warrants or options, or otherwise.
(c)	A “Person” shall mean any individual, firm, corporation, or other entity.
(d)	The Board of Directors shall have the power to construe and apply the provisions of this Section D and to make all determinations necessary or desirable to implement such provisions, including but not limited to matters with respect to (i) the number of shares of Common Stock beneficially owned by any Person, (ii) whether a Person is an affiliate of another, (iii) whether a Person has an agreement, arrangement, or understanding with another as to the matters referred to in the definition of beneficial ownership, (iv) the application of any other definition or operative provision of this Section D to the given facts, or (v) any other matter relating to the applicability or effect of this section.

                  3.          The Board of Directors shall have the right to demand that any Person who is reasonably believed to beneficially own Common Stock in excess of the Limit (or holds of record Common Stock beneficially owned by any Person in excess of the Limit) (a “Holder in Excess”) supply the Corporation with complete information as to (i) the record owner(s) of all shares beneficially owned by such Holder in Excess, and (ii) any other factual matter relating to the applicability or effect of this section as may reasonably be requested of such Holder in Excess.  The Board of Directors shall further have the right to receive from any Holder in Excess reimbursement for all expenses incurred by the Board in connection with its investigation of any matters relating to the applicability or effect of this section on such Holder in Excess, to the extent such investigation is deemed appropriate by the Board of Directors as a result of the Holder in Excess refusing to supply the Corporation with the information described in the previous sentence. 

                  4.          Except as otherwise provided by law or expressly provided in this Section D, the presence, in Person or by proxy, of the holders of record of shares of capital stock of the Corporation entitling the holders thereof to cast a majority of the votes (after giving effect, if required, to the provisions of this Section D) entitled to be cast by the holders of shares of capital stock of the Corporation entitled to vote shall constitute a quorum at all meetings of the stockholders, and every reference in these Articles to a majority or other proportion of capital stock (or the holders thereof) for purposes of determining any quorum requirement or any requirement for stockholder consent or approval shall be deemed to refer to such majority or other proportion of the votes (or the holders thereof) then entitled to be cast in respect of such capital stock. 

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                  5.          Any constructions, applications, or determinations made by the Board of Directors pursuant to this Section D in good faith and on the basis of such information and assistance as was then reasonably available for such purpose, shall be conclusive and binding upon the Corporation and its stockholders. 

                  6.          In the event any provision (or portion thereof) of this Section D shall be found to be invalid, prohibited or unenforceable for any reason, the remaining provisions (or portions thereof) of this Section D shall remain in full force and effect, and shall be construed as if such invalid, prohibited or unenforceable provision had been stricken herefrom or otherwise rendered inapplicable, it being the intent of the Corporation and its stockholders that each such remaining provision (or portion thereof) of this Section D remain, to the fullest extent permitted by law, applicable and enforceable as to all stockholders, including stockholders owning an amount of stock over the Limit, notwithstanding any such finding. 

          E.          Majority Vote.  Notwithstanding any provision of law requiring the authorization of any action by a greater proportion than a majority of the total number of shares of all classes of capital stock or of the total number of shares of any class of capital stock, such action shall be valid and effective if authorized by the affirmative vote of the holders of a majority of the total number of shares of all classes outstanding and entitled to vote thereon, except as otherwise provided in these Articles.

          ARTICLE 6.  Preemptive Rights.  No holder of the capital stock of the Corporation or series of stock or of options, warrants or other rights to purchase shares of any class or series of stock or of other securities of the Corporation shall have any preemptive right to purchase or subscribe for any unissued capital stock of any class or series, or any unissued bonds, certificates of indebtedness, debentures or other securities convertible into or exchangeable for capital stock of any class or series, or carrying any right to purchase stock of any class or series, except such as may be established by the Board of Directors.

          ARTICLE 7.  Directors.  The following provisions are inserted for the management of the business and the conduct of the affairs of the Corporation, and for further definition, limitation and regulation of the powers of the Corporation and of its directors and stockholders:

          A.          Management of the Corporation.  The business and affairs of the Corporation shall be managed under the direction of the Board of Directors.  All powers of the Corporation may be exercised by or under the authority of the Board of Directors, except as conferred on or as reserved to the stockholders by law or by these Articles or the Bylaws of the Corporation.

          B.          Number, Class and Terms of Directors; No Cumulative Voting.  The number of directors constituting the Board of Directors of the Corporation shall initially be nine, which number may be increased or decreased in the manner provided in the Bylaws of the Corporation; provided, however, that such number shall never be less than the minimum number of directors required by the Maryland General Corporation Law (the “MGCL”) now or hereafter in force.  The directors, other than those who may be elected by the holders of any series of Preferred Stock, shall be divided into three classes, as nearly equal in number as reasonably possible, with the term of office of the first class (“Class I”) to expire at the conclusion of the first annual meeting of stockholders, the term of office of the second class (“Class II”) to expire at the conclusion of the annual meeting of stockholders one year thereafter and the term of office of the third class (“Class III”) to expire at the

5

conclusion of the annual meeting of stockholders two years thereafter, with each director to hold office until his or her successor shall have been duly elected and qualified.  At each annual meeting of stockholders, directors elected to succeed those directors whose terms expire shall be elected for a term of office to expire at the third succeeding annual meeting of stockholders after their election or for such shorter period of time as the Board of Directors may determine, with each director to hold office until his or her successor shall have been duly elected and qualified.

          The names of the individuals who will serve as directors of the Corporation until their successors are elected and qualify are as follows:

Class I Directors:	Term to Expire in
Kay M. Hoveland	2008
Rita H. Zwern	2008
Class II Directors:	Term to Expire in
Gerald A. Murbach	2009
Robert C. Steinbach	2009
Class III Directors:	Term to Expire in
James L. Breeden.	2010
Frank G. Nicewicz	2010

          Stockholders shall not be permitted to cumulate their votes in the election of directors.

          C.          Vacancies.  Any vacancies in the Board of Directors may be filled in the manner provided in the Bylaws of the Corporation.

          D.          Removal.  Subject to the rights of the holders of any series of Preferred Stock then outstanding, any director, or the entire Board of Directors, may be removed from office at any time, but only for cause and only by the affirmative vote of the holders of at least 80% of the voting power of all of the then-outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors (after giving effect to the provisions of Article 5 hereof) voting together as a single class.

          E.          Stockholder Proposals and Nominations of Directors.  Advance notice of stockholder nominations for the election of directors and of business to be brought by stockholders before any meeting of the stockholders of the Corporation shall be given in the manner provided in the Bylaws of the Corporation.

          ARTICLE 8.  Bylaws.  The Board of Directors is expressly empowered to adopt, amend or repeal the Bylaws of the Corporation.  Any adoption, amendment or repeal of the Bylaws of the Corporation by the Board of Directors shall require the approval by a majority of the Whole Board (rounded up to the nearest whole number).  The stockholders shall also have power to adopt, amend or repeal the Bylaws of the Corporation.  In addition to any vote of the holders of

6

any class or series of stock of the Corporation required by law or by these Articles, the affirmative vote of the holders of at least 80% of the voting power of all of the then-outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors (after giving effect to the provisions of Article 5 hereof), voting together as a single class, shall be required for the adoption, amendment or repeal of any provisions of the Bylaws of the Corporation by the stockholders.

          ARTICLE 9.  Approval of Certain Business Combinations.

          A.          Super-majority Voting Requirement; Business Combination Defined.  In addition to any affirmative vote required by law or by these Articles, and except as otherwise expressly provided in this Section:

                    1.           any merger or consolidation of the Corporation or any Subsidiary (as hereinafter defined) with (a) any Interested Stockholder (as hereinafter defined) or (b) any other corporation (whether or not itself an Interested Stockholder) which is, or after such merger or consolidation would be, an Affiliate (as hereinafter defined) of an Interested Stockholder; or

                    2.          any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions) to or with any Interested Stockholder, or any Affiliate of any Interested Stockholder, of any assets of the Corporation or any Subsidiary having an aggregate Fair Market Value (as hereafter defined) equaling or exceeding 25% or more of the combined assets of the Corporation and its Subsidiaries; or

                    3.          the issuance or transfer by the Corporation or any Subsidiary (in one transaction or a series of transactions) of any securities of the Corporation or any Subsidiary to any Interested Stockholder or any Affiliate of any Interested Stockholder in exchange for cash, securities or other property (or a combination thereof) having an aggregate Fair Market Value equaling or exceeding 25% of the combined assets of the Corporation and its Subsidiaries except pursuant to an employee benefit plan of the Corporation or any Subsidiary thereof; or

                    4.          the adoption of any plan or proposal for the liquidation or dissolution of the Corporation proposed by or on behalf of any Interested Stockholder or any Affiliate of any Interested Stockholder; or

                    5.          any reclassification of securities (including any reverse stock split), or recapitalization of the Corporation, or any merger or consolidation of the Corporation with any of its Subsidiaries or any other transaction (whether or not with or into or otherwise involving an Interested Stockholder) which has the effect, directly or indirectly, of increasing the proportionate share of the outstanding shares of any class of equity or convertible securities of the Corporation or any Subsidiary which is directly or indirectly owned by any Interested Stockholder or any Affiliate of any Interested Stockholder (a “Disproportionate Transaction”); provided, however, that no such transaction shall be deemed a Disproportionate Transaction if the increase in the proportionate ownership of the Interested Stockholder or Affiliate as a result of such transaction is no greater than the increase experienced by the other stockholders generally;

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                        shall require the affirmative vote of the holders of at least 80% of the voting power of the then-outstanding shares of stock of the Corporation entitled to vote in the election of directors (the “Voting Stock”), voting together as a single class.  Such affirmative vote shall be required notwithstanding the fact that no vote may be required, or that a lesser percentage may be specified, by law or by any other provisions of these Articles (including those applicable to any class or series of capital stock) or in any agreement with any national securities exchange or quotation system or otherwise.

          The term “Business Combination” as used in this Article 9 shall mean any transaction which is referred to in any one or more of paragraphs 1 through 5 of Section A of this Article 9.

          B.          Exception to Super-majority Voting Requirement.  The provisions of Section A of this Article 9 shall not be applicable to any particular Business Combination, and such Business Combination shall require only the affirmative vote of the majority of the outstanding shares of capital stock entitled to vote, or such vote as is required by law or by these Articles, if, in the case of any Business Combination that does not involve any cash or other consideration being received by the stockholders of the Corporation solely in their capacity as stockholders of the Corporation, the condition specified in the following paragraph 1 is met or, in the case of any other Business Combination, all of the conditions specified in either of the following paragraphs 1 and 2 are met:

                    1.          The Business Combination shall have been approved by a majority of the Disinterested Directors (as hereinafter defined).

                    2.          All of the following conditions shall have been met:

(a)	The aggregate amount of the cash and the Fair Market Value as of the date of the consummation of the Business Combination of consideration other than cash to be received per share by the holders of Common Stock in such Business Combination shall be equal to at least the higher of the following:
	(1)	(if applicable) the Highest Per Share Price, including any brokerage commissions, transfer taxes and soliciting dealers’ fees, paid by the Interested Stockholder or any of its Affiliates for any shares of Common Stock acquired by it (i) within the two-year period immediately prior to the first public announcement of the proposal of the Business Combination (the “Announcement Date”), or (ii) in the transaction in which it became an Interested Stockholder, whichever is higher; and
	(2)	the Fair Market Value per share of Common Stock on the Announcement Date or on the date on which the Interested Stockholder became an Interested Stockholder (such latter date is referred to in this Article 9 as the “Determination Date”), whichever is higher.

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(b)	The aggregate amount of the cash and the Fair Market Value as of the date of the consummation of the Business Combination of consideration other than cash to be received per share by holders of shares of any class of outstanding Voting Stock other than Common Stock shall be equal to at least the highest of the following (it being intended that the requirements of this subparagraph (b) shall be required to be met with respect to every such class of outstanding Voting Stock, whether or not the Interested Stockholder has previously acquired any shares of a particular class of Voting Stock):
	(1)	(if applicable) the Highest Per Share Price (as hereinafter defined), including any brokerage commissions, transfer taxes and soliciting dealers’ fees, paid by the Interested Stockholder for any shares of such class of Voting Stock acquired by it (i) within the two-year period immediately prior to the Announcement Date, or (ii) in the transaction in which it became an Interested Stockholder, whichever is higher;
	(2)	(if applicable) the highest preferential amount per share to which the holders of shares of such class of Voting Stock are entitled in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation; and
	(3)	the Fair Market Value per share of such class of Voting Stock on the Announcement Date or on the Determination Date, whichever is higher.
(c)	The consideration to be received by holders of a particular class of outstanding Voting Stock (including Common Stock) shall be in cash or in the same form as the Interested Stockholder has previously paid for shares of such class of Voting Stock.  If the Interested Stockholder has paid for shares of any class of Voting Stock with varying forms of consideration, the form of consideration to be received per share by holders of shares of such class of Voting Stock shall be either cash or the form used to acquire the largest number of shares of such class of Voting Stock previously acquired by the Interested Stockholder.  The price determined in accordance with Section B.2.  of this Article 9 shall be subject to appropriate adjustment in the event of any stock dividend, stock split, combination of shares or similar event.
(d)	After such Interested Stockholder has become an Interested Stockholder and prior to the consummation of such Business Combination: (i) except as approved by a majority of the Disinterested Directors, there shall have been no failure to declare and pay at the regular date therefor any full quarterly dividends (whether or not cumulative) on any outstanding stock having preference over the Common Stock as to dividends or liquidation; (ii) there shall have been (X) no reduction in the annual rate of dividends paid on the Common Stock (except as necessary to reflect any subdivision of the Common Stock), except as approved by a majority of the Disinterested Directors, and (Y) an increase in such annual rate of dividends as necessary to

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	reflect any reclassification (including any reverse stock split), recapitalization, reorganization or any similar transaction which has the effect of reducing the number of outstanding shares of Common Stock, unless the failure to so increase such annual rate is approved by a majority of the Disinterested Directors; and (iii) neither such Interested Stockholder nor any of its Affiliates shall have become the beneficial owner of any additional shares of Voting Stock except as part of the transaction which results in such Interested Stockholder becoming an Interested Stockholder.
(e)	After such Interested Stockholder has become an Interested Stockholder, such Interested Stockholder shall not have received the benefit, directly or indirectly (except proportionately as a stockholder), of any loans, advances, guarantees, pledges or other financial assistance or any tax credits or other tax advantages provided by the Corporation, whether in anticipation of or in connection with such Business Combination or otherwise.
(f)	A proxy or information statement describing the proposed Business Combination and complying with the requirements of the Securities Exchange Act of 1934 and the rules and regulations thereunder (or any subsequent provisions replacing such Act, rules or regulations) shall be mailed to stockholders of the Corporation at least 30 days prior to the consummation of such Business Combination (whether or not such proxy or information statement is required to be mailed pursuant to such Act or subsequent provisions).

          C.          Certain Definitions.  For the purposes of this Article 9:

                    1.          A “Person” shall include an individual, a group acting in concert, a corporation, a partnership, an association, a joint venture, a pool, a joint stock company, a trust, an unincorporated organization or similar company, a syndicate or any other group or entity formed for the purpose of acquiring, holding or disposing of securities.

                    2.          “Interested Stockholder” shall mean any Person (other than the Corporation or any holding company or Subsidiary thereof) who or which:

(a)	is the beneficial owner, directly or indirectly, of more than 10% of the voting power of the outstanding Voting Stock; or
(b)	is an Affiliate of the Corporation and at any time within the two-year period immediately prior to the date in question was the beneficial owner, directly or indirectly, of more than 10% of the voting power of the then-outstanding Voting Stock; or
(c)	is an assignee of or has otherwise succeeded to any shares of Voting Stock which were at any time within the two-year period immediately prior to the date in question beneficially owned by any Interested Stockholder, if such assignment or succession shall have occurred in the course of a transaction or

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series of transactions not involving a public offering within the meaning of the Securities Act of 1933.

                    3.          A Person shall be a “beneficial owner” of any Voting Stock:

(a)	which such Person or any of its Affiliates or Associates (as hereinafter defined) beneficially owns, directly or indirectly within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934 as may be subsequently amended; or
(b)	which such Person or any of its Affiliates or Associates has (i) the right to acquire (whether such right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, or (ii) the right to vote pursuant to any agreement, arrangement or understanding (but neither such Person nor any such Affiliate or Associate shall be deemed to be the beneficial owner of any shares of Voting Stock solely by reason of a revocable proxy granted for a particular meeting of stockholders, pursuant to a public solicitation of proxies for such meeting, and with respect to which shares neither such Person nor any such Affiliate or Associate is otherwise deemed the beneficial owner); or
(c)	which are beneficially owned, directly or indirectly within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as may be subsequently amended, by any other Person with which such Person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purposes of acquiring, holding, voting (other than solely by reason of a revocable proxy as described in Subparagraph (b) of this Paragraph 3) or in disposing of any shares of Voting Stock;
	provided, however, that in the case of any employee stock ownership or similar plan of the Corporation or of any Subsidiary in which the beneficiaries thereof possess the right to vote any shares of Voting Stock held by such plan, no such plan nor any trustee with respect thereto (nor any Affiliate of such trustee), solely by reason of such capacity of such trustee, shall be deemed, for any purposes hereof, to beneficially own any shares of Voting Stock held under any such plan.

                    4.          For the purpose of determining whether a Person is an Interested Stockholder pursuant to Section C.2., the number of shares of Voting Stock deemed to be outstanding shall include shares deemed owned through application of Section C.3.  except that it shall not include any shares of Voting Stock which may be issuable pursuant to any agreement, arrangement or understanding, or upon exercise of conversion rights, warrants or options, or otherwise.

                    5.          “Affiliate” and “Associate” shall have the respective meanings ascribed to such terms in Rule 12D-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on June 30, 2007.

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                    6.          “Subsidiary” means any corporation of which a majority of any class of equity security is owned, directly or indirectly, by the Corporation; provided, however, that for the purposes of the definition of Interested Stockholder set forth in Section C.2., the term “Subsidiary” shall mean only a corporation of which a majority of each class of equity security is owned, directly or indirectly, by the Corporation.

                    7.          “Disinterested Director” means any member of the Board of Directors who is unaffiliated with the Interested Stockholder and was a member of the Board of Directors prior to the time that the Interested Stockholder became an Interested Stockholder, and any director who is thereafter chosen to fill any vacancy on the Board of Directors or who is elected and who, in either event, is unaffiliated with the Interested Stockholder, and in connection with his or her initial assumption of office is recommended for appointment or election by a majority of Disinterested Directors then on the Board of Directors.

                    8.          “Fair Market Value” means: (a) in the case of stock, the highest closing sale price of the stock during the 30-day period immediately preceding the date in question of a share of such stock on the Nasdaq Stock Market or any system then in use, or, if such stock is admitted to trading on a principal United States securities exchange registered under the Securities Exchange Act of 1934, Fair Market Value shall be the highest sale price reported during the 30-day period preceding the date in question, or, if no such quotations are available, the Fair Market Value on the date in question of a share of such stock as determined by the Board of Directors in good faith, in each case with respect to any class of stock, appropriately adjusted for any dividend or distribution in shares of such stock or in combination or reclassification of outstanding shares of such stock into a smaller number of shares of such stock, and (b) in the case of property other than cash or stock, the Fair Market Value of such property on the date in question as determined by the Board of Directors in good faith.

                    9.          Reference to “Highest Per Share Price” shall in each case with respect to any class of stock reflect an appropriate adjustment for any dividend or distribution in shares of such stock or any stock split or reclassification of outstanding shares of such stock into a greater number of shares of such stock or any combination or reclassification of outstanding shares of such stock into a smaller number of shares of such stock.

                    10.          In the event of any Business Combination in which the Corporation survives, the phrase “consideration other than cash to be received” as used in Sections B.2.(a) and B.2.(b) of this Article 9 shall include the shares of Common Stock and/or the shares of any other class of outstanding Voting Stock retained by the holders of such shares.

          D.          Construction and Interpretation.  A majority of the Disinterested Directors of the Corporation shall have the power and duty to determine for the purposes of this Article 9, on the basis of information known to them after reasonable inquiry, (a) whether a Person is an Interested Stockholder; (b) the number of shares of Voting Stock beneficially owned by any Person; (c) whether a Person is an Affiliate or Associate of another; and (d) whether the assets which are the subject of any Business Combination have, or the consideration to be received for the issuance or transfer of securities by the Corporation or any Subsidiary in any Business Combination has, an aggregate Fair Market Value equaling or exceeding 25% of the combined

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assets of the Corporation and its Subsidiaries.  A majority of the Disinterested Directors shall have the further power to interpret all of the terms and provisions of this Article 9.

          E.          Fiduciary Duty.  Nothing contained in this Article 9 shall be construed to relieve any Interested Stockholder from any fiduciary obligation imposed by law.

          F.          Maryland Business Combination Statute.  Notwithstanding any contrary provision of law, the provisions of Sections 3-601 through 3-604 of the MGCL, as now and hereafter in force, shall not apply to any “business combination” (as defined in Section 3-601(e) of the MGCL, as now and hereafter in force), of the Corporation.

          ARTICLE 10.  Evaluation of Certain Offers.  The Board of Directors, when evaluating (i) any offer of another Person (as defined in Article 9 hereof) to (A) make a tender or exchange offer for any equity security of the Corporation, (B) merge or consolidate the Corporation with another corporation or entity, or (C) purchase or otherwise acquire all or substantially all of the properties and assets of the Corporation or (ii) any other actual or proposed transaction which would or may involve a change in control of the Corporation (whether by purchases of shares of stock or any other securities of the Corporation in the open market, or otherwise, tender offer, merger, consolidation, share exchange, dissolution, liquidation, sale of all or substantially all of the assets of the Corporation, proxy solicitation or otherwise), may, in connection with the exercise of its business judgment in determining what is in the best interests of the Corporation and its stockholders and in making any recommendation to the Corporation’s stockholders, give due consideration to all relevant factors, including, but not limited to: (A) the economic effect, both immediate and long-term, upon the Corporation’s stockholders, including stockholders, if any, who do not participate in the transaction; (B) the social and economic effect on the present and future employees, creditors and customers of, and others dealing with, the Corporation and its subsidiaries and on the communities in which the Corporation and its subsidiaries operate or are located; (C) whether the proposal is acceptable based on the historical, current or projected future operating results or financial condition of the Corporation; (D) whether a more favorable price could be obtained for the Corporation’s stock or other securities in the future; (E) the reputation and business practices of the other entity to be involved in the transaction and its management and affiliates as they would affect the employees of the Corporation and its subsidiaries; (F) the future value of the stock or any other securities of the Corporation or the other entity to be involved in the proposed transaction; (G) any antitrust or other legal and regulatory issues that are raised by the proposal; (H) the business and historical, current or expected future financial condition or operating results of the other entity to be involved in the transaction, including, but not limited to, debt service and other existing financial obligations, financial obligations to be incurred in connection with the proposed transaction, and other likely financial obligations of the other entity to be involved in the proposed transaction; and (I) the ability of the Corporation to fulfill its objectives as a financial institution holding company and on the ability of its subsidiary financial institution(s) to fulfill the objectives of a federally insured financial institution under applicable statutes and regulations.  If the Board of Directors determines that any proposed transaction of the type described in clause (i) or (ii) of the immediately preceding sentence should be rejected, it may take any lawful action to defeat such transaction, including, but not limited to, any or all of the following: advising stockholders not to accept the proposal; instituting litigation against the party making the proposal; filing complaints with governmental and regulatory authorities; acquiring the stock or any of the securities of the

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Corporation; selling or otherwise issuing authorized but unissued stock, other securities or granting options or rights with respect thereto; acquiring a company to create an antitrust or other regulatory problem for the party making the proposal; and obtaining a more favorable offer from another individual or entity.  This Article 10 does not create any inference concerning factors that may be considered by the Board of Directors regarding any proposed transaction of the type described in clause (i) or (ii) of the first sentence of this Article 10.

          ARTICLE 11.  Indemnification, etc. of Directors and Officers.

          A.          Indemnification.  The Corporation shall indemnify (1) its current and former directors and officers, whether serving the Corporation or at its request any other entity, to the fullest extent required or permitted by the MGCL now or hereafter in force, including the advancement of expenses under the procedures and to the fullest extent permitted by law, and (2) other employees and agents to such extent as shall be authorized by the Board of Directors and permitted by law; provided, however, that, except as provided in Section B hereof with respect to proceedings to enforce rights to indemnification, the Corporation shall indemnify any such indemnitee in connection with a proceeding (or part thereof) initiated by such indemnitee only if such proceeding (or part thereof) was authorized by the Board of Directors of the Corporation.

          B.          Procedure.  If a claim under Section A of this Article 11 is not paid in full by the Corporation within 60 days after a written claim has been received by the Corporation, except in the case of a claim for an advancement of expenses, in which case the applicable period shall be 20 days, the indemnitee may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim.  If successful in whole or in part in any such suit, or in a suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the indemnitee shall also be entitled to be reimbursed the expense of prosecuting or defending such suit.  It shall be a defense to any action for advancement of expenses that the Corporation has not received both (i) an undertaking as required by law to repay such advances in the event it shall ultimately be determined that the standard of conduct has not been met and (ii) a written affirmation by the indemnitee of his good faith belief that the standard of conduct necessary for indemnification by the Corporation has been met.  In (i) any suit brought by the indemnitee to enforce a right to indemnification hereunder (but not in a suit brought by the indemnitee to enforce a right to an advancement of expenses) it shall be a defense that, and (ii) any suit by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking the Corporation shall be entitled to recover such expenses upon a final adjudication that, the indemnitee has not met the applicable standard for indemnification set forth in the MGCL.  Neither the failure of the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such suit that indemnification of the indemnitee is proper in the circumstances because the indemnitee has met the applicable standard of conduct set forth in the MGCL, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the indemnitee has not met such applicable standard of conduct, shall create a presumption that the indemnitee has not met the applicable standard of conduct or, in the case of such a suit brought by the indemnitee, be a defense to such suit.  In any suit brought by the indemnitee to enforce a right to indemnification or to an advancement of expenses hereunder, or by the Corporation to recover an advancement of expenses pursuant to

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the terms of an undertaking, the burden of proving that the indemnitee is not entitled to be indemnified, or to such advancement of expenses, under this Article 11 or otherwise shall be on the Corporation.

          C.          Non-Exclusivity.  The rights to indemnification and to the advancement of expenses conferred in this Article 11 shall not be exclusive of any other right which any Person may have or hereafter acquire under any statute, these Articles, the Corporation’s Bylaws, any agreement, any vote of stockholders or the Board of Directors, or otherwise.

          D.          Insurance.  The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the Corporation would have the power to indemnify such Person against such expense, liability or loss under the MGCL.

          E.          Miscellaneous.  The Corporation shall not be liable for any payment under this Article 11 in connection with a claim made by any indemnitee to the extent such indemnitee has otherwise actually received payment under any insurance policy, agreement, or otherwise, of the amounts otherwise indemnifiable hereunder.  The rights to indemnification and to the advancement of expenses conferred in Sections A and B of this Article 11 shall be contract rights and such rights shall continue as to an indemnitee who has ceased to be a director or officer and shall inure to the benefit of the indemnitee’s heirs, executors and administrators.

          Any repeal or modification of this Article 11 shall not in any way diminish any rights to indemnification or advancement of expenses of such director or officer or the obligations of the Corporation arising hereunder with respect to events occurring, or claims made, while this Article 11 is in force.

          ARTICLE 12.  Limitation of Liability.  An officer or director of the Corporation, as such, shall not be liable to the Corporation or its stockholders for money damages, except (A) to the extent that it is proved that the Person actually received an improper benefit or profit in money, property or services for the amount of the benefit or profit in money, property or services actually received; (B) to the extent that a judgment or other final adjudication adverse to the Person is entered in a proceeding based on a finding in the proceeding that the Person’s action, or failure to act, was the result of active and deliberate dishonesty and was material to the cause of action adjudicated in the proceeding; or (C) to the extent otherwise provided by the MGCL.  If the MGCL is amended to further eliminate or limit the Personal liability of officers and directors, then the liability of officers and directors of the Corporation shall be eliminated or limited to the fullest extent permitted by the MGCL, as so amended.

          Any repeal or modification of the foregoing paragraph by the stockholders of the Corporation shall not adversely affect any right or protection of a director or officer of the Corporation existing at the time of such repeal or modification.

          ARTICLE 13.  Amendment of the Articles of Incorporation.  The Corporation reserves the right to amend or repeal any provision contained in these Articles in the manner prescribed by the MGCL, including any amendment altering the terms or contract rights, as

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expressly set forth in these Articles, of any of the Corporation’s outstanding stock by classification, reclassification or otherwise, and no stockholder approval shall be required if the approval of stockholders is not required for the proposed amendment or repeal by the MGCL, and all rights conferred upon stockholders are granted subject to this reservation.

          The Board of Directors, pursuant to a resolution approved by a majority of the Whole Board (rounded up to the nearest whole number), and without action by the stockholders, may amend these Articles to increase or decrease the aggregate number of shares of stock or the number of shares of stock of any class or series that the Corporation has authority to issue

          No proposed amendment or repeal of any provision of these Articles shall be submitted to a stockholder vote unless the Board of Directors shall have (1) approved the proposed amendment or repeal, (2) determined that it is advisable, and (3) directed that it be submitted for consideration at either an annual or special meeting of the stockholders pursuant to a resolution approved by the Whole Board (rounded up to the nearest whole number). Any proposed amendment or repeal of any provision of these Articles may be abandoned by the Board of Directors at any time before its effective time upon the adoption of a resolution approved by a majority of the Whole Board (rounded up to the nearest whole number).

          The amendment or repeal of any provision of these Articles shall be approved by at least 2/3 of all votes entitled to be cast by the holders of shares of capital stock of the Corporation entitled to vote on the matter (after giving due effect to the provisions of Article 5 of these Articles), except that the proposed amendment or repeal of any provision of these Articles need only be approved by the vote of a majority of all the votes entitled to be cast by the holders of shares of capital stock of the Corporation entitled to vote on the matter (after giving due effect to the provisions of Article 5 of these Articles) if the amendment or repeal of such provision is approved by the Board of Directors pursuant to a resolution approved by at least 2/3 of the members of the Whole Board (rounded up to the nearest whole number).

          Notwithstanding any other provision of these Articles or any provision of law which might otherwise permit a lesser vote or no vote, but in addition to any vote of the holders of any class or series of the stock of the Corporation required by law or by these Articles, the affirmative vote of the holders of at least 80% of the voting power of all of the then-outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors (after giving effect to the provisions of Article 5), voting together as a single class, shall be required to amend or repeal this Article 13, Section C, D or E of Article 5, Article 7, Article 8, Article 9, Article 11 or Article 12.

          ARTICLE 14.  Name and Address of Incorporator. The name and mailing address of the sole incorporator are as follows:

Richard S. Garabedian, Esq.
5335 Wisconsin Ave., N.W. Suite 400
Washington, D.C. 20015

          I, THE UNDERSIGNED, being the incorporator, for the purpose of forming a corporation under the laws of the State of Maryland, do make, file and record this Charter, do

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certify that the facts herein stated are true, and, accordingly, have hereto set my hand this 24th day of September, 2007.

/s/ Richard S. Garabedian

Richard S. Garabedian, Incorporator

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EX-3.2

Exhibit 3.2

BYLAWS
OF
KAISER FEDERAL FINANCIAL GROUP, INC.

ARTICLE I
STOCKHOLDERS

Section 1. Annual Meeting.

          The Corporation shall hold an annual meeting of its stockholders to elect directors and to transact any other business within its powers during the month of October, at such place, on such date, and at such time as the Board of Directors shall fix. Except as provided otherwise by the Corporation’s Articles of Incorporation (“Articles”) or by law, any business may be considered at an annual meeting without the purpose of the meeting having been specified in the notice.  Failure to hold an annual meeting does not invalidate the Corporation’s existence or affect any otherwise valid corporate act.

Section 2. Special Meetings.

          Special meetings of stockholders of the Corporation may be called by the President or by the Board of Directors pursuant to a resolution adopted by a majority of the total number of directors which the Corporation would have if there were no vacancies on the Board of Directors (hereinafter the “Whole Board”).  Special meetings of the stockholders shall be called by the Secretary at the request of stockholders only on the written request of stockholders entitled to cast at least a majority of all the votes entitled to be cast at the meeting.  Such written request shall state the purpose or purposes of the meeting and the matters proposed to be acted upon at the meeting, and shall be delivered at the principal office of the Corporation addressed to the President or the Secretary.  The Secretary shall inform the stockholders who make the request of the reasonably estimated cost of preparing and mailing a notice of the meeting and, upon payment of these costs to the Corporation, notify each stockholder entitled to notice of the meeting.  The Board of Directors shall have the sole power to fix (1) the record date for determining stockholders entitled to request a special meeting of stockholders and the record date for determining stockholders entitled to notice of and to vote at the special meeting and (2) the date, time and place of the special meeting and the means of remote communication, if any, by which stockholders and proxy holders may be considered present in person and may vote at the special meeting.

Section 3. Notice of Meetings; Adjournment.

          Not less than ten nor more than 90 days before each stockholders’ meeting, the Secretary shall give notice in writing or by electronic transmission of the meeting to each stockholder entitled to vote at the meeting and to each other stockholder entitled to notice of the meeting.  The notice shall state the time and place of the meeting, the means of remote communication, if any, by which stockholders and proxy holders may be deemed to be present in person and may vote at the meeting, and, if the meeting is a special meeting or notice of the purpose is required by statute, the purpose of the meeting.  Notice is given to a stockholder when it is personally delivered to the stockholder, left at the stockholder’s usual place of business, mailed to the

stockholder at his or her address as it appears on the records of the Corporation, or transmitted to the stockholder by an electronic transmission to any address or number of the stockholder at which the stockholder receives electronic transmissions.  If the Corporation has received a request from a stockholder that notice not be sent by electronic transmission, the Corporation may not provide notice to the stockholder by electronic transmission.  Notwithstanding the foregoing provisions, each person who is entitled to notice waives notice if such person, before or after the meeting, delivers a written waiver or waiver by electronic transmission which is filed with the records of the stockholders’ meetings, or is present at the meeting in person or by proxy.

          A meeting of stockholders convened on the date for which it was called may be adjourned from time to time without further notice to a date not more than 120 days after the original record date.  At any adjourned meeting, any business may be transacted which might have been transacted at the original meeting.

          As used in these Bylaws, the term “electronic transmission” shall have the meaning given to such term by Section 1-101(k-1) of the Maryland General Corporation Law (the “MGCL”) or any successor provision.

Section 4. Quorum.

          At any meeting of the stockholders, the holders of at least a majority of all of the shares of the stock entitled to vote at the meeting, present in person or by proxy (after giving effect for the provisions of Article 5.D of the Articles), shall constitute a quorum for all purposes, unless or except to the extent that the presence of a larger number may be required by law.  Unless the Articles of the Corporation provide otherwise, where a separate vote by a class or classes is required, a majority of the shares of such class or classes, present in person or represented by proxy, shall constitute a quorum entitled to take action with respect to that vote on that matter.

          If a quorum shall fail to attend any meeting, the chairman of the meeting or the holders of a majority of the shares of stock who are present at the meeting, in person or by proxy, may, in accordance with Section 3 of this Article I, adjourn the meeting to another place, date or time.

Section 5. Organization and Conduct of Business.

          Such person as the Board of Directors may have designated or, in the absence of such a person, the President of the Corporation or, in his or her absence, such person as may be chosen by the holders of a majority of the shares entitled to vote at the meeting who are present, in person or by proxy (after giving effect to the provisions of Article 5.D. of the Articles), shall call to order any meeting of the stockholders and act as chairman of the meeting.  In the absence of the Secretary of the Corporation, the secretary of the meeting shall be such person as the chairman appoints.  The chairman of any meeting of stockholders shall determine the order of business and the procedure at the meeting, including such regulation of the manner of voting and the conduct of discussion as seem to him or her in order.

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Section 6. Advance Notice Provisions for Business to be Transacted at Annual Meetings and Elections of Directors.

          (a)          At any annual meeting of the stockholders, only such business shall be conducted as shall have been brought before the meeting (i) as specified in the Corporation’s notice of the meeting, (ii) by or at the direction of the Board of Directors or (iii) by any stockholder of the Corporation who (1) is a stockholder of record on the date of giving the notice provided for in this Section 6(a) and on the record date for the determination of stockholders entitled to vote at such annual meeting, and (2) complies with the notice procedures set forth in this Section 6(a).  For business to be properly brought before an annual meeting by a stockholder pursuant to clause (iii) of the immediately preceding sentence, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation and such business must otherwise be a proper matter for action by stockholders.

          To be timely, a stockholder’s notice must be delivered or mailed to and received by the Secretary at the principal executive office of the Corporation by not later than the close of business on the 90^th day prior to the anniversary date of the date of the proxy statement relating to the preceding year’s annual meeting and not earlier than the close of business on the 120^th day prior to the anniversary date of the date of the proxy statement relating to the preceding year’s annual meeting; provided, however, that in the event the annual meeting is the first annual meeting of stockholders of the Corporation, notice by the stockholder to be timely must be so received by not later than the close of business on the 90^th day prior to the first anniversary of the date of the last annual meeting of stockholders of K-Fed Bancorp, a federal corporation, and not earlier than the close of business on the 120^th day prior to the first anniversary of the date of the last annual meeting of stockholders of K-Fed Bancorp, a federal corporation; provided, further, that in the event that the date of the annual meeting is advanced by more than 20 days, or delayed by more than 60 days, from the anniversary date of the preceding year’s annual meeting, notice by the stockholder to be timely must be so received not earlier than the close of business on the 120^th day prior to the date of such annual meeting and not later than the close of business on the later of (A) the 90^th day prior to the date of such annual meeting or (B) the tenth day following the first to occur of (i) the day on which notice of the date of the annual meeting was mailed or otherwise transmitted or (ii) the day on which public announcement of the date of the annual meeting was first made by the Corporation.  No adjournment or postponement of a meeting of stockholders shall commence a new period for the giving of notice hereunder.

          A stockholder’s notice to the Secretary must set forth as to each matter such stockholder proposes to bring before the annual meeting: (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting; (ii) the name and address of such stockholder as they appear on the Corporation’s books and of the beneficial owner, if any, on whose behalf the proposal is made; (iii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by such stockholder and such beneficial owner; (iv) a description of all arrangements or understandings between such stockholder and any other person or persons (including their names) in connection with the proposal of such business by such stockholder and any material interest of such stockholder in such business; and (v) a representation that such stockholder intends to appear in person or by proxy at the annual meeting to bring such business before the meeting.

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          Notwithstanding anything in these Bylaws to the contrary, no business shall be brought before or conducted at an annual meeting except in accordance with the provisions of this Section 6(a).  The officer of the Corporation or other person presiding over the annual meeting shall, if the facts so warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Section 6(a) and, if he or she should so determine, he or she shall so declare to the meeting and any such business so determined to be not properly brought before the meeting shall not be transacted.

          At any special meeting of the stockholders, only such business shall be conducted as shall have been brought before the meeting pursuant to the Corporation’s notice of the meeting.

          (b)          Only persons who are nominated in accordance with the following procedures shall be eligible for election as directors of the Corporation.  Nominations of persons for election to the Board of Directors of the Corporation may be made at a meeting of stockholders at which directors are to be elected only (i) by or at the direction of the Board of Directors or (ii) by any stockholder of the Corporation who (1) is a stockholder of record on the date of giving the notice provided for in this Section 6(b) and on the record date for the determination of stockholders entitled to vote at such meeting, and (2) complies with the notice procedures set forth in this Section 6(b).  Such nominations, other than those made by or at the direction of the Board of Directors, shall be made by timely notice in writing to the Secretary of the Corporation.  To be timely, a stockholder’s notice shall be delivered or mailed to and received by the Secretary at the principal executive office of the Corporation by not later than the close of business on the 90th day prior to the anniversary date of the date of the proxy statement relating to the preceding year’s annual meeting and not earlier than the close of business on the 120^th day prior to the anniversary date of the date of the proxy statement relating to the preceding year’s annual meeting; provided, however, that in the event the annual meeting is the first annual meeting of stockholders of the Corporation, notice by the stockholder to be timely must be so received by not later than the close of business on the 90^th day prior to the first anniversary of the date of the last annual meeting of stockholders of K-Fed Bancorp, a federal corporation, and not earlier than the close of business on the 120^th day prior to the first anniversary of the date of the last annual meeting of stockholders of K-Fed Bancorp, a federal corporation; provided, further, that in the event that the date of the annual meeting is advanced by more than 20 days, or delayed by more than 60 days, from the anniversary date of the preceding year’s annual meeting, notice by the stockholder to be timely must be so received not earlier than the close of business on the 120^th day prior to the date of such annual meeting and not later than the close of business on the later of (A) the 90^th day prior to the date of such annual meeting or (B) the tenth day following the first to occur of (i) the day on which notice of the date of the annual meeting was mailed or otherwise transmitted or (ii) the day on which public announcement of the date of the annual meeting was first made by the Corporation.  No adjournment or postponement of a meeting of stockholders shall commence a new period for the giving of notice hereunder.

          A stockholder’s notice must be in writing and set forth (a) as to each person whom the stockholder proposes to nominate for election as a director, all information relating to such person that is required to be disclosed in connection with solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or any successor rule or regulation; and (b) as to the stockholder giving the notice: (i) the name and address of such stockholder as

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they appear on the Corporation’s books and of the beneficial owner, if any, on whose behalf the nomination is made; (ii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by such stockholder and such beneficial owner; (iii) a description of all arrangements or understandings between such stockholder and each proposed nominee and any other person or persons (including their names) pursuant to which the nomination(s) are to be made by such stockholder; (iv) a representation that such stockholder intends to appear in person or by proxy at the meeting to nominate the persons named in its notice; and (v) any other information relating to such stockholder that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Regulation 14A under the Exchange Act or any successor rule or regulation.  Such notice must be accompanied by a written consent of each proposed nominee to be named as a nominee and to serve as a director if elected.  No person shall be eligible for election as a director of the Corporation unless nominated in accordance with the provisions of this Section 6(b).  The officer of the Corporation or other person presiding at the meeting shall, if the facts so warrant, determine that a nomination was not made in accordance with such provisions and, if he or she should so determine, he or she shall so declare to the meeting and the defective nomination shall be disregarded.

          (c)          For purposes of subsections (a) and (b) of this Section 6, the term “public announcement” shall mean disclosure (i) in a press release reported by a nationally recognized news service, (ii) in a document publicly filed or furnished by the Corporation with the U.S. Securities and Exchange Commission or (iii) on a website maintained by the Corporation.

Section 7. Proxies and Voting.

          Unless the Articles of the Corporation provide for a greater or lesser number of votes per share or limits or denies voting rights, each outstanding share of stock, regardless of class, is entitled to one vote on each matter submitted to a vote at a meeting of stockholders; however, a share is not entitled to be voted if any installment payable on it is overdue and unpaid.  In all elections for directors, directors shall be determined by a plurality of the votes cast, and except as otherwise required by law or as provided in the Articles of the Corporation, all other matters voted on by stockholders shall be determined by a majority of the votes cast on the matter.

          A stockholder may vote the stock the stockholder owns of record either in person or by proxy.  A stockholder may sign a writing authorizing another person to act as proxy.  Signing may be accomplished by the stockholder or the stockholder’s authorized agent signing the writing or causing the stockholder’s signature to be affixed to the writing by any reasonable means, including facsimile signature.  A stockholder may authorize another person to act as proxy by transmitting, or authorizing the transmission of, an authorization for the person to act as the proxy to the person authorized to act as proxy or to any other person authorized to receive the proxy authorization on behalf of the person authorized to act as the proxy, including a proxy solicitation firm or proxy support service organization.  The authorization may be transmitted by a telegram, cablegram, datagram, electronic mail or any other electronic or telephonic means.  Unless a proxy provides otherwise, it is not valid more than 11 months after its date.  A proxy is revocable by a stockholder at any time without condition or qualification unless the proxy states that it is irrevocable and the proxy is coupled with an interest.  A proxy may be made irrevocable for as long as it is coupled with an interest.  The interest with which a proxy may be coupled

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includes an interest in the stock to be voted under the proxy or another general interest in the Corporation or its assets or liabilities.

Section 8. Consent of Stockholders in Lieu of Meeting.

          Except as provided in the following sentence, any action required or permitted to be taken at a meeting of stockholders may be taken without a meeting if a unanimous consent which sets forth the action is given in writing or by electronic transmission by each stockholder entitled to vote on the matter and is filed in paper or electronic format with the records of stockholder meetings.  Unless the Articles of the Corporation require otherwise, the holders of any class of the Corporation’s stock other than common stock, entitled to vote generally in the election of directors, may take action or consent to any action by delivering a consent in writing or by electronic transmission of the stockholders entitled to cast not less than the minimum number of votes that would be necessary to authorize or take the action at a meeting of the stockholders if the Corporation gives notice of the action so taken to each stockholder not later than ten days after the effective time of the action.

Section 9. Conduct of Voting

          The Board of Directors shall, in advance of any meeting of stockholders, appoint one or more persons as inspectors of election, to act at the meeting or any adjournment thereof and make a written report thereof, in accordance with applicable law.  At all meetings of stockholders, the proxies and ballots shall be received, and all questions relating to the qualification of voters and the validity of proxies and the acceptance or rejection of votes shall be decided or determined by the inspector of elections.  All voting, including on the election of directors but excepting where otherwise required by law, may be by a voice vote; provided, however, that upon demand therefor by a stockholder entitled to vote or his or her proxy or the chairman of the meeting, a written vote shall be taken.  Every written vote shall be taken by ballot, each of which shall state the name of the stockholder or proxy voting and such other information as may be required under the procedure established for the meeting.  Every vote taken by ballot shall be counted by an inspector or inspectors appointed by the chairman of the meeting.  No candidate for election as a director at a meeting shall serve as an inspector at such meeting.

Section 10. Control Share Acquisition Act.

          Notwithstanding any other provision of the Articles of the Corporation or these Bylaws, Title 3, Subtitle 7 of the MGCL (or any successor statute) shall not apply to any acquisition by any person of shares of stock of the Corporation.  This Section 10 may be repealed, in whole or in part, at any time, whether before or after an acquisition of Control Shares (as defined in Section 3-701(d) of the MGCL, or any successor provision) and, upon such repeal, may, to the extent provided by any successor bylaw, apply to any prior or subsequent Control Share Acquisition (as defined in Section 3-701(d) of the MGCL, or any successor provision).

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ARTICLE II
BOARD OF DIRECTORS

Section 1. General Powers, Number and Term of Office.

          The business and affairs of the Corporation shall be managed under the direction of the Board of Directors.  The number of directors of the Corporation shall, by virtue of the Corporation’s election made hereby to be governed by Section 3-804(b) of the MGCL, be fixed from time to time exclusively by vote of the Board of Directors; provided, however, that such number shall never be less than the minimum number of directors required by the MGCL now or hereafter in force.  The Board of Directors shall annually elect a Chairman of the Board and a President from among its members and shall designate, when present, either the Chairman of the Board or the President to preside at its meetings.

          The directors, other than those who may be elected by the holders of any series of preferred stock, shall be divided into three classes, as nearly equal in number as reasonably possible, with the term of office of the first class to expire at the first annual meeting of stockholders, the term of office of the second class to expire at the annual meeting of stockholders one year thereafter and the term of office of the third class to expire at the annual meeting of stockholders two years thereafter, with each director to hold office until his or her successor shall have been duly elected and qualified.  At each annual meeting of stockholders, commencing with the first annual meeting, directors elected to succeed those directors whose terms expire shall be elected for a term of office to expire at the third succeeding annual meeting of stockholders after their election or for such shorter period of time as the Board of Directors may determine, with each director to hold office until his or her successor shall have been duly elected and qualified.

Section 2. Vacancies and Newly Created Directorships.

          By virtue of the Corporation’s election made hereby to be subject to Section 3-804(c) of the MGCL, any vacancies in the Board of Directors resulting from an increase in the size of the Board of Directors or the death, resignation or removal of a director may be filled only by the affirmative vote of a majority of the remaining directors in office, even if the remaining directors do not constitute a quorum, and any director elected to fill a vacancy shall hold office for the remainder of the full term of the class of directors in which the vacancy occurred and until a successor is elected and qualifies.  No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director.

Section 3. Regular Meetings.

          Regular meetings of the Board of Directors shall be held at such place or places or by means of remote communication, on such date or dates, and at such time or times as shall have been established by the Board of Directors and publicized among all directors.  A notice of each regular meeting shall not be required.  Any regular meeting of the Board of Directors may adjourn from time to time to reconvene at the same or some other place, and no notice need be given of any such adjourned meeting other than by announcement.

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Section 4. Special Meetings.

          Special meetings of the Board of Directors may be called by one-third (1/3) of the directors then in office (rounded up to the nearest whole number) or by the President and shall be held at such place or by means of remote communication, on such date, and at such time as they or he or she shall fix.  Notice of the place, date, and time of each such special meeting shall be given to each director who has not waived notice by mailing and post-marking written notice not less than five days before the meeting, or by facsimile or other electronic transmission of the same not less than 24 hours before the meeting.  Any director may waive notice of any special meeting, either before or after such meeting, by delivering a written waiver or a waiver by electronic transmission that is filed with the records of the meeting.  Attendance of a director at a special meeting shall constitute a waiver of notice of such meeting, except where the director attends the meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened.  Neither the business to be transacted at nor the purpose of any special meeting of the Board of Directors need be specified in the notice of such meeting.  Any special meeting of the Board of Directors may adjourn from time to time to reconvene at the same or some other place, and no notice need be given of any such adjourned meeting other than by announcement.

Section 5. Quorum.

          At any meeting of the Board of Directors, a majority of the authorized number of directors then constituting the Board shall constitute a quorum for all purposes.  If a quorum shall fail to attend any meeting, a majority of those present may adjourn the meeting to another place, date, or time, without further notice or waiver thereof.

Section 6. Participation in Meetings By Conference Telephone.

          Members of the Board of Directors, or of any committee thereof, may participate in a meeting of such Board or committee by means of a conference telephone or other communications equipment if all persons participating in the meeting can hear each other at the same time.  Such participation shall constitute presence in person at such meeting.

Section 7. Action without a Meeting.

          Action may be taken by the Board of Directors without a meeting if a unanimous consent which sets forth the action is given in writing or by electronic transmission by each member of the Board of Directors and filed in paper or electronic form with the minutes of proceedings of the Board of Directors.

Section 8. Conduct of Business.

          At any meeting of the Board of Directors, business shall be transacted in such order and manner as the Board may from time to time determine, and all matters shall be determined by the vote of a majority of the directors present, except as otherwise provided in these Bylaws, the Corporation’s Articles or required by law. 

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Section 9. Powers.

          All powers of the Corporation may be exercised by or under the authority of the Board of Directors except as conferred on or reserved to the stockholders by law or by the Corporation’s Articles or these Bylaws.  Consistent with the foregoing, the Board of Directors shall have, among other powers, the unqualified power:

(i)	To declare dividends from time to time in accordance with law;
(ii)	To purchase or otherwise acquire any property, rights or privileges on such terms as it shall determine;
(iii)	To authorize the creation, making and issuance, in such form as it may determine, of written obligations of every kind, negotiable or non-negotiable, secured or unsecured, and to do all things necessary in connection therewith;
(iv)	To remove any officer of the Corporation with or without cause, and from time to time to devolve the powers and duties of any officer upon any other person for the time being;
(v)	To confer upon any officer of the Corporation the power to appoint, remove and suspend subordinate officers, employees and agents;
(vi)	To adopt from time to time such stock, option, stock purchase, bonus or other compensation plans for directors, officers, employees and agents of the Corporation and its subsidiaries as it may determine;
(vii)	To adopt from time to time such insurance, retirement, and other benefit plans for directors, officers, employees and agents of the Corporation and its subsidiaries as it may determine; and
(viii)	To adopt from time to time regulations, not inconsistent with these Bylaws, for the management of the Corporation’s business and affairs.

Section 10. Compensation of Directors.

          Directors, as such, may receive, pursuant to resolution of the Board of Directors, fixed fees and other compensation for their services as directors, including, without limitation, their services as members of committees of the Board of Directors.

Section 11. Resignation.

          Any director may resign at any time by giving written notice of such resignation to the President or the Secretary at the principal office of the Corporation.  Unless otherwise specified therein, such resignation shall take effect upon receipt thereof.

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Section 12. Presumption of Assent.

          A director of the Corporation who is present at a meeting of the Board of Directors at which action on any corporate matter is taken shall be presumed to have assented to such action unless such director announces his dissent at the meeting and (a) such director’s dissent is entered in the minutes of the meeting, (b) such director files his written dissent to such action with the secretary of the meeting before the adjournment thereof, or (c) such director forwards his written dissent within 24 hours after the meeting is adjourned, by certified mail, return receipt requested, bearing a postmark from the United States Postal Service, to the secretary of the meeting or the Secretary of the Corporation.  Such right to dissent shall not apply to a director who voted in favor of such action or failed to make his dissent known at the meeting.

Section 13. Qualifications.

          Any person appointed or elected to the Board of Directors shall reside, or work, in California (at the time of appointment/election).

Section 14. Attendance at Board Meetings.

          The Board of Directors shall have the right to remove any director from the board upon a director’s unexcused absence of three consecutive regularly scheduled meetings of the Board of Directors.

ARTICLE III
COMMITTEES

Section 1. Committees of the Board of Directors.

          The Board of Directors may appoint from among its members an Executive Committee and other committees composed of one or more directors and delegate to these committees any of the powers of the Board of Directors, except the power to authorize dividends on stock (except as provided in Section 2-309(c) of the MGCL), issue stock other than as provided in the next sentence, recommend to the stockholders any action which requires stockholder approval, amend these Bylaws, or approve any merger or share exchange which does not require stockholder approval.  If the Board of Directors has given general authorization for the issuance of stock providing for or establishing a method or procedure for determining the maximum number of shares to be issued, a committee of the Board of Directors, in accordance with that general authorization or any stock option or other plan or program adopted by the Board of Directors, may authorize or fix the terms of stock subject to classification or reclassification and the terms on which any stock may be issued, including all terms and conditions required or permitted to be established or authorized by the Board of Directors under Sections 2-203 and 2-208 of the MGCL.  Any committee so designated may exercise the power and authority of the Board of Directors if the resolution which designated the committee or a supplemental resolution of the Board of Directors shall so provide.

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Section 2. Conduct of Business.

          Each committee may determine the procedural rules for meeting and conducting its business and shall act in accordance therewith, except as otherwise provided herein or required by law.  Adequate provision shall be made for notice to members of all meetings; one-third of the members shall constitute a quorum unless the committee shall consist of one or two members, in which event one member shall constitute a quorum; and all matters shall be determined by a majority vote of the members present.  Action may be taken by any committee without a meeting if a unanimous consent which sets forth the action is given in writing or by electronic transmission by each member of the committee and filed in paper or electronic form with the minutes of the proceedings of such committee.  The members of any committee may conduct any meeting thereof by conference telephone or other communications equipment in accordance with the provisions of Section 6 of Article II.

Section 3. Nominating Committee.

          The Board of Directors may appoint a Nominating Committee of the Board, consisting of at least three members.  The Nominating Committee shall have authority (i) to review any nominations for election to the Board of Directors made by a stockholder of the Corporation pursuant to Section 6(b) of Article I of these Bylaws in order to determine compliance with such Bylaw and (ii) to recommend to the Whole Board nominees for election to the Board of Directors to replace those directors whose terms expire at the annual meeting of stockholders next ensuing.

ARTICLE IV
OFFICERS

Section 1. Generally.

          (a)          The Board of Directors as soon as may be practicable after the annual meeting of stockholders shall choose a Chairman of the Board, President, one or more Vice Presidents, a Secretary and a Treasurer and from time to time may choose such other officers as it may deem proper.  Any number of offices may be held by the same person, except that no person may concurrently serve as both President and Vice President of the Corporation.

          (b)          The term of office of all officers shall be until the next annual election of officers and until their respective successors are chosen, but any officer may be removed from office at any time by the affirmative vote of a majority of the authorized number of directors then constituting the Board of Directors.

          (c)          All officers chosen by the Board of Directors shall each have such powers and duties as generally pertain to their respective offices, subject to the specific provisions of this Article IV.  Such officers shall also have such powers and duties as from time to time may be conferred by the Board of Directors or by any committee thereof.

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Section 2. Chairman of the Board of Directors.

          The Chairman of the Board of Directors of the Corporation shall act in a general executive capacity and, subject to the direction of the Board of Directors, shall have general responsibility for the supervision of the policies and affairs of the Corporation and the effective administration of the Corporation’s business.

Section 3. President.

          The President shall be the chief executive officer and, subject to the control of the Board of Directors, shall have general power over the management and oversight of the administration and operation of the Corporation’s business and general supervisory power and authority over its policies and affairs.  The President shall see that all orders and resolutions of the Board of Directors and of any committee thereof are carried into effect.

Section 4. Vice President.

          The Vice President or Vice Presidents, if any, shall perform the duties of the President in the President’s absence or during his or her disability to act.  In addition, the Vice Presidents shall perform the duties and exercise the powers usually incident to their respective offices and/or such other duties and powers as may be properly assigned to them from time to time by the Board of Directors, the Chairman of the Board or the President.

Section 5. Secretary.

          The Secretary or an Assistant Secretary shall issue notices of meetings, shall keep their minutes, shall have charge of the seal and the corporate books, shall perform such other duties and exercise such other powers as are usually incident to such offices and/or such other duties and powers as are properly assigned thereto by the Board of Directors, the Chairman of the Board or the President.

Section 6. Treasurer.

          The Treasurer shall have charge of all monies and securities of the Corporation, other than monies and securities of any division of the Corporation which has a treasurer or financial officer appointed by the Board of Directors, and shall keep regular books of account.  The funds of the Corporation shall be deposited in the name of the Corporation by the Treasurer with such banks or trust companies or other entities as the Board of Directors from time to time shall designate.  The Treasurer shall sign or countersign such instruments as require his or her signature, shall perform all such duties and have all such powers as are usually incident to such office and/or such other duties and powers as are properly assigned to him or her by the Board of Directors, the Chairman of the Board or the President, and may be required to give bond for the faithful performance of his or her duties in such sum and with such surety as may be required by the Board of Directors.

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Section 7. Assistant Secretaries and Other Officers.

          The Board of Directors may appoint one or more assistant secretaries and one or more assistants to the Treasurer, or one appointee to both such positions, which officers shall have such powers and shall perform such duties as are provided in these Bylaws or as may be assigned to them by the Board of Directors, the Chairman of the Board or the President.

Section 8. Action with Respect to Securities of Other Corporations

          Stock of other corporations or associations, registered in the name of the Corporation, may be voted by the President, a Vice-President, or a proxy appointed by either of them.  The Board of Directors, however, may by resolution appoint some other person to vote such shares, in which case such person shall be entitled to vote such shares upon the production of a certified copy of such resolution.

ARTICLE V
STOCK

Section 1. Certificates of Stock.

          The Board of Directors may determine to issue certificated or uncertificated shares of capital stock and other securities of the Corporation.  For certificated stock, each stockholder is entitled to certificates which represent and certify the shares of stock he or she holds in the Corporation.  Each stock certificate shall include on its face the name of the Corporation, the name of the stockholder or other person to whom it is issued, and the class of stock and number of shares it represents.  It shall also include on its face or back (a) a statement of any restrictions on transferability and a statement of the designations and any preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications, and terms and conditions of redemption of the stock of each class which the Corporation is authorized to issue, of the differences in the relative rights and preferences between the shares of each series of preferred stock which the Corporation is authorized to issue, to the extent they have been set, and of the authority of the Board of Directors to set the relative rights and preferences of subsequent series of preferred stock or (b) a statement which provides in substance that the Corporation will furnish a full statement of such information to any stockholder on request and without charge.  Such request may be made to the Secretary or to the Corporation’s transfer agent.  Upon the issuance of uncertificated shares of capital stock, the Corporation shall send the stockholder a written statement of the same information required above on stock certificates.  Each stock certificate shall be in such form, not inconsistent with law or with the Corporation’s Articles, as shall be approved by the Board of Directors or any officer or officers designated for such purpose by resolution of the Board of Directors.  Each stock certificate shall be signed by the Chairman of the Board, the President, or a Vice-President, and countersigned by the Secretary, an Assistant Secretary, the Treasurer, or an Assistant Treasurer.  Each certificate may be sealed with the actual corporate seal or a facsimile of it or in any other form and the signatures may be either manual or facsimile signatures.  A certificate is valid and may be issued whether or not an officer who signed it is still an officer when it is issued.  A certificate may not be issued until the stock represented by it is fully paid.

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Section 2. Transfers of Stock.

          Transfers of stock shall be made only upon the transfer books of the Corporation kept at an office of the Corporation or by transfer agents designated to transfer shares of the stock of the Corporation.  Except where a certificate is issued in accordance with Section 4 of Article V of these Bylaws, an outstanding certificate for the number of shares involved shall be surrendered for cancellation before a new certificate is issued therefor.

Section 3. Record Dates or Closing of Transfer Books.

          The Board of Directors may, and shall have the power to, set a record date or direct that the stock transfer books be closed for a stated period for the purpose of making any proper determination with respect to stockholders, including which stockholders are entitled to notice of a meeting, vote at a meeting, receive a dividend, or be allotted other rights.  The record date may not be prior to the close of business on the day the record date is fixed nor, subject to Section 3 of Article I, more than 90 days before the date on which the action requiring the determination will be taken; the transfer books may not be closed for a period longer than 20 days; and, in the case of a meeting of stockholders, the record date or the closing of the transfer books shall be at least ten days before the date of the meeting.  Any shares of the Corporation’s own stock acquired by the Corporation between the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders and the time of the meeting may be voted at the meeting by the holder of record as of the record date and shall be counted in determining the total number of outstanding shares entitled to be voted at the meeting.

Section 4. Lost, Stolen or Destroyed Certificates.

          The Board of Directors of the Corporation may determine the conditions for issuing a new stock certificate in place of one which is alleged to have been lost, stolen, or destroyed, or the Board of Directors may delegate such power to any officer or officers of the Corporation.  In their discretion, the Board of Directors or such officer or officers may require the owner of the certificate to give a bond, with sufficient surety, to indemnify the Corporation against any loss or claim arising as a result of the issuance of a new certificate.  In their discretion, the Board of Directors or such officer or officers may refuse to issue such new certificate without the order of a court having jurisdiction over the matter.

Section 5. Stock Ledger.

          The Corporation shall maintain a stock ledger which contains the name and address of each stockholder and the number of shares of stock of each class which the stockholder holds.  The stock ledger may be in written form or in any other form which can be converted within a reasonable time into written form for visual inspection.  The original or a duplicate of the stock ledger shall be kept at the offices of a transfer agent for the particular class of stock or, if none, at the principal executive office of the Corporation.

Section 6. Regulations.

          The issue, transfer, conversion and registration of certificates of stock shall be governed by such other regulations as the Board of Directors may establish.

14

ARTICLE VI
MISCELLANEOUS

Section 1. Facsimile Signatures.

          In addition to the provisions for use of facsimile signatures elsewhere specifically authorized in these Bylaws, facsimile signatures of any officer or officers of the Corporation may be used whenever and as authorized by the Board of Directors or a committee thereof.

Section 2. Corporate Seal.

          The Board of Directors may provide a suitable seal, bearing the name of the Corporation, which shall be in the charge of the Secretary.  The Board of Directors may authorize one or more duplicate seals and provide for the custody thereof.  If the Corporation is required to place its corporate seal to a document, it is sufficient to meet the requirement of any law, rule, or regulation relating to a corporate seal to place the word “(seal)” adjacent to the signature of the person authorized to sign the document on behalf of the Corporation.

Section 3. Books and Records.

          The Corporation shall keep correct and complete books and records of its accounts and transactions and minutes of the proceedings of its stockholders and Board of Directors and of any committee when exercising any of the powers of the Board of Directors.  The books and records of the Corporation may be in written form or in any other form which can be converted within a reasonable time into written form for visual inspection.  Minutes shall be recorded in written form but may be maintained in the form of a reproduction.  The original or a certified copy of these Bylaws shall be kept at the principal office of the Corporation.

Section 4. Reliance upon Books, Reports and Records.

          Each director, each member of any committee designated by the Board of Directors, and each officer and agent of the Corporation shall, in the performance of his or her duties, in addition to any protections conferred upon him or her by law, be fully protected in relying in good faith upon the books of account or other records of the Corporation and upon such information, opinions, reports or statements presented to the Corporation by any of its officers or employees, or committees of the Board of Directors so designated, or by any other person as to matters which such director, committee member, officer or agent reasonably believes are within such other person’s professional or expert competence and who has been selected with reasonable care by or on behalf of the Corporation.

Section 5. Fiscal Year.

          The fiscal year of the Corporation shall be as fixed by the Board of Directors.

Section 6. Time Periods.

          In applying any provision of these Bylaws which requires that an act be done or not be done a specified number of days prior to an event or that an act be done during a period of a

15

specified number of days prior to an event, calendar days shall be used, the day of the doing of the act shall be excluded and the day of the event shall be included.

Section 7. Checks, Drafts, Etc.

          All checks, drafts and orders for the payment of money, notes and other evidences of indebtedness, issued in the name of the Corporation, shall, unless otherwise provided by resolution of the Board of Directors, be signed by the President, a Vice-President, an Assistant Vice-President, the Treasurer or an Assistant Treasurer.

Section 8. Mail.

          Any notice or other document which is required by these Bylaws to be mailed shall be deposited in the United States mail, postage prepaid.

Section 9. Contracts and Agreements.

          To the extent permitted by applicable law, and except as otherwise prescribed by the Articles or these Bylaws, the Board of Directors may authorize any officer, employee or agent of the Corporation to enter into any contract or execute and deliver any instrument in the name of and on behalf of the Corporation.  Such authority may be general or confined to specific instances.  A person who holds more than one office in the Corporation may not act in more than one capacity to execute, acknowledge, or verify an instrument required by law to be executed, acknowledged, or verified by more than one officer.

ARTICLE VIII
AMENDMENTS

          These Bylaws may be adopted, amended or repealed as provided in the Articles of the Corporation.

16

EX-4

Exhibit 4

INCORPORATED UNDER THE LAWS OF THE STATE OF MARYLAND

No. KAISER FEDERAL FINANCIAL GROUP, INC. Shares

CUSIP:  _________

FULLY PAID AND NON-ASSESSABLE
PAR VALUE $0.01 EACH

	THE SHARES REPRESENTED BY THIS
	CERTIFICATE ARE SUBJECT TO
	RESTRICTIONS, SEE REVERSE SIDE
THIS CERTIFIES that	is the owner of

SHARES OF COMMON STOCK

Kaiser Federal Financial Group, Inc.
a Maryland corporation

          The shares evidenced by this certificate are transferable only on the books of Kaiser Federal Financial Group, Inc. by the holder hereof, in person or by attorney, upon surrender of this certificate properly endorsed.  The capital stock evidenced hereby is not an account of an insurable type and is not insured by the Federal Deposit Insurance Corporation or any other Federal or state governmental agency.

          IN WITNESS WHEREOF, Kaiser Federal Financial Group, Inc. has caused this certificate to be executed by the facsimile signatures of its duly authorized officers and has caused a facsimile of its seal to be hereunto affixed.

By		[SEAL]	By
	RITA H. ZWERN			KAY M. HOVELAND
	CORPORATE SECRETARY			PRESIDENT AND CHIEF EXECUTIVE OFFICER

          The Board of Directors of Kaiser Federal Financial Group, Inc. (the “Company”) is authorized by resolution or resolutions, from time to time adopted, to provide for the issuance of more than one class of stock, including preferred stock in series, and to fix and state the voting powers, designations, preferences, limitations and restrictions thereof.  The Company will furnish to any shareholder upon request and without charge a full description of each class of stock and any series thereof.

          The shares evidenced by this Certificate are subject to a limitation contained in the Articles of Incorporation that in no event shall any record owner of any outstanding common stock which is beneficially owned, directly or indirectly, by a person who, as of any record date for the determination of stockholders entitled to vote on any matter, beneficially owns in excess of 10% of the then outstanding shares of common stock (the “Limit”), be entitled, or permitted to any vote in respect of the shares held in excess of the Limit.

          The Articles of Incorporation require that, with limited exceptions, no amendment, addition, alteration, change or repeal of the Articles of Incorporation shall be made, unless such is first approved by the Board of Directors of the Company and approved by at least 2/3 of all votes entitled to be cast by the stockholders, or in certain circumstances approved by the affirmative vote of eighty percent (80%) of the shares entitled to vote.

          The following abbreviations when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations.

TEN COM	- as  tenants in common	UNIF GIFT MIN ACT	- _____________ Custodian _____________
			(Cust)	(Minor)
TEN ENT	- as tenants by the entireties
			Under Uniform Gifts to Minors Act
JT TEN	- as joint tenants with right of survivorship and not as tenants in common		____________________________________________________
			(State)

Additional abbreviations may also be used though not in the above list

For value received, _______________                                                          hereby sell, assign and transfer unto

PLEASE INSERT SOCIAL SECURITY NUMBER OR OTHER IDENTIFYING NUMBER

____________________________________________________________________________________________________________

(please print or typewrite name and address including postal zip code of assignee)

____________________________________________________________________________________________________________

_______________________________________________________________________________________________ Shares of the Common Stock represented by the within Certificate, and do hereby irrevocably constitute and appoint __________________________________________________________________________ Attorney to transfer the said shares on the books of the within named corporation with full power of substitution in the premises.

Dated, __________________________
In the presence of	Signature:

NOTE:  THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME OF THE STOCKHOLDER(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE, IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATSOEVER.

EX-5

Exhibit 5

LUSE GORMAN POMERENK & SCHICK
A PROFESSIONAL CORPORATION
ATTORNEYS AT LAW

5335 WISCONSIN AVENUE, N.W., SUITE 400

WASHINGTON, D.C. 20015

TELEPHONE (202) 274-2000

FACSIMILE (202) 362-2902

www.LuseLaw.com

(202) 274-2000

September 26, 2007

The Board of Directors
Kaiser Federal Financial Group, Inc.
1359 North Grand Avenue,
Covina, California 91724

Re:	Kaiser Federal Financial Group, Inc.
	Common Stock, Par Value $0.01 Per Share

Ladies and Gentlemen:

          You have requested the opinion of this firm as to certain matters in connection with the offer and sale (the “Offering”) of the shares of common stock, par value $0.01 per share (“Common Stock”) of Kaiser Federal Financial Group, Inc. (the “Company”).  We have reviewed the Company’s Articles of Incorporation, Registration Statement on Form S-1 (the “Form S-1”), as well as applicable statutes and regulations governing the Company and the offer and sale of the Common Stock.

          We are of the opinion that upon the declaration of effectiveness of the Form S-1, the Common Stock, when sold, will be legally issued, fully paid and non-assessable.

          We hereby consent to our firm being referenced under the caption “Legal Matters” and to the filing of this opinion as an exhibit to the Form S-1.

Very truly yours,

/s/ Luse Gorman Pomerenk & Schick, P.C.

Luse Gorman Pomerenk & Schick

A Professional Corporation

EX-8

Exhibit 8

(202) 274-2005

September 25, 2007

Boards of Directors
Kaiser Federal Financial Group, Inc.
K-Fed Bancorp
K-Fed Mutual Holding Company
Kaiser Federal Bank
1359 North Grand Avenue
Covina, California 91724

Ladies and Gentlemen:

          You have requested this firm’s opinion regarding the material federal income tax consequences that will result from the conversion of K-Fed Mutual Holding Company, a federal mutual holding company (the “Mutual Holding Company”) into the capital stock form of organization (the “Conversion”), as effectuated pursuant to the three integrated transactions described below. 

          In connection therewith, we have made such investigations as we have deemed relevant or necessary for the purpose of this opinion.  In our examination, we have assumed the authenticity of original documents, the accuracy of copies and the genuineness of signatures.  We have further assumed the absence of adverse facts not apparent from the face of the instruments and documents we examined and have relied upon the accuracy of the factual matters set forth in the Plan of Conversion and Reorganization of K-Fed Mutual Holding Company and K-Fed Bancorp (the “Plan”) and the Registration Statement filed by Kaiser Federal Financial Group, Inc. (the “Holding Company”) with the Securities and Exchange Commission (“SEC”) under the Securities Act of 1933, as amended, and the Application for Conversion on Form AC filed by the Mutual Holding Company with the Office of Thrift Supervision (the “OTS”).  Capitalized terms used but not defined herein shall have the same meaning as set forth in the Plan.

          Our opinion is based upon the existing provisions of the Internal Revenue Code of 1986, as amended (the “Code”), and regulations thereunder (the “Treasury Regulations”), and upon current Internal Revenue Service (“IRS”) published rulings and existing court decisions, any of which could be changed at any time.  Any such changes may be retroactive and could significantly modify the statements and opinions expressed herein.  Similarly, any change in the facts and assumptions stated below, upon which this opinion is based, could modify the

Boards of Directors
Kaiser Federal Financial Group, Inc.
K-Fed Bancorp
K-Fed Mutual Holding Company
Kaiser Federal Bank
September 25, 2007
Page 2

conclusions.  This opinion is as of the date hereof, and we disclaim any obligation to advise you of any change in any matter considered herein after the date hereof. 

          We opine only as to the matters we expressly set forth, and no opinions should be inferred as to any other matters or as to the tax treatment of the transactions that we do not specifically address.  We express no opinion as to other federal laws and regulations, or as to laws and regulations of other jurisdictions, or as to factual or legal matters other than as set forth herein.

          For purposes of this opinion, we are relying on the representations as to factual matters provided to us by the Mutual Holding Company, Kaiser Federal Bank (the “Bank”), K-Fed Bancorp (the “Mid-Tier Holding Company) and the Holding Company, as set forth in the affidavits of the authorized officers of each of the aforementioned entities, incorporated herein by reference. 

Description of Proposed Transactions

          Based upon our review of the documents described above, and in reliance upon such documents, we understand that the relevant facts are as follows.  K-Fed Bancorp (the “Mid-Tier Holding Company”) was organized in 2003, as part of a three-tier mutual holding company reorganization plan adopted for the purpose of acquiring all of the capital stock issued upon reorganization of the Bank.  In March 2004, the Mid-Tier Holding Company completed a minority stock offering in which it sold 39.09% of its common stock to the public, with the majority of the shares outstanding being retained by the Mutual Holding Company.

          On June 26, 2007, as amended on September 25, 2007, the Boards of Directors of the Mutual Holding Company and the Mid-Tier Holding Company adopted the Plan providing for the Conversion of the Mutual Holding Company from a federally chartered mutual holding company to the capital stock form of organization.  The Holding Company, a new Maryland corporation, will be established as part of the Conversion and will succeed to all the rights and obligations of the Mutual Holding Company and the Mid-Tier Holding Company and issue Holding Company Common Stock in the Conversion.

          At the present time, three transactions referred to as the “MHC Merger,” the “Mid-Tier Merger,” and the “Bank Merger” are being undertaken.  Pursuant to the Plan, the Conversion will be effected in the following steps, in such order as is necessary to consummate the Conversion:

Boards of Directors
Kaiser Federal Financial Group, Inc.
K-Fed Bancorp
K-Fed Mutual Holding Company
Kaiser Federal Bank
September 25, 2007
Page 3

(i)	The Bank will establish the Holding Company as a first–tier Maryland-chartered stock holding company subsidiary.
(ii)	The Holding Company will charter an interim federal savings bank subsidiary (“Interim”) as a wholly owned subsidiary.
(iii)	The Mid-Tier Holding Company will convert to an interim stock savings bank (which shall continue to be referred to as the “Mid-Tier Holding Company”) and will merge with and into the Bank, with the Bank as the resulting entity (the “Mid–Tier Merger”), whereby the Mutual Holding Company will receive, and Minority Stockholders will constructively receive shares of Bank common stock in exchange for their Mid–Tier Holding Company common stock.
(iv)	Immediately after the Mid-Tier Merger, the Mutual Holding Company will convert to an interim stock savings bank and will merge with and into the Bank,  (the “MHC Merger”), whereby the shares of Bank common stock held by the Mutual Holding Company will be canceled and each Eligible Account Holder and Supplemental Eligible Account Holder will receive an interest in a Liquidation Account of the Bank in exchange for such person’s interest in the Mutual Holding Company.
(v)	Immediately after the MHC Merger and the Mid-Tier Merger, Interim will merge with and into the Bank, with the Bank as the surviving entity (the “Bank Merger”).  Constructive shareholders of the Bank (i.e., Minority Stockholders immediately prior to the Conversion) will exchange the shares of Bank common stock that they constructively received in the Mid–Tier Merger for Holding Company Common Stock.
(vi)	Immediately after the Bank Merger, the Holding Company will offer for sale its Common Stock in the Offering.

          Following the Conversion, a Liquidation Account will be maintained by the Bank for the benefit of Eligible Account Holders and Supplemental Eligible Account Holders who continue to maintain their deposit accounts with the Bank.   Pursuant to Section 19 of the Plan, the Liquidation Account will be equal to the greater of (a) the percentage of the outstanding shares of the common stock of the Mid-Tier Holding Company owned by the Mutual Holding Company multiplied by the Mid-Tier Holding Company’s total stockholders’ equity as reflected in the latest statement of financial condition contained in the final Prospectus used in the Conversion, or (b) the retained earnings of the Bank as of the latest financial statements set forth in the

Boards of Directors
Kaiser Federal Financial Group, Inc.
K-Fed Bancorp
K-Fed Mutual Holding Company
Kaiser Federal Bank
September 25, 2007
Page 4

prospectus used in connection with the Bank’s initial mutual holding company reorganization and minority stock offering.

          All of the then-outstanding shares of Bank common stock owned by the Minority Stockholders will be converted into and become shares of Holding Company Common Stock pursuant to the Exchange Ratio that ensures that after the Conversion, Minority Stockholders will own in the aggregate the same percentage of the Holding Company’s Common Stock as they held in Mid-Tier Holding Company common stock immediately prior to the Conversion, exclusive of Minority Stockholders’ purchases of additional shares of Holding Company Common Stock in the Offering and receipt of cash in lieu of fractional shares.  The common stock of Interim owned by the Holding Company prior to the Bank Merger will be converted into and become shares of common stock of the Bank on the Effective Date.  The Holding Company Common Stock held by the Bank immediately prior to the Effective Date will be canceled on the Effective Date.  Immediately following the Bank Merger, additional shares of Holding Company Common Stock will be sold to depositors and former shareholders of the Bank and to members of the public in the Offering.

          As a result of the Mid-Tier Merger, the MHC Merger and the Bank Merger, the Holding Company will be a publicly held corporation, will register the Holding Company Common Stock under Section 12(g) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and will become subject to the rules and regulations thereunder and file periodic reports and proxy statements with the SEC.  The Bank will become a wholly owned subsidiary of the Holding Company and will continue to carry on its business and activities as conducted immediately prior to the Conversion.

          The stockholders of the Holding Company will be the former Minority Stockholders of the Mid-Tier Holding Company immediately prior to the MHC Merger, plus those persons who purchase shares of Holding Company Common Stock in the Offering.  Nontransferable rights to subscribe for the Holding Company Common Stock have been granted, in order of priority, to depositors of the Bank who have account balances of $50.00 or more as of the close of business on March 31, 2006 (“Eligible Account Holders”), the Bank’s tax-qualified employee plans (“Employee Plans”), depositors of the Bank who have account balances of $50.00 or more as of the close of business on September 30, 2007 (“Supplemental Eligible Account Holders”), and depositors of the Bank as of the Voting Record Date (other than Eligible Account Holders and Supplemental Eligible Account Holders) (“Other Members”).  Subscription rights are nontransferable.  The Holding Company will also offer shares of Holding Company Common Stock not subscribed for in the subscription offering, if any, for sale in a community offering or syndicated community offering to certain members of the general public.

Boards of Directors
Kaiser Federal Financial Group, Inc.
K-Fed Bancorp
K-Fed Mutual Holding Company
Kaiser Federal Bank
September 25, 2007
Page 5

Opinions

          Based on the foregoing description of the MHC Merger, the Mid-Tier Merger and the Bank Merger, and subject to the qualifications and limitations set forth in this letter, we are of the opinion that:

          1.           The conversion of the Mid-Tier Holding Company to a federally chartered interim stock savings bank (which we shall continue to refer to as “Mid-Tier Holding Company”) will constitute a mere change in identity, form or place of organization within the meaning of Section 368(a)(1)(F) of the Code.

          2.          The Mid-Tier Merger qualifies as a tax-free reorganization within the meaning of Section 368(a)(1)(A) of the Code.  (Section 368(a)(1)(A) of the Code.)

          3.          The Mid-Tier Holding Company will not recognize any gain or loss on the transfer of its assets to the Bank and the Bank’s assumption of its liabilities in exchange for shares of common stock in the Bank or on the constructive distribution of such stock to Minority Stockholders and the Mutual Holding Company. (Sections 361(a), 361(c) and 357(a) of the Code.)

          4.          No gain or loss will be recognized by the Bank upon the receipt of the assets of  Mid-Tier Holding Company in the Mid-Tier Merger (Section 1032(a) of the Code).

          5.          The basis of the assets of the Mid-Tier Holding Company (other than stock in the Bank) to be received by Bank will be the same as the basis of such assets in the hands of Mid-Tier Holding Company immediately prior to the transfer.  (Section 362(b) of the Code.)

          6.          The holding period of the assets of Mid-Tier Holding Company (other than stock in Bank) to be received by Bank will include the holding period of those assets in the hands of Mid-Tier Holding Company immediately prior to the transfer.  (Section 1223(2) of the Code.)

          7.          Mid-Tier Holding Company shareholders will not recognize any gain or loss upon their constructive exchange of Mid-Tier Holding Company common stock for Bank common stock.

          8.          The conversion of the Mutual Holding Company to a federally chartered stock savings bank (which we shall continue to refer to as “Mutual Holding Company”) will constitute a mere change in identity, form or place of organization within the meaning of Section 368(a)(1)(F) of the Code.

Boards of Directors
Kaiser Federal Financial Group, Inc.
K-Fed Bancorp
K-Fed Mutual Holding Company
Kaiser Federal Bank
September 25, 2007
Page 6

          9.          The MHC Merger qualifies as a tax-free reorganization within the meaning of Section 368(a)(1)(A) of the Code.  (Section 368(a)(1)(A) of the Code.)

          10.          The exchange of the members’ equity interests in the Mutual Holding Company for interests in a Liquidation Account established in the Bank in the MHC Merger will satisfy the continuity of interest requirement of Section 1.368-1(b) of the Treasury Regulations (cf. Rev. Rul. 69-3, 1969-1 C.B. 103, and Rev. Rul. 69-646, 1969-2 C.B. 54).

          11.          The Mutual Holding Company will not recognize any gain or loss on the transfer of its assets to the Bank and the Bank’s assumption of its liabilities, if any, in exchange for an interest in a Liquidation Account in the Bank or on the constructive distribution of such Liquidation Account to the Mutual Holding Company’s members who remain depositors of the Bank. (Section 361(a), 361(c) and 357(a) of the Code.)

          12.          No gain or loss will be recognized by the Bank upon the receipt of the assets of the Mutual Holding Company in the MHC Merger in exchange for the transfer to the members of the Mutual Holding Company of an interest in the Liquidation Account in the Bank. (Section 1032(a) of the Code.)

          13.          Persons who have an interest in the Mutual Holding Company will recognize no gain or loss upon the receipt of an interest in the Liquidation Account in the Bank in exchange for their voting and liquidation rights in the Mutual Holding Company.  (Section 354(a) of the Code).

          14.          The basis of the assets of Mutual Holding Company (other than stock in the Bank) to be received by Bank will be the same as the basis of such assets in the hands of the Mutual Holding Company immediately prior to the transfer.  (Section 362(b) of the Code.)

          15.          The holding period of the assets of the Mutual Holding Company in the hands of the Bank will include the holding period of those assets in the hands of the Mutual Holding Company.  (Section 1223(2) of the Code.)

          16.          The Bank Merger qualifies as a reorganization within the meaning of Section 368(a)(1)(A) of the Code, pursuant to Section 368(a)(2)(E) of the Code.  For these purposes, each of the Bank, the Holding Company and Interim are “a party to the reorganization” within the meaning of Section 368(b) of the Code.

          17.          Interests in the Liquidation Account established at the Bank, and the shares of Bank common stock held by Mutual Holding Company prior to consummation of the MHC

Boards of Directors
Kaiser Federal Financial Group, Inc.
K-Fed Bancorp
K-Fed Mutual Holding Company
Kaiser Federal Bank
September 25, 2007
Page 7

Merger, will be disregarded for the purpose of determining that an amount of stock in the Bank which constitutes “control” of such corporation was acquired by the Holding Company in exchange for shares of common stock of the Holding Company pursuant to the Bank Merger (Code Section 368(c)).

          18.          The exchange of shares of Bank common stock for the shares of Holding Company Common Stock in the Bank Merger, following consummation of the Mid-Tier Merger and the MHC Merger, will satisfy the continuity of interest requirement of Treasury Regulation Section 1.368-1(b) in the Bank Merger.

          19.          Interim will not recognize any gain or loss on the transfer of its assets to Bank in exchange for Bank common stock and the assumption by Bank of the liabilities, if any, of Interim.  (Section 361(a) and 357(a) of the Code.)

          20.          The Bank will not recognize any gain or loss upon the receipt of the assets of Interim in the Bank Merger.  (Section 1032(a) of the Code.)

          21.          The Holding Company will not recognize any gain or loss upon its receipt of Bank common stock in exchange for Interim common stock.  (Section 354(a) of the Code.)

          22.          Bank shareholders will not recognize any gain or loss upon their exchange of Bank common stock solely for shares of Holding Company Common Stock.  (Section 354(a) of the Code.)

          23.          The payment of cash to the Minority Stockholders in lieu of fractional shares of Holding Company will be treated as though the fractional shares were distributed as part of the Bank Merger and then redeemed by Holding Company.  The cash payments will be treated as distributions in full payment for the fractional shares deemed redeemed under Section 302(a) of the Code, with the result that such shareholders will have short-term or long-term capital gain or loss to the extent that the cash they receive differs from the basis allocable to such fractional shares.  (Rev. Rul. 66-365, 1966-2 C.B. 116 and Rev. Proc. 77-41, 1977-2 C.B. 574)

          24.          It is more likely than not that the fair market value of the nontransferable subscription rights to purchase Holding Company Common Stock is zero.  Accordingly, no gain or loss will be recognized by Eligible Account Holders and Supplemental Eligible Account Holders upon distribution to them of nontransferable subscription rights to purchase shares of Holding Company Common Stock.  (Section 356(a) of the Code).  Eligible Account Holders and Supplemental Eligible Account Holders will not realize any taxable income as the result of the

Boards of Directors
Kaiser Federal Financial Group, Inc.
K-Fed Bancorp
K-Fed Mutual Holding Company
Kaiser Federal Bank
September 25, 2007
Page 8

exercise by them of the nontransferable subscriptions rights.  (Rev. Rul. 56-572, 1956-2 C.B.182).

          25.          Each Bank shareholder’s aggregate basis in his or her Holding Company Common Stock received in the exchange will be the same as the aggregate basis of the Bank common stock surrendered in exchange therefore.  (Section 358(a) of the Code.)  It is more likely than not that the basis of the Holding Company Common Stock purchased in the Offering by the exercise of the nontransferable subscription rights will be the purchase price thereof.  (Section 1012 of the Code).

          26.          Each Bank shareholder’s holding period in his or her Holding Company Common Stock received in the exchange will include the period during which the Bank common stock surrendered was held, provided that the Bank common stock surrendered is a capital asset in the hands of the Bank shareholder on the date of the exchange.  (Section 1223(1) of the Code.)  The holding period of the Holding Company Common Stock purchased pursuant to the exercise of subscriptions rights shall commence on the date on which the right to acquire such stock was exercised.  (Section 1223(5) of the Code.)

          27.          No gain or loss will be recognized by Holding Company on the receipt of money in exchange for Holding Company Common Stock sold in the Offering.  (Section 1032 of the Code.)

          Our opinion under paragraph 24 above is predicated on the representation that no person shall receive any payment, whether in money or property, in lieu of the issuance of subscription rights.  Our opinions under paragraphs 24, 25 and 26 are based on the position that the subscription rights to purchase shares of Holding Company Common Stock received by Eligible Account Holders and Supplemental Eligible Account Holders have a fair market value of zero.  We understand that the subscription rights will be granted at no cost to the recipients, will be legally nontransferable and short duration, and will provide the recipient with the right only to purchase shares of Holding Company Common Stock at the same price to be paid by members of the general public in any Community Offering.  We also note that the IRS has not in the past concluded that subscription rights have value.  Based on the foregoing, we believe it is more likely than not that the nontransferable subscription rights to purchase Holding Company Common Stock have no value.

          If the subscription rights are subsequently found to have a fair market value, income may be recognized by various recipients of the subscription rights (in certain cases, whether or not the rights are exercised) and the Holding Company and/or stock savings bank may be taxable on the distribution of the subscription rights.

Boards of Directors
Kaiser Federal Financial Group, Inc.
K-Fed Bancorp
K-Fed Mutual Holding Company
Kaiser Federal Bank
September 25, 2007
Page 9

CONSENT

          We hereby consent to the filing of the opinion as an exhibit to the Mutual Holding Company’s Application for Conversion filed with the OTS and to the Holding Company’s Registration Statement on Form S-1 as filed with the SEC.  We also consent to the references to our firm in the Prospectus contained in the Application for Conversion and S-1 under the captions “The Conversion and Offering-Material Income Tax Consequences” and “Legal Matters.”

Sincerely,

/s/ Luse Gorman Pomerenk & Schick, A Professional Corporation

LUSE GORMAN POMERENK & SCHICK,

A PROFESSIONAL CORPORATION

EX-10.5

Exhibit 10.5

EMPLOYMENT AGREEMENT

          This Agreement (“Agreement”) is made effective as of the _______ day of _______________, 2007, by and among KAISER FEDERAL BANK (the “Bank”), a federally chartered stock savings bank, with its principal administrative office at 1359 N. Grand Ave., Covina, California 91724 and KAY HOVELAND (“Executive”).  Any reference to the “Company” herein shall mean KAISER FEDERAL FINANCIAL GROUP, INC., the holding company of the Bank.  The Company is a party to this Agreement for the sole purpose of guaranteeing the payments required hereunder, except as otherwise provided herein.

          WHEREAS, Executive is currently employed as the President and Chief Executive Officer of the Bank; and

          WHEREAS, the Bank desires to assure itself of the continued services of Executive pursuant to the terms of this Agreement.

          NOW, THEREFORE, in consideration of the mutual covenants herein contained, and upon the other terms and conditions hereinafter provided, the parties hereby agree as follows:

1.       POSITION AND RESPONSIBILITIES

          During the period of her employment hereunder, Executive agrees to serve as President and Chief Executive Officer of the Bank.  During said period, Executive also agrees to serve, if elected, as an officer and director of any subsidiary or affiliate of the Bank or the Company.

2.       TERMS AND DUTIES

          (a) The term of this Agreement and the period of Executive’s employment hereunder shall begin as of the date first above written and shall continue for thirty-six (36) full calendar months thereafter.  Commencing July 1, 2008 and continuing on the first day of July of each year thereafter (the “Anniversary Date”), this Agreement shall renew for an additional year such that the remaining term shall be thirty-six (36) months, unless written notice of non-renewal (“Non-Renewal Notice”) is provided to Executive at least thirty (30) days and not more than sixty (60) days prior to any such Anniversary Date that this Agreement shall terminate at the end of thirty-six (36) months following such Anniversary Date.  Prior to each notice period for non-renewal, the disinterested members of the Board of Directors of the Bank (the “Board”) will conduct a comprehensive performance evaluation and review of Executive for purposes of determining whether to extend the Agreement, and the results thereof shall be included in the minutes of the Board’s meeting. 

          (b) During the period of her employment hereunder, except for periods of absence occasioned by illness, reasonable vacation periods, and reasonable leaves of absence, Executive shall faithfully perform her duties hereunder including activities and services related to the organization, operation and management of the Bank.

3.       COMPENSATION AND REIMBURSEMENT

          (a) The compensation specified under this Agreement shall constitute the salary and benefits paid for the duties described in Section 2(b).  The Bank shall pay Executive as compensation a salary of not less than $350,000 per year (“Base Salary”).  Such Base Salary shall be payable  in accordance with the customary payroll practices of the Bank.  During the period of this Agreement, Executive’s Base Salary shall be reviewed at least annually; the first such review will be made no later than July 1 of each year during the term of this Agreement and shall be effective from that date through the end of the next succeeding June.  Such review shall be conducted by a Committee designated by the Board, and the Board may increase, but not decrease, Executive’s Base Salary (any increase in Base Salary shall become the “Base Salary” for purposes of this Agreement).  In addition to the Base Salary provided in this Section 3(a), the Bank shall provide Executive at no cost to Executive with all such other benefits as are provided uniformly to permanent full-time employees of the Bank.

           (b) The Bank will provide Executive with employee benefit plans, arrangements and perquisites substantially equivalent to those in which Executive was participating or otherwise deriving benefit from immediately prior to the beginning of the term of this Agreement, and the Bank will not, without Executive’s prior written consent, make any changes in such plans, arrangements or perquisites which would adversely affect Executive’s rights or benefits thereunder, except for amendments that are generally applicable to all employees.  Without limiting the generality of the foregoing provisions of this Section 3(b), Executive will be entitled to participate in or receive benefits under any employee benefit plans including but not limited to, retirement plans, supplemental retirement plans, pension plans, profit-sharing plans, health-and-accident plans, medical coverage or any other employee benefit plan or arrangement made available by the Bank in the future to its senior executives and key management employees, subject to and on a basis consistent with the terms, conditions and overall administration of such plans and arrangements.  Executive will be entitled to incentive compensation and bonuses as provided in any plan of the Bank in which Executive is eligible to participate (and she shall be entitled to a pro rata distribution under any incentive compensation or bonus plan as to any year in which a termination of employment occurs, other than Termination for Cause).  Nothing paid to Executive under any such plan or arrangement will be deemed to be in lieu of other compensation to which Executive is entitled under this Agreement.

           (c) In addition to the Base Salary provided for by Section 3(a), the Bank shall pay or reimburse Executive for all reasonable travel and other reasonable expenses incurred by Executive in performing her obligations under this Agreement and may provide such additional compensation in such form and such amounts as the Board may from time to time determine.

4.       OUTSIDE ACTIVITIES

          Executive may serve as a member of the board of directors of business, community and charitable organizations subject to the approval of the Board, provided that in each case such service shall not materially interfere with the performance of her duties under this Agreement or present any conflict of interest.  Such service to and participation in outside organizations shall be presumed for these purposes to be for the benefit of the Bank, and the Bank shall reimburse Executive her reasonable expenses associated therewith.

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5.       WORKING FACILITIES AND EXPENSES

          Executive’s principal place of employment shall be at the Bank’s principal executive offices.  The Bank shall provide Executive, at her principal place of employment, with a private office, stenographic services and other support services and facilities suitable to her position with the Bank and necessary or appropriate in connection with the performance of her duties under this Agreement.  The Bank shall reimburse Executive for her ordinary and necessary business expenses incurred in connection with the performance of her duties under this Agreement, including, without limitation, fees for memberships in such clubs and organizations that Executive and the Board mutually agree are necessary and appropriate to further the business of the Bank, and travel and reasonable entertainment expenses.  Reimbursement of such expenses shall be made upon presentation to the Bank of an itemized account of the expenses in such form as the Bank may reasonably require.

6.       PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION

          (a) The provisions of this Section 6 shall apply upon the occurrence of an Event of Termination (as herein defined) during Executive’s term of employment under this Agreement.  As used in this Agreement, an “Event of Termination” shall mean and include any one or more of the following:

          (i)          the involuntary termination by the Bank of Executive’s full-time employment hereunder for any reason other than (A) Retirement, death or Disability, as defined in Section 7 below, or (B) Termination for Cause as defined in Section 8 hereof; or

          (ii)         Executive’s voluntary resignation from the Bank’s employ, upon

              (A)          a material diminution in Executive’s base compensation;

              (B)          a material diminution in Executive’s authority duties or responsibilities;

              (C)          a requirement that Executive must report to a corporate officer or employee instead of reporting directly to the Board;

              (D)          a material diminution in the budget over which Executive retains authority;

              (E)          a change in the geographic location at which Executive must perform her duties that is more than twenty-five (25) miles from the location of Executive’s principal workplace on the date of this Agreement; or

              (F)          any other action or inaction that constitutes a material breach by the Bank of this Agreement.

Upon the occurrence of any event described in clauses (ii) (A), (B), (C), (D), (E) or (F), above, Executive shall have the right to elect to terminate her employment under this Agreement by resignation upon sixty (60) days prior written notice given within a reasonable period of time not

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to exceed ninety (90) days after the initial event giving rise to said right to elect; provided, however that the Bank shall have at least thirty (30) days to cure such condition and provided that Executive actually terminates employment within two years after the initial occurrence of such event.  Notwithstanding the preceding sentence, in the event of a continuing breach of this Agreement by the Bank, Executive, after giving due notice within the prescribed time frame of an initial event specified above, shall not waive any of her rights solely under this Agreement and this Section 6 by virtue of the fact that Executive has submitted her resignation but has remained in the employment of the Bank and is engaged in good faith discussions to resolve any occurrence of an event described in clauses (A), (B), (C), (D), (E) or (F) above.

          (iii)          (A) Executive’s involuntary termination by the Bank (other than Termination for Cause) on the effective date of, or at any time following, a Change in Control, or (B) Executive’s resignation from employment with the Bank or the Company (or any successor thereto) following a Change in Control as a result of any event described in Section 6(a)(ii)(A), (B), (C), (D), (E) or (F) above.  For these purposes, a Change in Control of the Bank or the Company shall mean a change in control of a nature that: (i) would be required to be reported in response to Item 5.01 of the current report on Form 8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”); or (ii) results in a Change in Control of the Bank or the Company within the meaning of the Home Owners’ Loan Act, as amended, and applicable rules and regulations promulgated thereunder (collectively, the “HOLA”) as in effect at the time of the Change in Control; or (iii) without limitation such a Change in Control shall be deemed to have occurred at such time as (a) any “person” (as the term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of Company’s outstanding securities, except for any securities purchased by the Bank’s employee stock ownership plan or trust; or (b) individuals who constitute the Board on the date hereof (the “Incumbent Board”) cease for any reason to constitute at least a majority thereof, provided that any person becoming a director subsequent to the date hereof whose election was approved by a vote of at least three-quarters of the directors comprising the Incumbent Board, or whose nomination for election by the Company’s stockholders was approved by the same Nominating Committee serving under an Incumbent Board, shall be, for purposes of this clause (b), considered as though he or she were a member of the Incumbent Board; or (c) a plan of reorganization, merger, consolidation, sale of all or substantially all the assets of the Bank or the Company or similar transaction in which the Bank or Company is not the surviving institution occurs or is effected; or (d) a proxy statement soliciting proxies from stockholders of the Company, by someone other than the current management of the Company is distributed, seeking stockholder approval of a plan of reorganization, merger or consolidation of the Company or similar transaction with one or more corporations as a result of which the outstanding shares of the class of securities then subject to the plan are exchanged for or converted into cash or property or securities not issued by the Company; or (e) a tender offer is made for 25% or more of the voting securities of the Company and the shareholders owning beneficially or of record 25% or more of the outstanding securities of the Company have tendered or offered to sell their shares pursuant to such tender offer and such tendered shares have been accepted by the tender offeror.

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          (b) Upon the occurrence of an Event of Termination within thirty (30) days after the Date of Termination, as defined in Section 9(b), the Bank shall pay Executive, or, in the event of her subsequent death, her beneficiary or beneficiaries, or her estate, as the case may be, as severance pay or liquidated damages, or both, a sum equal to (i) the Executive’s earned but unpaid Base Salary and benefits, plus (ii) three (3) times the sum of (A) Base Salary and (B) the highest rate of bonus awarded to Executive during the prior three (3) years; provided, however, that such Event of Termination must qualify as a “Separation from Service” as defined in Internal Revenue Code (“Code”) Section 409A and the regulations thereunder. Notwithstanding the foregoing, to the extent Executive is a “Specified Employee” as defined in Code Section 409A, and such earlier payment would trigger penalties under Code Section 409A, then such payment shall be made on the first day of the seventh month following Executive’s Separation from Service.  Such payment shall not be reduced in the event Executive obtains other employment following Separation from Service.

          (c) Upon the occurrence of an Event of Termination, the Bank will cause to be continued, at the Bank’s expense, life insurance coverage and non-taxable medical and dental insurance coverage, if any, substantially identical to the coverage maintained by the Bank for Executive prior to her termination, provided, however, such medical coverage shall cease upon the earlier of (i)  thirty-six (36) months from the Date of Termination or (ii) the date Executive becomes eligible for Medicare coverage, provided further, that if Executive is covered by family coverage or coverage for herself and a spouse, then the Executive’s family or spouse shall continue to be covered for the remainder of the thirty-six (36) month period or, in the case of the spouse, until the spouse becomes eligible for Medicare coverage or obtains healthcare coverage elsewhere, whichever period is less.

          (d) Within thirty (30) days of Executive’s Separation from Service in connection with an Event of Termination (provided, however, that, to the extent Executive is a “Specified Employee” as defined in Code Section 409A, and such earlier payment would trigger penalties under Code Section 409A, then such payment shall be made on the first day of the seventh month following Executive’s Separation from Service), the Bank shall pay Executive a lump sum equal to the present value of the Bank’s contributions that would have been made on her behalf under each of the Bank’s 401(k) Plan and Employee Stock Ownership Plan (and any other defined contribution plan maintained by the Bank in which Executive participates) as if she had continued working for the Bank for a thirty-six (36) month period following her Separation from Service earning her actual final rate of Base Salary as of the Date of Termination and as if she had made the maximum amount of employee contributions permitted, if any, under such plan or plans.  Such present values are to be determined using a discount rate equal to the short-term Internal Revenue Service’s “applicable federal rate” for the month before the date of the Separation from Service, compounded annually.

          (e) Notwithstanding anything to the contrary herein, Executive’s resignation for any reason other than those set forth in clauses 6(a)(ii)(A), (B), (C), (D),(E) or (F) shall not entitle Executive to any payments under Section 6 of this agreement.

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7.       TERMINATION UPON RETIREMENT, DISABILITY OR DEATH

          For purposes of this Agreement, termination by the Bank of Executive’s employment based on “Retirement” shall mean termination of Executive’s employment by the Board upon Executive’s attainment of age 62, or such later date as determined by the Board.  Upon termination of Executive’s employment because of Retirement, Executive shall be entitled to all benefits under any retirement plan of the Bank and other plans to which Executive is a party, but Executive shall not be entitled to the Termination Benefits specified in Section 6.

          In the event Executive is unable to perform her duties under this Agreement on a full-time basis for a period of six (6) consecutive months by reason of “Disability” within the meaning of Code Section 409A, the Bank may terminate this Agreement, provided that the Bank shall continue to be obligated to pay Executive her Base Salary at the rate in effect at the Date of Termination for the remaining term of the Agreement, or one year, whichever is the longer period of time, and provided further that any amounts actually paid to Executive pursuant to any disability insurance or other similar such program which the Bank has provided or may provide on behalf of its employees or pursuant to any workman’s or Social Security disability program shall reduce the Base Salary to be paid to Executive pursuant to this paragraph. 

          In the event of Executive’s death during the term of the Agreement, her estate, legal representatives or named beneficiaries (as directed by Executive in writing) shall be paid Executive’s Base Salary at the rate in effect at the time Executive’s death for a period of one (1) year from the date of Executive’s death, and the Bank will continue to provide non-taxable medical and dental and other benefits normally provided for an Executive’s family for one (1) year after Executive’s death.

8.       TERMINATION FOR CAUSE

          The term “Termination for Cause” shall mean termination because of Executive’s personal dishonesty, incompetence, willful misconduct, any breach of fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule, or regulation (other than minor traffic violations or similar offenses) or final cease-and-desist order, or material breach of any provision of this Agreement.  In determining incompetence, the acts or omissions shall be measured against standards generally prevailing in the savings institutions industry.  Executive shall not have the right to receive Base Salary or other compensation for any period after Termination for Cause.  Any stock options or other incentives granted to Executive under any plan of the Bank, the Company or any subsidiary or affiliate thereof (whether vested or unvested), shall become null and void effective upon Executive’s receipt of Notice of Termination for Cause pursuant to Section 9 hereof. 

9.       NOTICE

          (a) Any purported termination by the Bank or by Executive shall be communicated by Notice of Termination to the other party hereto.  For purposes of this Agreement, a “Notice of Termination” shall mean a written notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances

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claimed to provide a basis for termination of Executive’s employment under the provision so indicated.

          (b) “Date of Termination” shall mean (A) if Executive’s employment is terminated for Disability, thirty (30) days after a Notice of Termination is given (provided that she shall not have returned to the performance of her duties on a full-time basis during such thirty (30) day period), and (B) if her employment is terminated for any other reason, the date specified in the Notice of Termination.

          (c) If the party receiving a Notice of Termination desires to dispute or contest the basis or reasons for termination, the party receiving the Notice of Termination must notify the other party within thirty (30) days after receiving the Notice of Termination that such a dispute exists, and shall pursue the resolution of such dispute in good faith and with reasonable diligence pursuant to Section 20 of this Agreement.  During the pendency of any such dispute, neither the Company nor the Bank shall be obligated to pay Executive Base Salary or other compensation beyond the Date of Termination.  Any amounts paid to Executive upon resolution of such dispute under this Section shall be offset against or reduce any other amounts due under this Agreement.

10.     POST-TERMINATION OBLIGATIONS

          (a) All payments and benefits to Executive under this Agreement shall be subject to Executive’s compliance with paragraph (b) of this Section and Section 11 during the term of this Agreement and for one (1) full year after the expiration or termination hereof.

          (b) Executive shall, upon reasonable notice, furnish such information and assistance to the Bank as may reasonably be required by the Bank in connection with any litigation in which it or any of its subsidiaries or affiliates is, or may become, a party.

11.     NON-COMPETITION

          (a) Upon any termination of Executive’s employment hereunder, other than a termination, (whether voluntary or involuntary) in connection with a Change in Control, as a result of which the Bank is paying Executive benefits under Section 6 of this Agreement, Executive agrees not to compete with the Bank and/or the Company for a period of one (1) year following such termination within twenty-five (25) miles of any existing branch of the Bank or any subsidiary of the Company or within twenty-five (25) miles of any office for which the Bank, the Company or a Bank subsidiary of the Company has filed an application for regulatory  approval to establish an office, determined as of the effective date of such termination, except as agreed to pursuant to a resolution duly adopted by the Board.  Executive agrees that during such period and within said area, cities, towns and counties, Executive shall not work for or advise, consult or otherwise serve with, directly or indirectly, any entity whose business materially competes with the depository, lending or other business activities of the Bank and/or the Company. The parties hereto, recognizing that irreparable injury will result to the Bank and/or the Company, its business and property in the event of Executive’s breach of this Subsection 11(a) agree that in the event of any such breach by Executive, the Bank and/or the Company will be entitled, in addition to any other remedies and damages available, to an injunction to restrain the violation hereof by Executive, Executive’s partners, agents, servants,

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employers, employees and all persons acting for or with Executive.  Executive represents and admits that Executive’s experience and capabilities are such that Executive can obtain employment in a business engaged in other lines and/or of a different nature than the Bank and/or the Company, and that the enforcement of a remedy by way of injunction will not prevent Executive from earning a livelihood.  Nothing herein will be construed as prohibiting the Bank and/or the Company from pursuing any other remedies available to the Bank and/or the Company for such breach or threatened breach, including the recovery of damages from Executive. 

          (b) Executive recognizes and acknowledges that the knowledge of the business activities and plans for business activities of the Bank and affiliates thereof, as it may exist from time to time, is a valuable, special and unique asset of the business of the Bank.  Executive will not, during or after the term of her employment, disclose any knowledge of the past, present, planned or considered business activities of the Bank or affiliates thereof to any person, firm, corporation, or other entity for any reason or purpose whatsoever (except for such disclosure as may be required to be provided to any federal banking agency with jurisdiction over the Bank or Executive).  Notwithstanding the foregoing, Executive may disclose any knowledge of banking, financial and/or economic principles, concepts or ideas which are not solely and exclusively derived from the business plans and activities of the Bank, and Executive may disclose any information regarding the Bank or the Company which is otherwise publicly available.  In the event of a breach or threatened breach by Executive of the provisions of this Section, the Bank will be entitled to an injunction restraining Executive from disclosing, in whole or in part, the knowledge of the past, present, planned or considered business activities of the Bank or affiliates thereof, or from rendering any services to any person, firm, corporation, other entity to whom such knowledge, in whole or in part, has been disclosed or is threatened to be disclosed.  Nothing herein will be construed as prohibiting the Bank from pursuing any other remedies available to the Bank for such breach or threatened breach, including the recovery of damages from Executive.

12.     SOURCE OF PAYMENTS

          All payments provided in this Agreement shall be timely paid in cash or check from the general funds of the Bank.  The Company, however, guarantees payment and provision of all amounts and benefits due hereunder to Executive and, if such amounts and benefits due from the Bank are not timely paid or provided by the Bank, such amounts and benefits shall be paid or provided by the Company.

13.     NO EFFECT ON EMPLOYEE BENEFITS PLANS OR PROGRAMS

          The Board may terminate Executive’s employment at any time, but, any termination of Executive’s employment, other than Termination for Cause shall have no effect on or prejudice the vested rights of Executive under the Company’s or the Bank’s qualified or non-qualified retirement, pension, savings, thrift, profit-sharing or stock bonus plans, group life, health (including hospitalization, medical and major medical), dental, accident and long term disability insurance plans or other employee benefit plans or programs, or compensation plans or programs in which Executive was a participant.  Executive shall not have the right to receive any Base

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Salary or other compensation for any period after Termination for Cause as defined in Section 8, except as otherwise required by applicable law.

14.     REQUIRED REGULATORY PROVISIONS

          (a) If Executive is suspended from office and/or temporarily prohibited from participating in the conduct of the Bank’s affairs by a notice served under Section 8(e)(3) (12 USC §1818(e)(3)) or 8(g)(1) (12 USC §1818(g)(1)) of the Federal Deposit Insurance Act (“FDIA”), as amended by the Financial Institutions Reform, Recovery and Enforcement Act of 1989, the Bank’s obligations under this Agreement shall be suspended as of the date of service, unless stayed by appropriate proceedings.  If the charges in the notice are dismissed, the Bank may in its discretion (i) pay Executive all or part of the Base Salary or other compensation withheld while its contract obligations were suspended and (ii) reinstate (in whole or in part) any of its obligations which were suspended.

          (b) If Executive is removed and/or permanently prohibited from participating in the conduct of the Bank’s affairs by an order issued under Section 8(e)(4) (12 U.S.C. §1818(e)(4)) or 8(g)(1) (12 U.S.C. §1818(g)(1)) of the FDIA, all obligations of the Bank under this Agreement shall terminate as of the effective date of the order, but vested rights of the contracting parties shall not be affected.

          (c) If the Bank is in default as defined in Section 3(x)(1) (12 U.S.C. §1813(x)(1)) of the FDIA, all obligations under this Agreement shall terminate as of the date of default, but this paragraph shall not affect any vested rights of the contracting parties.

          (d) All obligations under this Agreement shall be terminated, except to the extent determined that continuation of this Agreement is necessary for the continued operation of the Bank, (i) by the Director of OTS or a designee, at the time the FDIC enters into an agreement to provide assistance to or on behalf of the Bank under the authority contained in Section 13(c) (12 U.S.C. §1823(c)) of the FDIA; or (ii) by the Director of OTS or a designee at the time the Director of OTS or a designee approves a supervisory merger to resolve problems related to operations of the Bank or when the Bank is determined by the Director of OTS or a designee to be in an unsafe or unsound condition.  Any rights of the parties that have already vested, however, shall not be affected by such action.

          (e) Notwithstanding anything herein contained to the contrary, any payments to Executive by the Company, whether pursuant to this Agreement or otherwise, are subject to and conditioned upon their compliance with Section 18(k) of the FDIA, 12 U.S.C. § 1828(k), and the regulations promulgated thereunder in 12 C.F.R. Part 359.

15.     NO ATTACHMENT

          (a) Except as required by law, no right to receive payments under this Agreement shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation, or to execution, attachment, levy, or similar process or assignment by operation of law, and any attempt, voluntary or involuntary, to affect any such action shall be null, void, and of no effect.

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          (b) This Agreement shall be binding upon, and inure to the benefit of, Executive, the Bank and the Company and their respective successors and assigns.

16.     ENTIRE AGREEMENT; MODIFICATION AND WAIVER

          (a) This instrument contains the entire agreement of the parties relating to the subject matter hereof, and supercedes in its entirety any and all prior agreements, understandings or representations relating to the subject matter hereof, except that the parties acknowledge that this Agreement shall not affect any of the rights and obligations of the parties  under any agreement or plan entered into with or by the Bank or the Company pursuant to which the Executive may receive Base Salary or other compensation except as set forth in Section 12 hereof.  No modifications of this Agreement shall be valid unless made in writing and signed by the parties hereto.

          (b) This Agreement may not be modified or amended except by an instrument in writing signed by the parties hereto.

          (c) No term or condition of this Agreement shall be deemed to have been waived, nor shall there be any estoppel against the enforcement of any provision of this Agreement, except by written instrument of the party charged with such waiver or estoppel.  No such written waiver shall be deemed a continuing waiver unless specifically stated therein, and each such waiver shall operate only as to the specific term or condition waived and shall not constitute a waiver of such term or condition for the future as to any act other than that specifically waived.

17.     SEVERABILITY

          If, for any reason, any provision of this Agreement, or any part of any provision, is held invalid, such invalidity shall not affect any other provision of this Agreement or any part of such provision not held so invalid, and each such other provision and part thereof shall to the full extent consistent with law continue in full force and effect.

18.     HEADINGS FOR REFERENCE ONLY

          The headings of sections and paragraphs herein are included solely for convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Agreement.

19.     GOVERNING LAW

          This Agreement shall be governed by the laws of the State of California but only to the extent not superseded by federal law.

20.     ARBITRATION

          Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration, conducted before a panel of three arbitrators, one of whom shall be selected by the Bank, one of whom shall be selected by Executive and the third of whom shall be selected by the other two arbitrators.  The panel shall sit in a location within fifty (50)

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miles from the location of the Bank, in accordance with the rules of the Judicial Mediation and Arbitration Systems (JAMS) then in effect.  Judgment may be entered on the arbitrators award in any court having jurisdiction; provided, however, that Executive shall be entitled to seek specific performance of her right to be paid Base Salary and other compensation until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement.

21.     PAYMENT OF LEGAL FEES

          All reasonable legal fees paid or incurred by Executive pursuant to any dispute or question of interpretation relating to this Agreement shall be paid or reimbursed by the Bank, provided that the dispute or interpretation has been settled by Executive and the Bank or resolved in Executive’s favor and provided that such payment or reimbursement shall be made not later than two and one-half (2 ½) months after the end of the taxable year in which such fees were incurred.

22.     INDEMNIFICATION

          The Bank shall provide Executive (including her heirs, executors and administrators) with coverage under a standard directors and officers liability insurance policy at its expense.  Subject to 12 C.F.R. §545.121, the Bank or the Company, shall indemnify Executive (and her heirs, executors and administrators) to the fullest extent permitted under federal law against all expenses and liabilities reasonably incurred by her in connection with or arising out of any action, suit or proceeding in which she may be involved by reason of having been a director or officer of the Bank or the Company (whether or not she continues to be a director or officer at the time of incurring such expenses or liabilities), such expenses and liabilities to include, but not be limited to, judgments, court costs and attorneys fees and the cost of reasonable settlements (such settlements must be approved by the Board of Directors of the Bank or the Company).  If such action, suit or proceeding is brought against Executive in her capacity as an officer or director of the Bank, however, such indemnification shall not extend to matters as to which Executive is finally adjudged to be liable for willful misconduct in the performance of her duties.

23.     SUCCESSORS AND ASSIGNS

          The Bank and/or the Company shall require any successor or assignee, whether direct or indirect, by purchase, merger, consolidation or otherwise, to all or substantially all the business or assets of the Bank or the Company, expressly and unconditionally to assume and agree to perform the Bank’s and the Company’s obligations under this Agreement, in the same manner and to the same extent that the Bank and/or the Company would be required to perform if no such succession or assignment had taken place.

[Signature Page Follows]

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SIGNATURES

          IN WITNESS WHEREOF, the Bank and the Company have caused this Agreement to be executed and their seals to be affixed hereunto by their duly authorized officers, and Executive has signed this Agreement, as of the day and date first above written.

ATTEST:	KAISER FEDERAL BANK
	By:
	Name
	Title
ATTEST:	KAISER FEDERAL FINANCIAL GROUP, INC.
	By:
	Name
	Title
WITNESS:	EXECUTIVE
		Kay Hoveland

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EX-10.6

Exhibit 10.6

EMPLOYMENT AGREEMENT

          This Agreement (“Agreement”) is made effective as of the _______ day of _______________, 2007, by and among KAISER FEDERAL BANK (the “Bank”), a federally chartered stock savings bank, with its principal administrative office at 1359 N. Grand Ave., Covina, California 91724 and DUSTIN LUTON (“Executive”).  Any reference to the “Company” herein shall mean KAISER FEDERAL FINANCIAL GROUP, INC., the holding company of the Bank.  The Company is a party to this Agreement for the sole purpose of guaranteeing the payments required hereunder, except as otherwise provided herein.

          WHEREAS, Executive is currently employed as the Chief Financial Officer of the Bank; and

          WHEREAS, the Bank desires to assure itself of the continued services of Executive pursuant to the terms of this Agreement.

          NOW, THEREFORE, in consideration of the mutual covenants herein contained, and upon the other terms and conditions hereinafter provided, the parties hereby agree as follows:

1.       POSITION AND RESPONSIBILITIES

          During the period of his/her employment hereunder, Executive agrees to serve as Chief Financial Officer of the Bank.  During said period, Executive also agrees to serve, if elected, as an officer and director of any subsidiary or affiliate of the Bank or the Company.

2.       TERMS AND DUTIES

          (a) The term of this Agreement and the period of Executive’s employment hereunder shall begin as of the date first above written and shall continue for twenty-four (24) full calendar months thereafter.  Commencing July 1, 2008 and continuing on the first day of July of each year thereafter (the “Anniversary Date”), this Agreement shall renew for an additional year such that the remaining term shall be twenty-four (24) months, unless written notice of non-renewal (“Non-Renewal Notice”) is provided to Executive at least thirty (30) days and not more than sixty (60) days prior to any such Anniversary Date that this Agreement shall terminate at the end of twenty-four (24) months following such Anniversary Date.  Prior to each notice period for non-renewal, the disinterested members of the Board of Directors of the Bank (the “Board”) will conduct a comprehensive performance evaluation and review of Executive for purposes of determining whether to extend the Agreement, and the results thereof shall be included in the minutes of the Board’s meeting. 

          (b) During the period of his/her employment hereunder, except for periods of absence occasioned by illness, reasonable vacation periods, and reasonable leaves of absence, Executive shall faithfully perform his/her duties hereunder including activities and services related to the organization, operation and management of the Bank.

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3.       COMPENSATION AND REIMBURSEMENT

          (a) The compensation specified under this Agreement shall constitute the salary and benefits paid for the duties described in Section 2(b).  The Bank shall pay Executive as compensation a salary of not less than $226,600 per year (“Base Salary”).  Such Base Salary shall be payable  in accordance with the customary payroll practices of the Bank.  During the period of this Agreement, Executive’s Base Salary shall be reviewed at least annually; the first such review will be made no later than July 1 of each year during the term of this Agreement and shall be effective from that date through the end of the next succeeding June.  Such review shall be conducted by the President and Chief Executive Officer, and he/she may increase, but not decrease, Executive’s Base Salary (any increase in Base Salary shall become the “Base Salary” for purposes of this Agreement).  In addition to the Base Salary provided in this Section 3(a), the Bank shall provide Executive at no cost to Executive with all such other benefits as are provided uniformly to permanent full-time employees of the Bank.

          (b) The Bank will provide Executive with employee benefit plans, arrangements and perquisites substantially equivalent to those in which Executive was participating or otherwise deriving benefit from immediately prior to the beginning of the term of this Agreement, and the Bank will not, without Executive’s prior written consent, make any changes in such plans, arrangements or perquisites which would adversely affect Executive’s rights or benefits thereunder, except for amendments that are generally applicable to all employees.  Without limiting the generality of the foregoing provisions of this Section 3(b), Executive will be entitled to participate in or receive benefits under any employee benefit plans including but not limited to, retirement plans, supplemental retirement plans, pension plans, profit-sharing plans, health-and-accident plans, medical coverage or any other employee benefit plan or arrangement made available by the Bank in the future to its senior executives and key management employees, subject to and on a basis consistent with the terms, conditions and overall administration of such plans and arrangements.  Executive will be entitled to incentive compensation and bonuses as provided in any plan of the Bank in which Executive is eligible to participate (and he/she shall be entitled to a pro rata distribution under any incentive compensation or bonus plan as to any year in which a termination of employment occurs, other than Termination for Cause).  Nothing paid to Executive under any such plan or arrangement will be deemed to be in lieu of other compensation to which Executive is entitled under this Agreement.

          (c) In addition to the Base Salary provided for by Section 3(a), the Bank shall pay or reimburse Executive for all reasonable travel and other reasonable expenses incurred by Executive in performing his/her obligations under this Agreement and may provide such additional compensation in such form and such amounts as may from time to time be determine.

4.       OUTSIDE ACTIVITIES

          Executive may serve as a member of the board of directors of business, community and charitable organizations subject to the approval of the President and Chief Executive Officer, provided that in each case such service shall not materially interfere with the performance of his/her duties under this Agreement or present any conflict of interest.  Such service to and participation in outside organizations shall be presumed for these purposes to be for the benefit

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of the Bank, and the Bank shall reimburse Executive his/her reasonable expenses associated therewith.

5.       WORKING FACILITIES AND EXPENSES

          Executive’s principal place of employment shall be at the Bank’s principal executive offices.  The Bank shall provide Executive, at his/her principal place of employment, with a private office, stenographic services and other support services and facilities suitable to his/her position with the Bank and necessary or appropriate in connection with the performance of his/her duties under this Agreement.  The Bank shall reimburse Executive for his/her ordinary and necessary business expenses incurred in connection with the performance of his/her duties under this Agreement, including, without limitation, fees for memberships in such clubs and organizations that Executive and the President and Chief Executive Officer mutually agree are necessary and appropriate to further the business of the Bank, and travel and reasonable entertainment expenses.  Reimbursement of such expenses shall be made upon presentation to the Bank of an itemized account of the expenses in such form as the Bank may reasonably require.

6.       PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION

          (a) The provisions of this Section 6 shall apply upon the occurrence of an Event of Termination (as herein defined) during Executive’s term of employment under this Agreement.  As used in this Agreement, an “Event of Termination” shall mean and include any one or more of the following:

          (i)          the involuntary termination by the Bank of Executive’s full-time employment hereunder for any reason other than (A) Retirement, Death or Disability, as defined in Section 7 below, or (B) Termination for Cause as defined in Section 8 hereof; or

          (ii)          Executive’s voluntary resignation from the Bank’s employ, upon

              (A)          a material diminution in Executive’s base compensation;

              (B)          a material diminution in Executive’s authority duties or responsibilities;

              (C)          a requirement that Executive must report to a corporate officer or employee instead of reporting directly to the President and Chief Executive Officer;

              (D)          a material diminution in the budget over which Executive retains authority;

              (E)          a change in the geographic location at which Executive must perform his/her duties that is more than twenty-five (25) miles from the location of Executive’s principal workplace on the date of this Agreement; or

              (F)          any other action or inaction that constitutes a material breach by the Bank of this Agreement.

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Upon the occurrence of any event described in clauses (ii) (A), (B), (C), (D), (E) or (F), above, Executive shall have the right to elect to terminate his/her employment under this Agreement by resignation upon sixty (60) days prior written notice given within a reasonable period of time not to exceed ninety (90) days after the initial event giving rise to said right to elect; provided, however that the Bank shall have at least thirty (30) days to cure such condition and provided that Executive actually terminates employment within two years after the initial occurrence of such event.  Notwithstanding the preceding sentence, in the event of a continuing breach of this Agreement by the Bank, Executive, after giving due notice within the prescribed time frame of an initial event specified above, shall not waive any of his/her rights solely under this Agreement and this Section 6 by virtue of the fact that Executive has submitted his/her resignation but has remained in the employment of the Bank and is engaged in good faith discussions to resolve any occurrence of an event described in clauses (A), (B), (C), (D), (E) or (F) above.

          (iii)          (A) Executive’s involuntary termination by the Bank (other than Termination for Cause) on the effective date of, or at any time following, a Change in Control, or (B) Executive’s resignation from employment with the Bank or the Company (or any successor thereto) following a Change in Control as a result of any event described in Section 6(a)(ii)(A), (B), (C), (D), (E) or (F) above.  For these purposes, a Change in Control of the Bank or the Company shall mean a change in control of a nature that: (i) would be required to be reported in response to Item 5.01 of the current report on Form 8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”); or (ii) results in a Change in Control of the Bank or the Company within the meaning of the Home Owners’ Loan Act, as amended, and applicable rules and regulations promulgated thereunder (collectively, the “HOLA”) as in effect at the time of the Change in Control; or (iii) without limitation such a Change in Control shall be deemed to have occurred at such time as (a) any “person” (as the term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of Company’s outstanding securities, except for any securities purchased by the Bank’s employee stock ownership plan or trust; or (b) individuals who constitute the Board on the date hereof (the “Incumbent Board”) cease for any reason to constitute at least a majority thereof, provided that any person becoming a director subsequent to the date hereof whose election was approved by a vote of at least three-quarters of the directors comprising the Incumbent Board, or whose nomination for election by the Company’s stockholders was approved by the same Nominating Committee serving under an Incumbent Board, shall be, for purposes of this clause (b), considered as though he or she were a member of the Incumbent Board; or (c) a plan of reorganization, merger, consolidation, sale of all or substantially all the assets of the Bank or the Company or similar transaction in which the Bank or Company is not the surviving institution occurs or is effected; or (d) a proxy statement soliciting proxies from stockholders of the Company, by someone other than the current management of the Company is distributed, seeking stockholder approval of a plan of reorganization, merger or consolidation of the Company or similar transaction with one or more corporations as a result of which the outstanding shares of the class of securities then subject to the plan are exchanged for or converted into cash or property or securities not issued by the Company; or (e) a tender offer is made for 25% or more of the voting securities of the Company and the shareholders owning beneficially or of record 25% or more of the outstanding securities of the Company have

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tendered or offered to sell their shares pursuant to such tender offer and such tendered shares have been accepted by the tender offeror.

          (b) Upon the occurrence of an Event of Termination within thirty (30) days after the Date of Termination, as defined in Section 9(b), the Bank shall pay Executive, or, in the event of his/her subsequent death, his/her beneficiary or beneficiaries, or his/her estate, as the case may be, as severance pay or liquidated damages, or both, a sum equal to (i) the Executive’s earned but unpaid Base Salary and benefits, plus (ii) two (2) times the sum of (A) Base Salary and (B) the highest rate of bonus awarded to Executive during the prior two (2) years; provided, however, that such Event of Termination must qualify as a “Separation from Service” as defined in Internal Revenue Code (“Code”) Section 409A and the regulations thereunder. Notwithstanding the foregoing, to the extent Executive is a “Specified Employee” as defined in Code Section 409A, and such earlier payment would trigger penalties under Code Section 409A, then such payment shall be made on the first day of the seventh month following Executive’s Separation from Service.  Such payment shall not be reduced in the event Executive obtains other employment following Separation from Service.

          (c) Upon the occurrence of an Event of Termination, the Bank will cause to be continued, at the Bank’s expense, life insurance coverage and non-taxable medical and dental insurance coverage, if any, substantially identical to the coverage maintained by the Bank for Executive prior to his/her termination, provided, however, such medical coverage shall cease upon the earlier of (i)  twenty-four (24) months from the Date of Termination or (ii) the date Executive becomes eligible for Medicare coverage, provided further, that if Executive is covered by family coverage or coverage for herself and a spouse, then the Executive’s family or spouse shall continue to be covered for the remainder of the twenty-four (24) month period or, in the case of the spouse, until the spouse becomes eligible for Medicare coverage or obtains healthcare coverage elsewhere, whichever period is less.

          (d) Within thirty (30) days of Executive’s Separation from Service in connection with an Event of Termination (provided, however, that, to the extent Executive is a “Specified Employee” as defined in Code Section 409A, and such earlier payment would trigger penalties under Code Section 409A, then such payment shall be made on the first day of the seventh month following Executive’s Separation from Service), the Bank shall pay Executive a lump sum equal to the present value of the Bank’s contributions that would have been made on his/her behalf under each of the Bank’s 401(k) Plan and Employee Stock Ownership Plan (and any other defined contribution plan maintained by the Bank in which Executive participates) as if she had continued working for the Bank for a twenty-four (24) month period following his/her Separation from Service earning his/her actual final rate of Base Salary as of the Date of Termination and as if she had made the maximum amount of employee contributions permitted, if any, under such plan or plans.  Such present values are to be determined using a discount rate equal to the short-term Internal Revenue Service’s “applicable federal rate” for the month before the date of the Separation from Service, compounded annually.

          (e)  Notwithstanding anything to the contrary herein, Executive’s resignation for any reason other than those set forth in clauses 6(a)(ii)(A), (B), (C), (D),(E) or (F) shall not entitle Executive to any payments under Section 6 of this agreement.

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7.       TERMINATION UPON RETIREMENT, DISABILITY OR DEATH

          For purposes of this Agreement, termination by the Bank of Executive’s employment based on “Retirement” shall mean termination of Executive’s employment by the President and Chief Executive Officer upon Executive’s attainment of age 62, or such later date as determined by the President and Chief Executive Officer.  Upon termination of Executive’s employment because of Retirement, Executive shall be entitled to all benefits under any retirement plan of the Bank and other plans to which Executive is a party, but Executive shall not be entitled to the Termination Benefits specified in Section 6.

          In the event Executive is unable to perform his/her duties under this Agreement on a full-time basis for a period of six (6) consecutive months by reason of “Disability” within the meaning of Code Section 409A, the Bank may terminate this Agreement, provided that the Bank shall continue to be obligated to pay Executive his/her Base Salary at the rate in effect at the Date of Termination for the remaining term of the Agreement, or one year, whichever is the longer period of time, and provided further that any amounts actually paid to Executive pursuant to any disability insurance or other similar such program which the Bank has provided or may provide on behalf of its employees or pursuant to any workman’s or Social Security disability program shall reduce the Base Salary to be paid to Executive pursuant to this paragraph. 

          In the event of Executive’s death during the term of the Agreement, his/her estate, legal representatives or named beneficiaries (as directed by Executive in writing) shall be paid Executive’s Base Salary at the rate in effect at the time Executive’s death for a period of one (1) year from the date of Executive’s death, and the Bank will continue to provide non-taxable medical and dental and other benefits normally provided for an Executive’s family for one (1) year after Executive’s death.

8.       TERMINATION FOR CAUSE

          The term “Termination for Cause” shall mean termination because of Executive’s personal dishonesty, incompetence, willful misconduct, any breach of fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule, or regulation (other than minor traffic violations or similar offenses) or final cease-and-desist order, or material breach of any provision of this Agreement.  In determining incompetence, the acts or omissions shall be measured against standards generally prevailing in the savings institutions industry.  Executive shall not have the right to receive Base Salary or other compensation for any period after Termination for Cause.  Any stock options or other incentives granted to Executive under any plan of the Bank, the Company or any subsidiary or affiliate thereof (whether vested or unvested), shall become null and void effective upon Executive’s receipt of Notice of Termination for Cause pursuant to Section 9 hereof. 

9.       NOTICE

          (a) Any purported termination by the Bank or by Executive shall be communicated by Notice of Termination to the other party hereto.  For purposes of this Agreement, a “Notice of Termination” shall mean a written notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances

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claimed to provide a basis for termination of Executive’s employment under the provision so indicated.

          (b) “Date of Termination” shall mean (A) if Executive’s employment is terminated for Disability, thirty (30) days after a Notice of Termination is given (provided that he/she shall not have returned to the performance of his/her duties on a full-time basis during such thirty (30) day period), and (B) if his/her employment is terminated for any other reason, the date specified in the Notice of Termination.

          (c) If the party receiving a Notice of Termination desires to dispute or contest the basis or reasons for termination, the party receiving the Notice of Termination must notify the other party within thirty (30) days after receiving the Notice of Termination that such a dispute exists, and shall pursue the resolution of such dispute in good faith and with reasonable diligence pursuant to Section 20 of this Agreement.  During the pendency of any such dispute, neither the Company nor the Bank shall be obligated to pay Executive Base Salary or other compensation beyond the Date of Termination.  Any amounts paid to Executive upon resolution of such dispute under this Section shall be offset against or reduce any other amounts due under this Agreement.

10.     POST-TERMINATION OBLIGATIONS

          (a) All payments and benefits to Executive under this Agreement shall be subject to Executive’s compliance with paragraph (b) of this Section and Section 11 during the term of this Agreement and for one (1) full year after the expiration or termination hereof.

          (b) Executive shall, upon reasonable notice, furnish such information and assistance to the Bank as may reasonably be required by the Bank in connection with any litigation in which it or any of its subsidiaries or affiliates is, or may become, a party.

11.     NON-COMPETITION

          (a) Upon any termination of Executive’s employment hereunder, other than a termination, (whether voluntary or involuntary) in connection with a Change in Control, as a result of which the Bank is paying Executive benefits under Section 6 of this Agreement, Executive agrees not to compete with the Bank and/or the Company for a period of one (1) year following such termination within twenty-five (25) miles of any existing branch of the Bank or any subsidiary of the Company or within twenty-five (25) miles of any office for which the Bank, the Company or a Bank subsidiary of the Company has filed an application for regulatory  approval to establish an office, determined as of the effective date of such termination, except as agreed to pursuant to a resolution duly adopted by the Board.  Executive agrees that during such period and within said area, cities, towns and counties, Executive shall not work for or advise, consult or otherwise serve with, directly or indirectly, any entity whose business materially competes with the depository, lending or other business activities of the Bank and/or the Company. The parties hereto, recognizing that irreparable injury will result to the Bank and/or the Company, its business and property in the event of Executive’s breach of this Subsection 11(a) agree that in the event of any such breach by Executive, the Bank and/or the Company will be entitled, in addition to any other remedies and damages available, to an injunction to restrain the violation hereof by Executive, Executive’s partners, agents, servants,

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employers, employees and all persons acting for or with Executive.  Executive represents and admits that Executive’s experience and capabilities are such that Executive can obtain employment in a business engaged in other lines and/or of a different nature than the Bank and/or the Company, and that the enforcement of a remedy by way of injunction will not prevent Executive from earning a livelihood.  Nothing herein will be construed as prohibiting the Bank and/or the Company from pursuing any other remedies available to the Bank and/or the Company for such breach or threatened breach, including the recovery of damages from Executive. 

          (b) Executive recognizes and acknowledges that the knowledge of the business activities and plans for business activities of the Bank and affiliates thereof, as it may exist from time to time, is a valuable, special and unique asset of the business of the Bank.  Executive will not, during or after the term of his/her employment, disclose any knowledge of the past, present, planned or considered business activities of the Bank or affiliates thereof to any person, firm, corporation, or other entity for any reason or purpose whatsoever (except for such disclosure as may be required to be provided to any federal banking agency with jurisdiction over the Bank or Executive).  Notwithstanding the foregoing, Executive may disclose any knowledge of banking, financial and/or economic principles, concepts or ideas which are not solely and exclusively derived from the business plans and activities of the Bank, and Executive may disclose any information regarding the Bank or the Company which is otherwise publicly available.  In the event of a breach or threatened breach by Executive of the provisions of this Section, the Bank will be entitled to an injunction restraining Executive from disclosing, in whole or in part, the knowledge of the past, present, planned or considered business activities of the Bank or affiliates thereof, or from rendering any services to any person, firm, corporation, other entity to whom such knowledge, in whole or in part, has been disclosed or is threatened to be disclosed.  Nothing herein will be construed as prohibiting the Bank from pursuing any other remedies available to the Bank for such breach or threatened breach, including the recovery of damages from Executive.

12.     SOURCE OF PAYMENTS

          All payments provided in this Agreement shall be timely paid in cash or check from the general funds of the Bank.  The Company, however, guarantees payment and provision of all amounts and benefits due hereunder to Executive and, if such amounts and benefits due from the Bank are not timely paid or provided by the Bank, such amounts and benefits shall be paid or provided by the Company.

13.     NO EFFECT ON EMPLOYEE BENEFITS PLANS OR PROGRAMS

          The Board may terminate Executive’s employment at any time, but, any termination of Executive’s employment, other than Termination for Cause shall have no effect on or prejudice the vested rights of Executive under the Company’s or the Bank’s qualified or non-qualified retirement, pension, savings, thrift, profit-sharing or stock bonus plans, group life, health (including hospitalization, medical and major medical), dental, accident and long term disability insurance plans or other employee benefit plans or programs, or compensation plans or programs in which Executive was a participant.  Executive shall not have the right to receive any Base

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Salary or other compensation for any period after Termination for Cause as defined in Section 8, except as otherwise required by applicable law.

14.     REQUIRED REGULATORY PROVISIONS

          (a) If Executive is suspended from office and/or temporarily prohibited from participating in the conduct of the Bank’s affairs by a notice served under Section 8(e)(3) (12 USC §1818(e)(3)) or 8(g)(1) (12 USC §1818(g)(1)) of the Federal Deposit Insurance Act (“FDIA”), as amended by the Financial Institutions Reform, Recovery and Enforcement Act of 1989, the Bank’s obligations under this Agreement shall be suspended as of the date of service, unless stayed by appropriate proceedings.  If the charges in the notice are dismissed, the Bank may in its discretion (i) pay Executive all or part of the Base Salary or other compensation withheld while its contract obligations were suspended and (ii) reinstate (in whole or in part) any of its obligations which were suspended.

          (b) If Executive is removed and/or permanently prohibited from participating in the conduct of the Bank’s affairs by an order issued under Section 8(e)(4) (12 U.S.C. §1818(e)(4)) or 8(g)(1) (12 U.S.C. §1818(g)(1)) of the FDIA, all obligations of the Bank under this Agreement shall terminate as of the effective date of the order, but vested rights of the contracting parties shall not be affected.

          (c) If the Bank is in default as defined in Section 3(x)(1) (12 U.S.C. §1813(x)(1)) of the FDIA, all obligations under this Agreement shall terminate as of the date of default, but this paragraph shall not affect any vested rights of the contracting parties.

          (d) All obligations under this Agreement shall be terminated, except to the extent determined that continuation of this Agreement is necessary for the continued operation of the Bank, (i) by the Director of OTS or a designee, at the time the FDIC enters into an agreement to provide assistance to or on behalf of the Bank under the authority contained in Section 13(c) (12 U.S.C. §1823(c)) of the FDIA; or (ii) by the Director of OTS or his/her or his/her designee at the time the Director of OTS or a designee approves a supervisory merger to resolve problems related to operations of the Bank or when the Bank is determined by the Director of OTS or a designee to be in an unsafe or unsound condition.  Any rights of the parties that have already vested, however, shall not be affected by such action.

          (e) Notwithstanding anything herein contained to the contrary, any payments to Executive by the Company, whether pursuant to this Agreement or otherwise, are subject to and conditioned upon their compliance with Section 18(k) of the FDIA, 12 U.S.C. § 1828(k), and the regulations promulgated thereunder in 12 C.F.R. Part 359.

15.     NO ATTACHMENT

          (a) Except as required by law, no right to receive payments under this Agreement shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation, or to execution, attachment, levy, or similar process or assignment by operation of law, and any attempt, voluntary or involuntary, to affect any such action shall be null, void, and of no effect.

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          (b) This Agreement shall be binding upon, and inure to the benefit of, Executive, the Bank and the Company and their respective successors and assigns.

16.     ENTIRE AGREEMENT; MODIFICATION AND WAIVER

          (a) This instrument contains the entire agreement of the parties relating to the subject matter hereof, and supercedes in its entirety any and all prior agreements, understandings or representations relating to the subject matter hereof, except that the parties acknowledge that this Agreement shall not affect any of the rights and obligations of the parties  under any agreement or plan entered into with or by the Bank or the Company pursuant to which the Executive may receive Base Salary or other compensation except as set forth in Section 12 hereof.  No modifications of this Agreement shall be valid unless made in writing and signed by the parties hereto.

          (b) This Agreement may not be modified or amended except by an instrument in writing signed by the parties hereto.

          (c) No term or condition of this Agreement shall be deemed to have been waived, nor shall there be any estoppel against the enforcement of any provision of this Agreement, except by written instrument of the party charged with such waiver or estoppel.  No such written waiver shall be deemed a continuing waiver unless specifically stated therein, and each such waiver shall operate only as to the specific term or condition waived and shall not constitute a waiver of such term or condition for the future as to any act other than that specifically waived.

17.     SEVERABILITY

          If, for any reason, any provision of this Agreement, or any part of any provision, is held invalid, such invalidity shall not affect any other provision of this Agreement or any part of such provision not held so invalid, and each such other provision and part thereof shall to the full extent consistent with law continue in full force and effect.

18.     HEADINGS FOR REFERENCE ONLY

          The headings of sections and paragraphs herein are included solely for convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Agreement.

19.     GOVERNING LAW

          This Agreement shall be governed by the laws of the State of California but only to the extent not superseded by federal law.

20.     ARBITRATION

          Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration, conducted before a panel of three arbitrators, one of whom shall be selected by the Bank, one of whom shall be selected by Executive and the third of whom shall be selected by the other two arbitrators.  The panel shall sit in a location within fifty (50)

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miles from the location of the Bank, in accordance with the rules of the Judicial Mediation and Arbitration Systems (JAMS) then in effect.  Judgment may be entered on the arbitrators award in any court having jurisdiction; provided, however, that Executive shall be entitled to seek specific performance of his/her right to be paid Base Salary and other compensation until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement.

21.     PAYMENT OF LEGAL FEES

          All reasonable legal fees paid or incurred by Executive pursuant to any dispute or question of interpretation relating to this Agreement shall be paid or reimbursed by the Bank, provided that the dispute or interpretation has been settled by Executive and the Bank or resolved in Executive’s favor and provided that such payment or reimbursement shall be made not later than two and one-half (2 ½) months after the end of the taxable year in which such fees were incurred.

22.     INDEMNIFICATION

          The Bank shall provide Executive (including his/her heirs, executors and administrators) with coverage under a standard directors and officers liability insurance policy at its expense.  Subject to 12 C.F.R. §545.121, the Bank or the Company, shall indemnify Executive (and his/her heirs, executors and administrators) to the fullest extent permitted under federal law against all expenses and liabilities reasonably incurred by herein connection with or arising out of any action, suit or proceeding in which he/she may be involved by reason of having been a director or officer of the Bank or the Company (whether or not he/she continues to be a director or officer at the time of incurring such expenses or liabilities), such expenses and liabilities to include, but not be limited to, judgments, court costs and attorneys fees and the cost of reasonable settlements (such settlements must be approved by the Board of Directors of the Bank or the Company).  If such action, suit or proceeding is brought against Executive in his/her capacity as an officer or director of the Bank, however, such indemnification shall not extend to matters as to which Executive is finally adjudged to be liable for willful misconduct in the performance of her duties.

23.     SUCCESSORS AND ASSIGNS

          The Bank and/or the Company shall require any successor or assignee, whether direct or indirect, by purchase, merger, consolidation or otherwise, to all or substantially all the business or assets of the Bank or the Company, expressly and unconditionally to assume and agree to perform the Bank’s and the Company’s obligations under this Agreement, in the same manner and to the same extent that the Bank and/or the Company would be required to perform if no such succession or assignment had taken place.

[Signature Page Follows]

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SIGNATURES

          IN WITNESS WHEREOF, the Bank and the Company have caused this Agreement to be executed and their seals to be affixed hereunto by their duly authorized officers, and Executive has signed this Agreement, as of the day and date first above written.

ATTEST:	KAISER FEDERAL BANK
	By:
ATTEST:	KAISER FEDERAL FINANCIAL GROUP, INC.
	By:
WITNESS:	EXECUTIVE
		Dustin Luton

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EX-10.7

Exhibit 10.7

EMPLOYMENT AGREEMENT

          This Agreement (“Agreement”) is made effective as of the _______ day of _______________, 2007, by and among KAISER FEDERAL BANK (the “Bank”), a federally chartered stock savings bank, with its principal administrative office at 1359 N. Grand Ave., Covina, California 91724 and NANCY J. HUBER (“Executive”).  Any reference to the “Company” herein shall mean KAISER FEDERAL FINANCIAL GROUP, INC., the holding company of the Bank.  The Company is a party to this Agreement for the sole purpose of guaranteeing the payments required hereunder, except as otherwise provided herein.

          WHEREAS, Executive is currently employed as the Chief Credit Officer of the Bank; and

          WHEREAS, the Bank desires to assure itself of the continued services of Executive pursuant to the terms of this Agreement.

          NOW, THEREFORE, in consideration of the mutual covenants herein contained, and upon the other terms and conditions hereinafter provided, the parties hereby agree as follows:

1.       POSITION AND RESPONSIBILITIES

          During the period of his/her employment hereunder, Executive agrees to serve as Chief Credit Officer of the Bank.  During said period, Executive also agrees to serve, if elected, as an officer and director of any subsidiary or affiliate of the Bank or the Company.

2.       TERMS AND DUTIES

          (a) The term of this Agreement and the period of Executive’s employment hereunder shall begin as of the date first above written and shall continue for twenty-four (24) full calendar months thereafter.  Commencing July 1, 2008 and continuing on the first day of July of each year thereafter (the “Anniversary Date”), this Agreement shall renew for an additional year such that the remaining term shall be twenty-four (24) months, unless written notice of non-renewal (“Non-Renewal Notice”) is provided to Executive at least thirty (30) days and not more than sixty (60) days prior to any such Anniversary Date that this Agreement shall terminate at the end of twenty-four (24) months following such Anniversary Date.  Prior to each notice period for non-renewal, the disinterested members of the Board of Directors of the Bank (the “Board”) will conduct a comprehensive performance evaluation and review of Executive for purposes of determining whether to extend the Agreement, and the results thereof shall be included in the minutes of the Board’s meeting. 

          (b) During the period of his/her employment hereunder, except for periods of absence occasioned by illness, reasonable vacation periods, and reasonable leaves of absence, Executive shall faithfully perform his/her duties hereunder including activities and services related to the organization, operation and management of the Bank.

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3.       COMPENSATION AND REIMBURSEMENT

          (a) The compensation specified under this Agreement shall constitute the salary and benefits paid for the duties described in Section 2(b).  The Bank shall pay Executive as compensation a salary of not less than $156,000 per year (“Base Salary”).  Such Base Salary shall be payable  in accordance with the customary payroll practices of the Bank.  During the period of this Agreement, Executive’s Base Salary shall be reviewed at least annually; the first such review will be made no later than July 1 of each year during the term of this Agreement and shall be effective from that date through the end of the next succeeding June.  Such review shall be conducted by the President and Chief Executive Officer, and he/she may increase, but not decrease, Executive’s Base Salary (any increase in Base Salary shall become the “Base Salary” for purposes of this Agreement).  In addition to the Base Salary provided in this Section 3(a), the Bank shall provide Executive at no cost to Executive with all such other benefits as are provided uniformly to permanent full-time employees of the Bank.

          (b) The Bank will provide Executive with employee benefit plans, arrangements and perquisites substantially equivalent to those in which Executive was participating or otherwise deriving benefit from immediately prior to the beginning of the term of this Agreement, and the Bank will not, without Executive’s prior written consent, make any changes in such plans, arrangements or perquisites which would adversely affect Executive’s rights or benefits thereunder, except for amendments that are generally applicable to all employees.  Without limiting the generality of the foregoing provisions of this Section 3(b), Executive will be entitled to participate in or receive benefits under any employee benefit plans including but not limited to, retirement plans, supplemental retirement plans, pension plans, profit-sharing plans, health-and-accident plans, medical coverage or any other employee benefit plan or arrangement made available by the Bank in the future to its senior executives and key management employees, subject to and on a basis consistent with the terms, conditions and overall administration of such plans and arrangements.  Executive will be entitled to incentive compensation and bonuses as provided in any plan of the Bank in which Executive is eligible to participate (and he/she shall be entitled to a pro rata distribution under any incentive compensation or bonus plan as to any year in which a termination of employment occurs, other than Termination for Cause).  Nothing paid to Executive under any such plan or arrangement will be deemed to be in lieu of other compensation to which Executive is entitled under this Agreement.

          (c) In addition to the Base Salary provided for by Section 3(a), the Bank shall pay or reimburse Executive for all reasonable travel and other reasonable expenses incurred by Executive in performing his/her obligations under this Agreement and may provide such additional compensation in such form and such amounts as may from time to time be determine.

4.       OUTSIDE ACTIVITIES

          Executive may serve as a member of the board of directors of business, community and charitable organizations subject to the approval of the President and Chief Executive Officer, provided that in each case such service shall not materially interfere with the performance of his/her duties under this Agreement or present any conflict of interest.  Such service to and participation in outside organizations shall be presumed for these purposes to be for the benefit

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of the Bank, and the Bank shall reimburse Executive his/her reasonable expenses associated therewith.

5.       WORKING FACILITIES AND EXPENSES

          Executive’s principal place of employment shall be at the Bank’s principal executive offices.  The Bank shall provide Executive, at his/her principal place of employment, with a private office, stenographic services and other support services and facilities suitable to his/her position with the Bank and necessary or appropriate in connection with the performance of his/her duties under this Agreement.  The Bank shall reimburse Executive for his/her ordinary and necessary business expenses incurred in connection with the performance of his/her duties under this Agreement, including, without limitation, fees for memberships in such clubs and organizations that Executive and the President and Chief Executive Officer mutually agree are necessary and appropriate to further the business of the Bank, and travel and reasonable entertainment expenses.  Reimbursement of such expenses shall be made upon presentation to the Bank of an itemized account of the expenses in such form as the Bank may reasonably require.

6.       PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION

          (a) The provisions of this Section 6 shall apply upon the occurrence of an Event of Termination (as herein defined) during Executive’s term of employment under this Agreement.  As used in this Agreement, an “Event of Termination” shall mean and include any one or more of the following:

          (i)          the involuntary termination by the Bank of Executive’s full-time employment hereunder for any reason other than (A) Retirement, Death or Disability, as defined in Section 7 below, or (B) Termination for Cause as defined in Section 8 hereof; or

          (ii)         Executive’s voluntary resignation from the Bank’s employ, upon

             (A)          a material diminution in Executive’s base compensation;

             (B)          a material diminution in Executive’s authority duties or responsibilities;

             (C)          a requirement that Executive must report to a corporate officer or employee instead of reporting directly to the President and Chief Executive Officer;

             (D)          a material diminution in the budget over which Executive retains authority;

             (E)          a change in the geographic location at which Executive must perform his/her duties that is more than twenty-five (25) miles from the location of Executive’s principal workplace on the date of this Agreement; or

             (F)          any other action or inaction that constitutes a material breach by the Bank of this Agreement.

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Upon the occurrence of any event described in clauses (ii) (A), (B), (C), (D), (E) or (F), above, Executive shall have the right to elect to terminate his/her employment under this Agreement by resignation upon sixty (60) days prior written notice given within a reasonable period of time not to exceed ninety (90) days after the initial event giving rise to said right to elect; provided, however that the Bank shall have at least thirty (30) days to cure such condition and provided that Executive actually terminates employment within two years after the initial occurrence of such event.  Notwithstanding the preceding sentence, in the event of a continuing breach of this Agreement by the Bank, Executive, after giving due notice within the prescribed time frame of an initial event specified above, shall not waive any of his/her rights solely under this Agreement and this Section 6 by virtue of the fact that Executive has submitted his/her resignation but has remained in the employment of the Bank and is engaged in good faith discussions to resolve any occurrence of an event described in clauses (A), (B), (C), (D), (E) or (F) above.

          (iii)          (A) Executive’s involuntary termination by the Bank (other than Termination for Cause) on the effective date of, or at any time following, a Change in Control, or (B) Executive’s resignation from employment with the Bank or the Company (or any successor thereto) following a Change in Control as a result of any event described in Section 6(a)(ii)(A), (B), (C), (D), (E) or (F) above.  For these purposes, a Change in Control of the Bank or the Company shall mean a change in control of a nature that: (i) would be required to be reported in response to Item 5.01 of the current report on Form 8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”); or (ii) results in a Change in Control of the Bank or the Company within the meaning of the Home Owners’ Loan Act, as amended, and applicable rules and regulations promulgated thereunder (collectively, the “HOLA”) as in effect at the time of the Change in Control; or (iii) without limitation such a Change in Control shall be deemed to have occurred at such time as (a) any “person” (as the term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of Company’s outstanding securities, except for any securities purchased by the Bank’s employee stock ownership plan or trust; or (b) individuals who constitute the Board on the date hereof (the “Incumbent Board”) cease for any reason to constitute at least a majority thereof, provided that any person becoming a director subsequent to the date hereof whose election was approved by a vote of at least three-quarters of the directors comprising the Incumbent Board, or whose nomination for election by the Company’s stockholders was approved by the same Nominating Committee serving under an Incumbent Board, shall be, for purposes of this clause (b), considered as though he or she were a member of the Incumbent Board; or (c) a plan of reorganization, merger, consolidation, sale of all or substantially all the assets of the Bank or the Company or similar transaction in which the Bank or Company is not the surviving institution occurs or is effected; or (d) a proxy statement soliciting proxies from stockholders of the Company, by someone other than the current management of the Company is distributed, seeking stockholder approval of a plan of reorganization, merger or consolidation of the Company or similar transaction with one or more corporations as a result of which the outstanding shares of the class of securities then subject to the plan are exchanged for or converted into cash or property or securities not issued by the Company; or (e) a tender offer is made for 25% or more of the voting securities of the Company and the shareholders owning beneficially or of record 25% or more of the outstanding securities of the Company have

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tendered or offered to sell their shares pursuant to such tender offer and such tendered shares have been accepted by the tender offeror.

          (b) Upon the occurrence of an Event of Termination within thirty (30) days after the Date of Termination, as defined in Section 9(b), the Bank shall pay Executive, or, in the event of his/her subsequent death, his/her beneficiary or beneficiaries, or his/her estate, as the case may be, as severance pay or liquidated damages, or both, a sum equal to (i) the Executive’s earned but unpaid Base Salary and benefits, plus (ii) two (2) times the sum of (A) Base Salary and (B) the highest rate of bonus awarded to Executive during the prior two (2) years; provided, however, that such Event of Termination must qualify as a “Separation from Service” as defined in Internal Revenue Code (“Code”) Section 409A and the regulations thereunder. Notwithstanding the foregoing, to the extent Executive is a “Specified Employee” as defined in Code Section 409A, and such earlier payment would trigger penalties under Code Section 409A, then such payment shall be made on the first day of the seventh month following Executive’s Separation from Service.  Such payment shall not be reduced in the event Executive obtains other employment following Separation from Service.

          (c) Upon the occurrence of an Event of Termination, the Bank will cause to be continued, at the Bank’s expense, life insurance coverage and non-taxable medical and dental insurance coverage, if any, substantially identical to the coverage maintained by the Bank for Executive prior to his/her termination, provided, however, such medical coverage shall cease upon the earlier of (i)  twenty-four (24) months from the Date of Termination or (ii) the date Executive becomes eligible for Medicare coverage, provided further, that if Executive is covered by family coverage or coverage for herself and a spouse, then the Executive’s family or spouse shall continue to be covered for the remainder of the twenty-four (24) month period or, in the case of the spouse, until the spouse becomes eligible for Medicare coverage or obtains healthcare coverage elsewhere, whichever period is less.

          (d) Within thirty (30) days of Executive’s Separation from Service in connection with an Event of Termination (provided, however, that, to the extent Executive is a “Specified Employee” as defined in Code Section 409A, and such earlier payment would trigger penalties under Code Section 409A, then such payment shall be made on the first day of the seventh month following Executive’s Separation from Service), the Bank shall pay Executive a lump sum equal to the present value of the Bank’s contributions that would have been made on his/her behalf under each of the Bank’s 401(k) Plan and Employee Stock Ownership Plan (and any other defined contribution plan maintained by the Bank in which Executive participates) as if she had continued working for the Bank for a twenty-four (24) month period following his/her Separation from Service earning his/her actual final rate of Base Salary as of the Date of Termination and as if she had made the maximum amount of employee contributions permitted, if any, under such plan or plans.  Such present values are to be determined using a discount rate equal to the short-term Internal Revenue Service’s “applicable federal rate” for the month before the date of the Separation from Service, compounded annually.

          (e)  Notwithstanding anything to the contrary herein, Executive’s resignation for any reason other than those set forth in clauses 6(a)(ii)(A), (B), (C), (D),(E) or (F) shall not entitle Executive to any payments under Section 6 of this agreement.

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7.       TERMINATION UPON RETIREMENT, DISABILITY OR DEATH

          For purposes of this Agreement, termination by the Bank of Executive’s employment based on “Retirement” shall mean termination of Executive’s employment by the President and Chief Executive Officer upon Executive’s attainment of age 62, or such later date as determined by the President and Chief Executive Officer.  Upon termination of Executive’s employment because of Retirement, Executive shall be entitled to all benefits under any retirement plan of the Bank and other plans to which Executive is a party, but Executive shall not be entitled to the Termination Benefits specified in Section 6.

          In the event Executive is unable to perform his/her duties under this Agreement on a full-time basis for a period of six (6) consecutive months by reason of “Disability” within the meaning of Code Section 409A, the Bank may terminate this Agreement, provided that the Bank shall continue to be obligated to pay Executive his/her Base Salary at the rate in effect at the Date of Termination for the remaining term of the Agreement, or one year, whichever is the longer period of time, and provided further that any amounts actually paid to Executive pursuant to any disability insurance or other similar such program which the Bank has provided or may provide on behalf of its employees or pursuant to any workman’s or Social Security disability program shall reduce the Base Salary to be paid to Executive pursuant to this paragraph. 

          In the event of Executive’s death during the term of the Agreement, his/her estate, legal representatives or named beneficiaries (as directed by Executive in writing) shall be paid Executive’s Base Salary at the rate in effect at the time Executive’s death for a period of one (1) year from the date of Executive’s death, and the Bank will continue to provide non-taxable medical and dental and other benefits normally provided for an Executive’s family for one (1) year after Executive’s death.

8.       TERMINATION FOR CAUSE

          The term “Termination for Cause” shall mean termination because of Executive’s personal dishonesty, incompetence, willful misconduct, any breach of fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule, or regulation (other than minor traffic violations or similar offenses) or final cease-and-desist order, or material breach of any provision of this Agreement.  In determining incompetence, the acts or omissions shall be measured against standards generally prevailing in the savings institutions industry.  Executive shall not have the right to receive Base Salary or other compensation for any period after Termination for Cause.  Any stock options or other incentives granted to Executive under any plan of the Bank, the Company or any subsidiary or affiliate thereof (whether vested or unvested), shall become null and void effective upon Executive’s receipt of Notice of Termination for Cause pursuant to Section 9 hereof. 

9.       NOTICE

          (a) Any purported termination by the Bank or by Executive shall be communicated by Notice of Termination to the other party hereto.  For purposes of this Agreement, a “Notice of Termination” shall mean a written notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances

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claimed to provide a basis for termination of Executive’s employment under the provision so indicated.

          (b) “Date of Termination” shall mean (A) if Executive’s employment is terminated for Disability, thirty (30) days after a Notice of Termination is given (provided that he/she shall not have returned to the performance of his/her duties on a full-time basis during such thirty (30) day period), and (B) if his/her employment is terminated for any other reason, the date specified in the Notice of Termination.

          (c) If the party receiving a Notice of Termination desires to dispute or contest the basis or reasons for termination, the party receiving the Notice of Termination must notify the other party within thirty (30) days after receiving the Notice of Termination that such a dispute exists, and shall pursue the resolution of such dispute in good faith and with reasonable diligence pursuant to Section 20 of this Agreement.  During the pendency of any such dispute, neither the Company nor the Bank shall be obligated to pay Executive Base Salary or other compensation beyond the Date of Termination.  Any amounts paid to Executive upon resolution of such dispute under this Section shall be offset against or reduce any other amounts due under this Agreement.

10.     POST-TERMINATION OBLIGATIONS

          (a) All payments and benefits to Executive under this Agreement shall be subject to Executive’s compliance with paragraph (b) of this Section and Section 11 during the term of this Agreement and for one (1) full year after the expiration or termination hereof.

          (b) Executive shall, upon reasonable notice, furnish such information and assistance to the Bank as may reasonably be required by the Bank in connection with any litigation in which it or any of its subsidiaries or affiliates is, or may become, a party.

11.     NON-COMPETITION

          (a) Upon any termination of Executive’s employment hereunder, other than a termination, (whether voluntary or involuntary) in connection with a Change in Control, as a result of which the Bank is paying Executive benefits under Section 6 of this Agreement, Executive agrees not to compete with the Bank and/or the Company for a period of one (1) year following such termination within twenty-five (25) miles of any existing branch of the Bank or any subsidiary of the Company or within twenty-five (25) miles of any office for which the Bank, the Company or a Bank subsidiary of the Company has filed an application for regulatory  approval to establish an office, determined as of the effective date of such termination, except as agreed to pursuant to a resolution duly adopted by the Board.  Executive agrees that during such period and within said area, cities, towns and counties, Executive shall not work for or advise, consult or otherwise serve with, directly or indirectly, any entity whose business materially competes with the depository, lending or other business activities of the Bank and/or the Company. The parties hereto, recognizing that irreparable injury will result to the Bank and/or the Company, its business and property in the event of Executive’s breach of this Subsection 11(a) agree that in the event of any such breach by Executive, the Bank and/or the Company will be entitled, in addition to any other remedies and damages available, to an injunction to restrain the violation hereof by Executive, Executive’s partners, agents, servants,

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employers, employees and all persons acting for or with Executive.  Executive represents and admits that Executive’s experience and capabilities are such that Executive can obtain employment in a business engaged in other lines and/or of a different nature than the Bank and/or the Company, and that the enforcement of a remedy by way of injunction will not prevent Executive from earning a livelihood.  Nothing herein will be construed as prohibiting the Bank and/or the Company from pursuing any other remedies available to the Bank and/or the Company for such breach or threatened breach, including the recovery of damages from Executive. 

          (b) Executive recognizes and acknowledges that the knowledge of the business activities and plans for business activities of the Bank and affiliates thereof, as it may exist from time to time, is a valuable, special and unique asset of the business of the Bank.  Executive will not, during or after the term of his/her employment, disclose any knowledge of the past, present, planned or considered business activities of the Bank or affiliates thereof to any person, firm, corporation, or other entity for any reason or purpose whatsoever (except for such disclosure as may be required to be provided to any federal banking agency with jurisdiction over the Bank or Executive).  Notwithstanding the foregoing, Executive may disclose any knowledge of banking, financial and/or economic principles, concepts or ideas which are not solely and exclusively derived from the business plans and activities of the Bank, and Executive may disclose any information regarding the Bank or the Company which is otherwise publicly available.  In the event of a breach or threatened breach by Executive of the provisions of this Section, the Bank will be entitled to an injunction restraining Executive from disclosing, in whole or in part, the knowledge of the past, present, planned or considered business activities of the Bank or affiliates thereof, or from rendering any services to any person, firm, corporation, other entity to whom such knowledge, in whole or in part, has been disclosed or is threatened to be disclosed.  Nothing herein will be construed as prohibiting the Bank from pursuing any other remedies available to the Bank for such breach or threatened breach, including the recovery of damages from Executive.

12.     SOURCE OF PAYMENTS

          All payments provided in this Agreement shall be timely paid in cash or check from the general funds of the Bank.  The Company, however, guarantees payment and provision of all amounts and benefits due hereunder to Executive and, if such amounts and benefits due from the Bank are not timely paid or provided by the Bank, such amounts and benefits shall be paid or provided by the Company.

13.     NO EFFECT ON EMPLOYEE BENEFITS PLANS OR PROGRAMS

          The Board may terminate Executive’s employment at any time, but, any termination of Executive’s employment, other than Termination for Cause shall have no effect on or prejudice the vested rights of Executive under the Company’s or the Bank’s qualified or non-qualified retirement, pension, savings, thrift, profit-sharing or stock bonus plans, group life, health (including hospitalization, medical and major medical), dental, accident and long term disability insurance plans or other employee benefit plans or programs, or compensation plans or programs in which Executive was a participant.  Executive shall not have the right to receive any Base

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Salary or other compensation for any period after Termination for Cause as defined in Section 8, except as otherwise required by applicable law.

14.     REQUIRED REGULATORY PROVISIONS

          (a) If Executive is suspended from office and/or temporarily prohibited from participating in the conduct of the Bank’s affairs by a notice served under Section 8(e)(3) (12 USC §1818(e)(3)) or 8(g)(1) (12 USC §1818(g)(1)) of the Federal Deposit Insurance Act (“FDIA”), as amended by the Financial Institutions Reform, Recovery and Enforcement Act of 1989, the Bank’s obligations under this Agreement shall be suspended as of the date of service, unless stayed by appropriate proceedings.  If the charges in the notice are dismissed, the Bank may in its discretion (i) pay Executive all or part of the Base Salary or other compensation withheld while its contract obligations were suspended and (ii) reinstate (in whole or in part) any of its obligations which were suspended.

          (b) If Executive is removed and/or permanently prohibited from participating in the conduct of the Bank’s affairs by an order issued under Section 8(e)(4) (12 U.S.C. §1818(e)(4)) or 8(g)(1) (12 U.S.C. §1818(g)(1)) of the FDIA, all obligations of the Bank under this Agreement shall terminate as of the effective date of the order, but vested rights of the contracting parties shall not be affected.

          (c) If the Bank is in default as defined in Section 3(x)(1) (12 U.S.C. §1813(x)(1)) of the FDIA, all obligations under this Agreement shall terminate as of the date of default, but this paragraph shall not affect any vested rights of the contracting parties.

          (d) All obligations under this Agreement shall be terminated, except to the extent determined that continuation of this Agreement is necessary for the continued operation of the Bank, (i) by the Director of OTS or a designee, at the time the FDIC enters into an agreement to provide assistance to or on behalf of the Bank under the authority contained in Section 13(c) (12 U.S.C. §1823(c)) of the FDIA; or (ii) by the Director of OTS or his/her or his/her designee at the time the Director of OTS or a designee approves a supervisory merger to resolve problems related to operations of the Bank or when the Bank is determined by the Director of OTS or a designee to be in an unsafe or unsound condition.  Any rights of the parties that have already vested, however, shall not be affected by such action.

          (e) Notwithstanding anything herein contained to the contrary, any payments to Executive by the Company, whether pursuant to this Agreement or otherwise, are subject to and conditioned upon their compliance with Section 18(k) of the FDIA, 12 U.S.C. § 1828(k), and the regulations promulgated thereunder in 12 C.F.R. Part 359.

15.     NO ATTACHMENT

          (a) Except as required by law, no right to receive payments under this Agreement shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation, or to execution, attachment, levy, or similar process or assignment by operation of law, and any attempt, voluntary or involuntary, to affect any such action shall be null, void, and of no effect.

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          (b) This Agreement shall be binding upon, and inure to the benefit of, Executive, the Bank and the Company and their respective successors and assigns.

16.     ENTIRE AGREEMENT; MODIFICATION AND WAIVER

          (a) This instrument contains the entire agreement of the parties relating to the subject matter hereof, and supercedes in its entirety any and all prior agreements, understandings or representations relating to the subject matter hereof, except that the parties acknowledge that this Agreement shall not affect any of the rights and obligations of the parties  under any agreement or plan entered into with or by the Bank or the Company pursuant to which the Executive may receive Base Salary or other compensation except as set forth in Section 12 hereof.  No modifications of this Agreement shall be valid unless made in writing and signed by the parties hereto.

          (b) This Agreement may not be modified or amended except by an instrument in writing signed by the parties hereto.

          (c) No term or condition of this Agreement shall be deemed to have been waived, nor shall there be any estoppel against the enforcement of any provision of this Agreement, except by written instrument of the party charged with such waiver or estoppel.  No such written waiver shall be deemed a continuing waiver unless specifically stated therein, and each such waiver shall operate only as to the specific term or condition waived and shall not constitute a waiver of such term or condition for the future as to any act other than that specifically waived.

17.     SEVERABILITY

          If, for any reason, any provision of this Agreement, or any part of any provision, is held invalid, such invalidity shall not affect any other provision of this Agreement or any part of such provision not held so invalid, and each such other provision and part thereof shall to the full extent consistent with law continue in full force and effect.

18.     HEADINGS FOR REFERENCE ONLY

          The headings of sections and paragraphs herein are included solely for convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Agreement.

19.     GOVERNING LAW

          This Agreement shall be governed by the laws of the State of California but only to the extent not superseded by federal law.

20.     ARBITRATION

          Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration, conducted before a panel of three arbitrators, one of whom shall be selected by the Bank, one of whom shall be selected by Executive and the third of whom shall be selected by the other two arbitrators.  The panel shall sit in a location within fifty (50)

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miles from the location of the Bank, in accordance with the rules of the Judicial Mediation and Arbitration Systems (JAMS) then in effect.  Judgment may be entered on the arbitrators award in any court having jurisdiction; provided, however, that Executive shall be entitled to seek specific performance of his/her right to be paid Base Salary and other compensation until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement.

21.     PAYMENT OF LEGAL FEES

          All reasonable legal fees paid or incurred by Executive pursuant to any dispute or question of interpretation relating to this Agreement shall be paid or reimbursed by the Bank, provided that the dispute or interpretation has been settled by Executive and the Bank or resolved in Executive’s favor and provided that such payment or reimbursement shall be made not later than two and one-half (2 ½) months after the end of the taxable year in which such fees were incurred.

22.     INDEMNIFICATION

          The Bank shall provide Executive (including his/her heirs, executors and administrators) with coverage under a standard directors and officers liability insurance policy at its expense.  Subject to 12 C.F.R. §545.121, the Bank or the Company, shall indemnify Executive (and his/her heirs, executors and administrators) to the fullest extent permitted under federal law against all expenses and liabilities reasonably incurred by herein connection with or arising out of any action, suit or proceeding in which he/she may be involved by reason of having been a director or officer of the Bank or the Company (whether or not he/she continues to be a director or officer at the time of incurring such expenses or liabilities), such expenses and liabilities to include, but not be limited to, judgments, court costs and attorneys fees and the cost of reasonable settlements (such settlements must be approved by the Board of Directors of the Bank or the Company).  If such action, suit or proceeding is brought against Executive in his/her capacity as an officer or director of the Bank, however, such indemnification shall not extend to matters as to which Executive is finally adjudged to be liable for willful misconduct in the performance of her duties.

23.     SUCCESSORS AND ASSIGNS

          The Bank and/or the Company shall require any successor or assignee, whether direct or indirect, by purchase, merger, consolidation or otherwise, to all or substantially all the business or assets of the Bank or the Company, expressly and unconditionally to assume and agree to perform the Bank’s and the Company’s obligations under this Agreement, in the same manner and to the same extent that the Bank and/or the Company would be required to perform if no such succession or assignment had taken place.

[Signature Page Follows]

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SIGNATURES

          IN WITNESS WHEREOF, the Bank and the Company have caused this Agreement to be executed and their seals to be affixed hereunto by their duly authorized officers, and Executive has signed this Agreement, as of the day and date first above written.

ATTEST:	KAISER FEDERAL BANK
	By:
ATTEST:	KAISER FEDERAL FINANCIAL GROUP, INC.
	By:
WITNESS:	EXECUTIVE
		Nancy J. Huber

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EX-10.8

Exhibit 10.8

EMPLOYMENT AGREEMENT

          This Agreement (“Agreement”) is made effective as of the _______ day of _______________, 2007, by and among KAISER FEDERAL BANK (the “Bank”), a federally chartered stock savings bank, with its principal administrative office at 1359 N. Grand Ave., Covina, California 91724 and JEANNE R. THOMPSON (“Executive”).  Any reference to the “Company” herein shall mean KAISER FEDERAL FINANCIAL GROUP, INC., the holding company of the Bank.  The Company is a party to this Agreement for the sole purpose of guaranteeing the payments required hereunder, except as otherwise provided herein.

          WHEREAS, Executive is currently employed as the Chief Operating Officer of the Bank; and

          WHEREAS, the Bank desires to assure itself of the continued services of Executive pursuant to the terms of this Agreement.

          NOW, THEREFORE, in consideration of the mutual covenants herein contained, and upon the other terms and conditions hereinafter provided, the parties hereby agree as follows:

1.       POSITION AND RESPONSIBILITIES

          During the period of his/her employment hereunder, Executive agrees to serve as Chief Operating Officer of the Bank.  During said period, Executive also agrees to serve, if elected, as an officer and director of any subsidiary or affiliate of the Bank or the Company.

2.       TERMS AND DUTIES

          (a) The term of this Agreement and the period of Executive’s employment hereunder shall begin as of the date first above written and shall continue for twenty-four (24) full calendar months thereafter.  Commencing July 1, 2008 and continuing on the first day of July of each year thereafter (the “Anniversary Date”), this Agreement shall renew for an additional year such that the remaining term shall be twenty-four (24) months, unless written notice of non-renewal (“Non-Renewal Notice”) is provided to Executive at least thirty (30) days and not more than sixty (60) days prior to any such Anniversary Date that this Agreement shall terminate at the end of twenty-four (24) months following such Anniversary Date.  Prior to each notice period for non-renewal, the disinterested members of the Board of Directors of the Bank (the “Board”) will conduct a comprehensive performance evaluation and review of Executive for purposes of determining whether to extend the Agreement, and the results thereof shall be included in the minutes of the Board’s meeting. 

          (b) During the period of his/her employment hereunder, except for periods of absence occasioned by illness, reasonable vacation periods, and reasonable leaves of absence, Executive shall faithfully perform his/her duties hereunder including activities and services related to the organization, operation and management of the Bank.

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3.       COMPENSATION AND REIMBURSEMENT

          (a) The compensation specified under this Agreement shall constitute the salary and benefits paid for the duties described in Section 2(b).  The Bank shall pay Executive as compensation a salary of not less than $144,664 per year (“Base Salary”).  Such Base Salary shall be payable  in accordance with the customary payroll practices of the Bank.  During the period of this Agreement, Executive’s Base Salary shall be reviewed at least annually; the first such review will be made no later than July 1 of each year during the term of this Agreement and shall be effective from that date through the end of the next succeeding June.  Such review shall be conducted by the President and Chief Executive Officer, and he/she may increase, but not decrease, Executive’s Base Salary (any increase in Base Salary shall become the “Base Salary” for purposes of this Agreement).  In addition to the Base Salary provided in this Section 3(a), the Bank shall provide Executive at no cost to Executive with all such other benefits as are provided uniformly to permanent full-time employees of the Bank.

          (b) The Bank will provide Executive with employee benefit plans, arrangements and perquisites substantially equivalent to those in which Executive was participating or otherwise deriving benefit from immediately prior to the beginning of the term of this Agreement, and the Bank will not, without Executive’s prior written consent, make any changes in such plans, arrangements or perquisites which would adversely affect Executive’s rights or benefits thereunder, except for amendments that are generally applicable to all employees.  Without limiting the generality of the foregoing provisions of this Section 3(b), Executive will be entitled to participate in or receive benefits under any employee benefit plans including but not limited to, retirement plans, supplemental retirement plans, pension plans, profit-sharing plans, health-and-accident plans, medical coverage or any other employee benefit plan or arrangement made available by the Bank in the future to its senior executives and key management employees, subject to and on a basis consistent with the terms, conditions and overall administration of such plans and arrangements.  Executive will be entitled to incentive compensation and bonuses as provided in any plan of the Bank in which Executive is eligible to participate (and he/she shall be entitled to a pro rata distribution under any incentive compensation or bonus plan as to any year in which a termination of employment occurs, other than Termination for Cause).  Nothing paid to Executive under any such plan or arrangement will be deemed to be in lieu of other compensation to which Executive is entitled under this Agreement.

          (c) In addition to the Base Salary provided for by Section 3(a), the Bank shall pay or reimburse Executive for all reasonable travel and other reasonable expenses incurred by Executive in performing his/her obligations under this Agreement and may provide such additional compensation in such form and such amounts as may from time to time be determine.

4.       OUTSIDE ACTIVITIES

          Executive may serve as a member of the board of directors of business, community and charitable organizations subject to the approval of the President and Chief Executive Officer, provided that in each case such service shall not materially interfere with the performance of his/her duties under this Agreement or present any conflict of interest.  Such service to and participation in outside organizations shall be presumed for these purposes to be for the benefit

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of the Bank, and the Bank shall reimburse Executive his/her reasonable expenses associated therewith.

5.       WORKING FACILITIES AND EXPENSES

          Executive’s principal place of employment shall be at the Bank’s principal executive offices.  The Bank shall provide Executive, at his/her principal place of employment, with a private office, stenographic services and other support services and facilities suitable to his/her position with the Bank and necessary or appropriate in connection with the performance of his/her duties under this Agreement.  The Bank shall reimburse Executive for his/her ordinary and necessary business expenses incurred in connection with the performance of his/her duties under this Agreement, including, without limitation, fees for memberships in such clubs and organizations that Executive and the President and Chief Executive Officer mutually agree are necessary and appropriate to further the business of the Bank, and travel and reasonable entertainment expenses.  Reimbursement of such expenses shall be made upon presentation to the Bank of an itemized account of the expenses in such form as the Bank may reasonably require.

6.       PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION

          (a) The provisions of this Section 6 shall apply upon the occurrence of an Event of Termination (as herein defined) during Executive’s term of employment under this Agreement.  As used in this Agreement, an “Event of Termination” shall mean and include any one or more of the following:

          (i)          the involuntary termination by the Bank of Executive’s full-time employment hereunder for any reason other than (A) Retirement, Death or Disability, as defined in Section 7 below, or (B) Termination for Cause as defined in Section 8 hereof; or

          (ii)         Executive’s voluntary resignation from the Bank’s employ, upon

             (A)          a material diminution in Executive’s base compensation;

             (B)          a material diminution in Executive’s authority duties or responsibilities;

             (C)          a requirement that Executive must report to a corporate officer or employee instead of reporting directly to the President and Chief Executive Officer;

             (D)          a material diminution in the budget over which Executive retains authority;

             (E)          a change in the geographic location at which Executive must perform his/her duties that is more than twenty-five (25) miles from the location of Executive’s principal workplace on the date of this Agreement; or

             (F)          any other action or inaction that constitutes a material breach by the Bank of this Agreement.

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Upon the occurrence of any event described in clauses (ii) (A), (B), (C), (D), (E) or (F), above, Executive shall have the right to elect to terminate his/her employment under this Agreement by resignation upon sixty (60) days prior written notice given within a reasonable period of time not to exceed ninety (90) days after the initial event giving rise to said right to elect; provided, however that the Bank shall have at least thirty (30) days to cure such condition and provided that Executive actually terminates employment within two years after the initial occurrence of such event.  Notwithstanding the preceding sentence, in the event of a continuing breach of this Agreement by the Bank, Executive, after giving due notice within the prescribed time frame of an initial event specified above, shall not waive any of his/her rights solely under this Agreement and this Section 6 by virtue of the fact that Executive has submitted his/her resignation but has remained in the employment of the Bank and is engaged in good faith discussions to resolve any occurrence of an event described in clauses (A), (B), (C), (D), (E) or (F) above.

          (iii)          (A) Executive’s involuntary termination by the Bank (other than Termination for Cause) on the effective date of, or at any time following, a Change in Control, or (B) Executive’s resignation from employment with the Bank or the Company (or any successor thereto) following a Change in Control as a result of any event described in Section 6(a)(ii)(A), (B), (C), (D), (E) or (F) above.  For these purposes, a Change in Control of the Bank or the Company shall mean a change in control of a nature that: (i) would be required to be reported in response to Item 5.01 of the current report on Form 8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”); or (ii) results in a Change in Control of the Bank or the Company within the meaning of the Home Owners’ Loan Act, as amended, and applicable rules and regulations promulgated thereunder (collectively, the “HOLA”) as in effect at the time of the Change in Control; or (iii) without limitation such a Change in Control shall be deemed to have occurred at such time as (a) any “person” (as the term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of Company’s outstanding securities, except for any securities purchased by the Bank’s employee stock ownership plan or trust; or (b) individuals who constitute the Board on the date hereof (the “Incumbent Board”) cease for any reason to constitute at least a majority thereof, provided that any person becoming a director subsequent to the date hereof whose election was approved by a vote of at least three-quarters of the directors comprising the Incumbent Board, or whose nomination for election by the Company’s stockholders was approved by the same Nominating Committee serving under an Incumbent Board, shall be, for purposes of this clause (b), considered as though he or she were a member of the Incumbent Board; or (c) a plan of reorganization, merger, consolidation, sale of all or substantially all the assets of the Bank or the Company or similar transaction in which the Bank or Company is not the surviving institution occurs or is effected; or (d) a proxy statement soliciting proxies from stockholders of the Company, by someone other than the current management of the Company is distributed, seeking stockholder approval of a plan of reorganization, merger or consolidation of the Company or similar transaction with one or more corporations as a result of which the outstanding shares of the class of securities then subject to the plan are exchanged for or converted into cash or property or securities not issued by the Company; or (e) a tender offer is made for 25% or more of the voting securities of the Company and the shareholders owning beneficially or of record 25% or more of the outstanding securities of the Company have

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tendered or offered to sell their shares pursuant to such tender offer and such tendered shares have been accepted by the tender offeror.

          (b) Upon the occurrence of an Event of Termination within thirty (30) days after the Date of Termination, as defined in Section 9(b), the Bank shall pay Executive, or, in the event of his/her subsequent death, his/her beneficiary or beneficiaries, or his/her estate, as the case may be, as severance pay or liquidated damages, or both, a sum equal to (i) the Executive’s earned but unpaid Base Salary and benefits, plus (ii) two (2) times the sum of (A) Base Salary and (B) the highest rate of bonus awarded to Executive during the prior two (2) years; provided, however, that such Event of Termination must qualify as a “Separation from Service” as defined in Internal Revenue Code (“Code”) Section 409A and the regulations thereunder. Notwithstanding the foregoing, to the extent Executive is a “Specified Employee” as defined in Code Section 409A, and such earlier payment would trigger penalties under Code Section 409A, then such payment shall be made on the first day of the seventh month following Executive’s Separation from Service.  Such payment shall not be reduced in the event Executive obtains other employment following Separation from Service.

          (c) Upon the occurrence of an Event of Termination, the Bank will cause to be continued, at the Bank’s expense, life insurance coverage and non-taxable medical and dental insurance coverage, if any, substantially identical to the coverage maintained by the Bank for Executive prior to his/her termination, provided, however, such medical coverage shall cease upon the earlier of (i)  twenty-four (24) months from the Date of Termination or (ii) the date Executive becomes eligible for Medicare coverage, provided further, that if Executive is covered by family coverage or coverage for herself and a spouse, then the Executive’s family or spouse shall continue to be covered for the remainder of the twenty-four (24) month period or, in the case of the spouse, until the spouse becomes eligible for Medicare coverage or obtains healthcare coverage elsewhere, whichever period is less.

          (d) Within thirty (30) days of Executive’s Separation from Service in connection with an Event of Termination (provided, however, that, to the extent Executive is a “Specified Employee” as defined in Code Section 409A, and such earlier payment would trigger penalties under Code Section 409A, then such payment shall be made on the first day of the seventh month following Executive’s Separation from Service), the Bank shall pay Executive a lump sum equal to the present value of the Bank’s contributions that would have been made on his/her behalf under each of the Bank’s 401(k) Plan and Employee Stock Ownership Plan (and any other defined contribution plan maintained by the Bank in which Executive participates) as if she had continued working for the Bank for a twenty-four (24) month period following his/her Separation from Service earning his/her actual final rate of Base Salary as of the Date of Termination and as if she had made the maximum amount of employee contributions permitted, if any, under such plan or plans.  Such present values are to be determined using a discount rate equal to the short-term Internal Revenue Service’s “applicable federal rate” for the month before the date of the Separation from Service, compounded annually.

          (e)  Notwithstanding anything to the contrary herein, Executive’s resignation for any reason other than those set forth in clauses 6(a)(ii)(A), (B), (C), (D),(E) or (F) shall not entitle Executive to any payments under Section 6 of this agreement.

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7.       TERMINATION UPON RETIREMENT, DISABILITY OR DEATH

          For purposes of this Agreement, termination by the Bank of Executive’s employment based on “Retirement” shall mean termination of Executive’s employment by the President and Chief Executive Officer upon Executive’s attainment of age 62, or such later date as determined by the President and Chief Executive Officer.  Upon termination of Executive’s employment because of Retirement, Executive shall be entitled to all benefits under any retirement plan of the Bank and other plans to which Executive is a party, but Executive shall not be entitled to the Termination Benefits specified in Section 6.

          In the event Executive is unable to perform his/her duties under this Agreement on a full-time basis for a period of six (6) consecutive months by reason of “Disability” within the meaning of Code Section 409A, the Bank may terminate this Agreement, provided that the Bank shall continue to be obligated to pay Executive his/her Base Salary at the rate in effect at the Date of Termination for the remaining term of the Agreement, or one year, whichever is the longer period of time, and provided further that any amounts actually paid to Executive pursuant to any disability insurance or other similar such program which the Bank has provided or may provide on behalf of its employees or pursuant to any workman’s or Social Security disability program shall reduce the Base Salary to be paid to Executive pursuant to this paragraph. 

          In the event of Executive’s death during the term of the Agreement, his/her estate, legal representatives or named beneficiaries (as directed by Executive in writing) shall be paid Executive’s Base Salary at the rate in effect at the time Executive’s death for a period of one (1) year from the date of Executive’s death, and the Bank will continue to provide non-taxable medical and dental and other benefits normally provided for an Executive’s family for one (1) year after Executive’s death.

8.       TERMINATION FOR CAUSE

          The term “Termination for Cause” shall mean termination because of Executive’s personal dishonesty, incompetence, willful misconduct, any breach of fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule, or regulation (other than minor traffic violations or similar offenses) or final cease-and-desist order, or material breach of any provision of this Agreement.  In determining incompetence, the acts or omissions shall be measured against standards generally prevailing in the savings institutions industry.  Executive shall not have the right to receive Base Salary or other compensation for any period after Termination for Cause.  Any stock options or other incentives granted to Executive under any plan of the Bank, the Company or any subsidiary or affiliate thereof (whether vested or unvested), shall become null and void effective upon Executive’s receipt of Notice of Termination for Cause pursuant to Section 9 hereof. 

9.       NOTICE

          (a) Any purported termination by the Bank or by Executive shall be communicated by Notice of Termination to the other party hereto.  For purposes of this Agreement, a “Notice of Termination” shall mean a written notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances

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claimed to provide a basis for termination of Executive’s employment under the provision so indicated.

          (b) “Date of Termination” shall mean (A) if Executive’s employment is terminated for Disability, thirty (30) days after a Notice of Termination is given (provided that he/she shall not have returned to the performance of his/her duties on a full-time basis during such thirty (30) day period), and (B) if his/her employment is terminated for any other reason, the date specified in the Notice of Termination.

          (c) If the party receiving a Notice of Termination desires to dispute or contest the basis or reasons for termination, the party receiving the Notice of Termination must notify the other party within thirty (30) days after receiving the Notice of Termination that such a dispute exists, and shall pursue the resolution of such dispute in good faith and with reasonable diligence pursuant to Section 20 of this Agreement.  During the pendency of any such dispute, neither the Company nor the Bank shall be obligated to pay Executive Base Salary or other compensation beyond the Date of Termination.  Any amounts paid to Executive upon resolution of such dispute under this Section shall be offset against or reduce any other amounts due under this Agreement.

10.     POST-TERMINATION OBLIGATIONS

          (a) All payments and benefits to Executive under this Agreement shall be subject to Executive’s compliance with paragraph (b) of this Section and Section 11 during the term of this Agreement and for one (1) full year after the expiration or termination hereof.

          (b) Executive shall, upon reasonable notice, furnish such information and assistance to the Bank as may reasonably be required by the Bank in connection with any litigation in which it or any of its subsidiaries or affiliates is, or may become, a party.

11.     NON-COMPETITION

          (a) Upon any termination of Executive’s employment hereunder, other than a termination, (whether voluntary or involuntary) in connection with a Change in Control, as a result of which the Bank is paying Executive benefits under Section 6 of this Agreement, Executive agrees not to compete with the Bank and/or the Company for a period of one (1) year following such termination within twenty-five (25) miles of any existing branch of the Bank or any subsidiary of the Company or within twenty-five (25) miles of any office for which the Bank, the Company or a Bank subsidiary of the Company has filed an application for regulatory  approval to establish an office, determined as of the effective date of such termination, except as agreed to pursuant to a resolution duly adopted by the Board.  Executive agrees that during such period and within said area, cities, towns and counties, Executive shall not work for or advise, consult or otherwise serve with, directly or indirectly, any entity whose business materially competes with the depository, lending or other business activities of the Bank and/or the Company. The parties hereto, recognizing that irreparable injury will result to the Bank and/or the Company, its business and property in the event of Executive’s breach of this Subsection 11(a) agree that in the event of any such breach by Executive, the Bank and/or the Company will be entitled, in addition to any other remedies and damages available, to an injunction to restrain the violation hereof by Executive, Executive’s partners, agents, servants,

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employers, employees and all persons acting for or with Executive.  Executive represents and admits that Executive’s experience and capabilities are such that Executive can obtain employment in a business engaged in other lines and/or of a different nature than the Bank and/or the Company, and that the enforcement of a remedy by way of injunction will not prevent Executive from earning a livelihood.  Nothing herein will be construed as prohibiting the Bank and/or the Company from pursuing any other remedies available to the Bank and/or the Company for such breach or threatened breach, including the recovery of damages from Executive. 

          (b) Executive recognizes and acknowledges that the knowledge of the business activities and plans for business activities of the Bank and affiliates thereof, as it may exist from time to time, is a valuable, special and unique asset of the business of the Bank.  Executive will not, during or after the term of his/her employment, disclose any knowledge of the past, present, planned or considered business activities of the Bank or affiliates thereof to any person, firm, corporation, or other entity for any reason or purpose whatsoever (except for such disclosure as may be required to be provided to any federal banking agency with jurisdiction over the Bank or Executive).  Notwithstanding the foregoing, Executive may disclose any knowledge of banking, financial and/or economic principles, concepts or ideas which are not solely and exclusively derived from the business plans and activities of the Bank, and Executive may disclose any information regarding the Bank or the Company which is otherwise publicly available.  In the event of a breach or threatened breach by Executive of the provisions of this Section, the Bank will be entitled to an injunction restraining Executive from disclosing, in whole or in part, the knowledge of the past, present, planned or considered business activities of the Bank or affiliates thereof, or from rendering any services to any person, firm, corporation, other entity to whom such knowledge, in whole or in part, has been disclosed or is threatened to be disclosed.  Nothing herein will be construed as prohibiting the Bank from pursuing any other remedies available to the Bank for such breach or threatened breach, including the recovery of damages from Executive.

12.     SOURCE OF PAYMENTS

          All payments provided in this Agreement shall be timely paid in cash or check from the general funds of the Bank.  The Company, however, guarantees payment and provision of all amounts and benefits due hereunder to Executive and, if such amounts and benefits due from the Bank are not timely paid or provided by the Bank, such amounts and benefits shall be paid or provided by the Company.

13.     NO EFFECT ON EMPLOYEE BENEFITS PLANS OR PROGRAMS

          The Board may terminate Executive’s employment at any time, but, any termination of Executive’s employment, other than Termination for Cause shall have no effect on or prejudice the vested rights of Executive under the Company’s or the Bank’s qualified or non-qualified retirement, pension, savings, thrift, profit-sharing or stock bonus plans, group life, health (including hospitalization, medical and major medical), dental, accident and long term disability insurance plans or other employee benefit plans or programs, or compensation plans or programs in which Executive was a participant.  Executive shall not have the right to receive any Base

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Salary or other compensation for any period after Termination for Cause as defined in Section 8, except as otherwise required by applicable law.

14.     REQUIRED REGULATORY PROVISIONS

          (a) If Executive is suspended from office and/or temporarily prohibited from participating in the conduct of the Bank’s affairs by a notice served under Section 8(e)(3) (12 USC §1818(e)(3)) or 8(g)(1) (12 USC §1818(g)(1)) of the Federal Deposit Insurance Act (“FDIA”), as amended by the Financial Institutions Reform, Recovery and Enforcement Act of 1989, the Bank’s obligations under this Agreement shall be suspended as of the date of service, unless stayed by appropriate proceedings.  If the charges in the notice are dismissed, the Bank may in its discretion (i) pay Executive all or part of the Base Salary or other compensation withheld while its contract obligations were suspended and (ii) reinstate (in whole or in part) any of its obligations which were suspended.

          (b) If Executive is removed and/or permanently prohibited from participating in the conduct of the Bank’s affairs by an order issued under Section 8(e)(4) (12 U.S.C. §1818(e)(4)) or 8(g)(1) (12 U.S.C. §1818(g)(1)) of the FDIA, all obligations of the Bank under this Agreement shall terminate as of the effective date of the order, but vested rights of the contracting parties shall not be affected.

          (c) If the Bank is in default as defined in Section 3(x)(1) (12 U.S.C. §1813(x)(1)) of the FDIA, all obligations under this Agreement shall terminate as of the date of default, but this paragraph shall not affect any vested rights of the contracting parties.

          (d) All obligations under this Agreement shall be terminated, except to the extent determined that continuation of this Agreement is necessary for the continued operation of the Bank, (i) by the Director of OTS or a designee, at the time the FDIC enters into an agreement to provide assistance to or on behalf of the Bank under the authority contained in Section 13(c) (12 U.S.C. §1823(c)) of the FDIA; or (ii) by the Director of OTS or his/her or his/her designee at the time the Director of OTS or a designee approves a supervisory merger to resolve problems related to operations of the Bank or when the Bank is determined by the Director of OTS or a designee to be in an unsafe or unsound condition.  Any rights of the parties that have already vested, however, shall not be affected by such action.

          (e) Notwithstanding anything herein contained to the contrary, any payments to Executive by the Company, whether pursuant to this Agreement or otherwise, are subject to and conditioned upon their compliance with Section 18(k) of the FDIA, 12 U.S.C. § 1828(k), and the regulations promulgated thereunder in 12 C.F.R. Part 359.

15.     NO ATTACHMENT

          (a) Except as required by law, no right to receive payments under this Agreement shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation, or to execution, attachment, levy, or similar process or assignment by operation of law, and any attempt, voluntary or involuntary, to affect any such action shall be null, void, and of no effect.

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          (b) This Agreement shall be binding upon, and inure to the benefit of, Executive, the Bank and the Company and their respective successors and assigns.

16.     ENTIRE AGREEMENT; MODIFICATION AND WAIVER

          (a) This instrument contains the entire agreement of the parties relating to the subject matter hereof, and supercedes in its entirety any and all prior agreements, understandings or representations relating to the subject matter hereof, except that the parties acknowledge that this Agreement shall not affect any of the rights and obligations of the parties  under any agreement or plan entered into with or by the Bank or the Company pursuant to which the Executive may receive Base Salary or other compensation except as set forth in Section 12 hereof.  No modifications of this Agreement shall be valid unless made in writing and signed by the parties hereto.

          (b) This Agreement may not be modified or amended except by an instrument in writing signed by the parties hereto.

          (c) No term or condition of this Agreement shall be deemed to have been waived, nor shall there be any estoppel against the enforcement of any provision of this Agreement, except by written instrument of the party charged with such waiver or estoppel.  No such written waiver shall be deemed a continuing waiver unless specifically stated therein, and each such waiver shall operate only as to the specific term or condition waived and shall not constitute a waiver of such term or condition for the future as to any act other than that specifically waived.

17.     SEVERABILITY

          If, for any reason, any provision of this Agreement, or any part of any provision, is held invalid, such invalidity shall not affect any other provision of this Agreement or any part of such provision not held so invalid, and each such other provision and part thereof shall to the full extent consistent with law continue in full force and effect.

18.     HEADINGS FOR REFERENCE ONLY

          The headings of sections and paragraphs herein are included solely for convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Agreement.

19.     GOVERNING LAW

          This Agreement shall be governed by the laws of the State of California but only to the extent not superseded by federal law.

20.     ARBITRATION

          Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration, conducted before a panel of three arbitrators, one of whom shall be selected by the Bank, one of whom shall be selected by Executive and the third of whom shall be selected by the other two arbitrators.  The panel shall sit in a location within fifty (50)

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miles from the location of the Bank, in accordance with the rules of the Judicial Mediation and Arbitration Systems (JAMS) then in effect.  Judgment may be entered on the arbitrators award in any court having jurisdiction; provided, however, that Executive shall be entitled to seek specific performance of his/her right to be paid Base Salary and other compensation until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement.

21.     PAYMENT OF LEGAL FEES

          All reasonable legal fees paid or incurred by Executive pursuant to any dispute or question of interpretation relating to this Agreement shall be paid or reimbursed by the Bank, provided that the dispute or interpretation has been settled by Executive and the Bank or resolved in Executive’s favor and provided that such payment or reimbursement shall be made not later than two and one-half (2 ½) months after the end of the taxable year in which such fees were incurred.

22.     INDEMNIFICATION

          The Bank shall provide Executive (including his/her heirs, executors and administrators) with coverage under a standard directors and officers liability insurance policy at its expense.  Subject to 12 C.F.R. §545.121, the Bank or the Company, shall indemnify Executive (and his/her heirs, executors and administrators) to the fullest extent permitted under federal law against all expenses and liabilities reasonably incurred by herein connection with or arising out of any action, suit or proceeding in which he/she may be involved by reason of having been a director or officer of the Bank or the Company (whether or not he/she continues to be a director or officer at the time of incurring such expenses or liabilities), such expenses and liabilities to include, but not be limited to, judgments, court costs and attorneys fees and the cost of reasonable settlements (such settlements must be approved by the Board of Directors of the Bank or the Company).  If such action, suit or proceeding is brought against Executive in his/her capacity as an officer or director of the Bank, however, such indemnification shall not extend to matters as to which Executive is finally adjudged to be liable for willful misconduct in the performance of her duties.

23.     SUCCESSORS AND ASSIGNS

          The Bank and/or the Company shall require any successor or assignee, whether direct or indirect, by purchase, merger, consolidation or otherwise, to all or substantially all the business or assets of the Bank or the Company, expressly and unconditionally to assume and agree to perform the Bank’s and the Company’s obligations under this Agreement, in the same manner and to the same extent that the Bank and/or the Company would be required to perform if no such succession or assignment had taken place.

[Signature Page Follows]

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SIGNATURES

          IN WITNESS WHEREOF, the Bank and the Company have caused this Agreement to be executed and their seals to be affixed hereunto by their duly authorized officers, and Executive has signed this Agreement, as of the day and date first above written.

ATTEST:	KAISER FEDERAL BANK
	By:
ATTEST:	KAISER FEDERAL FINANCIAL GROUP, INC.
	By:
WITNESS:	EXECUTIVE
		Jeanne R. Thompson

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EX-10.9

Exhibit 10.9

Annual Incentive Plan

2006-2007 Plan Year

Participant: (____________________)

Target Bonus:  (____________________)

Annual Incentive Plan

Table of Contents

Introduction
•	Purpose	3
•	Plan Year	3
•	Important Notes	3
How the Plan Works
•	Eligibility	4
•	Target Bonus Amounts	4
•	Bonus Components	5
•	Participant Personal Performance	5
•	AIP Award Calculation	5
Plan Administration
•	Adding New Participants	7
•	Changes to Target Bonus	7
•	Temporary Absence	7
•	Retirement, Death, or Permanent Disability	8
•	Voluntary Termination	8
•	Involuntary Termination	8

Page 2

Introduction

Purpose

The Annual Incentive Plan (the “Plan”) is an integral part of an executive’s total compensation package that recognizes the executive’s yearly contributions to the success of Kaiser Federal.  The Plan is designed to:

• support a business change to community-based banking;

• support a culture change to pay-for-performance;

• focus the executive team on annual goals to meet long-term goals;

• reward executives for their effort; and

• align compensation with the goals of the organization and marketplace practices.

All awards under the Plan are based on the understanding and condition that each Participant will act in strict compliance with all applicable laws and Kaiser Federal’s policies and core values.

Plan Year

This Plan applies to Participant and company performance during the fiscal year (July 1 through June 30).  Bonus payments generated from this Plan, if any, will be made in July following the end of the Plan year.

Important Notes

While Kaiser Federal intends to maintain the Plan on an ongoing basis, Kaiser Federal’s Board of Directors reserves the right to modify the Plan’s provisions or its application to specific individuals, or terminate the Plan, at any time for any reason.

Plan benefits represent taxable income to Participants, and all applicable federal, state, FICA and local taxes will be withheld at lump sum rates prescribed by law.  These withholding rates may differ from the Participant’s normal withholding elections.

Kaiser Federal encourages Participants to consult a tax advisor to determine the Plan’s impact on their financial situation.

Each Participant will be required to name a beneficiary to receive Plan awards in the event the Participant dies while covered by the Plan.

AIP awards are not considered income for employee benefits purposes (life insurance, 401(k), LTD, etc.).

Page 3

Plan Features

Eligibility

Senior Managers who are responsible for one or more unique functions, whose decisions and actions are deemed to have a measurable impact on Kaiser Federal’s earnings are eligible to participate in the Plan. This typically includes direct reports to the Chief Executive Officer (CEO).

Nevertheless, no position is automatically eligible; each individual must be approved for AIP participation by the CEO and Board of Directors.

Newly hired executives are eligible for Plan participation if they are employed during the first three quarters of the Plan year.

Target Bonus Amounts

Each Participant has an annual target bonus that is expressed as a specific dollar amount.  This target is individually determined for each Participant based on competitive market rates and an internal comparison of targets for Participants in other positions.  The target is the bonus amount that would be paid if the Participant fully achieves all of his/her personal performance goals and Kaiser Federal fully achieves its financial goals.

Guidelines for setting AIP targets are as follows:

Position Level	AIP Target Bonus
CEO	30% of Base Salary
Senior Manager 2	20% of Base Salary
Senior Manager 1	10% of Base Salary

The target is rounded to the nearest even $100.  For example, a 20% target applied to a base salary of $105,650 results in a target of $21,130 which rounds to $21,100.

Each Participant’s annual bonus target must be approved by the CEO and Board of Directors.  The AIP target award remains fixed for a given plan year.  When the Participant’s salary increases or decreases, the AIP target award dollar amount will change effective on the first of the plan year following the base salary change, subject to approval by the CEO and Board of Directors.

The actual bonus awarded may be more or less than the target if the Participant and/or the company exceeds or falls short on performance goals.  There is no minimum payout.

Page 4

Plan Features

Bonus Components

The AIP bonus award depends on the following two components:

•	Kaiser Federal’s financial performance - based on Kaiser Federal’s Return on Assets (ROA) compared to its annual goals for the Plan year.  Target ROA must be achieved or exceeded in order for an AIP award to be made.  The Board of Directors and the CEO may adjust this number up or down to reflect any extraordinary events or conditions which may have affected financial performance during the year.
	Return on Assets is defined as annualized net income divided by the year’s average assets.
•	Participant personal performance - based on achieving individual goals set by the Participant and the CEO.

Participant Personal Performance

The Participant and the CEO will set one to five objectives for the Participant to achieve by the end of the Plan year:

• One or more of these objectives must address expense management, where keeping expenses at budget is the goal, a favorable variance is exceeding expectations, and an unfavorable variance is below expectations.

• All other personal objectives should address nonroutine job goals—e.g., a new initiative or a substantial enhancement to an existing performance standard.  Each objective should be assigned a percentage weight to reflect its relative importance and/or difficulty.  The sum of the weights must equal 100%.

The goals are set at the beginning of the Plan year using the Personal Goals form (see attached). Throughout the year, the Participant and the CEO should meet to ensure that the goals are still relevant and properly weighted in light of changing circumstances.  If the Participant’s objectives change substantially during the year (e.g. an objective is deleted and/or a new one is added), the changes must be documented.

AIP Award Calculation

Kaiser Federal must achieve or exceed its Target ROA in order for an AIP award to be made.  If the company falls short of its target, no award is made.

At the end of the Plan year, the Participant’s performance on each objective will be evaluated by the CEO and given a rating on the scale on the next page.  This rating is a multiplier that is applied to the AIP target for payout purposes.  The Participant is rated on his/her achievement of specific and quantitative objectives. If the Participant does not fully meet the personal objectives, a reduced or zero AIP award will be paid per the table below:

Page 5

Plan Features

AIP Award Calculation (Cont’d.)

AIP Multiplier	Performance Results
101-120%	Outcome significantly exceeded all expectations and made a contribution well beyond what was originally envisioned.
100%	Objective fully attained; nothing short of complete success.
25-99%	Objective partially attained or significant progress made, but fell short of goal.
0%	Failed to achieve objective or to make reasonable progress.

For example, assume an AIP target award of $20,000 and personal performance that exceeded expectations.  The calculation is:

$20,000 x 1.20 = $24,000

The CEO will determine the multiplier for his/her direct reports, and the Board will determine the CEO’s multiplier.

The AIP award is subject to all normal federal, state and local tax withholding, and is not considered income for employee benefits purposes (life insurance, 401(k), LTD, etc.).

Page 6

Plan Administration

Adding New Participants

The CEO may add newly hired eligible employees to the Plan during the first three quarters of the Plan year.  An employee is not automatically eligible—the CEO must approve participation.  The target in the first year will be prorated to reflect the number of months in which the Participant worked during the year, and payout after the plan year will be based on the prorated target (rounded to the nearest even $100).

For example, a Participant is hired on September 20 with a target of $20,000.  The Participant is given credit for working in 10 months of the plan year (September through June).  The prorated target is:

($20,000 x 10 months) = $16,667 ($16,700 rounded)

                              12 months

Changes to Target Bonus

The CEO and Board of Directors may adjust a Participant’s AIP target during the year if there is a material change in the Participant’s job responsibility or scope.  The new AIP target is prorated with the original target for payout purposes at the end of the Plan year.

For example, if a $20,000 AIP target is adjusted to $26,000 after nine months in the Plan year, the prorated award for payout purposes is:

($20,000 x 9 months) + ($26,000 x 3 months) = $21,500

12 months

Temporary Absence

If a Participant is temporarily disabled or is absent for any other reason for more than thirty calendar days during the Plan year, any award that might otherwise be payable under the Plan will be prorated.

For example, a Participant has a $20,000 target, was on leave of absence for 3 months, but still managed to exceed expectations for the nine months worked.  The AIP award calculation is:

$20,000 x 1.20  x 9/12 = $18,000

Page 7

Plan Administration

Retirement, Death, or Permanent Disability

If employment is terminated because of total and permanent disability, normal or late retirement, early retirement approved by the Company, or death, the Participant will be granted an AIP award that will be prorated based on the number of full weeks the Participant was employed during the year.

Voluntary Termination

• Before the end of the Plan year – the AIP award will not be paid.

• After the end of the Plan year – the AIP award will be paid at the same time as to other Participants.

Involuntary Termination

• For Cause - If the Participant is terminated by Kaiser Federal for cause, the AIP award will not be paid.

• Not For Cause - If the Participant is terminated by Kaiser Federal because the Participant’s job has been eliminated as a result of an organizational restructuring or a reduction in the workforce, the Participant will be granted an AIP award, if such an award is otherwise payable.  The award will be prorated based on the number of full weeks the Participant was employed during the Plan year.

Kaiser Federal reserves the right to review, alter, amend or terminate the Plan at any time.  This Plan does not constitute a contract of employment and cannot be relied on as such.

Page 8

EX-21

Exhibit 21

Exhibit 21

Subsidiaries of the Registrant

Name	State of Incorporation
Kaiser Federal Bank	Federal (direct)

EX-23.2

Exhibit 23.2

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the use in the Application for Conversion on Form AC of K-Fed Mutual Holding Company filed with the Office of Thrift Supervision and in the Registration Statement on Form S-1 for Kaiser Federal Financial Group, Inc. filed with the Securities and Exchange Commission, of our report dated August 25, 2007 on the consolidated financial statements of K-Fed Bancorp as of June 30, 2007 and 2006 and for each of the three years in the period ended June 30, 2007 and on the effectiveness of internal control over financial reporting of K-Fed Bancorp as of June 30, 2007 appearing in the prospectus which is part of the Application and Registration Statement.

We also consent to the reference to our firm under the headings “Experts” and “Legal Matters” in the Registration Statement on Form S-1 and Form AC.

/s/ Crowe Chizek and Company LLP

Crowe Chizek and Company LLP

Oak Brook, Illinois
September 25, 2007

EX-23.3

Exhibit 23.3

RP^® FINANCIAL, LC.

Financial Services Industry Consultants

September 25, 2007

Board of Directors
K-Fed Mutual Holding Company
K-Fed Bancorp
Kaiser Federal Bank
1359 North Grand Avenue, Suite 200
Covina, California  91724

Members of the Boards:

          We hereby consent to the use of our firm’s name in the Form AC Application for Conversion, and in the Form S-1 Registration Statement for Kaiser Federal Financial Group, Inc. (the successor to K-Fed Bancorp, Inc.), in each case as amended and supplemented.  We also hereby consent to the inclusion of, summary of and reference to our Appraisal and our statement concerning subscription rights in such filings including the prospectus of Kaiser Federal Financial Group, Inc. (the successor to K-Fed Bancorp, Inc.).

Sincerely,

RP FINANCIAL, LC.

Washington Headquarters
Rosslyn Center
1700 North Moore Street, Suite 2210	Telephone:  (703) 528-1700
Arlington, VA  22209	Fax No.:  (703) 528-1788
E-Mail:  mail@rpfinancial.com	Toll-Free No.:  (866) 723-0594

EX-99.1

Exhibit 99.1

RP^® FINANCIAL, LC.

Financial Services Industry Consultants

February 8, 2007                     

Ms. Kay M. Hoveland
President and Chief Executive Officer
K-Fed Bancorp
1359 North Grand Avenue
Covina, California  91724-1016

Dear Ms. Hoveland:

          This letter sets forth the agreement between K-Fed Bancorp (the “Company”), the majority owned subsidiary of K-Fed, MHC, Covina, California (the “MHC”), and RP^® Financial, LC. (“RP Financial”), whereby RP Financial will provide the independent conversion appraisal services in conjunction with the second step conversion.  Kaiser Federal Bank (the “Bank”) is wholly-owned by the Company.  The specific appraisal services to be rendered by RP Financial are described below.  These appraisal services will be rendered by a team of two consultants on staff and will be directed by the undersigned.

Description of Appraisal Services

          In conjunction with preparing the appraisal report, RP Financial will conduct a financial due diligence, including on-site interviews of senior management and reviews of historical and pro forma financial information and other documents and records, to gain insight into the operations, financial condition, profitability, market area, risks and various internal and external factors of the Company, all of which will be considered in estimating the pro forma market value of the Company in accordance with the applicable federal valuation guidelines.  RP Financial will prepare a detailed written valuation report of the Company that will be fully consistent with applicable federal regulatory guidelines and standard pro forma valuation practices.  The appraisal report will include an analysis of the Company’s financial condition and operating results, as well as an assessment of the Company’s interest rate risk, credit risk and liquidity risk.  The appraisal report will describe the Company’s business strategies, market area, prospects for the future and the intended use of proceeds.  A peer group analysis relative to certain publicly-traded savings institutions will be conducted for the purpose of determining appropriate valuation adjustments for the Company relative to the peer group. 

          We will review pertinent sections of the Company’s prospectus and hold discussions with representatives of the Company to obtain necessary data and information for the appraisal report, including the impact of key deal elements on the pro forma market value, such as use of proceeds

Washington Headquarters
1700 North Moore Street, Suite 2210	Direct: (703) 647-6543
Arlington, VA  22209	Telephone:  (703) 528-1700
www.rpfinancial.com	Fax No.:  (703) 528-1788
E-Mail:  rriggins@rpfinancial.com	Toll-Free No.:  (866) 723-0594

Ms. Kay M. Hoveland
February 8, 2007
Page 2

and reinvestment rate, tax rate, offering expenses, characteristics of stock plans, the consolidation of the MHC assets with the Company, and dividend policy. 

          The appraisal report will establish a midpoint pro forma market value in accordance with the applicable federal regulatory requirements, reflecting the value of all shares, inclusive of the offering shares and the exchange shares.  The appraisal report may be periodically updated throughout the conversion process as appropriate.  There will be at least one updated valuation that would be prepared at the time of the closing of the stock offering.  RP Financial agrees to deliver the original appraisal report and subsequent updates, in writing, to the Company at the above address in conjunction with the filing of the regulatory conversion applications.  Subsequent updates will be filed promptly as certain events occur which would warrant the preparation and filing of such valuation updates pursuant to federal guidelines.  Further, RP Financial agrees to perform such other services as are necessary or required in connection with the regulatory review of the appraisal and respond to the regulatory comments, if any, regarding the valuation appraisal and subsequent updates.  RP Financial expects to formally present the appraisal report, including the appraisal methodology, peer group selection and assumptions, to the Board of Directors for review and consideration. 

Fee Structure and Payment Schedule

          The Company agrees to pay RP Financial fees for preparation and delivery of the original appraisal report and subsequent appraisal updates as shown in the detail below, plus reimbursable expenses.  Payment of these fees shall be made according to the following schedule:

• $10,000 upon execution of the letter of agreement engaging RP Financial’s appraisal services;

• $90,000 upon delivery of the completed original appraisal report; and

• $10,000 upon delivery of each subsequent appraisal update report.  There will be at least one appraisal update report, to be filed upon completion of the offering.

          The Company will reimburse RP Financial for reasonable out-of-pocket expenses incurred in preparation of the valuation within 30 days after receipt of a detailed billing statement or invoice therefore. Such out-of-pocket expenses will likely include travel, printing, telephone, facsimile, shipping, reasonable counsel fees, computer and data services.  RP Financial will agree to limit reimbursable expenses in connection with this engagement, subject to written authorization from the Company to exceed such level.

          In the event the Company shall, for any reason, discontinue the proposed transaction prior to delivery of the completed original appraisal report set forth above and payment of the corresponding progress payment fees, the Company agrees to compensate RP Financial according

Ms. Kay M. Hoveland
February 8, 2007
Page 3

to RP Financial’s standard billing rates for consulting services based on accumulated and verifiable time expenses, not to exceed the respective fee caps noted above, after applying full credit to the initial retainer fee towards such payment, together with reasonable out of pocket expenses subject to the cap on such expenses as set forth above.  RP Financial’s standard billing rates range from $75 per hour for research associates to $350 per hour for managing directors. 

          If during the course of the proposed transaction, unforeseen events occur so as to materially change the nature or the work content of the services described in this contract, the terms of said contract shall be subject to renegotiation by the Company and RP Financial.  Such unforeseen events shall include, but not be limited to, material changes in the conversion regulations, appraisal guidelines or processing procedures as they relate to conversion appraisals, material changes in management or procedures, operating policies or philosophies, and excessive delays or suspension of processing of conversion applications by the regulators such that completion of the conversion transaction requires the preparation by RP Financial of a new appraisal.

Covenants, Representations and Warranties

          The Company and RP Financial agree to the following:

          1.          The Company agrees to make available or to supply to RP Financial such information with respect to its business and financial condition as RP Financial may reasonably request in order to provide the aforesaid valuation.  Such information heretofore or hereafter supplied or made available to RP Financial shall include:  annual financial statements, periodic regulatory filings and material agreements, debt instruments, off balance sheet assets or liabilities, commitments and contingencies, unrealized gains or losses and corporate books and records of the MHC, the Company and the Bank.  All information provided by the Company to RP Financial shall remain strictly confidential (unless such information is otherwise made available to the public), and if the conversion is not consummated or the services of RP Financial are terminated hereunder, RP Financial shall promptly return to the Company the original and any copies of such information.

          2.          The Company represents and warrants to RP Financial that any information provided to RP Financial does not and will not, to the best of the Company’s knowledge, at the times it is provided to RP Financial, contain any untrue statement of a material fact or in response to informational requests by RP Financial fail to state a material fact necessary to make the statements therein not false or misleading in light of the circumstances under which they were made.

          3.          (a)          The Company agrees that it will indemnify and hold harmless RP Financial, any affiliates of RP Financial, the respective members, officers, agents and employees of RP Financial or their successors and assigns who act for or on behalf of RP Financial in connection with the services called for under this agreement (hereinafter referred to as “RP Financial”), from and against any and all losses, claims, damages and liabilities (including, but not limited to, reasonable

Ms. Kay M. Hoveland
February 8, 2007
Page 4

attorneys fees, and all losses and expenses in connection with claims under the federal securities laws) attributable to (i) any untrue statement or alleged untrue statement of a material fact contained in the financial statements or other information furnished or otherwise provided by the Company to RP Financial, either orally or in writing; (ii) the omission or alleged omission of a material fact from the financial statements or other information furnished or otherwise made available by the Company to RP Financial; or (iii) any action or omission to act by the Company, or the Company’s respective officers, directors, employees or agents, which action or omission is undertaken in bad faith or is negligent.  The Company will be under no obligation to indemnify RP Financial hereunder if a court determines that RP Financial was negligent or acted in bad faith with respect to any actions or omissions of RP Financial related to a matter for which indemnification is sought hereunder.  Reasonable time devoted by RP Financial to situations for which RP Financial is deemed entitled to indemnification hereunder, shall be an indemnifiable cost payable by the Company at the normal hourly professional rate chargeable by such employee. 

                    (b)          RP Financial shall give written notice to the Company of such claim or facts within thirty days of the assertion of any claim or discovery of material facts upon which RP Financial intends to base a claim for indemnification hereunder, including the name of counsel that RP Financial intends to engage in connection with any indemnification related matter.  In the event the Company elects, within seven days of the receipt of the original notice thereof, to contest such claim by written notice to RP Financial, the Company shall not be obligated to make payments under Section 3(c), but RP Financial will be entitled to be paid any amounts payable by the Company hereunder within five days after the final non-appealable determination of such contest either by written acknowledgement of the Company or a decision of a court of competent jurisdiction or alternative adjudication forum, unless it is determined in accordance with Section 3(c) hereof that RP Financial is not entitled to indemnity hereunder.  If the Company does not so elect to contest a claim for indemnification by RP Financial hereunder, RP Financial shall (subject to the Company’s receipt of the written statement and undertaking under Section 3(c) hereof) be paid promptly and in any event within thirty days after receipt by the Company of detailed billing statements or invoices for which RP Financial is entitled to reimbursement under Section 3(c) hereof. 

                    (c)          Subject to the Company’s right to contest under Section 3(b) hereof, the Company shall pay for or reimburse the reasonable expenses, including reasonable attorneys’ fees, incurred by RP Financial in advance of the final disposition of any proceeding within thirty days of the receipt of such request if RP Financial furnishes the Company:  (1) a written statement of RP Financial’s good faith belief that it is entitled to indemnification hereunder; (2) a written undertaking to repay the advance if it ultimately is determined in a final, nonappealable adjudication of such proceeding that it or he is not entitled to such indemnification; and (3) a detailed invoice of the expenses for which reimbursement is sought. 

                    (d)          In the event the Company does not pay any indemnified loss or make advance reimbursements of expenses in accordance with the terms of this agreement, RP Financial shall have all remedies available at law or in equity to enforce such obligation. 

Ms. Kay M. Hoveland
February 8, 2007
Page 5

          This agreement constitutes the entire understanding of the Company and RP Financial concerning the subject matter addressed herein.  This agreement may not be modified, supplemented or amended except by written agreement executed by both parties. 

          The Company and RP Financial are not affiliated, and neither the Company nor RP Financial has an economic interest in, or is held in common with, the other and has not derived a significant portion of its gross revenues, receipts or net income for any period from transactions with the other.  RP Financial represents and warrants that it is not aware of any fact or circumstance that would cause it not to be “independent” within the meaning of the conversion regulations or the applicable regulatory valuation guidelines or otherwise prohibit or restrict in anyway RP Financial from serving in the role of independent appraiser for the Company. 

*  *  *  *  *  *  *  *  *  *  *

          Please acknowledge your agreement to the foregoing by signing as indicated below and returning to RP Financial a signed copy of this letter, together with the initial retainer fee of $10,000.

	Sincerely,
	/s/ Ronald S. Riggins
	Ronald S. Riggins
	President and Managing Director
Agreed To and Accepted By:          Kay M. Hoveland /s/ Kay M. Hoveland
President and Chief Executive Officer
Upon Authorization by the Board of Directors For:          K-Fed Bancorp, subsidiary of K-Fed, MHC Covina, California
Date Executed:          February 9, 2007

EX-99.2

Exhibit 99.2

FELDMAN FINANCIAL ADVISORS, INC.

1001 CONNECTICUT AVENUE, NW, SUITE 840

WASHINGTON, DC  20036

(202) 467-6862, FAX (202) 467-6963

February 12, 2007                                 

Confidential

Ms. Kay M. Hoveland
President and Chief Executive Officer
K-Fed Bancorp
1359 North Grand Avenue
Covina, California 91724

Dear Ms. Hoveland:

          This letter agreement (“Agreement”) describes the terms under which Feldman Financial Advisors, Inc. (“Feldman Financial”) will assist K-Fed Bancorp (“K-Fed”) with the business plan (“Business Plan”) to be submitted to regulators in conjunction with K-Fed’s second stage stock offering.  The services we will provide and our fees for this proposal are explained in this Agreement.

Description of Engagement

          Under K-Fed’s direction, we will prepare the text to be submitted in support of the Business Plan.  We will prepare demographic, economic, or geographic data needed for the Business Plan.  The Business Plan that we will provide will include the text and other information as required.  We also will provide the financial projections and other financial information for the Business Plan.  Our preparation of the Business Plan will be based on information K-Fed provides to us regarding K-Fed’s future business.  After submission of the Business Plan and, as part of our services under this Agreement, we will be available to provide additional services in relation to the Business Plan, including assisting with preparation of your responses to questions or comments from the regulators while the regulators evaluate the Business Plan.  K-Fed will be responsible for final approval of the Business Plan and other information before submission to applicable regulators.

Fees and Expenses

          Our professional fee for assisting with the development and submission of the Business Plan will be $32,500, payable in two installments:

(i)	$5,000 retainer fee due upon acceptance and execution of this Agreement;
(ii)	$27,500 due upon filing the Business Plan with the applicable regulators.

FELDMAN FINANCIAL ADVISORS, INC.

Ms. Kay M. Hoveland
K-Fed Bancorp
February 12, 2007
Page 2

If, after submission of the Business Plan, further services are required of Feldman Financial by K-Fed with respect to the Business Plan, Feldman Financial will perform such services at our hourly rates that correspond to the attached fee schedule.  This work, if required, will be capped at $3,500.  In addition, we will invoice you for actual out-of-pocket expenses for data purchases, copying, express mail, travel, and other costs incurred in connection with providing the professional consulting services under this Agreement.  Out-of-pocket expenses will not exceed $2,000 without K-Fed’s prior approval.

Termination

          K-Fed may terminate this Agreement at any time by providing notice of such termination to Feldman Financial.  The “Termination Date” shall be either:  (i) the date oral notice of such termination is provided to Feldman Financial, as long as written notice is received within three business days thereafter, or (ii) if oral notice is not provided, the date Feldman Financial receives the written notice of termination.

          In the event of termination prior to submission of the Business Plan, K-Fed will pay Feldman Financial for all time incurred in preparing the Business Plan through the Termination Date at an hourly rate that corresponds with the aforementioned fee schedule.  Such charges shall not exceed $32,500.  In addition, K-Fed will pay Feldman Financial for all expenses incurred through the Termination Date.

Financial Information and Confidentiality

          K-Fed will use its best efforts to assure Feldman Financial that K-Fed will provide such information as Feldman Financial may reasonably request to prepare the Business Plan.  K-Fed acknowledges that in performing services hereunder, Feldman Financial will be relying on the information furnished by K-Fed, and K-Fed further acknowledges that Feldman Financial will not independently verify the accuracy and completeness of such information.

          K-Fed agrees that the intended use of the Business Plan is only for submission with the appropriate regulatory authorities and for other internal purposes.  K-Fed will not use the product of Feldman Financial’s services under this Agreement in any other manner, including references within a proxy statement or offering circular, without the express written consent of Feldman Financial.

FELDMAN FINANCIAL ADVISORS, INC.

Ms. Kay M. Hoveland
K-Fed Bancorp
February 12, 2007
Page 3

          Feldman Financial agrees to hold in confidence all information K-Fed provides pursuant to this Agreement, other than information which is or becomes publicly available, unless such disclosure is approved by K-Fed or otherwise required by law.  Similarly, K-Fed agrees to hold in confidence all information provided by Feldman Financial pursuant to this Agreement, other than information that is or becomes publicly available, unless such disclosure is approved by Feldman Financial or otherwise required by law.

Sole Terms of Agreement

          This Agreement embodies the sole terms of agreement between K-Fed and Feldman Financial with respect to the engagement of Feldman Financial to prepare the Business Plan.  This Agreement can be modified only if such modification is stated in writing and signed by both K-Fed and Feldman Financial.

*                    *                    *

          To indicate your acceptance of the terms in this Agreement, please sign below and return one original of this letter to me with a check for $5,000, such payment to be credited as the retainer fee.

Sincerely,

Feldman Financial Advisors, Inc.

Trent R. Feldman

President

Attachment

AGREED TO AND ACCEPTED BY:

K-FED BANCORP

Name:

Title:

Date:

FELDMAN FINANCIAL ADVISORS, INC.

1001 Connecticut Avenue, NW, Suite 840

Washington, DC  20036

(202) 467-6862, Fax (202) 467-6963

SCHEDULE OF PROFESSIONAL FEES ANfcD EXPENSES

PROFESSIONAL FEES

Feldman Financial Advisors, Inc.’s hourly billing rates for professional services are shown below.  Actual time expended for depositions and courtroom testimony is billed at twice the stated hourly rate.

Title	Hourly Rate
President	$325
Principal	$275
Director	$275
Senior Vice President	$275
Vice President	$200
Research staff	$100

REIMBURSABLE EXPENSES

Out-of-pocket expenses (including, but not limited to, transportation, lodging and meals, express and regular mail, document delivery services, purchase of data or reference materials, color photocopying, and telephone/fax) are billed without mark-up.  The charge for in-house duplication of documents is $0.20 per page.

EX-99.3

Exhibit 99.3

PRO FORMA VALUATION REPORT

KAISER FEDERAL FINANCIAL GROUP, INC.

HOLDING COMPANY FOR
KAISER FEDERAL BANK
Covina, California

Dated As Of:
August 31, 2007

Prepared By:

RP^® Financial, LC.
1700 North Moore Street
Suite 2210
Arlington, Virginia  22209

RP^® FINANCIAL, LC.

Financial Services Industry Consultants

August 31, 2007                    

Boards of Directors
K-Fed Mutual Holding Company
K-Fed Bancorp
Kaiser Federal Bank
1359 North Grand Avenue, Suite 200
Covina, California  91724

Members of the Boards of Directors:

          At your request, we have completed and hereby provide an independent appraisal (“Appraisal”) of the estimated pro forma market value of the common stock to be issued by Kaiser Federal Financial Group, Inc., Covina, California (“Kaiser Federal Financial” or the “Company”), previously known as K-Fed Bancorp (“K-Fed”), in connection with the mutual-to-stock conversion of K-Fed Mutual Holding Company (the “MHC”).  The MHC currently has a majority ownership interest in, and its principal asset consists of, approximately 63.53% of the common stock of K-Fed (the “MHC Shares”), the mid-tier holding company for Kaiser Federal Bank, Covina, California (the “Bank”).  The remaining 36.47% of K-Fed’s common stock is owned by public stockholders.  K-Fed, which completed its initial public stock offering in March 2004, owns 100% of the common stock of the Bank.  It is our understanding that K-Fed will offer its stock, representing the majority ownership interest held by the MHC, in a subscription offering to Eligible Account Holders, Supplemental Eligible Account Holders and Other Members.  To the extent that shares remain available for purchase after satisfaction of all subscriptions received in the subscription offering, the shares may be offered for sale in a community offering to members of the local community and the public at large.

          This Appraisal is furnished pursuant to the requirements of the Code of Federal Regulations 563b.7 and has been prepared in accordance with the “Guidelines for Appraisal Reports for the Valuation of Savings and Loan Associations Converting from Mutual to Stock Form of Organization” of the Office of Thrift Supervision (“OTS”), which have been adopted in practice by the Federal Deposit Insurance Corporation (“FDIC”).

Plan of Conversion and Stock Issuance

          On June 28, 2007, the respective Boards of Directors of the MHC, the Company and the Bank adopted a Plan of Conversion and Reorganization (the “Plan of Conversion”), pursuant to which the mutual holding company will convert to the stock form of organization. Pursuant to the Plan of Conversion, (i) the MHC will convert to stock form, (ii) the MHC and the Company

Washington Headquarters
Rosslyn Center
1700 North Moore Street, Suite 2210	Telephone:  (703) 528-1700
Arlington, VA  22209	Fax No.:  (703) 528-1788
www.rpfinancial.com	E-Mail:  mail@rpfinancial.com

Boards of Directors
August 31, 2007
Page 2

will merge into the Bank and the Bank will become a wholly owned subsidiary of a newly chartered stock company named Kaiser Federal Financial Group, Inc., (iii) the shares of common stock of the Company held by persons other than the MHC will be converted into shares of common stock of the Company pursuant to an exchange ratio designed to preserve the percentage ownership interests of such persons, and (iv) the Company will offer and sell shares of its common stock to certain depositors of the Bank, residents of Bank’s local community and shareholders of the Company and others in the manner and subject to the priorities set forth in the Plan of Conversion.  As of August 31, 2007, the MHC’s ownership interest in Kaiser Federal Financial approximated 63.53%.  The Company will also issue shares of its common stock to the public stockholders of Kaiser Federal Financial pursuant to an exchange ratio that will result in the public shareholders owning the same aggregate percentage of the newly issued shares of Kaiser Federal Financial common stock as owned immediately prior to the conversion.  As of August 31, 2007, the public stockholders’ ownership interest in Kaiser Federal Financial approximated 36.47%.

RP^® Financial, LC.

          RP^® Financial, LC. (“RP Financial”) is a financial consulting firm serving the financial services industry nationwide that, among other things, specializes in financial valuations and analyses of business enterprises and securities, including the pro forma valuation for savings institutions converting from mutual-to-stock form.  The background and experience of RP Financial is detailed in Exhibit V-1.  We believe that, except for the fee we will receive for our appraisal, we are independent of the Company, the Bank, the MHC and the other parties engaged by the Bank or the Company to assist in the stock conversion process.

Valuation Methodology

          In preparing our Appraisal, we have reviewed the regulatory applications of Kaiser Federal Financial, the Bank and the MHC, including the prospectus as filed with the OTS and the Securities and Exchange Commission (“SEC”).  We have conducted a financial analysis of Kaiser Federal Financial, the Bank and the MHC that has included a review of audited and unaudited financial information for fiscal years ended June 30, 2003 through 2007.  In addition, we have conducted due diligence related discussions with Kaiser Federal Financial’s management; Crowe Chizek and Company LLC, the Company’s independent auditor; Luse, Gorman Pomerenk and Schick, the Company’s legal counsel for the stock conversion counsel; and Keefe, Bruyette & Woods, Kaiser Federal Financial’s marketing advisor in connection with the stock offering.  All assumptions and conclusions set forth in the Appraisal were reached independently from such discussions.  In addition, where appropriate, we have considered information based on other available published sources that we believe are reliable.  While we believe the information and data gathered from all these sources are reliable, we cannot guarantee the accuracy and completeness of such information.

Boards of Directors
August 31, 2007
Page 3

          We have investigated the competitive environment within which Kaiser Federal Financial operates and have assessed Kaiser Federal Financial’s relative strengths and weaknesses.  We have kept abreast of the changing regulatory and legislative environment for financial institutions and analyzed the potential impact on Kaiser Federal Financial and the industry as a whole.  We have analyzed the potential effects of the stock conversion on Kaiser Federal Financial’s operating characteristics and financial performance as they relate to the pro forma market value of Kaiser Federal Financial.  We have analyzed the assets held by the MHC, which will be consolidated with Kaiser Federal Financial’s assets and equity pursuant to the completion of conversion.  We have reviewed the economic and demographic characteristics of the Company’s primary market area.  We have compared Kaiser Federal Financial’s financial performance and condition with selected publicly-traded thrifts in accordance with the Valuation Guidelines, as well as all publicly-traded thrifts and thrift holding companies.  We have reviewed the current conditions in the securities markets in general and the market for thrift stocks in particular, including the market for existing thrift issues, initial public offerings by thrifts and thrift holding companies, and second-step conversion offerings.  We have excluded from such analyses thrifts subject to announced or rumored acquisition, and/or institutions that exhibit other unusual characteristics.

          The Appraisal is based on Kaiser Federal Financial’s representation that the information contained in the regulatory applications and additional information furnished to us by Kaiser Federal Financial and its independent auditor, legal counsel and other authorized agents are truthful, accurate and complete.  We did not independently verify the financial statements and other information provided by Kaiser Federal Financial, or its independent auditor, legal counsel and other authorized agents nor did we independently value the assets or liabilities of Kaiser Federal Financial.  The valuation considers Kaiser Federal Financial only as a going concern and should not be considered as an indication of Kaiser Federal Financial’s liquidation value.

          Our appraised value is predicated on a continuation of the current operating environment for Kaiser Federal Financial and for all thrifts and their holding companies.  Changes in the local, state and national economy, the legislative and regulatory environment for financial institutions and mutual holding companies, the stock market, interest rates, and other external forces (such as natural disasters or significant world events) may occur from time to time, often with great unpredictability and may materially impact the value of thrift stocks as a whole or the value of Kaiser Federal Financial’s stock alone.  It is our understanding that there are no current plans for selling control of Kaiser Federal Financial following completion of the second-step stock offering.  To the extent that such factors can be foreseen, they have been factored into our analysis.

          The estimated pro forma market value is defined as the price at which Kaiser Federal Financial’s common stock, immediately upon completion of the second-step stock offering, would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of relevant facts.

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August 31, 2007
Page 4

Valuation Conclusion

          It is our opinion that, as of August 31, 2007, the estimated aggregate pro forma valuation of the shares to be issued in the conversion of the MHC, including: (1) newly-issued shares representing the MHC’s ownership interest in Kaiser Federal Financial, and (2) exchange shares issued to existing public shareholders of Kaiser Federal Financial, was $204,628,080 at the midpoint, equal to 20,462,808 shares at a per share value of $10.00.  The resulting range of value pursuant to regulatory guidelines and the corresponding number of shares based on the Board approved $10.00 per share offering price is set forth below.

	Total Shares			Offering Shares			Exchange Shares Issued to the Public Shareholders			Exchange Ratio
Shares											(x)
Supermaximum		27,062,063			17,192,500			9,869,563			1.9401
Maximum		23,532,229			14,950,000			8,582,229			1.6870
Midpoint		20,462,808			13,000,000			7,462,808			1.4670
Minimum		17,393,386			11,050,000			6,343,386			1.2469
Distribution of Shares
Supermaximum		100.00	%		63.53	%		36.47	%
Maximum		100.00	%		63.53	%		36.47	%
Midpoint		100.00	%		63.53	%		36.47	%
Minimum		100.00	%		63.53	%		36.47	%
Aggregate Market Value(1)
Supermaximum	$	270,620,630		$	171,925,000		$	98,695,630
Maximum		235,322,290			149,500,000			85,822,290
Midpoint		204,628,080			130,000,000			74,628,080
Minimum		173,933,860			110,500,000			63,433,860

(1) Based on offering price of $10.00 per share.

Establishment of the Exchange Ratio

          OTS regulations provide that in a conversion of a mutual holding company, the minority stockholders are entitled to exchange the public shares for newly issued shares of Kaiser Federal Financial stock as a fully converted company.  The Board of Directors of the MHC has independently determined the exchange ratio.  The determined exchange ratio has been designed to preserve the current aggregate percentage ownership in Kaiser Federal Financial equal to

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August 31, 2007
Page 5

63.53% as of June 30, 2007.  The exchange ratio to be received by the existing minority shareholders of Kaiser Federal Financial will be determined at the end of the offering, based on the total number of shares sold in the subscription and community offerings.  Based upon this calculation, and the valuation conclusion and offering range concluded above, the exchange ratio would be 1.2469 shares, 1.4670 shares, 1.6870 shares and 1.9401 shares of newly issued shares of Kaiser Federal Financial stock for each share of stock held by the public shareholders at the minimum, midpoint, maximum and supermaximum of the offering range, respectively.  RP Financial expresses no opinion on the proposed exchange of newly issued Company shares for the shares held by the public stockholders or on the proposed exchange ratio.

Limiting Factors and Considerations

          Our valuation is not intended, and must not be construed, as a recommendation of any kind as to the advisability of purchasing shares of the common stock.  Moreover, because such valuation is necessarily based upon estimates and projections of a number of matters, all of which are subject to change from time to time, no assurance can be given that persons who purchase shares of common stock in the conversion will thereafter be able to buy or sell such shares at prices related to the foregoing valuation of the estimated pro forma market value thereof.  The appraisal reflects only a valuation range as of this date for the pro forma market value of Kaiser Federal Financial immediately upon issuance of the stock and does not take into account any trading activity with respect to the purchase and sale of common stock in the secondary market following the completion of the second-step offering.

          RP Financial’s valuation was based on the financial condition, operations and shares outstanding of Kaiser Federal Financial as of June 30, 2007, the date of the financial data included in the prospectus.  The proposed exchange ratio to be received by the current public stockholders of Kaiser Federal Financial and the exchange of the public shares for newly issued shares of Kaiser Federal Financial common stock as a full public company was determined independently by the Boards of Directors of the MHC, Kaiser Federal Financial and the Bank.  RP Financial expresses no opinion on the proposed exchange ratio to public stockholders or the exchange of public shares for newly issued shares.

          RP Financial is not a seller of securities within the meaning of any federal and state securities laws and any report prepared by RP Financial shall not be used as an offer or solicitation with respect to the purchase or sale of any securities.  RP Financial maintains a policy which prohibits RP Financial, its principals or employees from purchasing stock of its client institutions.

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August 31, 2007
Page 6

          This valuation will be updated as provided for in the conversion regulations and guidelines.  These updates will consider, among other things, any developments or changes in the financial performance and condition of Kaiser Federal Financial, management policies, and current conditions in the equity markets for thrift shares, both existing issues and new issues.  These updates may also consider changes in other external factors which impact value including, but not limited to:  various changes in the legislative and regulatory environment for financial institutions, the stock market and the market for thrift stocks, and interest rates.  Should any such new developments or changes be material, in our opinion, to the valuation of the shares, appropriate adjustments to the estimated pro forma market value will be made.  The reasons for any such adjustments will be explained in the update at the date of the release of the update.  The valuation will also be updated at the completion of Kaiser Federal Financial’s stock offering.

Respectfully submitted,

RP^® FINANCIAL, LC.

Ronald S. Riggins

President and Managing Director

James P. Hennessey

Senior Vice President

RP^® Financial, LC.

TABLE OF CONTENTS
KAISER FEDERAL FINANCIAL GROUP, INC.
Covina, California

DESCRIPTION		PAGE NUMBER
CHAPTER ONE                    OVERVIEW AND FINANCIAL ANALYSIS
	Introduction	1.1
	Former Credit Union Operations	1.1
	Post-Charter Conversion Operations>	1.2
	Plan of Conversion and Reorganization	1.3
	Purpose of the Reorganization	1.3
	Strategic Overview	1.4
	Balance Sheet Trends	1.8
	Income and Expense Trends	1.14
	Interest Rate Risk Management	1.19
	Lending Activities and Strategy	1.20
	Asset Quality	1.24
	Funding Composition and Strategy	1.24
	Legal Proceedings	1.25
CHAPTER TWO                   MARKET AREA
	Introduction	2.1
	National Economic Factors	2.2
	Local and Regional Market Conditions	2.5
	Market Area Demographics	2.8
	Local Economy/Largest Employers	2.10
	Unemployment Rates	2.11
	Competition	2.12
CHAPTER THREE               PEER GROUP ANALYSIS
	Peer Group Selection	3.1
	Financial Condition	3.6
	Income and Expense Components	3.9
	Loan Composition	3.11
	Credit Risk	3.13
	Interest Rate Risk	3.13
	Summary	3.16

RP^® Financial, LC.

TABLE OF CONTENTS
KAISER FEDERAL FINANCIAL GROUP, INC.
 Covina, California
(continued)

DESCRIPTION				PAGE NUMBER
CHAPTER FOUR                 VALUATION ANALYSIS
	Introduction			4.1
	Appraisal Guidelines			4.1
	RP Financial Approach to the Valuation			4.1
	Valuation Analysis			4.2
	1.	Financial Condition		4.3
	2.	Profitability, Growth and Viability of Earnings		4.4
	3.	Asset Growth		4.5
	4.	Primary Market Area		4.5
	5.	Dividends		4.6
	6.	Liquidity of the Shares		4.8
	7.	Marketing of the Issue		4.8
		A.	The Public Market	4.9
		B.	The New Issue Market	4.14
		C.	The Acquisition Market	4.18
		D.	Trading in Kaiser Federal Financial’s Stock	4.18
	8.	Management		4.19
	9.	Effect of Government Regulation and Regulatory Reform		4.19
	Summary of Adjustments			4.20
	Valuation Approaches			4.20
	1.	Earnings Approach (“P/E” and “Core P/E”)		4.22
	2.	Book Value Approach (“P/B” and “P/TB”)		4.23
	3.	Assets Approach (“P/A”)		4.25
	Valuation Conclusion			4.25
	Establishment of the Exchange Ratio			4.26

RP^® FINANCIAL, LC.

LIST OF TABLES
KAISER FEDERAL FINANCIAL GROUP, INC.
Covina, California

TABLE NUMBER	DESCRIPTION	PAGE
1.1	Historical Balance Sheets	1.9
1.2	Historical Income Statements	1.15
2.1	Summary Demographic Information	2.9
2.2	Major Employers in LA, San Bernardino, and Santa Clara Counties	2.10
2.3	Unemployment Trends	2.12
2.4	Deposit Summary	2.14
2.5	Market Share by County	2.15
3.1	Peer Group of Publicly-Traded Thrifts	3.4
3.2	Balance Sheet Composition and Growth Rates	3.7
3.3	Income as a Percent of Average Assets and Yields, Costs, Spreads	3.10
3.4	Loan Portfolio Composition and Related Information	3.12
3.5	Credit Risk Measures and Related Information	3.14
3.6	Interest Rate Risk Measures and Net Interest Income Volatility	3.15
4.1	Peer Group Market Area Comparative Analysis	4.7
4.2	Pricing Characteristics and After-Market Trends	4.16
4.3	Public Market Pricing	4.24

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Page 1.1

I.  OVERVIEW AND FINANCIAL ANALYSIS

Introduction

          Kaiser Federal Bank (“Kaiser Federal” or the “Bank”) is a federally-chartered stock savings bank which conducts operations through its executive offices in Covina, California, and eight branch offices, seven of which are in southern California (Los Angeles, San Bernardino, and Riverside Counties), and one of which is located in Santa Clara in the San Francisco Bay area (Santa Clara County).  Three of the nine locations are full service branches and the other six locations are financial service centers.  Four of these financial service centers were opened from March 2006 through October 2006 in Bellflower, Harbor City, Los Angeles, and Riverside.  Certain of the locations reflect, in part, the former credit union roots and the location of Kaiser Permanente Medical Care Program employees or physicians.  The Bank also employs a variety of alternative delivery channels, including 54 ATMs (many of which are remotely located in Kaiser Permanente health care facilities), online banking with bill pay service, audio response, and a telephone call center.

Former Credit Union Operations

          Kaiser Federal was originally chartered in 1953 as “Kaiser Foundation Hospital Employees Federal Credit Union,” serving the Los Angeles, San Pedro and Santa Monica employees of the hospital, clinic and KABAT-Kaiser Institute.  Over the years, the Board of Directors made strategic decisions to increase the membership potential by adding other Kaiser health facilities and merging with a smaller Kaiser credit union in Northern California.  Over the years, Kaiser Federal evolved into a full-service multi-branch financial institution operating through retail branches and remote ATMs located in both southern and northern California, and subsequently changed its name to Kaiser Permanente Federal Credit Union.  The conversion to a federal mutual savings bank was completed in November 1999 (the “Charter Conversion”), when it adopted the current name and at which time it became subject to income taxes. 

          The objective of the Charter Conversion was to enhance long-term viability by expanding the field of membership to the local community.  Furthermore, as a credit union the

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loans/deposits ratio was historically low as the loan demand by depositors was relatively low.  The Board sought to change the charter to become a more active lender in the local community. 

Post-Charter Conversion Operations

          The Bank’s post Charter Conversion operations have been characterized by relatively strong growth in loans and deposits, with much of the loan growth attributable to affiliate relationships.  The loan growth has featured expanded lending authority, as evidenced in the growth of permanent residential mortgages and commercial and multi-family loans (“income property loans”). 

          Since the Charter Conversion, the Bank has been regulated by the Office of Thrift Supervision (“OTS”).  The Bank is currently a member of the Federal Home Loan Bank (“FHLB”) system.  The Bank’s deposits are insured up to the regulatory maximums by the Deposit Insurance Fund (“DIF”) of the Federal Deposit Insurance Corporation (“FDIC”). 

          Kaiser Federal reorganized into a mutual holding company (“MHC”) structure in July 2003, and no stock was issued publicly at the time.  Simultaneous with the MHC reorganization and formation of K-Fed Mutual Holding Company (the “MHC”), a wholly-owned mid-tier stock holding company was formed, K-Fed Bancorp (“K-Fed”), and Kaiser Federal became a wholly-owned stock subsidiary of K-Fed.  The MHC and K-Fed were both capitalized with $50,000 in cash concurrent with their formation.   

          On March 30, 2004, K-Fed completed a minority stock offering in which it sold 5,686,750 shares, or 39.09% of total shares to eligible depositors and the Employee Stock Ownership Plan (“ESOP”).  The remaining 8,861,750 outstanding shares of K-Fed’s common stock were issued to the MHC.  Since the initial public offering (“IPO”) K-Fed has declared eleven quarterly stock dividends and has repurchased 775,815 publicly-held shares through three stock repurchase programs.

          At June 30, 2007, K-Fed had total assets of $799.6 million, deposits of $494.1 million and equity of $92.3 million, or 11.6% of total assets.  As of this date, approximately 39.5% of K-Fed’s deposits were from customers who are employed by the Kaiser Permanente Medical Care

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Program.  Audited financial statements for the most recent period are included by reference as Exhibit I-1 and key operating ratios are set forth in Exhibit I-2.

Plan of Conversion and Reorganization

          On June 28, 2007, K-Fed announced that the Boards of Directors of the MHC, K-Fed and the Bank unanimously adopted a Plan of Conversion and Reorganization (the “Plan of Conversion”), pursuant to which K-Fed will convert from the two-tier MHC structure to the full stock holding company structure and concurrently conduct a second-step conversion offering (“Second Step Conversion” or “Offering”) that will represent the MHC’s ownership interest in K-Fed.  As of June 30, 2007, the MHC’s ownership interest in K-Fed approximated 63.5%.  Pursuant to the plan of conversion, K-Fed, which owns 100% of the Bank, will be succeeded by a new federally chartered stock corporation named Kaiser Federal Financial Group, Inc. (“Kaiser Federal Financial” or the “Company”).  The Company will also issue exchange shares of its common stock to the public shareholders pursuant to an exchange ratio that will result in the same 36.5% aggregate ownership percentage as immediately before the Offering.

Purpose of the Reorganization

          The Second Step Conversion will increase the capital level to support further expansion, improve the overall competitive position of Kaiser Federal Financial in the local market area, enhance profitability and reduce interest rate risk.  Importantly, the additional equity will provide a larger capital base for continued growth and diversification, as well as increase the lending capability and loans to one borrower limit.  Future growth opportunities are expected through the current branch network as well as through de novo branching in the regional markets served.  Additionally, the Company anticipates that growth opportunities will result from regional bank consolidation in the local market and the resulting fallout of customers who are attracted to Kaiser Federal Financial’s customer service and products and services.  The MHC structure has limited the opportunity to acquire other institutions – so the Second Step Conversion should facilitate the Company’s ability to pursue such acquisitions through increased capital as well as the ability to use common stock as merger consideration.  Further, the Second Step Conversion

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will increase the public ownership, which is expected to improve the liquidity of the common stock.

The projected use of stock proceeds is highlighted below.
•	The Company.  The Company is expected to retain up to 50% of the net conversion proceeds.  At present, Company funds, net of the loan to the ESOP, are expected to be invested initially into investment securities consistent with the Bank’s current composition (i.e., U.S. government and agency securities and high quality mortgage-related securities with laddered maturities and durations typically no longer than five years).  Over time, Company funds are anticipated to be utilized for various corporate purposes, possibly including acquisitions, infusing additional equity into the Bank, repurchases of common stock, and the payment of regular and/or special cash dividends.
•	The Bank.  The balance of the net offering proceeds will be infused into the Bank.  Cash proceeds (i.e., net proceeds less deposits withdrawn to fund stock purchases) infused into the Bank are anticipated to become part of general operating funds, and are expected to initially be invested in short-term investments pending longer term deployment, i.e., funding lending activities, purchasing mortgage backed securities (“MBS”), general corporate purposes and/or expansion and diversification.

          The Company expects to continue to pursue a controlled growth strategy, leveraging its strong pro forma capital, growing primarily through the current delivery channels.  If appropriate, Kaiser Federal Financial may also consider various capital management strategies to assist in the long-run objective of increasing return on equity.

Strategic Overview

          Throughout much of its corporate history, Kaiser Federal Financial’s strategic focus was on serving its historical credit union field of membership.  However, the Charter Conversion was undertaken to broaden the traditional customer base beyond the Kaiser Permanente Medical Program with the objective of enhancing future growth prospects while mitigating the risk exposure related to conducting businesses with a limited customer base tied to a single employer.  The Company has been generally successful in such customer diversification initiatives through de novo branching, establishing a network of remote ATMs, broadening lending programs

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Page 1.5

(including originations and purchases), emphasizing marketing and competitive pricing strategies and pursuing strategic affiliations to increase loan volume. 

          Prior to the Charter Conversion, the deposit balances attributable to Kaiser Permanente employees accounted for 50% of total deposits.  As of June 30, 2007, having more than doubled in size, the proportion of deposits from Kaiser Permanente employees has diminished to 39.5%, which illustrates the success of its customer diversification strategy.  The loan customer diversification is directly attributable to the active purchases of 1-4 family and multi-family mortgage loans from other regional lenders.  As the credit union lending restrictions were removed, the Company commenced an active program of originating (or purchasing) loans to non-customers.  This loan customer diversification has lessened the Company’s credit risk profile directly linked to the employee concentration with Kaiser Permanente.  As of June 30, 2007, 63% of account holders are current Kaiser Permanente employees; 19% are former Kaiser Permanente employees; and 18% are new community accounts.

          The ability to market to a broader customer base (both from an employer and geographic perspective) and the ability to offer an expanded line of products, particularly in the mortgage area, have contributed to the Company’s asset and loan growth, which have equaled 16.5% and 15.7%, respectively, since the end of fiscal 2003.  Additionally, the Charter Conversion enhanced the ability to expand deposits, loans and assets.  Such expansion, coupled with the additional capital from the Minority Stock Issuance, have led to earnings growth for the Company, notwithstanding a highly competitive environment as well as spread compression attributable to a flat yield curve.

          The current operating strategy is designed to take advantage of the broad geographic footprint encompassed by Kaiser Federal Financial’s offices and the remote ATMs from Southern California extending up through the San Francisco Bay area.  The Company’s strong loan growth in recent years has been largely attributable to the purchase of loans secured by 1-4 family mortgage loans, whereby the servicing rights have been retained by the seller.  Such purchases have generally consisted of loans acquired from major financial institutions or mortgage banking companies and have been comprised of adjustable rate or hybrid loans (i.e., loans which are adjustable for the first 3 or 5 years of the loan and adjustable thereafter).  The Company’s internally originated 1-4 family mortgages have been relatively limited, and have

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generally consisted of longer-term fixed rate mortgages, typically with maturities ranging from 15 to 30 years.  However, over the past few years, the Company has been purchasing longer term-fixed rate mortgages.  The focus of Kaiser Federal Financial’s mortgage lending encompasses the originations and purchases of both residential (i.e., secured by 1-4 family properties) and multi family residential loans and to a lesser extent the originations and purchases of commercial real estate loans.  At June 30, 2007, the Company’s real estate loan portfolio totaled $635.4 million, or 90.5% of the gross loan portfolio.  Purchased real estate loans as of the same date totaled $406.5 million, or 64.0% of the real estate loan portfolio.  The Company also employs a staff of commercial loan officers who originated all of the Company’s commercial and multi-family mortgage loan volume in fiscal 2007. The Company has limited the cost of loan originations by relying heavily on purchased and/or broker sourced loans, particularly with respect to residential loans.  All originated as well as purchased loans are underwritten internally pursuant to the Company’s board approved underwriting guidelines.

          The Company’s strong deposit growth reflects the success of its premium pricing strategy.  The premium deposit pricing has facilitated growth and enabled the Company to limit “brick and mortar” expense (including investment in systems) – the success of this strategy is underscored by the fact that only three of its offices are full service. The Company’s growth in fiscal 2004 is attributed to a significant amount of short-term deposit growth experienced during the second and third quarters in connection with the initial stock offering, as well as a new branch location that was acquired with the purchase of the Panorama City branch of Pan American Bank.  The acquired deposits from Pan American Bank totaled $61.2 million.  Total deposits declined slightly in 2006, but grew 6.6% in 2007 to the highest balance over the past five years. 

          The Company’s balance sheet growth has been partially funded by FHLB advances, which at June 30, 2007 totaled $210 million.  All of the Company’s borrowed funds have fixed rates and have been used to fund both wholesale leveraging as well as increases in loan origination and purchase volume.  Following the Second Step Conversion, the Company may use additional borrowings to facilitate additional wholesale to improve earnings and return on equity.  To the extent additional borrowings are utilized by the Company, FHLB advances would likely

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continue to be the principal source of such borrowings, followed by reverse repurchase agreements.

          The Company’s earnings are largely dependent upon net interest income and operating expense levels, as sources of non-interest operating income remain relatively limited.  Core earnings have generally been trending upward as the Company benefited from loan growth funded through a mix of deposits and borrowed funds as well as the net reinvestment benefit from the proceeds raised in the 2004 minority stock issuance.

          The Company maintains nine branch offices, six of which are financial service centers (or “cashless” branches).  In addition, the Company employs a variety of alternative delivery systems, particularly technology-oriented systems, which are designed to minimize overhead costs, provide convenient around-the-clock access for customers and increase profitability through continued balance sheet growth.  The Company has significantly expanded its retail footprint through its network of 54 ATMs, the majority of which are remote locations.  The Company maintains its own web site, and utilizes such technology to communicate key information to its customers.  The Company provides the ability for online banking, which includes cash management and online bill payment.  The Company’s 24-hour telephone banking system provides access to account information and numerous banking functions.  Remote access methods, such as the ATM network, audio response unit, call center, and online banking/bill payer continue to process over 90% of the Company’s customer transactions.  Branches and financial service centers strategically located for the Company’s markets provide touchstones to attract new account holders and facilitate transactions that cannot be completed electronically.   

          While Kaiser Federal recognized certain benefits as a credit union including its non-taxable status and strong corporate ties, that charter limited the types of products and services it could offer and to whom.  Prior to the Charter Conversion, the Company had developed a niche in mortgage lending but was limited in its ability to expand such lending operations beyond the field of membership.  Today, the Company has the ability to serve the local community and offer a more diverse array of products and services.  Kaiser Federal offers a wide array of banking services including savings, certificate and checking accounts, ATM and debit cards, wire transfers, online banking, fixed or adjustable-rate mortgage loans on residential, multifamily and commercial properties as well as consumer loans.  The post-offering business strategy employed

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by the Company will continue to be to provide quality service, charge limited fees, pay highly competitive rates on savings, and charge equitable loan rates. 

Balance Sheet Trends

     Growth Trends

          Over the last five fiscal years, the Company has implemented a strategy of growth and expansion, realized both through internal growth at existing branches, the acquisition of one branch in Panorama City in fiscal 2004, and the establishment of four financial service centers in the first three quarters of 2006.  The impetus for the balance sheet growth in the 2000 to 2004 period primarily included a strategic intent to grow and diversify the customer base.  More recently, since the minority stock issuance completed in 2004, the Company has been seeking to grow the balance sheet with the objective of increasing earnings per share and long-term shareholder value.

          This growth and expansion strategy is evidenced in the summary balance sheet data set forth in Table 1.1, which shows that total assets increased 16.5% annually from $433.8 million at the end of fiscal 2003, to $799.6 million for fiscal 2007.  The Company’s assets are funded through a combination of deposits, borrowings and retained earnings.  Deposits have always comprised the majority of funding liabilities, increasing at an annual rate of 9.3% since 2003.  Borrowings have also increased reflecting certain asset/liability (“A/L”) management strategies and wholesale leveraging opportunities.  In the future, the Company expects to continue to utilize FHLB advances and reverse repurchase agreements in several ways:  (1) as an alternative source of liquidity to fund loan and other balance sheet growth; and (2) in connection with potential leveraging and/or interest rate risk management strategies, particularly if the yield curve steepens.

          Annual equity growth equaled 27.1% since the end of fiscal 2003, with the expanded equity base primarily reflecting the impact of retained earnings over the period and the minority stock issuance completed in fiscal 2004.  Since the end of fiscal 2004, equity has increased from $89.1 million to $92.3 million which is attributable to retained earnings exceeding dividend payments and stock repurchases for the period.  Coupled with moderate balance sheet growth

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Page 1.9

Table 1.1
Kaiser Federal Financial Group, Inc.
Historical Balance Sheets
(Amount and Percent of Assets)

	As of the Fiscal Year Ended June 30,
	2003					2004					2005
	Amount		Pct			Amount		Pct			Amount		Pct
		($000)		(%)			($000)		(%)			($000)		(%)
Total Amount of:
Assets	$	433,753		100.00	%	$	584,422		100.00	%	$	639,882		100.00	%
Cash and Cash Equivalents		16,190		3.73	%		12,158		2.08	%		17,315		2.71	%
Loans Receivable (net)		389,640		89.83	%		496,206		84.91	%		537,567		84.01	%
Investment Securities - AFS		0		0.00	%		21,003		3.59	%		18,848		2.95	%
Investment Securities - HTM		14,247		3.28	%		41,361		7.08	%		30,834		4.82	%
Other Investments		6,437		1.48	%		2,970		0.51	%		9,010		1.41	%
FHLB Stock		2,602		0.60	%		3,290		0.56	%		4,027		0.63	%
Goodwill and Core Deposit Intangible		0		0.00	%		0		0.00	%		4,518		0.71	%
BOLI		0		0.00	%		0		0.00	%		10,089		1.58	%
Deposits		346,239		79.82	%		422,953		72.37	%		475,792		74.36	%
Borrowed Funds		50,000		11.53	%		70,000		11.98	%		70,777		11.06	%
Total Equity		35,395		8.16	%		89,116		15.25	%		90,760		14.18	%
Tangible Equity		35,395		8.16	%		89,116		15.25	%		86,242		13.48	%
Loans/Deposits				113.29	%				118.10	%				113.83	%
Number of Full Service Offices				2					2					3
Number of Financial Service Centers				1					2					2

	As of the Fiscal Year Ended June 30,										Compounded Annual Growth Rate
	2006					2007
	Amount		Pct			Amount		Pct			Pct
		($000)		(%)			($000)		(%)			(%)
Total Amount of:
Assets	$	738,899		100.00	%	$	799,625		100.00	%		16.52	%
Cash and Cash Equivalents		25,579		3.46	%		26,732		3.34	%		13.36	%
Loans Receivable (net)		634,093		85.82	%		699,143		87.43	%		15.74	%
Investment Securities - AFS		11,289		1.53	%		13,579		1.70	%		N.M
Investment Securities - HTM		24,738		3.35	%		21,096		2.64	%		10.31	%
Other Investments		9,010		1.22	%		2,970		0.37	%		-17.58	%
FHLB Stock		8,746		1.18	%		9,870		1.23	%		39.56	%
Goodwill and Core Deposit Intangible		4,387		0.59	%		4,273		0.53	%		N.M
BOLI		10,514		1.42	%		10,954		1.37	%		N.M
Deposits		463,454		62.72	%		494,128		61.79	%		9.30	%
Borrowed Funds		179,948		24.35	%		210,016		26.26	%		43.16	%
Total Equity		92,657		12.54	%		92,317		11.55	%		27.08	%
Tangible Equity		88,270		11.95	%		88,044		11.01	%		25.59	%
Loans/Deposits				138.71	%				143.49	%
Number of Full Service Offices				3					3
Number of Financial Service Centers				4					6

Source:  Kaiser Federal Financial Group, Inc.’s prospectus.

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achieved over the period, the equity-to-assets ratio declined from 15.3% as of the end of fiscal 2004 (just after the 2004 minority stock issuance) to 11.6% as of the end of fiscal 2007.  Going forward, the post-offering equity growth rate is expected to be impacted by a number of factors including the higher level of capitalization, the reinvestment and leveraging of the offering proceeds, the expense of the stock benefit plans and the potential impact of dividends and stock repurchases.

          Since a substantial portion of the Company’s recent growth has been facilitated through originated loans sourced from third parties who retain the servicing rights, the Company has limited contact with many of its new borrowers; thus, cross-selling opportunities are more limited than if such loans had been self originated.  From a funding perspective, the Company has been pricing certain deposits at a premium.  Thus, some of the Company’s newer depositors include a number of rate-based customers, which again provide limited opportunity for cross-selling, particularly for those depositors who are located outside the Company’s market area.  These characteristics will be considered in the pricing section.   

     Loans Receivable

          The Company’s lending strategy has primarily emphasized real estate lending, primarily 1-4 family residential mortgage loans and, to a lesser extent, income property loans.  Kaiser Federal Financial’s loan portfolio composition as of June 30, 2007 underscores such emphasis – permanent first mortgage loans secured by 1-4 family residential properties totaled $469.5 million, equal to 66.9% of gross loans, while multi-family and commercial real estate loans totaled $165.9 million, equal to approximately 23.6%.  Consumer loans equaled 9.5% of gross loans.

          The majority of the Company’s 1-4 family residential mortgage loans conform to standards set by either Freddie Mac or Fannie Mae.  Most non-conforming residential loans are non-conforming as to the loan amount (i.e., jumbo loans), while otherwise meeting the agency credit criteria.  The majority of the Company’s 1-4 family mortgage loans are purchased from financial institutions and mortgage bankers.   Purchased residential mortgage loans have typically been variable rate or hybrid ARMs (i.e., fixed for a period of up to 5 years and adjustable thereafter), however in recent years have also included 15 and 30 year fixed rate

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loans.  Specifically, during fiscal 2007, the Company only purchased fixed rate 1-4 family residential mortgage loans. 

          The majority of the loans that are purchased are acquired with servicing released to allow for greater investments in real estate lending without having to significantly increase the Company’s servicing and operations costs.  Internal originations have been relatively modest in comparison to the purchase volume in recent years.

          The Company’s multi-family and commercial mortgage lending has been conducted in California, particularly Southern California.  Such loans are typically offered with adjustable rates, which adjust based on a U.S. Treasury index (typically the one year CMT) but which may be fixed for the first 3 or 5 years of the loan.  Such loans typically possess maturities ranging up to 15 years, with amortization periods of up to 30 years.  Income property loans are generated through an in-house staff of originators, as well as from the use of mortgage brokers.  The Company retains a portion of the larger multi-family loans originated, and sells participations to manage the exposure to any one borrower.

     Cash, Investments and Mortgage-Backed Securities

          Kaiser Federal Financial’s preference is to deploy the majority of assets into loans while maintaining required liquidity.  The Company anticipates initially reinvesting the net offering proceeds into investments with shorter maturities, pending longer-term deployment primarily into loans.

          As of the end of fiscal 2007, the Company’s portfolio of cash and liquidity investments totaled $29.7 million, or 3.7% of total assets.  At this date, this portfolio was comprised of non-interest bearing cash and cash equivalents ($11.0 million); federal funds sold ($15.8 million), and interest-bearing deposits at other financial institutions ($3.0 million).  All of the foregoing assets are considered to be cash or cash equivalents, and thus are not classified as available for sale (“AFS”) or held to maturity (“HTM”).  Additionally, the Company maintains a modest investment in FHLB stock with a book value of $9.9 million.  See Exhibit I-3 for the investment portfolio composition.

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          The Company also maintains an investment portfolio of securities AFS and securities HTM.  The securities classified as AFS consist primarily of mortgage-backed securities (“MBS”) which totaled $13.6 million, equal to 1.7% of assets as of the end of fiscal 2007.  The securities classified as HTM consists of both MBS and collateralized mortgage obligations (“CMO”), which totaled $21.1 million, or 2.6% of assets as of the end of fiscal 2007.  It is management’s intent to maintain comparatively modest MBS and CMO balances, however, in favor of loans.

     Bank Owned Life Insurance

          In April 2005, the Company purchased $10.0 million in bank owned life insurance (“BOLI”) and, as of June 30, 2007, the balance of BOLI totaled $11.0 million, which reflects a modest increase owing to increases in the cash surrender value of the policies.  The balance of the BOLI reflects the value of life insurance contracts on selected members of the Company’s management and has been purchased with the intent to offset various benefit program expenses on a tax advantaged basis.  The increase in the cash surrender value of the BOLI is recognized as an addition to non-interest income on an annual basis.

     Intangible Assets

          The Company maintained goodwill and core deposit intangibles totaling $4.3 million, or 0.5% of assets, at the end of fiscal 2007, which consisted of $3.95 million of goodwill and $323,000 of core deposit intangibles (“CDI”).  The intangible assets stem from the September 2004 acquisition of the Pan American Bank’s Panorama City branch.  The CDI is being amortized over approximately eight years on an accelerated basis and deducted for tax purposes over 15 years using the straight line method.  The CDI will be fully amortized in approximately 2013.  The goodwill is tested for impairment at least annually, and no impairment charges have been recorded to date.

     Funding Structure

          Retail deposits have generally met the substantial portion of the Company’s funding needs supplemented with borrowed funds from the FHLB of San Francisco.  The Bank is

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anticipating participating in a time deposit program with the State of California, which requires securities to be used as collateral..

          The Company maintains a strong level of savings and transaction accounts, which totaled $255.4 million, or 51.7% of total deposits, as of the end of fiscal 2007.  While savings and transaction accounts comprise the largest portion of deposits in aggregate, certificates of deposits (“CDs”) comprise the single largest segment of deposits.  CDs equaled $238.7 million, or 48.3% of total deposits at June 30, 2007.  In comparison, non-interest-bearing checking, money market and passbook savings accounts equaled $43.2 million (8.7% of deposits), $75.6 million (15.3% of deposits), and $136.6 million (27.7% of deposits), respectively.

          The Company has continually utilized borrowed funds over the last five fiscal years, with all of the borrowings consisting of FHLB advances.  As of June 30, 2007, FHLB advances totaled $210.0 million, representing 26.3% of total assets.  The Company typically utilizes borrowings:  (1) when such funds are priced attractively relative to deposits; (2) to lengthen the duration of liabilities; (3) to enhance earnings when attractive revenue enhancement opportunities arise; and (4) to generate additional liquid funds, if required.  Recent growth in borrowings was attributable for efforts to fund loan growth, leverage equity and increase earnings.  The Company may continue to utilize borrowings as a supplemental funding source in the future, generally on a short-to-intermediate term basis.

     Equity

          As a mutual institution, the Company’s equity was primarily impacted by the level of earnings.  With the completion of the minority stock issuance in March 2004, Kaiser Federal Financial’s equity was more than doubled to $89.1 million, or 15.3% of assets as of June 30, 2004.  Since fiscal year end 2004 of the limited increase in retained earnings has reflected the Company’s capital strategies, including the payment of shareholder dividends and share repurchases.  As a result, the Company’s equity has only grown to $92.3 million, as of June 30, 2007, reflecting a 1.2% compounded annual rate of growth since the end of fiscal 2004.  However, the equity ratio has declined since fiscal 2004 reflecting the impact of asset growth.  The Bank maintained strong surpluses relative to its regulatory capital requirements at June 30, 2007, and thus qualified as a “well capitalized” institution.  The offering proceeds will serve to

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further strengthen the Company’s regulatory capital position and support further growth.  As discussed previously, the post-offering equity growth rate is expected to be impacted by a number of factors including the higher level of capitalization, the reinvestment of the offering proceeds, the expense of the stock benefit plans and the potential impact of dividends and stock repurchases.

Income and Expense Trends

          Table 1.2 shows the Company’s historical income statements for the fiscal years ended 2003 to 2007.  The Company’s net earnings have increased to $4.7 million (0.61% of average assets) in fiscal 2007, from $2.4 million (0.68% of average assets) in fiscal 2003.  Earnings have eased slightly from the nearly $5.0 million peak in fiscal 2005, or 0.82% of average assets. 

          Earnings were boosted in fiscal 2004 as a result of the balance sheet growth during the 12 month period, despite the narrowed spreads.  The Company reported higher earnings in fiscal 2005, with profitability increasing to $5.0 million (0.82% of average assets), respectively, before slightly declining to $4.9 million (0.68% of average assets) in fiscal 2006 and declining to $4.7% (0.61% of average assets) for fiscal 2007.  Peak earnings for fiscal 2005 is both the result of the net reinvestment benefit of the offering proceeds and continuing strong balance sheet growth.  Earnings have since eased due to margin compression as balance sheet growth moderated and as the proportion of balance sheet funding was in the form of higher cost borrowings and CDs.  Earnings in fiscal 2007 also benefited from the near elimination of the loss in equity investment.  These trends are described more fully below.

     Net Interest Income

          Net interest income steadily increased over the fiscal 2003 to 2006 period, primarily reflecting from the minority stock issuance and the impact of balance sheet growth and the reinvestment of offering proceeds.  However, there was a decline during the most recent fiscal year due to margin compression given the unfavorable yield curve environment.  The yield-cost spreads are the result of several factors including the flattening yield curve experienced over the last several fiscal years as the Federal Open Market Committee (“FOMC”) has increased the targeted Federal funds rate 17 times in 25 basis point increments while longer term interest rates

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Table 1.2
Kaiser Federal Financial Group, Inc.
Historical Income Statements

	As of the Fiscal Year Ended June 30,
	2003						2004						2005						2006						2007
	Amount			Pct(1)			Amount			Pct(1)			Amount			Pct(1)			Amount			Pct(1)			Amount			Pct(1)
		($000)			(%)			($000)			(%)			($000)			(%)			($000)			(%)			($000)			(%)
Interest Income	$	20,444			5.70	%	$	22,037			4.03	%	$	28,168			4.62	%	$	35,821			4.94	%	$	41,166			5.34	%
Interest Expense		(8,365	)		-2.33	%		(9,622	)		-1.76	%		(10,800	)		-1.77	%		(17,464	)		-2.41	%		(23,140	)		-3.00	%
Net Interest Income	$	12,079			3.37	%	$	12,415			2.27	%	$	17,368			2.85	%	$	18,357			2.53	%	$	18,026			2.34	%
Provision for Loan Losses		(1,124	)		-0.31	%		(483	)		-0.09	%		(406	)		-0.07	%		(652	)		-0.09	%		(529	)		-0.07	%
Net Interest Income after Provisions	$	10,955			3.05	%	$	11,932			2.18	%	$	16,962			2.78	%	$	17,705			2.44	%	$	17,497			2.27	%
Bank-Owned Life Insurance		—			0.00	%		—			0.00	%		89			0.01	%		426			0.06	%		439			0.06	%
Other Operating Income		3,186			0.89	%		3,402			0.62	%		3,472			0.57	%		3,588			0.49	%		3,919			0.51	%
Operating Expense		(9,772	)		-2.72	%		(10,000	)		-1.83	%		(12,041	)		-1.98	%		(13,476	)		-1.86	%		(14,518	)		-1.88	%
Net Operating Income	$	4,369			1.22	%	$	5,334			0.98	%	$	8,482			1.39	%	$	8,243			1.14	%	$	7,337			0.95	%
Loss on Equity Investment	$	—			0.00	%	$	(173	)		-0.03	%	$	(505	)		-0.08	%	$	(588	)		-0.08	%	$	(99	)		-0.01	%
MHC Reorganization Expenses		(220	)		-0.06	%		—			0.00	%		—			0.00	%		—			0.00	%		—			0.00	%
Total Non-Operating Income/(Expense)	$	(220	)		-0.06	%	$	(173	)		-0.03	%	$	(505	)		-0.08	%	$	(588	)		-0.08	%	$	(99	)		-0.01	%
Net Income Before Tax	$	4,149			1.16	%	$	5,161			0.94	%	$	7,977			1.31	%	$	7,655			1.06	%	$	7,238			0.94	%
Income Taxes		(1,710	)		-0.48	%		(1,993	)		-0.36	%		(2,980	)		-0.49	%		(2,726	)		-0.38	%		(2,534	)		-0.33	%
Net Income (Loss)	$	2,439			0.68	%	$	3,168			0.58	%	$	4,997			0.82	%	$	4,929			0.68	%	$	4,704			0.61	%
Estimated Core Net Income
Net Income	$	2,439			0.68	%	$	3,168			0.58	%	$	4,997			0.82	%	$	4,929			0.68	%	$	4,704			0.61	%
Addback(Deduct): Non-Recurring (Inc)/Exp		220			0.06	%		173			0.03	%		505			0.08	%		588			0.08	%		99			0.01	%
Tax Effect (1)		(90	)		-0.03	%		(71	)		-0.01	%		(208	)		-0.03	%		(242	)		-0.03	%		(41	)		-0.01	%
Estimated Core Net Income	$	2,569			0.72	%	$	3,270			0.60	%	$	5,294			0.87	%	$	5,275			0.73	%	$	4,762			0.62	%
Memo:
Expense Coverage Ratio (2)		123.61	%					124.15	%					144.24	%					136.22	%					124.16	%
Efficiency Ratio (3)		64.02	%					63.22	%					57.53	%					60.24	%					64.86	%
Effective Tax Rate		41.22	%					38.62	%					37.36	%					35.61	%					35.01	%

(1)	Based on an estimated effective tax rate of 41.1%.
(2)	Net interest income divided by operating expenses.
(3)	Operating expenses as a percent of the sum of net interest income and other operating income (excluding gains on sale).

Source:  Kaiser Federal Financial Group, Inc.’s prospectus.

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Page 1.16

have increased at a much more modest pace.  Specifically, net interest income increased from $12.1 million in fiscal 2003 to a peak level of $18.4 million in fiscal 2006, before declining slightly to $18.0 million for the fiscal year 2007.  The net interest income to average assets ratio has followed a somewhat different trend than the dollar amount, as described more fully below.  After peaking at 3.37% for fiscal 2003, the net interest income ratio declined to 2.27% for fiscal 2004, which was caused by a temporary change in asset mix due to a significant amount of short-term deposit growth experienced during fiscal 2004 in connection with the initial stock offering, which were invested in low yielding Federal Funds, which were partially offset by lower levels of rates paid on deposits.  The Company was able to recover somewhat into fiscal 2005, however, and since then, the adverse yield curve has resulted in two years of decline in the net interest income ratio. 

          The decline in the net interest income ratio primarily reflects several factors.  First, with the charter conversion the Company began to expand mortgage lending, which has lower yields than the consumer lending historically emphasized.  Moreover, loan yields have been adversely impacted by the high prepayment of purchased loans that were acquired at a premium (thus requiring the premium to be amortized).  Additionally, some of the residential ARMs had low rates which initially provided a limited spread over the cost of funds.  More recently, the Company’s cost of funds has increased quickly as the growth objectives were realized through highly competitive pricing on selected deposit accounts and the increased funding with borrowings. Growth in net interest income was achieved in fiscal 2006 due to balance sheet growth notwithstanding ongoing spread compression.  As noted, however, moderated growth and a continuing adverse yield curve in 2007 also led to a dollar decline in net interest income. 

          The Company’s interest rate spreads (see Exhibit I-4) have declined modestly over the last three fiscal years, from 2.48% in fiscal 2005, to 2.17% in fiscal 2006, and diminishing still further to 1.87% in fiscal 2007.  The spreads trends reflect the strategies and rate environment discussed above.  The initial reinvestment of the offering proceeds should increase net interest income as the funds are reinvested, with longer-term earnings benefits realized through leveraging of the proceeds.

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Page 1.17

     Loan Loss Provisions

          Provisions for loan losses have historically reflected the large balance of consumer loans, particularly automobile loans.  Loan loss provisions have moderated since the Charter Conversion and shift in lending strategy reflecting the high growth in mortgage loans and the lower concentration of consumer lending.  Going forward, the Company will continue to evaluate the adequacy of the level of general valuation allowances (“GVAs”) on a regular basis, and establish additional loan loss provisions in accordance with the Company’s asset classification and loss reserve policies.  For the fiscal year 2007, loan loss provisions totaled $529,000, or 0.07% of average assets.

     Non-Interest Income

          While non-interest income has increased over the last five fiscal years, the contribution to profitability has diminished.  Specifically, non-interest income increased from $3.2 million (0.89% of average assets) in fiscal 2003, to $4.4 million (0.57% of average assets) for fiscal 2007.  The largest component of the Company’s non-interest income consists of deposit service charges and fees earned on transaction accounts.  Other components of non-interest income include returns on the investment in BOLI, which commenced late in fiscal 2005. 

          Growth in non-interest income from fiscal 2004 to fiscal 2007 is largely the result of increased ATM fees due to increased usage and deployment of remote ATMs.

     Operating Expenses

          The Company’s operating expenses have increased in recent years due to asset growth and branching, both from acquisition and de novo branching, as well as the deployment of additional remote ATMs.  Specifically, the increase in operating expenses recently has been due to employee and facilities costs associated with the relocation of the Company’s Pasadena branch and the openings of financial service centers in Bellflower, Harbor City, Los Angeles, and Riverside.  In addition, employee costs have risen due to remaining competitive on a salary basis as well as increased benefit costs including stock-based benefit plans and rising medical insurance premiums.  Although operating expenses have increased from $9.8 million in fiscal

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Page 1.18

2003 to $14.5 million in fiscal 2007, the ratio to average assets leveled off near 1.90%, much lower than the 2003 ratio of 2.72%. 

          Operating expenses have increased recently due to increased audit costs as a result of complying with Sarbanes-Oxley and increased legal costs stemming from U.S. Mortgage’s 2006 bankruptcy filing (who services $1.0 million of commercial real estate loan participations previously purchased by the Bank).

          Operating expenses are expected to increase on a post-offering basis as a result of the expense of the additional stock-related benefit plans, as well as the planned branching and growth initiatives which are currently underway.  At the same time, continued balance sheet growth and reinvestment of the offering proceeds should largely offset the anticipated expense increase.

     Non-Operating Income/Expense

          Non-operating income and expense items have had a moderate impact on profitability.  First, the Company incurred $220,000 of expense (0.06% of average assets) attributable to the July 1, 2003 MHC reorganization in fiscal 2003.  Second, since 2004, the Company has realized a loss on an equity investment.  The Company has a 14% investment in a California Affordable Housing Program, for the purposes of obtaining tax credits and for Community Reinvestment Act purposes, which totaled $2.1 million at June 30, 2007.  The Company is committed to fund an additional $193,000 at June 30, 2007.  Under the equity method of accounting, the Company recognizes its ownership share of the profits and losses of the fund.  During fiscal 2005 and 2006, the loss on this equity investment was $505,000 and $588,000, respectively.  For fiscal 2007, the loss on this equity investment was $99,000, or 0.01% of average assets.  The investment is regularly evaluated for impairment and tax credits received from the fund are included in income as a reduction of income tax expense.

     Taxes

          The Company’s tax rate has declined from 41% in fiscal 2003 to 35% in fiscal 2007.  The Company adopted several tax planning strategies including the BOLI investment as well as

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Page 1.19

investment in the California Affordable Housing Program which have reduced the effective tax rate.

     Efficiency Ratio

          The Company’s efficiency ratio steadily improved since fiscal 2003 from 64.0% to 57.8% in fiscal 2005, as balance sheet growth offset operating expense growth and spread compression.  The efficiency ratio has since deteriorated to 66.2% for the most recent fiscal year primarily due to spread compression and the recent increase in operating expenses.  On a post-offering basis, the efficiency ratio may show some improvement from the benefit of reinvesting the proceeds from the Offering.  However, a portion of the benefit is expected to be offset by the increased expense of the stock benefit plans.

Interest Rate Risk Management

          The primary aspects of the Company’s interest rate risk management include:

• Emphasizing the origination and purchase of adjustable rate residential mortgage loans or hybrid ARMS with repricing frequencies of up to five years when market conditions permit;

• Maintaining a diversified loan portfolio which includes loans secured by commercial real estate and multi-family properties as well as non-mortgage loans which carry short terms to maturity and/or variable interest rates;

• Maintaining a balance of cash or short-term investments;

• Maintaining an acceptable level of capital which provides a favorable level of interest-earning assets relative to interest-bearing liabilities; and

• Potentially selling a portion of the fixed rate mortgage loans originated based on risk and profitability considerations.

          The rate shock analysis as of June 30, 2007 (see Exhibit I-5) reflects a modest liability sensitive position with the net portfolio value (“NPV”) declining by 272 basis points pursuant to a positive 200 basis point instantaneous and permanent rate shock, resulting in a post-shock NPV ratio equal to 7.22%.  By way of comparison, OTS estimates NPV data on a regional and national basis.  Based on OTS estimates, incorporating June 30, 2007 financial data and market

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rate information, assuming a positive 200 basis point instantaneous, and permanent rate shock, the post-shock NPV ratio for all thrifts operating in the OTS Western Region equaled 9.43%, as of March 31, 2007, which reflects a 192 basis point decline relative to the base scenario.  Thus, the Company’s risk exposure is less favorable compared to the regional average.

          The NPV analysis is an indicator of the risk to earnings in a volatile interest rate environment as it incorporates changing assumptions with respect to maturity and repricing of assets and liabilities.  The OTS NPV analysis indicates that Kaiser Federal Financial has a lower NPV ratio and higher interest sensitivity measure pursuant to a rising interest rate scenario.  The level of risk for the Company falls into the moderate risk category, pursuant to OTS guidelines. 

          In this regard, the Company’s interest rate risk exposure is moderated by the relatively high level of ARMs whose short to intermediate term repricing structure closely matches the short term repricing structure of the deposit base.  Moreover, the Company’s interest rate risk exposure is projected to be further reduced following the completion of the conversion and reinvestment of the net conversion proceeds into interest-earning assets.

          Overall, the data suggests Kaiser Federal Financial’s earnings would be adversely impacted by rising interest rates, although the Company has been somewhat successful in reducing its exposure to interest rate risk.  At the same time, there are numerous limitations inherent in such analyses, such as the credit risk of the Company’s adjustable rate loans in a rising interest rate environment.  Other areas of risk exposure for the Company which may not be captured by the NPV analysis above include the substantial balance of loan premiums.  Specifically, as of June 30, 2007 the Company has $120,000 of purchase premiums on loans which will be amortized against interest income as the underlying loans pay down.

Lending Activities and Strategy

          Since the Charter Conversion, the Company has been primarily emphasizing real estate lending, primarily 1-4 family residential mortgage loans and, to a lesser extent, income property loans.  The majority of the Company’s 1-4 family residential mortgage loans consist of loans which are conforming to agency standards, and the non-conforming residential loans are conforming but for the loan amount (i.e., jumbo loans).  To a lesser extent, the Company extends

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consumer loans, primarily auto loans.  Details regarding the Company’s loan portfolio composition are included in Exhibits I-6, I-7, I-8, and I-9.

     Residential Lending

          As of June 30, 2007, residential mortgage loans approximated $469.5 million, or 66.9% of total loans.  The Company originates both fixed rate and adjustable rate 1-4 family mortgage loans and their general philosophy is to emphasize adjustable rate loans and/or shorter-term fixed rate mortgage loans for portfolio (hybrid loans with a fixed rate of up to 5 years initially) when competitive and market conditions permit.  However, in the current interest rate environment, Kaiser Federal Financial has been originating mostly 15 and 30 year fixed rate loans for portfolio.  The Company also purchases longer term fixed rate loans for portfolio.  Specifically, the majority of loans purchased for fiscal 2007 were fixed rate 1-4 family real estate loans given the low yield on ARMs.

          The repricing of ARM loans is tied to a variety of indexes, including the U.S. Treasury rate and LIBOR.  Depending on the type of loan, there are a variety of periodic and lifetime rate caps which are generally structured based on the conditions prevailing in the competitive market.

          The Company originates 1-4 family loans up to a loan-to-value (“LTV”) ratio of 90%, with private mortgage insurance (“PMI”) being required for loans with LTV ratios in excess of 80.0%.  All 1-4 family mortgage loans originated or purchased by the Company are secured by residences in California.

          As a complement to 1-4 family permanent mortgage lending, the Company also offers home equity loans, including fixed rate amortizing term loans and variable rate lines of credit tied to the Prime Rate.

     Multi-Family and Commercial Mortgage Lending

          Multi-family and commercial mortgage lending are typically secured by properties in southern California, but also include other California markets.  As of June 30, 2007, multi-family and commercial mortgage loans equaled $88.1 million (12.6% of gross loans) and $77.8 million (11.1% of gross loans), respectively.  The Company’s commercial real estate and multi-family

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loan portfolio has exhibited relatively strong growth since the completion of the minority stock offering in March 2004, reflecting the Company’s expanded lending powers. 

          Multi-family and commercial mortgage loan rates typically adjust based on a U.S. Treasury index (typically the one year CMT), but may be fixed for the first 3 or 5 years.  Such loans possess terms ranging up to 15 years, with amortization periods of up to 30 years, LTV ratios of up to 75%, and a targeted debt-coverage ratio of at least 1.2 times.  Such loans are typically originated with prepayment penalties if the loan is repaid within the fixed rate term.

          The Company’s typical commercial or multi-family loan is in the range of $1.0 to $1.5 million, but may be larger if the loan is well-collateralized or extended to a very credit-worthy borrower.  Such loans are typically collateralized by small office buildings, family-type business establishments and apartment buildings. 

     Consumer Loans

          The Company’s consumer loans totaled $66.6 million at June 30, 2007, the majority of which consist of auto loans and, to a lesser extent, home equity lines of credit (“HELOCs”) and loans secured by savings deposits. 

          The most significant component of the Company’s consumer lending is automobile loans.  The Company originates auto loans only on a direct basis with the borrower.  Most auto loans are extended pursuant to the Company’s pre-approved auto loan program (“PAAL”) whereby the borrower is pre-qualified for a loan up to a pre-established limit predicated on receipt of final approval from the Company.  Customers for the PAAL product have historically been Kaiser Permanente employees but the Company has marketed this product to the broader community since the Charter Conversion.  In recent years, automobile lending has declined, as the Company has placed more emphasis on real estate loan products.  Loans secured by automobiles totaled $53.1 million, or 7.6% of gross loans, as of June 30, 2007.

     Loan Originations, Purchases and Sales

          The Company’s 1-4 family lending is conducted through direct solicitation techniques, real estate industry relationships, targeted marketing, as well as through purchases.

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In 2005, the Company contracted with AnyHour Lending, Inc. to give Kaiser Federal Financial the ability to take and process residential mortgage loans 24 hours a day as well as over the Internet, although volume from this source has been limited.  In recent periods, the majority of such loans have been generated through purchases, primarily acquired from major financial institutions or mortgage banking companies.  In fiscal 2004 and 2005, the Company emphasized the purchase of adjustable rate 1-4 family mortgage loans; however, in fiscal 2006 and 2007, purchases have been primarily comprised of fixed rate 1-4 family mortgage loans given their more favorable yields.  In addition, the Company has purchased adjustable rate interest-only mortgage loans; the Company has no plans to significantly increase such loans at this time. 

          All purchased loans are underwritten by the Company pursuant to its underwriting guidelines.  The majority of the Company’s internally originated 1-4 family mortgages, which have been relatively limited, have consisted of longer-term fixed rate mortgages, typically with maturities ranging between 15 to 30 years. 

          Exhibit I-9, which shows the Company’s recent data regarding loan originations, repayments and sales, highlights the emphasis on mortgage lending.  The Company’s loan diversification efforts are evidenced by the multi-family and commercial mortgage loan origination level, which totaled $37.2 million, or 33.4%, of all loan originations in fiscal 2007.  Moreover, the Company has been an active loan purchaser acquiring $109.8 million of loans (all fixed rate 1-4 family mortgages), which fell slightly below total originations of $111.2 million within the past fiscal year.  At June 30, 2007, the Company’s real estate loan portfolio totaled $635.4 million or 90.5% of the gross loan portfolio.  Purchased real estate loans at June 30, 2007 totaled $406.5 million, or 64.0% of the real estate loan portfolio.

          The majority of the Company’s loan purchases have been on a servicing retained basis by the seller.  While this strategy has limited the increase in operating expenses, the Company has limited opportunity for cross-selling other financial products and services to such borrowers.   

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Asset Quality

          The Company’s asset quality has historically been strong and the level of non-performing assets (“NPAs”) is currently low.  As reflected in Exhibit I-10, the NPA balance was $1.5 million, equal to 0.18% of assets, consisting of non-performing loans ($1.1 million) and repossessed assets ($0.3 million).  The NPAs for fiscal 2007 consist primarily of 1-4 family residential real estate loans and properties.  The ratio of allowances to total loans has declined from 0.58% as of the end of fiscal 2003 to 0.40% as of the end of fiscal 2007 (see Exhibits I-10 and I-11), due to the reduction of automobile loans in the portfolio, which constitute the majority of the Company’s charge-offs.

Funding Composition and Strategy

          As of June 30, 2007, the Company’s assets were funded primarily with deposits, and, to a lesser extent, borrowings and equity (see Exhibits I-12, I-13 and I-14).  The Company’s deposit services cater to individuals rather than commercial businesses. 

     Deposits

          Local retail deposits have consistently addressed the substantial portion of Kaiser Federal Financial’s funding needs, with core deposits in the form of non-interest bearing checking, passbook accounts, and money market deposit accounts comprising the majority of deposits.  In the aggregate, these accounts totaled $255.4 million, or 51.7% of total deposits as of June 30, 2007.  As of June 30, 2007, CDs accounted for approximately 48.3% of deposits.  Approximately 73.2% of CDs had remaining maturities of one year or less.  Large balance CDs (i.e. balances greater than or equal to $100,000), which tend to be more rate sensitive than lower balance CDs, accounted for $93.5 million, or 18.9% of deposits, at June 30, 2007.

     Borrowings

          Borrowings have been utilized primarily as a supplemental funding source to fund lending activity.  As of June 30, 2007, borrowed funds consisted of $210.0 million of FHLB advances.  The Company interchanges the use of deposits and borrowings to fund assets depending on various factors including liquidity and asset/liability management strategies.

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Recently, however, the Company has increased borrowings utilization as deposits have exhibited slower growth and the desire to increase earnings through continued loan growth.

          The Company anticipates utilizing borrowings as a supplemental funding source in the future, generally for these same purposes.  The Company’s overall preference is to utilize deposits to fund operations with the objective of building customer relationships and increasing cross-sell potential and fee income.

Legal Proceedings

          In March 2007, U.S. Mortgage converted its Chapter 11 bankruptcy to a Chapter 7 in the District Court of Nevada.  U.S. Mortgage was responsible for servicing various commercial real estate participations loans totaling approximately $1.0 million that Kaiser Federal Financial purchased from the company.  Through this transition period, all servicing functions of U.S. Mortgage are being handled by the Bankruptcy Trustee.

          During the course of these proceedings, U.S. Bank has asserted a priority claim against $1.0 million in loan principal being serviced by U.S. Mortgage on the basis that U.S. Bank has a priority right to the funds.  The Company is vigorously contesting this claim and believes it has the proper ownership interest in these loans. 

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II.  MARKET AREA

Introduction

          Kaiser Federal Financial currently conducts operations through its executive offices in Covina, California, and a total of 8 branch offices, 7 of which are in southern California (Los Angeles, San Bernardino, and Riverside Counties)  while the remaining branch is located in Santa Clara in the San Francisco Bay area (Santa Clara County) (see the map of locations below).  Certain of the locations reflect, in part, the credit union roots and the location of the Kaiser Permanente Medical Care Program employees or physicians.  The Bank intends to continue expanding its regional branch office network and financial service centers although the timing and locations have yet to be determined.  Moreover, Kaiser Federal Financial will continue to extend the reach of its branch network through continued operation of the network of remote access service systems, including a network of 54 ATMs, Internet and telephone banking. 

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          Future growth opportunities for Kaiser Federal Financial depend on the growth and stability of the regional economy, demographic growth trends, and the nature and intensity of the competitive environment.  These factors have been briefly examined in the following pages to help determine the growth potential that exists for the Bank and the relative economic health of Kaiser Federal Financial’s market area.  The growth potential and the stability provided by the market area have a direct bearing on the market value of the Bank, and will be factored into our valuation analysis accordingly.  Exhibit II-1 provides a description of Kaiser Federal Financial’s office facilities and Exhibit II-2 provides historical interest rates.

National Economic Factors

          The future success of the Company’s operations is partially dependent upon various national and local economic trends.  In assessing economic trends over since the start of 2007, signs of slower economic growth continued to emerge, as manufacturing activity declined in January.  The employment report for January was also less favorable, based on fewer jobs added and an increase in the unemployment rate to 4.6%.  Retail sales were flat in January, while economic activity in the service sector continued to expand during January.  Durable-goods orders fell 7.8% in January as demand for transportation equipment plunged.  Existing home sales rose 3% in January on lower prices.  Comparatively, new home sales fell by 16.6% in January from the previous month, the largest drop in 13 years.  While the manufacturing sector grew in February, the service sector expanded at a slower than expected pace in February.  The February unemployment rate dipped to 4.5%, even though job growth slowed during February.  Other signs of a cooling economy included a nominal increase in retail sales during February, sales of new homes fell for the second straight month in February and capital goods orders, excluding defense and aircraft, fell in February.  Comparatively, March data showed signs of a more resilient economy, retail sales were up strongly in March and the March unemployment rate dropped to a five-month low of 4.4% on stronger-than-expected job growth.  Despite rising inventories of unsold homes, housing starts were also stronger than expected in March.

          The beginning of the second quarter of 2007 showed indications of a slowing economy.  The April unemployment rate edged up to 4.5%, as cautious employers added the fewest jobs in more than two years.  Major retailers experienced a 2.3% decrease in same store sales during

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April and home building permits slid in April to their lowest point in almost a decade.  The general economy also showed some areas of strength in April, which included a jump in industrial output and an increase in manufacturing activity.  Consumer confidence rose in May, as rising stocks and a strong job market kept Americans upbeat.  The U.S. housing market remained sluggish in May, as the inventory of unsold homes was up in 18 major metropolitan areas and new housing starts continued to decline.  Better-than-expected job growth maintained the national unemployment rate at 4.5% for May.  Manufacturing activity picked up in June, while the housing market continued to struggle as the inventory of homes for sale continued to rise in June.  New and existing home sales both declined in June.  Solid job growth for June held the national unemployment rate at 4.5% and GDP grew at a stronger-than-expected 3.4% annualized rate during the second quarter.

          Retail sales were up modestly in July 2007, while the unemployment rate for July increased to 4.6% on slower job growth.  Industrial output showed a stronger than expected in July, while the housing market continued to struggle.  New home construction fell in July to its lowest level in a decade and existing home sales dropped to for a fifth straight month in July.  Home prices also fell in July for a record 12^th consecutive month.

          In terms of interest rate trends since the beginning of 2007, a stable interest rate environment continued to prevail, which was followed by a mild upward trend in interest rates in mid-January.  Lower oil prices and increased expectations of the Federal Reserve not cutting rates anytime soon contributed to the rise in long-term Treasury yields.  Following the Federal Reserve’s decision to leave rates unchanged at its end of January meeting, interest rates stabilized during the first half of February.  Treasury bonds rallied in mid-February, based on indications from the Federal Reserve Chairman that inflation was headed lower.  Signs of slower economic growth and a sell-off in the stock market continued the downward trend in Treasury yields in late-February.  A stable interest rate environment prevailed throughout most of March, as economic measures generally reflected a downturn in economic activity and the March meeting of the Federal Reserve concluded with no change in the federal funds target rate. The Federal Reserve statement from the March meeting continued to cite inflation concerns, but the Federal Reserve dropped its stated bias to raise rates.

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          Some stronger than expected economic reports pushed long-term Treasury yields higher at the start of the second quarter of 2007.  The release of the March minutes of the Federal Reserve, which revealed that more rate increases may be needed to combat inflation, further contributed to the rise in interest rates.  Treasury yields eased lower in mid-April on tame inflation data reflected in the March consumer price numbers.  Interest rates stabilized through the balance of April and for the first half of May.  The Federal Reserve left interest rates unchanged at its May meeting and gave no signs that it was moving towards an interest rate cut.  Long-term Treasury yields moved higher heading into late-May, with such factors as global growth, an increase in May consumer confidence and initial jobless claims falling for a fifth straight week contributing to the upward trend in interest rates.  Bond prices plunged on inflation worries during the first half of June, with the yield on the 10-year Treasury note rising to a five year high of 5.25%.  Interest rates eased lower during the second half of June on mixed economic data.  The Federal Reserve left rates unchanged at its late-June meeting, but softened its hawkish inflation stance.  At the same time, the Federal Reserve seemed to rule out the possibility of cutting rates any time soon.

          Healthy job growth reflected in the June 2007 employment report pushed Treasury yields higher at the start of the third quarter.  However, Treasury bonds rallied in mid-July on news of rating cuts on bonds backed by subprime mortgages, as investors dumped junk bonds for the relative safety of Treasury bonds.  The rally in long-term Treasury bonds continued into late-July, on fears that the housing slump was spreading to the broader economy.  Interest rates stabilized during the first half of August, as the Federal Reserve held rates steady as expected and core wholesale inflation showed only a modest increase in July.  A half point cut in the Federal Reserve’s discount rate and increased speculation that the Federal Reserve would cut the federal funds rate in September pushed interest rates lower heading into the second half of August, with short-term Treasury yields posting their biggest decline in 19 years.  The comparatively larger decline in short-term Treasury yields provided a positively sloped yield curve in late-August.  As of August 31, 2007, the bond equivalent yields for U.S. Treasury bonds with terms of one and ten years equaled 4.55% and 4.60%, respectively, versus comparable year ago yields of 5.06% and 4.79%.   

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Local and Regional Market Conditions

     Economic Overview – Los Angeles County

          Los Angeles County’s economy has historically been tied to the aerospace, entertainment and tourism industries and has realized strong growth since the beginning of World War II.  The presence of nearby military installations and test facilities coupled with the mild climate and good weather made the area an excellent location for aerospace firms to grow and prosper.  These same conditions facilitated the growth of the entertainment and tourism businesses which have historically been the mainstay of the local economy.  Strong population growth and the growing income levels coupled with the availability of land and the development of an extensive network of freeways provided for growth in the real estate industry (both development and finance).

          The reliance upon the defense and tourism industries historically brought immense growth and prosperity to Los Angeles County, but also introduced significant volatility.  The region’s growth came to a sudden halt in the early 1990s with the combined impact of the national recession, the commencement of the Gulf War, the breakup of the Soviet Union and subsequent end of the Cold War and downsizing of the U.S. military, all of which led to severe recessionary conditions through the mid-1990s.

          Los Angeles County’s economy has improved dramatically since the mid-1990s when the longest and deepest recession in 60 years ended.  In this regard, many economists and local business leaders believe the most recent economic recovery and expansion were not mere business or cyclical adjustments, but an extensive overhauling and restructuring of the region’s basic economic drivers.

          From an economy largely dominated by aerospace, tourism and the entertainment industries, Los Angeles County’s economic base has transformed into a more diversified mix of high-technology commercial endeavors. Some of these sectors were by-products of the defense-related industries and knowledge, which capitalized on the highly educated and skilled labor force.  Emerging growth areas include telecommunications, electronics, computers, software, and biomedical technologies.

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          International trade has also contributed to Los Angeles County’s economic growth in recent years fueled both by cross-border trade with nearby Mexico and by trade with other Pacific Rim countries.  Currently, the Port of Los Angeles/Long Beach ranks first in the U.S. in total trade.  Coupled with its status as a major entertainment and cultural center, Los Angeles has been a major entry way and settlement area for immigrants to the U.S.

     Riverside and San Bernardino Counties - Inland Empire

          Riverside and San Bernardino Counties are commonly referred to as the “Inland Empire” and together, these two counties comprise the Riverside-San Bernardino Metropolitan Statistical Area (“MSA”). While the Inland Empire encompasses a huge geographic area extending to the Nevada border, Kaiser Federal Financial’s operations are concentrated in the western portions of Riverside and San Bernardino Counties.

          The Inland Empire has realized strong business and population growth in the last several decades owing, in part, to defense spending and the large military infrastructure in the region and to its location adjacent to the high cost coastal areas of Los Angeles, Orange and San Diego Counties.  In this regard, many manufacturing, transportation and distribution companies have located in the Inland Empire.  The area has also been a magnet for new residents seeking affordable housing outside of the expensive coastal markets. 

          Like Los Angeles County, the Inland Empire markets were dramatically impacted by the cutbacks in defense spending and base closures in the early 1990s.  Concurrently, other significant employment losses occurred in the financial services and construction sectors, primarily as a result of Southern California’s troubled real estate markets.  Since that time, the Inland Empire economy has recovered and is one of the fastest growing metropolitan areas in the country.

          Much of the Inland Empire’s business growth can be attributed to companies that expand locally, and to those that relocate from the nearby coastal counties. From 1994-2004, 1,250 firms either moved to the region from the congested and high-priced regions of Los Angeles, Orange and San Diego Counties, put their new expansions in the area, or moved locally to add space and employees -- a trend that is expected to continue in the coming decades.  This migration of firms and people from the coastal counties is occurring as the density of land

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development in those counties has created a shortage of manufacturing and housing space, and increased spacing costs.  Ultimately, the Inland Empire is the last region of Southern California to have large amounts of undeveloped land along developed transportation corridors, creating a powerful advantage for both residential and industrial/commercial developers.

          In 2006, the Inland Empire added 48,100 jobs to the region and is projected to add 37,200 jobs in 2007.  The Inland Empire’s fastest growing sectors have normally been those paying moderate incomes to blue collar workers, which typically work in the distribution and transportation sectors, as well as manufacturing and construction.  In 2006, these sectors grew, adding 15,444 jobs.  In 2007, with strong logistics activity but weak manufacturing and declining construction these sectors are forecasted to allow the blue collar group to add just 6,800 jobs and account for 18.3% of the inland area’s 37,200 job gain.  The region’s prominent role as a transportation corridor also translates to healthy employment rates in affiliated industries.  The Inland Empire’s modern and rapidly-expanding logistics infrastructure accommodates the transport of goods to every corner of the country and the world, and provides thousands of jobs in warehousing and transportation of goods, air cargo, rail transportation, and trucking.

          Record levels of foreign trade and motion picture production, and a pronounced recovery in tourism have also had a positive economic impact. The Inland Empire’s diverse terrain and unique settings make it a popular region for film and entertainment production, while its mountain, lake and desert resorts and proximity to major population centers contributed to tourism.

     Santa Clara County

          Prior to World War II, the economy of Santa Clara County was tied to agriculture as a result of the moderate climate and long growing season.  However, the southern portions of the San Francisco Bay area have grown exponentially over the last fifty years with the growth of the San Francisco Bay overall, coupled with the development of technology-related industries.  In this regard, much of the growth in the technology sector which led to the development of the “Silicon Valley” as the region is known today was facilitated by the location of Stanford University in Palo Alto which provided for the engineering and creative resources required to stimulate growth of high technology industries.

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          The growth of computer and biotechnology industries in Santa Clara County fueled strong employment and income growth through the 1990s.  Even after the dot-com crash, which caused the loss of over 250,000 jobs, Silicon Valley continues to maintain its status as one of the top research and development centers in the world and has currently reported an increase in employment, for the first time in five years.  The turnaround coincides with a huge increase of investment in the emerging category of clean environment technology.

Market Area Demographics

          For reasons described above, the Bank’s markets have generally demonstrated strong population growth. The large size of the markets overall – Los Angeles County has 10.1 million residents, Riverside County has 2.1 million, San Bernardino County has 2.1 million residents while Santa Clara County has 1.8 million residents – gives the Bank exposure to a large base of potential customers (see Table 2.1), although it is a very competitive market.

          Total population in Los Angeles and Santa Clara Counties increased at a comparatively moderate pace equal to 0.9% and 0.7% from 2000 to 2007, which fell short of both the state and national average.  By comparison, growth in Riverside and San Bernardino Counties has been very strong, equal to 4.5% and 2.6% between 2000 and 2007, which were both growing at a faster pace than the California and the United States (equal to 1.5% and 1.2%, respectively). Importantly, growth projections for population through 2012 reflect that growth in Riverside and San Bernardino Counties will continue to grow at a faster pace, compared to the state and national averages.

          Paralleling trends for population growth, the total number of households increased at comparatively modest levels in Los Angeles and Santa Clara Counties from 2000 to 2007, while exceeding the state and national averages in Riverside and San Bernardino Counties.

          Median household income levels in Los Angeles, Riverside, and San Bernardino Counties are relatively favorable to the national average and fall modestly below the comparable state aggregate.  Per capita income levels for the three counties all fell below the comparable national and state averages.  Income levels in Santa Clara County reflect its status as one of the

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Table 2.1
Kaiser Federal Financial Group, Inc.
Summary Demographic Information

	Year						Growth Rate
	2000		2007		2012		2000-2007			2007-2012
Population (000)
United States		281,422		306,348		325,526		1.2	%		1.2	%
California		33,872		37,483		40,012		1.5	%		1.3	%
Los Angeles County		9,519		10,111		10,454		0.9	%		0.7	%
Riverside County		1,545		2,101		2,554		4.5	%		4.0	%
San Bernardino County		1,709		2,052		2,336		2.6	%		2.6	%
Santa Clara County		1,683		1,771		1,835		0.7	%		0.7	%
Households (000)
United States		105,480		115,337		122,831		1.3	%		1.3	%
California		11,503		12,540		13,324		1.2	%		1.2	%
Los Angeles County		3,134		3,255		3,346		0.5	%		0.6	%
Riverside County		506		676		818		4.2	%		3.9	%
San Bernardino County		529		616		698		2.2	%		2.5	%
Santa Clara County		566		594		613		0.7	%		0.6	%
Median Household Income ($)
United States	$	42,164	$	53,154	$	62,503		3.4	%		3.3	%
California		47,622		60,268		70,268		3.4	%		3.1	%
Los Angeles County		42,495		54,338		63,809		3.6	%		3.3	%
Riverside County		43,082		54,283		63,471		3.4	%		3.2	%
San Bernardino County		42,301		52,779		61,911		3.2	%		3.2	%
Santa Clara County		74,419		94,162		113,184		3.4	%		3.7	%
Per Capita Income ($)
United States	$	21,587	$	27,916	$	33,873		3.7	%		3.9	%
California		22,711		28,915		34,835		3.5	%		3.8	%
Los Angeles County		20,683		26,078		31,603		3.4	%		3.9	%
Riverside County		18,689		23,110		27,538		3.1	%		3.6	%
San Bernardino County		16,856		20,727		24,581		3.0	%		3.5	%
Santa Clara County		32,795		44,815		55,324		4.6	%		4.3	%
2007 HH Income Dist.(%)	Less Than $25,000		$25,000 to 50,000		$50,000- $100,000		$100,000 to $150,000			$150,000+
United States		21.9		25.0		32.3		12.3			8.4
California		19.6		22.1		31.8		14.6			11.8
Los Angeles County		23.1		23.1		30.0		13.3			10.4
Riverside County		21.3		24.7		33.7		13.0			7.3
San Bernardino County		22.5		24.8		33.7		12.5			6.5
Santa Clara County		9.7		12.7		30.4		20.8			26.4

Source: ESRI.

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wealthiest counties in the U.S. as household and per capita income well exceeded the levels for the Bank’s other markets as well as the state and national average.

Local Economy/Largest Employers

          The largest employers in Los Angeles County reflect its relatively diverse economy and the fact that some of the largest sectors (entertainment and tourism) are comprised of a multitude of relatively small employers which together comprise a large portion of the economy.

Table 2.2
Kaiser Federal Financial Group, Inc.
Major Employers in Los Angeles, San Bernardino and Santa Clara Counties

Employer	Business	Number of Employees
Los Angeles County*
Kaiser Permanente	Health Maint. Org.	30,511
Northrop Grumman Corp.	Defense Contractor	21,000
Boeing Co.	Aerospace & Defense Systems	16,636
Kroger Co.	Grocery Retailer	13,862
University of Southern CA	Private University	12,238
Vons	Grocery Retailer	12,224
Target Corp.	Retailer	11,526
Bank of America Corp.	Banking & Financial Services	10,801
ABM Industries, Inc.	Building Maint., Engineering, Etc.	10,100

*Private Employers
Source:  Los Angeles Business Journal, 2005
Riverside and San Bernardino Counties (Inland Empire)

County of San Bernardino	Government	19,299
Stater Brothers Markets	Retail/Distribution	16,000
County of Riverside	Government	14,889
Kaiser Permanente	Healthcare	9,590
University of California, Riverside	Higher Education	6,294
March Air Reserve Base	Military	6,200
Loma Linda University Medical	Healthcare	6,000
Ontario Mills Mall	Retail	5,500
Ontario International Airport	Transportation	5,360
United Parcel Service	Package Delivery	4,850

Source:  Inland Empire Magazine, December 2004

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Santa Clara County
Adobe Systems, Inc.	Computer Software Mfrs
Advanced Micro Devices, Inc.	Semiconductors
Apple Computer	Computer Equipment
Applied Materials, Inc.	Semiconductors; Equip.
Cadence Design Systems, Inc.	Computer Software
Cisco Systems, Inc.	Computer Peripherals (Mftrs)
El Camino Hospital	Hospital
Fujitsu IT Holdings, Inc.	Computer Software Mfrs
Hewlett-Packard Co.	Computers/Electronic Mfrs.
IBM Corp.	Computer /Electronic Mfrs.
Intel Corp.	Semiconductor Devices
Kaiser Permanente Medical Center	Hospital
Life Scan, Inc.	Health Care Equipment
Lockheed Martin Space Systems	Aerospace
National Semiconductor Corp.	Semiconductor Devices
Solectron Corp.	Electronic Components
Stanford Hospital and Clinics	Healthcare
Stanford University	Education
Valley Medical Center	Hospital

          Source:  California Employment Development Department.

          The Inland Empire and Santa Clara County reflect the characteristics and trends previously described.  In this regard, the major employers in the Inland Empire reflect its suburban character with its mix of retailers and health care providers.  Santa Clara County’s largest employers are relatively concentrated in the technology and health care sectors which reflect many of the industry leaders involved in the production of computer hardware and software.

Unemployment Rates

          Unemployment rates on a national level have been declining over the most recent 12 months, reflecting a strengthening economy (see Table 2.3).  Unemployment rates in California and the Company’s markets have remained relatively stable, albeit at levels above the national average.  The most recent unemployment rate for Los Angeles stands at 4.9% which is 0.4% above the national average and 0.3% below the average for California as a whole.  The current unemployment rate in Santa Clara County is 4.7% which is relatively favorable compared to the unemployment rates of 5.4% and 5.7% reported for San Bernardino and Riverside Counties.  All

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Page 2.12

of the Company’s markets reported unemployment rates under the state unemployment rate of 5.2%, with the exception of San Bernardino and Riverside Counties, which reported unemployment rates equal to 0.2% and 0.5% above the state average.

Table 2.3
Kaiser Federal Financial Group, Inc.
Unemployment Trends (1)

Region	June 2006 Unemployment	June 2007 Unemployment
United States	4.6%	4.5%
California	4.9	5.2
Los Angeles County	4.7	4.9
Riverside County	5.1	5.7
San Bernardino County	5.1	5.4
Santa Clara County	4.7	4.7

(1)  Unemployment rates are not seasonally adjusted.

Source:  U.S. Bureau of Labor Statistics.

Competition

          As a savings bank with its primary business functions of real estate lending and the gathering of deposits in Southern California and the San Francisco Bay area, Kaiser Federal Financial’s primary competitors are: (1) other financial institutions with offices proximate to the Company’s locations; (2) other mortgage loan originators; (3) those depository and lending organizations not physically located within the Company’s markets, but capable of doing business remotely through the Internet or by other means; and (4) other competitors such as investment firms, mutual funds, insurance companies, etc.

          Competition among financial institutions in the Company’s market is significant.  As larger institutions compete for market share to achieve economies of scale, the environment for the Company’s products and services is expected to remain highly competitive.  Community-sized institutions such as Kaiser Federal Financial typically compete with larger institutions on pricing or operate in a niche that will allow for operating margins to be maintained at profitable levels.  The Company’s business plan reflects elements of both strategies.

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Page 2.13

          Table 2.4 displays deposit market trends over recent years for the markets where the Company maintains branches.  The large size of the markets overall are indicated by the deposit totals, which equaled $223.0 billion for Los Angeles County alone while San Bernardino and Santa Clara Counties were $17.7 billion and $49.9 billion, respectively.  Furthermore, growth trends are relatively favorable as the Los Angeles County deposit market realized 8.6% annual growth for the two years ended June 30, 2006, which fell between the corresponding growth figures for San Bernardino County (9.8%) and Santa Clara County (3.5%).

          The largest competitors in the markets served by Kaiser Federal Financial are comprised of some of the largest financial institutions in California and the nation as a whole.  In this regard, Bank of America holds the largest market share in all three counties where the Company maintains branch offices, with a market share in the range of 20% based on deposit data as of June 30, 2006 (see Table 2.5 for details).  Other large competitors include Washington Mutual, Wells Fargo, Union Bank and Citibank.  At the same time, there are many smaller competitors, each holding less than 1.0% of the deposit market. Based on the most recent branch deposit data, Kaiser Federal Financial held less than 1% of all the markets where it operated.

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Page 2.14

Table 2.4
Kaiser Federal Financial Group, Inc.
Deposit Summary

	As of June 30,														Deposit Growth Rate 2004-2006
	2004							2006
	Deposits		Market Share			# of Branches		Deposits		Market Share			# of Branches
	(Dollars in Thousands)														(%)
State of California	$	671,110,640		100.0	%		6,423	$	725,878,327		100.0	%		6,894		4.0	%
Commercial Banks		465,367,089		69.3	%		4,816		530,213,958		73.0	%		5,254		6.7	%
Savings Institutions		205,743,551		30.7	%		1,607		195,664,369		27.0	%		1,640		-2.5	%
Los Angeles County	$	188,969,553		100.0	%		1,573	$	222,980,335		100.0	%		1,681		8.6	%
Commercial Banks		132,708,412		70.2	%		1,107		159,816,899		71.7	%		1,232		9.7	%
Savings Institutions		56,261,141		29.8	%		466		63,163,436		28.3	%		449		6.0	%
Kaiser Federal Bank		321,217		0.2	%		2		358,804		0.2	%		5		5.7	%
San Bernardino County	$	14,722,147		100.0	%		219	$	17,738,515		100.0	%		234		9.8	%
Commercial Banks		9,259,077		62.9	%		147		11,742,502		66.2	%		166		12.6	%
Savings Institutions		5,463,070		37.1	%		72		5,996,013		33.8	%		68		4.8	%
Kaiser Federal Bank		48,445		0.3	%		1		47,242		0.3	%		1		-1.2	%
Santa Clara County	$	46,619,520		100.0	%		319	$	49,926,715		100.0	%		339		3.5	%
Commercial Banks		35,783,616		76.8	%		245		37,945,856		76.0	%		260		3.0	%
Savings Institutions		10,835,904		23.2	%		74		11,980,859		24.0	%		79		5.2	%
Kaiser Federal Bank		49,149		0.1	%		1		57,802		0.1	%		1		8.4	%

Sources: FDIC.

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Page 2.15

Table 2.5
Kaiser Federal Financial Group, Inc.
Market Share by County

Company Name							Number of Branches		Deposits as of June 30,						2006 Market Share
	City		State		Charter				2004		2005		2006
										($000)		($000)		($000)		(%)
Los Angeles County
Bank of America NA		Charlotte		NC		Bank		254	$	37,773,244	$	42,753,839	$	41,813,271		18.75	%
Washington Mutual Bank		Henderson		NV		Thrift		183		25,142,192		25,347,415		25,631,802		11.50	%
Wells Fargo Bank NA		Sioux Falls		SD		Bank		203		18,885,728		20,769,006		22,279,615		9.99	%
Union Bank of California NA		San Francisco		CA		Bank		70		11,148,600		11,641,489		13,733,888		6.16	%
Citibank (West) FSB		San Francisco		CA		Thrift		110		9,277,805		9,485,087		10,170,396		4.56	%
City National Bank		Beverly Hills		CA		Bank		32		8,916,700		9,475,683		9,356,775		4.20	%
IndyMac Bank FSB		Pasadena		CA		Thrift		19		4,933,974		6,569,080		8,917,681		4.00	%
Bank of the West		San Francisco		CA		Bank		47		4,466,137		4,740,183		7,204,751		3.23	%
East West Bank		Pasadena		CA		Bank		47		5,004,803		5,934,135		6,109,059		2.74	%
Comerica Bank		Detroit		MI		Bank		17		6,737,621		7,368,448		5,806,934		2.60	%
Kaiser Federal Bank		Covina		CA		Thrift		5		385,411		368,517		358,804		0.16	%
All Others								694		56,297,338		63,839,317		71,597,359		32.11	%
Totals								1,681	$	188,969,553	$	208,292,199	$	222,980,335		100.00	%
San Bernardino County
Bank of America NA		Charlotte		NC		Bank		39	$	3,151,371	$	3,646,031	$	3,845,266		21.68	%
Washington Mutual Bank		Henderson		NV		Thrift		21		1,721,517		1,882,452		2,089,642		11.78	%
Wells Fargo Bank NA		Sioux Falls		SD		Bank		27		1,285,712		1,649,462		1,857,362		10.47	%
Citizens Business Bank		Ontario		CA		Bank		10		1,306,282		1,261,637		1,550,038		8.74	%
PFF Bank & Trust		Pomona		CA		Thrift		14		1,162,515		1,255,118		1,310,714		7.39	%
Downey S&LA		Newport Beach		CA		Thrift		14		537,294		683,125		779,536		4.39	%
World SB FSB		Oakland		CA		Thrift		4		598,618		724,351		771,012		4.35	%
Union Bank of California NA		San Francisco		CA		Bank		17		1,009,633		780,851		752,481		4.24	%
Citibank (West) FSB		San Francisco		CA		Thrift		11		556,809		582,578		667,722		3.76	%
Vineyard Bank, NA		Corona		CA		Bank		4		426,491		501,256		603,693		3.40	%
Kaiser Federal Bank		Covina		CA		Thrift		1		48,445		49,201		47,242		0.27	%
All Others								72		2,917,460		3,155,335		3,463,807		19.53	%
Totals								234	$	14,722,147	$	16,171,397	$	17,738,515		100.00	%
Santa Clara County
Bank of America NA		Charlotte		NC		Bank		60	$	8,964,196	$	10,106,479	$	9,650,872		19.33	%
Wells Fargo Bank NA		Sioux Falls		SD		Bank		58		8,229,151		9,047,605		9,352,026		18.73	%
Washington Mutual Bank		Henderson		NV		Thrift		30		4,878,719		5,015,174		4,955,854		9.93	%
Comerica Bank		Detroit		MI		Bank		14		4,651,661		4,026,863		4,056,957		8.13	%
Silicon Valley Bank		Santa Clara		CA		Bank		2		3,303,058		3,513,257		3,321,787		6.65	%
Greater Bay Bank NA		Palo Alto		CA		Bank		16		3,112,387		2,999,706		3,311,387		6.63	%
Citibank (West) FSB		San Francisco		CA		Thrift		23		2,712,265		2,787,490		2,970,151		5.95	%
World SB FSB		Oakland		CA		Thrift		8		1,836,325		2,156,353		2,333,946		4.67	%
Bank of the West		San Francisco		CA		Bank		26		1,837,348		1,703,526		1,756,020		3.52	%
Union Bank of California NA		San Francisco		CA		Bank		12		1,499,434		1,527,063		1,410,057		2.82	%
Kaiser Federal Bank		Covina		CA		Thrift		1		49,149		58,145		57,802		0.12	%
All Others								89		5,545,827		6,139,022		6,749,856		13.52	%
Totals								339	$	46,619,520	$	49,080,683	$	49,926,715		100.00	%

Source:  SNL Financial and FDIC.

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Page 3.1

III.  PEER GROUP ANALYSIS

          This chapter presents an analysis of Kaiser Federal Financial’s operations versus a group of comparable savings institutions (the “Peer Group”), who were selected from the universe of all publicly-traded savings institutions in a manner consistent with the regulatory valuation guidelines.  The basis of the pro forma market valuation of Kaiser Federal Financial is derived from the pricing ratios of the Peer Group institutions, incorporating valuation adjustments for key differences in relation to the Peer Group.  Since no Peer Group can be exactly comparable to Kaiser Federal Financial, key areas examined for differences are:  financial condition; profitability, growth and viability of earnings; asset growth; primary market area; dividends; liquidity of the shares; marketing of the issue; management; and effect of government regulations and regulatory reform.

Peer Group Selection

          The Peer Group selection process is governed by the general parameters set forth in the regulatory valuation guidelines.  Accordingly, the Peer Group is comprised of only those publicly-traded savings institutions whose common stock is either listed on a national exchange (New York Stock Exchange, or “NYSE”, and American Stock Exchange, or “AMEX”), or is NASDAQ listed, since their stock trading activity is regularly reported and generally more frequent than non-publicly traded and closely-held institutions.  Institutions that are not listed on a national exchange or NASDAQ are inappropriate, since the trading activity for thinly-traded or closely-held stocks is typically highly irregular in terms of frequency and price and thus may not be a reliable indicator of market value.  We have also excluded from the Peer Group those companies under acquisition or subject to rumored acquisition, in mutual holding company form and recent conversions, since the pricing ratios of these companies are typically subject to unusual distortion and/or have limited trading history.  A recent listing of the universe of all publicly-traded savings institutions is included as Exhibit III-1.

          Ideally, the Peer Group, which must have at least 10 members to comply with the regulatory valuation guidelines, should be comprised of locally or regionally-based institutions

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Page 3.2

with comparable resources, strategies and financial characteristics.  There are approximately 170 publicly-traded institutions nationally, which includes approximately 40 publicly-traded MHCs.  Given this limited number of public full stock thrifts, it is typically the case that the Peer Group will be comprised of institutions which are not directly comparable, but the overall group will still be the “best fit” group.  To the extent that differences exist between the converting institution and the Peer Group, valuation adjustments will be applied to account for the differences.  Since Kaiser Federal Financial will be a full public company upon completion of the offering, we considered only full stock companies to be viable candidates for inclusion in the Peer Group.  From the universe of publicly-traded thrifts, we selected 10 institutions with characteristics similar to those of the Company.  In the selection process, we applied the following “screens” to the universe of all publicly traded full stock thrifts.  The first preference was for comparable public thrifts in California.  Since there was an insufficient number from California, we broadened the geographic criteria to the Northwest and the densely populated Mid-Atlantic corridor.  As we searched for peer companies outside California, we narrowed the asset range to $500 million to $1 billion and limited the ROE range to 12% or less, and to those who were profitable and not highly dependent on mortgage banking. 

Screen #1.  California thrift institutions with total assets of $500 million to $5 billion. Five companies met the criteria for Screen #1 and four were included in the Peer Group:  Bofi Holding, Inc. of CA, First PacTrust Bancorp of CA, Harrington West Financial Group of CA, and PFF Bancorp, Inc. of CA.  Provident Financial Holdings of CA was not included in the Peer Group due to the Company’s dependency on mortgage banking and rapid sell off in the stock in recent months.  These thrifts operate in the same general market area as the Company.

Screen #2.  Northwest thrift institutions with total assets of $500 million to $1 billion and ROE of 12% or less.  Three companies met the criteria for Screen #2 and all were included in the Peer Group: Rainier Pacific Financial Group of WA, Riverview Bancorp, Inc. of WA, and Timberland Bancorp, Inc. of WA.

Screen #3.  Mid-Atlantic thrift institutions with total assets of $500 million to $1 billion and ROE of 12% or less.  Nine companies met the criteria for Screen #3 and three were included in the Peer Group: Harleysville Savings Financial Bancorp of PA, Pamrapo Bancorp, Inc. of NJ, and TF Financial Corporation of PA.  The selected companies were chosen because of their densely populated markets in the Philadelphia MSA or the New York MSA and because of their similar financial characteristics compared to the Company.

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Page 3.3

          Table 3.1 shows the general characteristics of each of the 10 Peer Group companies.  While there are expectedly some differences between the Peer Group companies and Kaiser Federal Financial, we believe that the Peer Group companies, on average, provide a good basis for valuation subject to valuation adjustments.  The following sections present a comparison of Kaiser Federal Financial’s financial condition, income and expense trends, loan composition, interest rate risk and credit risk versus the Peer Group as of the most recent publicly available date.

          A summary description of the key characteristics of each of the Peer Group companies is detailed below.

• PFF Bancorp, Inc. of CA reported total assets of $4.5 billion and operates 30 branch offices in southern California.  PFF Bancorp, Inc., the largest Peer Group member, maintains a high proportion of higher risk-weight construction and commercial mortgage loans.  The level of high risk-weight lending may contribute to the higher amount of net charge offs in relation to the Peer Group, however, NPAs were relatively low.

• Harrington West Financial Group of CA maintains $1.1 billion in total assets and operates 15 branches throughout the central coast of California as well as in the Kansas City MSA and the Phoenix/Scottsdale MSA.  Financially, the balance sheet composition reflects a comparatively high proportion of the loan portfolio comprised of higher risk-weight construction, commercial mortgage, and commercial business loans.  Earnings are comparable to the Peer Group average as its strong spreads and non-interest income levels are offset by its higher operating expenses in comparison to the Peer Group average.  Despite the emphasis in higher risk-weight lending, Harrington West Financial had a lower NPAs ratio in relation to the Peer Group.

• Bofi Holding, Inc of CA has an asset base of $947 million and operates through a single location.  Bofi Holding maintains a large wholesale leveraging portfolio, which is reflected in its comparatively lower profitability.  Bofi also is more diversified in the portfolio, with a high percentage of commercial mortgage and multi-family loans.

• Rainier Pacific Financial Group of WA, a former credit union, has $905 million in assets and operates 13 branch offices in the Tacoma-Pierce County area of Washington.  The balance sheet reflects a comparatively high ratio of wholesale leveraging relative to the other Peer Group companies.  Rainier Pacific also has a well diversified loan portfolio, with a high percentage of multi-family and commercial real estate loans.  Rainier Pacific’s comparatively lower profitability reflects its greater wholesale leveraging and recent branch expansion and new headquarters.

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Page 3.4

Table 3.1
Peer Group of Publicly-Traded Thrifts
September 4, 2007(1)

													As of 8/31/2007
Ticker	Financial Institution	Exchange	Primary Market	Operating Strategy(2)	Total Assets		Offices		Fiscal Year		Conv. Date		Stock Price		Market Value
														($)		($Mil)
PFB	PFF Bancorp, Inc. of Pomona CA	NYSE	Pomona, CA	Thrift	$	4,469		30		03-31		03/96	$	17.52	$	410
HWFG	Harrington West Financial Group of CA	NASDAQ	Solvang, CA	Thrift	$	1,130		15		12-31		11/02	$	14.90	$	83
BOFI	Bofi Holding, Inc. of CA	NASDAQ	San Diego, CA	Thrift	$	947		1		06-30		03/05	$	7.27	$	60
RPFG	Rainier Pacific Financial Group of WA	NASDAQ	Tacoma, WA	Thrift	$	905		13		12-31		10/03	$	16.16	$	106
RVSB	Riverview Bancorp, Inc. of WA	NASDAQ	Vancouver, WA	Thrift	$	832		16		03-31		10/97	$	14.93	$	173
HARL	Harleysville Savings Financial Corp. of PA	NASDAQ	Harleysville, PA	Thrift	$	778		5		09-30		08/87	$	14.83	$	57
FPTB	First PacTrust Bancorp of CA	NASDAQ	Chula Vista, CA	Thrift	$	769		9		12-31		08/02	$	22.80	$	100
THRD	TF Financial Corp. of Newtown PA	NASDAQ	Newtown, PA	Thrift	$	664		14		12-31		07/94	$	27.05	$	78
PBCI	Pamrapo Bancorp, Inc. of NJ	NASDAQ	Bayonne, NJ	Thrift	$	636		9		12-31		11/89	$	18.10	$	90
TSBK	Timberland Bancorp, Inc. of WA	NASDAQ	Hoquiam, WA	Thrift	$	624		25		09-30		01/98	$	15.91	$	112

NOTES:	(1)	Or most recent date available (M=March, S=September, D=December, J=June, E=Estimated, and P=Pro Forma).
	(2)	Operating strategies are:  Thrift=Traditional Thrift, M.B.=Mortgage Banker, R.E.=Real Estate Developer, Div.=Diversified and Ret.=Retail Banking.
	(3)	BIF-insured savings bank institution.
Source:	Corporate offering circulars, data derived from information published in SNL Securities Quarterly Thrift Report, and financial reports of publicly-traded thrifts.

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Page 3.5

• Riverview Bancorp, Inc. of WA has $832 million in assets and operates 16 branch offices in Washington and Oregon.  Riverview Bancorp has the highest ROA and net interest income ratio, reflecting its loan diversification strategy and high ratio of loans/assets.  Their loan diversification reflects construction, commercial real estate, and business loans, and asset quality has been strong.

• Harleysville Savings Financial Corporation of PA has $778 million in assets and operates five offices in the Philadelphia MSA.  Harleysville Savings Financial Corporation’s balance sheet structure partially reflects a wholesale leveraging strategy.  The loan portfolio reflects moderate diversification beyond 1-4 family residential loans.  Harleysville Saving’s lower profitability reflects its wholesale leveraging strategy and lesser loan diversification.

• First PacTrust Bancorp, Inc. of CA, a former credit union, has $769 million in assets and operates nine offices in San Diego and Riverside Counties, in the same general region as the Company.  The majority of First PacTrust’s loans are for 1-4 family residential loans, but it has also diversified into commercial real estate lending.

• TF Financial Corporation of PA has assets of $664 million and operates 14 branches in Pennsylvania MSA.  The asset structure reflects a relatively higher proportion of loans/assets, with the majority of loans invested in 1-4 family loans.  The relatively high ratio of loans provides TF Financial maintains a relatively strong net interest margin and ROA.  NPAs are higher than the Peer Group average, and the reserve coverage ratio falls below the Peer Group average.

• Pamrapo Bancorp, Inc. of NJ has assets of $636 and operates nine offices in Northern New Jersey (in the New York MSA).  Pamrapo Bancorp’s balance sheet composition reflects a comparatively lower proportion of loans and higher proportion of investments (mainly MBS).  The majority of Pamrapo Bancorp’s loan portfolio consists of 1-4 family residential mortgages, while reflecting diversification in commercial and multi-family mortgages, construction, C&I and consumer loans.  Pamrapo Bancorp enjoys a relatively high net interest income ratio and overall profitability.  Pamrapo Bancorp had the highest amount of NPAs among the Peer Group members.

• Timberland Bancorp, Inc. of WA has $624 million in assets and operates 25 branch offices in Washington.  Timberland Bancorp maintains a considerably diversified loan portfolio which has contributed to its relatively high net interest income and overall profitability ratios.  Timberland Bancorp has good asset quality, exhibiting NPAs that are lower than the Peer Group average.

          In aggregate, the Peer Group companies maintain a lower equity level as the industry average (9.2% of assets versus 12.6% for all public companies), generate a higher level of core profitability (0.75% for the Peer Group and 0.49% for all public companies), and generate a higher ROE based on core earnings (8.01% versus 4.70% for all public companies).  Overall, the

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Page 3.6

Peer Group’s pricing ratios were at a modest discount to all publicly traded thrift institutions, including both the price/earnings multiple and the price/tangible book value ratio. 

	All Publicly-Traded				Peer Group
Financial Characteristics (Averages)
Assets ($Mil)	$	3,136		$	1,176
Market Capitalization ($Mil)	$	413		$	127
Equity/Assets (%)		12.58	%		9.17	%
Core Return on Average Assets (%)		0.49	%		0.75	%
Core Return on Average Equity (%)		4.70	%		8.01	%
Pricing Ratios (Averages)(1)
Price/Core Earnings (x)		20.71	x		18.40	x
Price/Book (%)		130.65	%		126.99	%
Price/Tangible Book (%)		149.25	%		137.30	%
Price/Assets (%)		16.47	%		11.95	%

(1) Based on market prices as of August 31, 2007.

Source:  Corporate reports, offering circulars, and RP Financial, L.C. calculations.

          Since there are some key differences between Kaiser Federal Financial and this “best fit” Peer Group, we have prepared the following analysis to point out such differences, as well as the similarities.

Financial Condition

          Table 3.2 shows comparative balance sheet measures for the Company and the Peer Group (as of June 30, 2007 publicly available information).  Kaiser Federal Financial’s equity-to-assets ratio of 11.6% was above the Peer Group’s average equity ratio of 9.2%, respectively, even before the completion of the Offering.  Tangible equity equaled 11.0% of assets for the Company, versus 8.6% on average for the Peer Group.  The increase in Kaiser Federal Financial’s pro forma equity position will be favorable from a risk perspective and in terms of future earnings potential through reinvestment and leveraging.  At the same time, the Company’s higher pro forma capitalization will also result in a lower return on equity.  Both the Company’s and the Peer Group’s capital ratios reflected capital surpluses with respect to the regulatory capital requirements.

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Page 3.7

Table 3.2
Balance Sheet Composition and Growth Rates
Kaiser Federal Financial Group, Inc. and the Comparable Group
As of June 30, 2007

		Balance Sheet as a Percent of Assets
		Cash & Equivalents		MBS & Invest		Loans		Deposits		Borrowed Funds		Subd. Debt		Net Worth		Goodwill & Intang		Tng Net Worth		MEMO: Pref.Stock
Kaiser Federal Financial Group, Inc.
June 30, 2007		3.3	%	5.9	%	87.4	%	61.8	%	26.3	%	0.0	%	11.6	%	0.5	%	11.0	%	0.0	%
All Public Companies
Averages		4.4	%	19.8	%	70.2	%	68.7	%	17.0	%	0.7	%	12.4	%	1.0	%	11.4	%	0.0	%
Medians		2.7	%	18.1	%	70.6	%	70.6	%	15.4	%	0.0	%	10.6	%	0.1	%	9.3	%	0.0	%
State of CA
Averages		1.9	%	15.2	%	79.0	%	64.2	%	25.1	%	0.9	%	8.1	%	0.1	%	8.0	%	0.1	%
Medians		1.4	%	12.5	%	83.2	%	68.2	%	22.7	%	0.5	%	7.7	%	0.0	%	7.7	%	0.0	%
Comparable Group
Averages		2.9	%	19.5	%	73.1	%	68.3	%	20.9	%	0.8	%	9.2	%	0.6	%	8.6	%	0.1	%
Medians		1.9	%	20.7	%	73.0	%	71.1	%	17.2	%	0.0	%	9.6	%	0.2	%	9.0	%	0.0	%
Comparable Group
BOFI	Bofi Holding, Inc. of CA	5.5	%	39.1	%	53.6	%	57.9	%	33.5	%	0.5	%	7.7	%	0.0	%	7.7	%	0.5	%
FPTB	First PacTrust Bancorp of CA	2.2	%	2.7	%	91.2	%	75.8	%	12.7	%	0.0	%	10.8	%	0.0	%	10.8	%	0.0	%
HARL	Harleysville Savings Fin. Corp. of PA	1.0	%	42.2	%	53.0	%	55.7	%	37.0	%	0.0	%	6.3	%	0.0	%	6.3	%	0.0	%
HWFG	Harrington West Fin. Group of CA	1.6	%	26.6	%	67.2	%	68.2	%	22.7	%	2.3	%	6.1	%	0.6	%	5.5	%	0.0	%
PFB	PFF Bancorp, Inc. of Pomona CA	1.3	%	4.9	%	91.2	%	72.8	%	16.2	%	2.0	%	8.3	%	0.0	%	8.3	%	0.0	%
PBCI	Pamrapo Bancorp, Inc. of NJ	5.0	%	23.5	%	69.7	%	75.7	%	14.0	%	0.0	%	9.2	%	0.0	%	9.2	%	0.0	%
RPFG	Rainier Pacific Fin. Group of WA	1.5	%	22.6	%	70.6	%	50.9	%	38.4	%	0.0	%	9.9	%	0.4	%	9.6	%	0.0	%
RVSB	Riverview Bancorp, Inc. of WA	8.2	%	3.4	%	79.7	%	83.2	%	0.9	%	2.7	%	12.0	%	3.2	%	8.8	%	0.0	%
THRD	TF Financial Corp. of Newtown PA	0.9	%	18.8	%	75.3	%	73.7	%	15.1	%	0.0	%	10.0	%	0.7	%	9.3	%	0.0	%
TSBK	Timberland Bancorp, Inc. of WA	2.1	%	11.3	%	79.7	%	69.5	%	18.1	%	0.0	%	11.9	%	1.1	%	10.7	%	0.0	%

		Balance Sheet Annual Growth Rates
		Assets		MBS, Cash & Investments		Loans		Deposits		Borrows. &Subdebt		Net Worth		Tng Net Worth
Kaiser Federal Financial Group, Inc.
June 30, 2007		8.21	%	-6.45	%	10.26	%	6.62	%	16.71	%	-0.37	%	-0.26	%
All Public Companies
Averages		4.19	%	-1.30	%	7.80	%	5.50	%	-3.95	%	2.53	%	1.93	%
Medians		2.76	%	-3.77	%	7.15	%	3.53	%	-6.67	%	2.42	%	1.88	%
State of CA
Averages		4.49	%	1.57	%	1.84	%	8.16	%	-6.53	%	6.70	%	6.69	%
Medians		0.44	%	-10.55	%	2.73	%	8.15	%	-13.72	%	6.48	%	7.65	%
Comparable Group
Averages		3.51	%	-5.64	%	3.32	%	7.21	%	-16.36	%	2.58	%	2.66	%
Medians		-0.01	%	-9.14	%	1.73	%	3.63	%	-13.72	%	4.36	%	2.86	%
Comparable Group
BOFI	Bofi Holding, Inc. of CA	28.37	%	NM		-4.82	%	29.17	%	33.61	%	3.56	%	3.56	%
FPTB	First PacTrust Bancorp of CA	-6.45	%	0.07	%	-7.05	%	8.15	%	-51.20	%	5.14	%	5.14	%
HARL	Harleysville Savings Fin. Corp. of PA	0.38	%	-9.14	%	8.92	%	-0.14	%	0.62	%	2.15	%	2.15	%
HWFG	Harrington West Fin. Group of CA	0.44	%	-11.23	%	6.03	%	8.41	%	-17.72	%	6.48	%	7.64	%
PFB	PFF Bancorp, Inc. of Pomona CA	-0.41	%	-32.34	%	2.73	%	3.89	%	-13.72	%	-1.41	%	-1.41	%
PBCI	Pamrapo Bancorp, Inc. of NJ	-1.19	%	-0.02	%	-1.41	%	0.86	%	-10.13	%	-1.48	%	-1.48	%
RPFG	Rainier Pacific Fin. Group of WA	-1.56	%	-19.59	%	6.52	%	2.42	%	-7.84	%	5.45	%	1.92	%
RVSB	Riverview Bancorp, Inc. of WA	4.89	%	46.00	%	0.74	%	13.96	%	-62.25	%	6.71	%	9.62	%
THRD	TF Financial Corp. of Newtown PA	-1.50	%	4.04	%	-3.44	%	2.05	%	-18.62	%	5.29	%	5.75	%
TSBK	Timberland Bancorp, Inc. of WA	12.15	%	-28.52	%	24.98	%	3.37	%	NM		-6.13	%	-6.34	%

		Regulatory Capital
		Tangible		Core		Reg.Cap.
Kaiser Federal Financial Group, Inc.
June 30, 2007		8.32	%	6.32	%	13.30	%
All Public Companies
Averages		10.78	%	10.62	%	17.81	%
Medians		9.35	%	9.33	%	15.04	%
State of CA
Averages		8.53	%	8.53	%	14.12	%
Medians		8.60	%	8.60	%	12.04	%
Comparable Group
Averages		9.39	%	9.11	%	13.68	%
Medians		9.02	%	8.88	%	13.64	%
Comparable Group
BOFI	Bofi Holding, Inc. of CA	8.60	%	8.60	%	15.76	%
FPTB	First PacTrust Bancorp of CA	9.84	%	9.84	%	14.61	%
HARL	Harleysville Savings Fin. Corp. of PA	NA		6.55	%	13.43	%
HWFG	Harrington West Fin. Group of CA	7.72	%	7.72	%	11.17	%
PFB	PFF Bancorp, Inc. of Pomona CA	8.72	%	8.72	%	11.21	%
PBCI	Pamrapo Bancorp, Inc. of NJ	8.73	%	8.73	%	16.10	%
RPFG	Rainier Pacific Fin. Group of WA	9.33	%	9.33	%	12.98	%
RVSB	Riverview Bancorp, Inc. of WA	9.60	%	9.60	%	11.38	%
THRD	TF Financial Corp. of Newtown PA	9.02	%	9.02	%	16.36	%
TSBK	Timberland Bancorp, Inc. of WA	12.96	%	12.96	%	13.84	%

(1) Financial information is for the quarter ending March 31, 2007.

Source:	Audited and unaudited financial statements, corporate reports and offering circulars, and RP® Financial, LC. calculations.  The information provided in this table has been obtained from sources we believe are reliable, but we cannot guarantee the accuracy or completeness of such information.
Copyright (c) 2007 by RP® Financial, LC.

RP^® FINANCIAL, LC.
Page 3.8

          The Company’s asset composition reflects a higher concentration of loans to assets, at 87.4% versus a 73.1% average for the Peer Group.  Comparatively, the ratio of cash, investments, and MBS for the Company was lower than for the Peer Group (9.2% of assets versus 22.4% for the Peer Group).  Overall, the Company’s interest-earning assets (“IEA”) approximated 96.6% of assets, which is slightly higher than the comparative Peer Group ratio of 95.5%.  On a pro forma basis, the Company’s IEA advantage is expected to increase as the net proceeds are reinvested into IEA.

          The Company’s deposits equaled 61.8% of assets, which was slightly below the Peer Group average of 68.3%.  The Company has utilized borrowings to a greater extent than the Peer Group, on average, at 26.3% and 21.7% of assets (includes subordinated debt), respectively.  Total interest-bearing liabilities (“IBL”) maintained by Kaiser Federal Financial and the Peer Group, equaled 88.1% and 90.0% of assets, respectively.  The ratio of IBL will be reduced on a post-offering basis as the Company funds a greater portion of its operations with equity.

          Kaiser Federal Financial posted higher 12 month asset growth than the Peer Group, at 8.21% and 3.51%, respectively.  The Company’s comparatively faster growth is attributable to efforts to expand lending and leverage its equity, particularly following the completion of the minority stock issuance in 2004, as noted earlier.  The Company’s faster loan growth (10.26% versus 3.32% for the Peer Group on average) partially reflects the higher level of loan purchases by comparison.  The portfolio of cash, investments and MBS modestly decreased for the Peer Group, by 5.64% as compared to the comparable shrinkage of 6.45% for the Company.

          The Company’s deposit growth rate was comparable to the Peer Group average as Kaiser Federal Financial sought to fund targeted asset growth, 6.62% versus 7.21% for the Peer Group on average.  Borrowed funds increased much more rapidly for the Company at a 16.71% annual pace versus moderate shrinkage of 16.36% for the Peer Group, as the Company increased borrowings to support its leveraging objectives.

          The Company’s equity declined by 0.37% as compared to modest growth of 2.58% for the Peer Group based on the average.  Reduction of the Company’s equity and the modest growth for the Peer Group reflects the adoption of dividend and capital management strategies by both the Company and the Peer Group.  On a post-offering basis, the Company’s equity

RP^® FINANCIAL, LC.
Page 3.9

growth rate is expected to remain comparatively modest as the benefit of reinvestment of the Offering proceeds may be offset by additional share repurchases, the payment of dividends and as expenses may likely increase reflecting the impact of the expanded stock benefit plans. 

Income and Expense Components

          Table 3.3 displays comparative statements of operations for the Company and the Peer Group.  Kaiser Federal Financial and the Peer Group reported net income to average assets ratios of 0.61% and 0.78%, respectively.  The Company’s operations reflect a relatively favorable level of operating expense and fee income, the benefits of which are offset by a comparatively weaker net interest income ratio.

          The Peer Group’s interest income and interest expense ratios relative to average assets were relatively favorable in comparison to the Company, resulting in a stronger net interest income ratio.  The Peer Group’s higher interest income ratio was realized through earning a high yield on interest-earning assets (6.59% versus 5.55% for the Company).  Despite the Company’s higher ratio of loans-to-assets, the Company’s lower asset yields reflect its higher concentration of 1-4 family residential mortgage loans, the majority of which are fixed rate loans.  In contrast, many of the Peer Group companies have a more substantial internal origination capability and greater loan diversification into higher yielding loans.  The Company’s marginally lower interest expense ratio, 3.00% versus 3.35% of average assets for the Peer Group, reflects the Company’s relatively strong capital ratio, notwithstanding the higher level of borrowings and competitive rate posture taken to stimulate deposit growth.  Kaiser Federal Financial’s interest expense ratio is expected to diminish on a pro forma basis, as the conversion proceeds will represent interest-free funds for the Company.  Overall, the Company’s net interest income ratio of 2.34% compared unfavorably to the Peer Group average of 2.95%.

          Non-interest operating income is a marginally higher contributor to Kaiser Federal Financial’s earnings relative to the Peer Group, at 0.57% and 0.54%, respectively.  Kaiser Federal Financial operates with a modestly lower operating expense ratio than the Peer Group, notwithstanding the Company’s recent expansion through acquisition and de novo branching.  The operating expense ratios for Kaiser Federal Financial and the Peer Group were 1.88% and

RP ® Financial, LC.
Page 3.10

Table 3.3
 Income as Percent of Average Assets and Yields, Costs, Spreads
 Kaiser Federal Financial Group, Inc. and Comparables
 For the 12 Months Ended June 30, 2007

				Net Interest Income								NII After Provis.		Other Income						Total Other Income
		Net Income		Income		Expense		NII		Loss Provis. on IEA				Loan Fees		R.E. Oper.		Other Income
Kaiser Federal Financial Group, Inc.
June 30, 2007		0.61	%	5.34	%	3.00	%	2.34	%	0.07	%	2.27	%	0.00	%	0.00	%	0.57	%	0.57	%
All Public Companies
Averages		0.50	%	5.83	%	3.09	%	2.73	%	0.11	%	2.63	%	0.03	%	0.00	%	0.62	%	0.65	%
Medians		0.55	%	5.74	%	3.10	%	2.72	%	0.06	%	2.61	%	0.00	%	0.00	%	0.50	%	0.52	%
State of CA
Averages		0.80	%	6.60	%	3.89	%	2.71	%	0.17	%	2.54	%	0.03	%	-0.01	%	0.35	%	0.37	%
Medians		0.78	%	6.76	%	3.78	%	2.69	%	0.14	%	2.65	%	0.01	%	0.00	%	0.36	%	0.38	%
Comparable Group
Averages		0.78	%	6.30	%	3.35	%	2.95	%	0.10	%	2.85	%	0.02	%	0.00	%	0.51	%	0.54	%
Medians		0.71	%	6.11	%	3.53	%	2.98	%	0.05	%	2.92	%	0.01	%	0.00	%	0.42	%	0.45	%
Comparable Group
BOFI	Bofi Holding, Inc. of CA	0.40	%	5.43	%	4.11	%	1.32	%	0.00	%	1.33	%	0.00	%	0.00	%	0.08	%	0.08	%
FPTB	First PacTrust Bancorp of CA	0.54	%	5.89	%	3.68	%	2.21	%	-0.04	%	2.25	%	0.00	%	0.00	%	0.29	%	0.29	%
HARL	Harleysville Savings Fin. Corp. of PA	0.43	%	5.19	%	3.67	%	1.53	%	0.00	%	1.53	%	0.00	%	0.00	%	0.21	%	0.21	%
HWFG	Harrington West Fin. Group of CA	0.63	%	6.76	%	4.07	%	2.69	%	0.04	%	2.65	%	0.00	%	0.00	%	0.38	%	0.38	%
PFB	PFF Bancorp, Inc. of Pomona CA	0.90	%	7.49	%	3.57	%	3.92	%	0.68	%	3.24	%	0.05	%	0.01	%	0.45	%	0.51	%
PBCI	Pamrapo Bancorp, Inc. of NJ	0.87	%	5.86	%	2.74	%	3.12	%	0.06	%	3.07	%	0.01	%	0.00	%	0.38	%	0.40	%
RPFG	Rainier Pacific Fin. Group of WA(2)	0.43	%	6.33	%	3.49	%	2.84	%	0.07	%	2.77	%	0.15	%	0.00	%	0.85	%	1.01	%
RVSB	Riverview Bancorp, Inc. of WA	1.43	%	7.58	%	3.17	%	4.40	%	0.14	%	4.27	%	0.02	%	0.00	%	1.04	%	1.06	%
THRD	TF Financial Corp. of Newtown PA	0.80	%	5.73	%	2.57	%	3.16	%	0.00	%	3.16	%	0.01	%	0.00	%	0.51	%	0.52	%
TSBK	Timberland Bancorp, Inc. of WA	1.37	%	6.74	%	2.42	%	4.32	%	0.07	%	4.25	%	0.00	%	0.02	%	0.91	%	0.93	%

		G&A/Other Exp.				Non-Op. Items				Yields, Costs, and Spreads						MEMO: Assets/ FTE Emp.		MEMO: Effective Tax Rate
		G&A Expense		Goodwill Amort.		Net Gains		Extrao. Items		Yield On Assets		Cost Of Funds		Yld-Cost Spread
Kaiser Federal Financial Group, Inc.
June 30, 2007		1.88	%	0.00	%	-0.01	%	0.00	%	5.55	%	3.68	%	1.87	%	$	8,835	35.01	%
All Public Companies
Averages		2.57	%	0.02	%	0.07	%	0.00	%	6.19	%	3.58	%	2.62	%	$	5,493	32.41	%
Medians		2.49	%	0.00	%	0.01	%	0.00	%	6.05	%	3.62	%	2.67	%	$	4,443	32.63	%
State of CA
Averages		1.90	%	0.01	%	0.31	%	0.00	%	6.86	%	4.30	%	2.56	%	$	6,643	39.21	%
Medians		1.97	%	0.00	%	0.06	%	0.00	%	7.00	%	4.21	%	2.72	%	$	5,983	40.59	%
Comparable Group
Averages		2.21	%	0.01	%	0.02	%	0.00	%	6.59	%	3.70	%	2.89	%	$	5,379	33.64	%
Medians		2.17	%	0.00	%	0.04	%	0.00	%	6.12	%	3.94	%	2.92	%	$	5,982	34.01	%
Comparable Group
BOFI	Bofi Holding, Inc. of CA	0.79	%	0.00	%	0.06	%	0.00	%	5.53	%	4.53	%	1.00	%	$	NM	40.76	%
FPTB	First PacTrust Bancorp of CA	1.72	%	0.00	%	0.00	%	0.00	%	6.12	%	4.13	%	1.99	%	$	6,929	34.01	%
HARL	Harleysville Savings Fin. Corp. of PA	1.21	%	0.00	%	0.02	%	0.00	%	5.38	%	3.95	%	1.44	%	$	9,048	20.51	%
HWFG	Harrington West Fin. Group of CA	1.97	%	0.02	%	-0.09	%	0.00	%	7.08	%	4.36	%	2.72	%	$	5,982	33.95	%
PFB	PFF Bancorp, Inc. of Pomona CA	2.20	%	0.00	%	-0.01	%	0.00	%	7.68	%	3.94	%	3.74	%	$	5,983	41.82	%
PBCI	Pamrapo Bancorp, Inc. of NJ	2.14	%	0.00	%	0.07	%	0.00	%	5.97	%	3.05	%	2.92	%	$	6,629	37.25	%
RPFG	Rainier Pacific Fin. Group of WA(2)	3.11	%	0.03	%	0.03	%	0.00	%	NM		NM		NM		$	4,570	NM
RVSB	Riverview Bancorp, Inc. of WA	3.17	%	0.02	%	0.05	%	0.00	%	8.29	%	3.65	%	4.64	%	$	3,263	34.73	%
THRD	TF Financial Corp. of Newtown PA	2.62	%	0.00	%	0.05	%	0.00	%	6.02	%	2.89	%	3.13	%	$	3,513	27.61	%
TSBK	Timberland Bancorp, Inc. of WA	3.20	%	0.05	%	0.07	%	0.00	%	7.26	%	2.79	%	4.46	%	$	2,497	32.10	%

(1)	Financial information is for the quarter ending March 31, 2007.
(2)	Income and expense information has been annualized from available financial information.
Source:	Audited and unaudited financial statements, corporate reports and offering circulars, and RP® Financial, LC. calculations.  The information provided in this table has been obtained from sources we believe are
	reliable, but we cannot guarantee the accuracy or completeness of such information.
Copyright (c) 2007 by RP® Financial, LC.

RP^® FINANCIAL, LC.
Page 3.11

2.21%, respectively. Intangible assets amortization was nominal for the Peer Group, and the Company had no amortizing intangible assets.  On a post-offering basis, the Company’s operating expenses can be expected to increase with the incremental cost of the stock-based benefit plans.

          Kaiser Federal Financial’s efficiency ratio (operating expenses as a percent of the sum of non-interest operating income and net interest income) of 64.9% is slightly less favorable than the Peer Group’s ratio of 63.3%.  On a post-offering basis, the Company’s efficiency ratio may improve marginally with the reinvestment of the offering proceeds, and thus remain at an advantage.

          Loan loss provisions for the Company and the Peer Group were relatively modest, amounting to 0.07% and 0.10% of average assets for Kaiser Federal Financial and the Peer Group, respectively, reflecting relatively strong asset quality, but high net loan chargeoffs for the Company. 

          Non-operating income and expense were negligible for Kaiser Federal Financial and the Peer Group, enhancing their overall comparability. 

          The Company’s effective tax rate for the last 12 months of 35.0% is slightly higher than the Peer Group average of 33.6%.  The Company expects that its effective tax rate will continue to approximate the recent historical level in fiscal 2007. 

Loan Composition

          Kaiser Federal Financial’s loan portfolio reflects a comparatively greater concentration of 1-4 family residential mortgage loans and MBS, which aggregated to 60.0% of assets and 46.3% of assets for the Company and the Peer Group, respectively (see Table 3.4).  Loans secured by permanent 1-4 family residential mortgage loans equaled 58.7% of assets for the Company versus 33.2% on average for the Peer Group, while MBS comprised 2.5% and 13.1%, respectively.

          The Peer Group’s lending activities show greater diversification in various areas of high risk-weight lending including multi-family and commercial mortgage lending.  Specifically, multi-family and commercial mortgage loans represented 24.4% of assets, which was modestly

RP ® Financial, LC.
Page 3.12

Table 3.4
 Loan Portfolio Composition and Related Information
 Kaiser Federal Financial Group, Inc. and the Comparable Group
 As of June 30, 2007

		Portfolio Composition as a Percent of Assets
Institution		MBS			1-4 Family			Constr. & Land			5+Unit Comm RE			Commerc. Business			Consumer			RWA/ Assets			Serviced For Others		Servicing Assets
		(%)			(%)			(%)			(%)			(%)			(%)			(%)			($000)		($000)
Kaiser Federal Financial Group, Inc.			2.46	%		58.71	%		0.00	%		20.75	%		0.00	%		8.33	%		63.55	%	$	1,300	$	0
All Public Companies (1)
Averages			10.18	%		37.29	%		6.68	%		18.39	%		4.24	%		3.03	%		63.35	%	$	1,297,195	$	15,314
Medians			7.62	%		35.45	%		4.32	%		16.78	%		2.79	%		0.78	%		63.98	%	$	31,870	$	120
State of CA (1)
Averages			10.63	%		46.97	%		6.64	%		25.21	%		2.39	%		0.39	%		64.48	%	$	16,266,318	$	230,570
Medians			7.23	%		48.66	%		3.55	%		23.36	%		0.90	%		0.04	%		65.29	%	$	99,260	$	133
Comparable Group
Averages			13.05	%		33.21	%		12.57	%		24.40	%		2.96	%		1.38	%		70.56	%	$	56,143	$	256
Medians			9.48	%		30.20	%		7.46	%		24.46	%		1.48	%		0.49	%		72.47	%	$	22,187	$	152
Comparable Group
BOFI	Bofi Holding, Inc. of CA		31.26	%		13.60	%		0.07	%		43.33	%		0.02	%		1.18	%		55.58	%	$	0	$	0
FPTB	First PacTrust Bancorp of CA		0.00	%		75.84	%		4.73	%		10.42	%		0.14	%		0.33	%		71.38	%	$	0	$	0
HARL	Harleysville Savings Fin. Corp. of PA		26.00	%		50.48	%		0.99	%		1.56	%		0.14	%		0.16	%		49.44	%	$	3,754	$	0
HWFG	Harrington West Fin. Group of CA		25.55	%		13.84	%		14.74	%		29.84	%		9.05	%		0.19	%		73.58	%	$	6,307	$	10
PFB	PFF Bancorp, Inc. of Pomona CA		4.21	%		36.66	%		26.02	%		20.50	%		5.46	%		2.67	%		86.26	%	$	109,434	$	294
PBCI	Pamrapo Bancorp, Inc. of NJ		21.28	%		43.56	%		1.83	%		23.31	%		1.35	%		0.38	%		56.87	%	$	265	$	0
RPFG	Rainier Pacific Fin. Group of WA(1)		6.25	%		14.09	%		8.40	%		41.38	%		1.61	%		6.03	%		81.96	%	$	113,435	$	549
RVSB	Riverview Bancorp, Inc. of WA		0.97	%		8.75	%		35.40	%		32.03	%		8.21	%		0.44	%		90.93	%	$	130,603	$	351
THRD	TF Financial Corp. of Newtown PA		12.71	%		51.57	%		6.51	%		15.98	%		0.96	%		0.54	%		57.66	%	$	38,066	$	333
TSBK	Timberland Bancorp, Inc. of WA		2.28	%		23.75	%		26.97	%		25.61	%		2.66	%		1.88	%		81.94	%	$	159,564	$	1,018

(1)	Financial information is for the quarter ending March 31, 2007.
Source:	Audited and unaudited financial statements, corporate reports and offering circulars, and RP® Financial, LC. calculations.
	The information provided in this table has been obtained from sources we believe are reliable, but we cannot
	guarantee the accuracy or completeness of such information.
Copyright (c) 2007 by RP® Financial, LC.

RP^® FINANCIAL, LC.
Page 3.13

greater than the 20.8% ratio for the Company.  Conversely, the Company was a more active consumer lender, with 8.3% of assets invested in consumer loans versus 1.4% percent for the Peer Group on average.  The Peer Group maintained construction loan (12.6% of assets) and business loan (3.0% of assets) portfolios, while the Company was not engaged in these lending areas.  Overall, the Peer Group’s more significant diversification into higher risk types of lending translated into a higher risk-weighted-assets ratio compared to the Company (70.6% versus 63.6% for the Company). 

          The Company maintained a minimum level of loans serviced for others at $1.3 million compared to the Peer Group’s balance of $56.1 million.  It should be reiterated that a large proportion of the Company’s loans have been purchased and are serviced by others.

Credit Risk

          The Company’s credit risk exposure appears to be similar to the Peer Group, on average, based on the NPAs ratio.  As shown in Table 3.5, the Company’s NPAs ratio, including accruing loans that are more than 90 days past due, equaled 0.18% of assets, which was the same as the comparable Peer Group average ratio.  The Company maintained a ratio of non-performing loans/loans which was nearly equal to the Peer Group average (0.16% versus 0.17% for the Peer Group).  Reserve coverage in relation to non-performing assets was less favorable for the Company, as was the Company’s reserve ratio in relation to total loans.  However, reserve coverage in relation to non-performing loans was more favorable for the Company.  The Company’s chargeoffs were comparable to the Peer Group’s, largely reflecting its automobile loan portfolio.

Interest Rate Risk

          Table 3.6 reflects various key ratios highlighting the relative interest rate risk exposure of the Company and the Peer Group.  From a balance sheet perspective, Kaiser Federal Financial’s higher equity position on a pro forma basis and improved pro forma IEA/IBL ratio suggest lower exposure.  On a post-offering basis, these ratios should improve relative to the Peer Group.

RP ® Financial, LC.
 Page 3.14

Table 3.5
Credit Risk Measures and Related Information
Kaiser Federal Financial Group, Inc. and the Comparable Group
 As of June 30, 2007 or Most Recent Date Available

Institution		REO/ Assets		NPAs & 90+Del/ Assets		NPLs/ Loans		Rsrves/ Loans		Rsrves/ NPLs		Rsrves/ NPAs & 90+Del		Net Loan Chargoffs			NLCs/ Loans
		(%)		(%)		(%)		(%)		(%)		(%)		($000)			(%)
Kaiser Federal Financial Group, Inc.		0.04	%	0.18	%	0.16	%	0.40	%	245.84	%	193.05	%	$	446	%	0.07	%
All Public Companies
Averages		0.09	%	0.60	%	0.61	%	0.84	%	236.18	%	205.29	%	$	486	%	0.11	%
Medians		0.01	%	0.40	%	0.43	%	0.78	%	178.00	%	115.61	%	$	65	%	0.03	%
State of CA
Averages		0.09	%	0.51	%	0.68	%	0.83	%	136.96	%	172.89	%	$	1,978	%	0.12	%
Medians		0.01	%	0.46	%	0.67	%	0.72	%	76.56	%	107.20	%	$	402	%	0.03	%
Comparable Group
Averages		0.00	%	0.18	%	0.17	%	0.84	%	164.66	%	244.20	%	$	791	%	0.09	%
Medians		0.00	%	0.06	%	0.07	%	0.74	%	70.01	%	248.93	%	$	6	%	0.00	%
Comparable Group
BOFI	Bofi Holding, Inc. of CA	0.00	%	NA		NA		0.28	%	NA		NA		$	0	%	0.00	%
FPTB	First PacTrust Bancorp of CA	0.00	%	NA		NA		0.65	%	NA		NA		$	8	%	0.00	%
HARL	Harleysville Savings Fin. Corp. of PA	0.00	%	0.06	%	0.06	%	0.47	%	NA		394.73	%	$	3	%	0.00	%
HWFG	Harrington West Fin. Group of CA	0.00	%	0.01	%	NA		0.80	%	NA		NA		$	0	%	0.00	%
PFB	PFF Bancorp, Inc. of Pomona CA	0.01	%	0.25	%	0.27	%	1.46	%	59.80	%	405.52	%	$	7,605	%	0.74	%
PBCI	Pamrapo Bancorp, Inc. of NJ	0.00	%	0.60	%	0.15	%	0.67	%	80.22	%	73.42	%	$	0	%	0.00	%
RPFG	Rainier Pacific Fin. Group of WA	0.00	%	0.03	%	0.04	%	1.27	%	NA		NA		$	191	%	0.12	%
RVSB	Riverview Bancorp, Inc. of WA	0.00	%	0.03	%	0.03	%	1.30	%	NA		NA		$	75	%	-0.01	%
THRD	TF Financial Corp. of Newtown PA	0.00	%	0.42	%	0.56	%	0.57	%	57.40	%	103.13	%	$	20	%	0.02	%
TSBK	Timberland Bancorp, Inc. of WA	0.01	%	0.06	%	0.07	%	0.90	%	461.20	%	NA		$	3	%	0.00	%

(1)	Financial information is for the quarter ending March 31, 2007.
Source:	Audited and unaudited financial statements, corporate reports and offering circulars, and RP® Financial, LC. calculations.  The information provided in this table has been obtained from sources we believe are reliable, but we cannot guarantee the accuracy or completeness of such information.
Copyright (c) 2007 by RP® Financial, LC.

RP ® Financial, LC.
Page 3.15

Table 3.6
Interest Rate Risk Measures and Net Interest Income Volatility
Kaiser Federal Financial Group, Inc. and the Comparable Group
As of June 30, 2007 or Most Recent Date Available

		Balance Sheet Measures						Quarterly Change in Net Interest Income
Institution		Equity/ Assets		IEA/ IBL		Non-Earn. Assets/ Assets		6/30/2007	3/31/2007	12/31/2006	9/30/2006	6/30/2006	3/31/2006
		(%)		(%)		(%)		(change in net interest income is annualized in basis points)
Kaiser Federal Financial Group, Inc.		11.0	%	109.6	%	3.4	%	1	6	-20	-3	-1	2
All Public Companies		11.3	%	110.0	%	5.6	%	1	0	-8	-6	-3	-2
State of CA		8.0	%	106.5	%	3.9	%	-4	6	-3	-6	-2	20
Comparable Group
Averages		8.6	%	106.3	%	4.4	%	-6	-1	-8	-9	-3	1
Medians		9.0	%	106.6	%	4.3	%	-6	0	-10	-11	-2	-1
Comparable Group
BOFI	Bofi Holding, Inc. of CA	7.7		106.9	%	1.8	%	-4	12	-2	-6	-13	2
FPTB	First PacTrust Bancorp of CA	10.8		108.7	%	3.9	%	-12	8	-11	-12	-9	-4
HARL	Harleysville Savings Fin. Corp. of PA	6.3		103.9	%	3.7	%	-7	7	-12	-11	1	11
HWFG	Harrington West Fin. Group of CA	5.5		102.3	%	4.6	%	1	7	-9	-1	-2	7
PFB	PFF Bancorp, Inc. of Pomona CA	8.3		107.2	%	2.5	%	-3	-4	-12	-23	-2	16
PBCI	Pamrapo Bancorp, Inc. of NJ	9.2		109.5	%	1.8	%	-12	-4	-19	-11	-11	-3
RPFG	Rainier Pacific Fin. Group of WA	9.6		106.0	%	5.3	%	NA	NA	-4	8	-21	-3
RVSB	Riverview Bancorp, Inc. of WA	8.8		105.2	%	8.7	%	-10	-6	-2	-17	4	-4
THRD	TF Financial Corp. of Newtown PA	9.3		107.0	%	5.0	%	-6	-29	2	-5	7	-15
TSBK	Timberland Bancorp, Inc. of WA	10.7		106.3	%	6.9	%	1	0	-13	-10	13	1

(1) Financial information is for the quarter ending March 31, 2007.
NA=Change is greater than 100 basis points during the quarter.
Source:	Audited and unaudited financial statements, corporate reports and offering circulars, and RP® Financial, LC. calculations.  The information provided in this table has been obtained from sources we believe are reliable, but we cannot guarantee the accuracy or completeness of such information.
Copyright (c) 2007 by RP® Financial, LC.

RP^® FINANCIAL, LC.
Page 3.16

          To analyze interest rate risk associated with the net interest margin, we also reviewed quarterly changes in net interest income as a percent of average assets for Kaiser Federal Financial and the Peer Group.  In general, the recent relative fluctuations in the Company’s net interest income to average assets ratios were considered to be slightly greater than the Peer Group average, and thus, based on the interest rate environment that prevailed during the period analyzed in Table 3.6, Kaiser Federal Financial was viewed as maintaining a similar to modestly greater degree of interest rate risk exposure in the net interest margin.  However, the Company’s net interest income ratio should be stabilized to some degree following the Offering, given the initial expected proceeds reinvestment strategy (primarily short-to-intermediate term investment securities). 

Summary

          Based on the above analysis, RP Financial concluded that the Peer Group forms a reasonable basis for determining the pro forma market value of Kaiser Federal Financial.  In those areas where differences exist, these will be addressed in the form of valuation adjustments in the next section.

RP^® FINANCIAL, LC.
Page 4.1

IV.  VALUATION ANALYSIS

Introduction

          This chapter presents the valuation analysis and methodology used to determine Kaiser Federal Financial’s estimated pro forma market value of the common stock to be issued in conjunction with the Second Step Conversion transaction. The valuation incorporates the appraisal methodology promulgated by the Federal and state banking agencies for standard conversions and mutual holding company offerings, particularly regarding selection of the Peer Group, fundamental analysis on both the Company and the Peer Group, and determination of the Company’s pro forma market value utilizing the market value approach.

Appraisal Guidelines

          The OTS written appraisal guidelines, originally released in October 1983 and updated in late-1994, and adopted by the FDIC, specify the market value methodology for estimating the pro forma market value of an institution. The valuation methodology provides for:  (1) the selection of a peer group of comparable publicly-traded institutions, excluding from consideration institutions which have recently converted, subject to acquisition or in MHC form; (2) a financial and operational comparison of the subject company to the selected peer group, identifying key differences and similarities; and (3) a valuation analysis in which the pro forma market value of the subject company is determined based on the market pricing of the peer group as of the date of valuation, incorporating valuation adjustments for key differences.  In addition, the pricing characteristics of recent conversions, both at conversion and in the aftermarket, must be considered.

RP Financial Approach to the Valuation

          The valuation analysis herein complies with such regulatory approval guidelines.  Accordingly, the valuation incorporates a detailed analysis based on the Peer Group, discussed in Chapter III, which constitutes “fundamental analysis” techniques.  Additionally, the valuation incorporates a “technical analysis” of recently completed stock conversions, including closing pricing and aftermarket trading of such offerings.  It should be noted that these valuation

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analyses cannot possibly fully account for all the market forces which impact trading activity and pricing characteristics of a particular stock on a given day.

          The pro forma market value determined herein is a preliminary value for the Company’s to-be-issued stock.  Throughout the Second Step Conversion process, RP Financial will:  (1) review changes in Kaiser Federal Financial’s operations and financial condition; (2) monitor Kaiser Federal Financial’s operations and financial condition relative to the Peer Group to identify any fundamental changes; (3) monitor the external factors affecting value including, but not limited to, local and national economic conditions, interest rates, and the stock market environment, including the market for thrift stocks; and (4) monitor pending conversion offerings (including those in the offering phase), both regionally and nationally.  If material changes should occur during the Second Step Conversion process, RP Financial will evaluate if updated valuation reports should be prepared reflecting such changes and their related impact on value, if any.  RP Financial will also prepare a final valuation update at the closing of the Offering to determine if the prepared valuation analysis and resulting range of value continues to be appropriate.

          The appraised value determined herein is based on the current market and operating environment for the Company and for all thrifts.  Subsequent changes in the local and national economy, the legislative and regulatory environment, the stock market, interest rates, and other external forces (such as natural disasters or major world events), which may occur from time to time (often with great unpredictability) may materially impact the market value of all thrift stocks, including Kaiser Federal Financial’s value, or Kaiser Federal Financial’s value alone.  To the extent a change in factors impacting the Company’s value can be reasonably anticipated and/or quantified, RP Financial has incorporated the estimated impact into the analysis.

Valuation Analysis

          A fundamental analysis discussing similarities and differences relative to the Peer Group was presented in Chapter III.  The following sections summarize the key differences between the Company and the Peer Group and how those differences affect the pro forma valuation.  Emphasis is placed on the specific strengths and weaknesses of the Company relative to the Peer Group in such key areas as financial condition, profitability, growth and viability of earnings,

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asset growth, primary market area, dividends, liquidity of the shares, marketing of the issue, management, and the effect of government regulations and/or regulatory reform.  We have also considered the market for thrift stocks, including the market for new issues, to assess the impact on value of Kaiser Federal Financial coming to market at this time.

1.       Financial Condition

          The financial condition of an institution is an important determinant in pro forma market value, because investors typically look to such factors as asset/liability composition, credit risk profile, balance sheet liquidity and equity levels in assessing investment attractiveness.  The similarities and differences in the Company’s and the Peer Group’s financial strength are noted as follows:

• Overall A/L Composition.  The Company’s asset composition includes a higher proportion of loans overall, with both residential mortgage loans and consumer loans exceeding the Peer Group average.  The Peer Group was modestly more diversified in the areas of construction and commercial lending, including both commercial mortgage and C&I lending.  Notwithstanding the higher ratio of total loans to assets, the Company’s net interest income ratio is below the Peer Group attributable to the comparatively lower loan yields given the loan mix.  The Company relies more heavily on borrowed funds, which has supported its faster asset growth rate.  The Company’s favorable ratio of IEA/IBL will improve on a post-Offering basis, thereby increasing its current advantage.  One distinct disadvantage relative to the Peer Group should be noted – that is, the Company has limited contact with many of its loan customers given the high proportion of purchased loans, thus providing limited opportunity to cross-sell.

• Credit Risk Profile.  The Company’s credit risk profile appears to be similar based on a comparable NPAs/assets ratio relative to the Peer Group average.  However, there are some offsetting risk factors for the Company, including lower reserve coverage ratios, both in terms of reserve coverage to loans and NPAs.

• Balance Sheet Liquidity.  The Company currently maintains a lower level of cash, investments and MBS, although this will be reversed on a post-Offering basis.  Unlike the Peer Group, on average, the majority of the Company’s investments are designated HTM, which limits balance sheet liquidity; although, since the investments are shorter duration MBS and CMOs, there is good cashflow.  The Company’s borrowing capacity is considered to be modestly lower relative to the Peer Group’s borrowings capacity, given the Company’s higher level of borrowings.

RP^® FINANCIAL, LC.
Page 4.4

• Equity.  The Company operates with a higher pre-Offering tangible equity level than the Peer Group (11.0% and 8.6% of assets, respectively).  Following the Offering, the Company’s increased tangible equity ratio implies greater leverage capacity, lower dependence on interest-bearing liabilities to fund assets and a greater capacity to absorb unanticipated losses.  At the same time, the Company’s higher pro forma equity position will depress its pro forma return on equity.

          On balance, we have made no adjustment for the Company’s financial condition on a pro forma basis relative to the Peer Group.

2.       Profitability, Growth and Viability of Earnings

          Earnings and profitability (percent of average assets) are key factors in determining pro forma market value, as the level and risk characteristics of an institution’s earnings stream and the prospects and ability to generate future earnings heavily influence the multiple the investment community will pay for earnings.  The major factors considered in the valuation are described below.

• Reported Profitability.  The Company’s profitability was modestly lower than the Peer Group average for the most recent 12 months, primarily reflecting its comparatively weaker net interest income ratio, which was only partially offset by its more favorable operating expense and non-interest income ratios.  The net reinvestment benefit of the Offering proceeds into interest-earning assets should partially offset this disadvantage.

• Core Profitability.  Non-operating items were negligible for both the Company and the Peer Group and, thus, Kaiser Federal Financial’s core profitability remained at a modest disadvantage in comparison to the Peer Group average.

• Interest Rate Risk.  Quarterly changes in the net interest income ratio indicate a slightly greater degree of volatility for the Company.  The net reinvestment benefit of the Offering proceeds is anticipated to eliminate some of the Company’s greater volatility.  On balance, we considered interest rate risk to be a neutral factor in the earnings valuation adjustment.

• Credit Risk.  Loan loss provisions had a limited impact on the Company’s and Peer Group’s profitability for the past year and both had similar levels of NPAs.  At the same time, the Company’s reserve ratios fall below the Peer Group averages in relation to total loans and NPAs.  While the Company maintains a lower risk weighted assets ratio, the Company has experienced a comparable level of chargeoffs.  We considered credit risk to be a neutral factor in the earnings valuation adjustment.

RP^® FINANCIAL, LC.
Page 4.5

• Earnings Growth Potential.  Several factors were considered in assessing earnings growth potential.  First, the Company’s earnings growth potential increases on a post-Offering basis given the increased leverage capacity and reinvestment benefits.  Second, while the Company has been expanding its financial services centers, the balance sheet growth advantage has been attributable to borrowings.  Third, the majority of the Company’s recent loan portfolio increase has been attributable to purchases, and since these loans are serviced by others, the Company has far less potential to cross-sell and emphasize relationship banking than the Peer Group companies.  Fourth, given the Company’s continuing dependency on Kaiser Permanente affiliations and more limited loan origination platform, the Company faces cultural issues in seeking to expand through mergers.

• Return on Equity.  The Company’s pro forma equity position will considerably exceed the Peer Group average.  Coupled with the modestly lower pro forma core ROA, the Company’s pro forma core ROE is anticipated to be much lower than the Peer Group average.

          Overall, we concluded that a slight downward adjustment for profitability, growth and viability of earnings was appropriate.

3.       Asset Growth

          The Company’s recent asset growth exceeded the Peer Group average, reflecting the Company’s efforts to support earnings through leveraging equity, through retail means but also by purchasing loans funded by borrowings.  The Company’s retail growth has been consistent with the Peer Group.  The Company’s stronger equity position and desire to increase return on equity have been key factors leading to the decision to utilize wholesale funding and purchase loans.  From a franchise perspective the wholesale funding/loan purchase strategy is less valuable than the retail growth.  On a pro forma basis, the Company’s higher pro forma equity position will facilitate the ability for continued strong growth.  On balance, we believe a slight upward adjustment was warranted for this factor. 

4.       Primary Market Area

          The general condition of an institution’s market area has an impact on value, as future success is in part dependent upon opportunities for profitable activities in the local market served.  Operating in Los Angeles, San Bernardino, and Riverside Counties in southern

RP^® FINANCIAL, LC.
Page 4.6

California and Santa Clara County in northern California, the Company faces significant competition for loans and deposits from larger financial institutions, which provide a broader array of services and have significantly larger branch networks.  Demographic and income trends and characteristics in the Company’s primary market area are generally consistent to the primary market areas served by the Peer Group companies on the whole, and four of the Peer Group companies operate in the same market area (see Table 4.1).  The deposit market share exhibited by the Company was relatively smaller than the Peer Group average in their respective primary market areas (0.2% for the Company versus 5.3% for the Peer Group), but the majority of the Peer Group companies were in comparatively smaller markets.  Unemployment rates in Kaiser Federal Financial’s market were above the average and medians for the Peer Group’s markets.  On balance, we concluded that no adjustment was appropriate for the Company’s market area.

5.       Dividends

          Kaiser Federal Financial has indicated its preliminary intent to pay dividends in an amount such that current minority shareholders of Kaiser Federal Financial will continue to receive the same total cash dividend payment, with the per share dividend amount adjusted for the exchange ratio in the Second Step Conversion.  At the current midpoint valuation, the annual dividend payment would equal $0.27 per share and provide a yield of 2.7% based on the $10.00 per share initial Offering price (i.e., reflects the stated intent to maintain the current dividend of $0.40 per share adjusted for the exchange ratio to minority shareholders).  However, future declarations of dividends by the Board of Directors will depend upon a number of factors, including investment opportunities, growth objectives, financial condition, profitability, tax considerations, minimum capital requirements, regulatory limitations, stock market characteristics and general economic conditions.

          Nine out of the ten of the Peer Group companies pay regular cash dividends, with implied dividend yields ranging from 1.61% to 5.08%.  The average dividend yield on the stocks of the Peer Group institutions was 3.1% as of August 31, 2007, representing an average payout ratio of 37.9% of core earnings.  As of August 31, 2007, approximately 88% of all fully-converted publicly-traded thrifts had adopted cash dividend policies (see Exhibit IV-1) exhibiting an

RP ^® Financial, LC.
Page 4.7

Table 4.1
Kaiser Federal Financial Group, Inc.
Peer Group Market Area Comparative Analysis

			Estimated Population				Projected Population 2012		Estimated 2000-2007 % Change			Projected 2007-2012 % Change			Per Capita Income					6/30/06 Deposit Market Share(1)			Unemployment Rate 6/30/2007
Institution	Headquarters County		2000		2007										Amount		% State Average
				(000)		(000)		(000)
PFF Bancorp, Inc. of CA		Los Angeles		9,519		10,111		10,454		6.22	%		3.39	%	$	26,078		90.19	%		0.53	%		4.9	%
Harrington West Fin. Group of CA		Santa Barbara		399		422		439		5.75	%		3.85	%	$	29,256		101.18	%		3.21	%		4.2	%
Rainier Pacific Fin. Group of WA		Pierce		701		783		843		11.71	%		7.62	%	$	27,259		91.00	%		5.37	%		4.7	%
Bofi Holding, Inc. of CA		San Diego		2,814		3,064		3,192		8.90	%		4.18	%	$	29,468		101.91	%		0.92	%		4.6	%
Riverview Bancorp, Inc. of WA		Clark		345		419		481		21.48	%		14.62	%	$	28,092		93.78	%		11.26	%		5.3	%
First PacTrust Bancorp of CA		San Diego		2,814		3,064		3,192		8.90	%		4.18	%	$	29,468		101.91	%		0.92	%		4.6	%
Harleysville Savings Fin. Cp. of PA		Montgomery		750		790		818		5.26	%		3.58	%	$	41,542		150.50	%		6.81	%		3.4	%
TF Financial Corporation of PA		Bucks		598		638		668		6.78	%		4.64	%	$	37,687		136.54	%		1.56	%		3.7	%
Pamrapo Bancorp, Inc. of NJ		Hudson		609		622		631		2.10	%		1.47	%	$	27,379		77.43	%		2.17	%		5.3	%
Timberland Bancorp, Inc. of WA		Grays Harbor		67		72		74		6.77	%		2.60	%	$	21,356		71.29	%		19.81	%		6.2	%
		Averages:		1,862		1,999		2,079		8.38	%		5.01	%	$	29,759		101.57	%		5.26	%		4.7	%
		Medians:		655		711		743		6.78	%		4.02	%	$	28,674		97.48	%		2.69	%		4.7	%
Kaiser Federal Financial Group, Inc.		Los Angeles		9,519		10,111		10,454		6.22	%		3.39	%	$	26,078		90.19	%		0.16	%		4.9	%
		San Bernardino		1,709		2,052		2,336		20.06	%		13.84	%	$	20,727		71.68	%		0.27	%		5.4	%
		Santa Clara		1,683		1,771		1,835		5.24	%		3.61	%	$	44,815		154.99	%		0.12	%		4.7	%
		Riverside		1,545		2,101		2,554		35.97	%		21.56	%	$	23,110		79.92	%		—	%		5.7	%

(1) Total institution deposits in headquarters county as percent of total county deposits (banks and thrifts only).

Sources: SNL, FDIC, US Dept. of Labor.

RP^® FINANCIAL, LC.
Page 4.8

average yield of 2.9% and an average payout ratio of 45.3% of earnings.  The dividend paying thrifts generally maintain higher than average profitability ratios, facilitating their ability to pay cash dividends.

          The Company’s indicated dividend policy provides for a modestly higher yield compared to the yield provided by the Peer Group.  While the Company’s implied payout ratio of 84.64% of pro forma earnings at the midpoint is above the Peer Group’s payout ratio, the Company’s ability to maintain a higher payout ratio is supported by its much higher pro forma equity ratio and expectations that the Company will seek to increase earnings through growth.  Accordingly, on balance, we concluded that no adjustment was warranted for purposes of the Company’s dividend policy.

6.       Liquidity of the Shares

          The Peer Group is by definition composed of companies that are traded in the public markets.  Nine of the Peer Group companies trade on the NASDAQ system while one company is traded on the New York Stock Exchange (“NYSE”).  Typically, the number of shares outstanding and market capitalization provides an indication of how much liquidity there will be in a particular stock.  The market capitalization of the Peer Group companies ranged from $57.1 million to $410.3 million as of August 31, 2007, with average and median market values of $126.9 million and $95.2 million, respectively.  The shares issued and outstanding to the public shareholders of the Peer Group members ranged from 2.9 million to 23.4 million, with average and median shares outstanding equaling 7.9 million and 6.1 million, respectively.  The Company’s pro forma market value and shares outstanding for the Company will exceed the Peer Group average and median, as well as the majority of the Peer Group companies individually.  Accordingly, we have not applied an adjustment for this factor.

7.       Marketing of the Issue

          We believe that four separate markets need to be considered for thrift stocks such as the Company coming to market:  (1) the after-market for public companies, in which trading activity is regular and investment decisions are made based upon financial condition, earnings, capital, ROE, dividends and future prospects; (2) the new issue market in which converting thrifts are

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evaluated on the basis of the same factors, but on a pro forma basis without the benefit of prior operations as a fully-converted publicly-held company and stock trading history; (3) the acquisition market for thrift franchises in California; and (4) the market for the public stock of the Company.  All of these markets were considered in the valuation of the Company’s to-be-issued stock.

          A.          The Public Market

                        The value of publicly-traded thrift stocks is easily measurable, and is tracked by most investment houses and related organizations.  Exhibit IV-1 provides pricing and financial data on all publicly-traded thrifts.  In general, thrift stock values react to market stimuli such as interest rates, inflation, perceived industry health, projected rates of economic growth, regulatory issues and stock market conditions in general.  Exhibit IV-2 displays historical stock market trends for various indices and includes historical stock price index values for thrifts and commercial banks.  Exhibit IV-3 displays historical stock price indices for thrifts only.

                        In terms of assessing general stock market conditions, the performance of the overall stock market has been mixed over the past year.  Stocks traded in a narrow range before strengthening at the end of August 2006 and into early-September, as oil prices dropped below $70 a barrel for the first time in two months and the unemployment rate for August dropped to 4.7%.  The Dow Jones Industrial Average moved to a four-month high in mid-September, with further declines in oil prices and the Federal Reserve’s decision to leave rates unchanged helping to sustain the positive trend.  Stocks retreated modestly heading into late-September, as investors reacted negatively to an economic report showing a slow down in business activity in the Mid-Atlantic region.  Lower oil prices and a strong consumer sentiment report helped stocks to rally at the close of the third quarter.

                        The broader stock market rally was sustained into the fourth quarter of 2006, as the DJIA moved to an all-time high in early-October.  Lower oil prices and growing expectations that the next move by the Federal Reserve would be to cut rates extended the stock market rally into mid-October, with the DJIA approaching the 12000 market.  The DJIA closed above 12000 heading into late-October 2006, with optimism about corporate earnings, the Federal Reserve’s decision to hold rates steady and lower oil prices sustaining the rally.  Despite a slight pullback at

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the end of October, the 3.4% gain in DJIA for October was the best monthly gain since November 2005.  Stocks continued to edge lower at the beginning of November, but then rebounded strongly in mid-November.  Favorable inflation data reflected in wholesale and consumer prices for October, merger news and upbeat comments by the Federal Reserve about interest rates were factors that contributed to rally in the broader market.  Stocks traded in a narrow range ahead of the holiday shopping season in late-November.  After posting a big one day loss in late-November on concerns about retail sales, lower oil prices, merger news and favorable economic reports provided a boost to stocks in early-December.  The DJIA traded to record highs in mid- and late-December, as stocks benefited from some robust economic reports and investors betting on a strong finish for the year.

                        Lower oil prices helped to sustain the positive trend in stocks at the start of 2007, which was followed by a mild pullback due to weakness in technology stocks.  Optimism about the economy and some favorable earnings reports helped to lift the DJIA to a record high heading into late-January 2007, which was followed by a one day sell-off on a weak housing report and concerns about higher rates.  Stocks surged higher at the end of January 2007, as the Federal Reserve concluded its late-January meeting with no change in rates.  The broader stock market traded in a narrow range in early-February and then the DJIA rallied to a new record in mid-February.  Comments by the Federal Reserve Chairman that helped to alleviate concerns of higher rates, as well as lower oil prices, were factors that contributed to the mid-February rally.  Comparatively, higher oil prices contributed to a downturn in stocks heading into late-February.  A sell-off in China’s stock market turned into a global market sell-off, as the DJIA plunged over 400 points on February 27^th.

                        Stocks recovered some of the losses from the one day sell-off in early-March 2007, as the broader stock market benefited from a rebound in China’s stock market.  Mounting troubles for subprime mortgage lenders and weak economic data fueled a sharp downturn in the broader stock market in mid-March, reflecting concerns that rising subprime mortgage delinquencies would filter into the broader economy.  Following the sell-off, merger announcements, rallies in overseas markets and a drop in oil prices supported a rebound in the broader stock market ahead of the March meeting of the Federal Reserve.  The Federal Reserve’s decision to hold rates steady strengthened the stock market rebound, as investors were buoyed by

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the Federal Reserve’s assessment that the economy continued to expand at a moderate pace.  Stocks fluctuated at the close of the first quarter on mixed economic data.

                        Signs of an improving housing market provided a boost to the stock market at the start of the second quarter 2007, with news of an increase in an index of pending existing home sales during February supporting a one-day gain of more than 120 points in the DJIA.  News of Iran’s release of British hostages, lower oil prices and a favorable March employment report also contributed to the broader market gains in early-April.  The broader market rally continued through most of April, as merger news and strong corporate profits lifted the DJIA above a close of 13000 in late-April.  For the month of April, the DJIA closed up 5.7%.  Stronger than expected manufacturing data and lower oil prices helped to propel the DJIA to five consecutive record highs in early-May.  Following a sharp one day sell-off on a weak retail sale report for April, the positive trend in the broader stock market continued into mid-May.  A new wave of corporate deals, lower oil prices and a stronger than expected reading for May consumer confidence was noted factors that held to sustain the rally.  Stocks eased lower in late-May reflecting profit taking and concerns about a pullback in China’s stock market.  Inflation worries and higher rates pushed stocks lower in early-June, while a strong retail sales report for May triggered a rebound in the stock market in mid-June.  Stocks generally traded lower in the second half in June on continued inflation concerns, as well as higher oil prices and weakness in the housing market.

                        The broader stock market showed a positive trend at the start of third quarter of 2007, with the DJIA closing at record highs in mid-July.  A positive report on manufacturing activity in June, healthy job growth reflected in the June employment report and merger news contributed to the stock market rally.  A favorable second quarter earnings report by IBM helped the DJIA close above the 14000 mark heading into late-July, which was followed a general downturn in stock during late-July and early-August.  Stocks were driven lower by fears that the housing slump was spreading to the broader economy and concerns of a widening credit crunch prompted by home mortgage lender cutting off credit or raising rates for a growing number of borrowers.  The stock market turned highly volatile in mid-August, reflecting mixed economic news and the ongoing fallout from the credit crisis.  Volatility in the stock market continued to prevail through the end of August, based on concerns about the impact of the credit crunch on

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the economy and speculation about whether or not the Federal Reserve would cut rates at the September meeting.  As an indication of the general trends in the nation’s stock markets over the past year, as of August 31, 2007 the DJIA closed at 13357.74 an increase of 17.4% from one year ago and an increase of 7.2% year-to-date, and the NASDAQ closed at 2596.36 an increase of 18.9% from one year ago and an increase of 7.5% year-to-date.  The Standard & Poors 500 Index closed at 1473.99 on August 31 2007 an increase of 13.1% from one year ago and an increase of 3.9% year-to-date.

                        The market for thrift stocks has been mixed during the past twelve months, but, in general, thrift stocks have underperformed the broader stock market.  Thrift stocks trended lower in late-August 2006 reflecting concerns of a slowdown in housing, while a favorable August employment report provided a boost to the thrift sector at the beginning of September.  Inflationary fears prompted a brief sell-off in thrift stocks heading into mid-September, which was followed by a rebound as falling oil prices benefited stocks in general.

                        Thrift stocks advanced at the start of the fourth quarter of 2006, based on economic data that suggested the economy was slowing and comments from the Federal Reserve Chairman that raised hopes of a decline in short-term interest rates.  Acquisition news and strength in the broader market sustained the upward trend in thrift stocks into mid-October.  Thrift stocks sold off with the broader market at the end of October and into early-November, as economic data showing slower growth raised concerns for some investors.  Strength in the broader market supported a rebound in thrift stocks ahead of the national elections.  Favorable inflation data boosted thrifts stocks along with the broader market in mid-November.  Weaker than expected housing data pressured thrift stocks lower heading into late-November.  Merger news, including Bank of New York’s announced merger with Mellon Financial Corp., sparked gains in thrift stocks in early-December 2006.  Thrift stocks traded in a narrow range through mid-December, as the Federal Reserve left interest rates unchanged as expected.  An upbeat report on home sales helped thrift and bank stocks participate in the broader market rally in late-December.

          Thrift stocks traded lower at the beginning of 2007, as a favorable employment report for December reduced expectations of the Federal Reserve cutting interest rates.  Mixed fourth quarter earnings reports and investor nervousness ahead of the Federal Reserve meeting

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provided for a choppy trading market for thrift issues in mid- and late-January.  Thrift stocks posted gains in late-January and early-February, as thrift investors reacted favorably to the Federal Reserve’s decision to hold rates steady.  While the DJIA moved to a new high in mid-February, thrift stocks traded in a narrow range heading into late-February.  The late-February sell-off triggered by the downturn in China’s stock market hit thrift stocks as well.  Selling pressure in thrift stocks increased during the first half of March, as mortgage lenders in general were hurt by the deterioration in market conditions for subprime mortgage lenders.  In mid-March, the Mortgage Bankers Association reported that subprime mortgage delinquencies rose to a four year high during the fourth quarter of 2006.  Thrift stocks participated in the broader stock market rally following the Federal Reserve’s decision to hold rates steady at its March meeting, based on expectations that the economy would continue to expand at a moderate pace.  Thrift stocks pulled back in late-March, as lenders were hurt by news that sales of new homes fell for the second straight month in February and consumer confidence dropped in March.

                        A favorable report on February pending existing home sales sparked gains in thrift stocks at the start of the second quarter of 2007.  In contrast to the broader market, thrift stocks trended lower in mid-April as a weak housing market and the overhang of problems in the subprime lending market continued to weigh on the thrift sector.  Some positive earnings reports helped to boost thrift stocks heading into the second half of April, but the rally did not match gains posted in the broader market.  A late-April report showing a decline in home sales in March served to dampen enthusiasm for thrift stocks, while news of Bank of America’s $21 billion proposed acquisition of LaSalle Bank Corp. had little impact on trading activity among thrift and bank stocks.  Thrift stocks headed higher along with the broader stock market in early-May, but did not sustain the upward momentum into mid-May.  A disappointing report on the outlook for the housing market weighed on the thrift sector in mid-May, with the National Association of Home Builders report projecting that home sales and housing production would not begin to improve until late in 2007.  Merger news provided a boost to thrift stocks heading into late-May, but the gains were not sustained as thrift stocks traded lower on news of stronger than expected economic data and higher interest rates.  A favorable employment report for May boosted thrift stocks at the start of June, which was followed by a general downturn in thrift

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stocks going into mid-June on higher interest rates.  Higher interest rates and lackluster housing data furthered the downward trend in thrift stocks during the second half of June.

                        The thrift sector continued to struggle at the beginning of the third quarter of 2007 on earnings worries and the widening meltdown in the subprime market as Standard & Poor and Moody’s announced plans to downgrade securities backed by subprime mortgages.  Bargain hunting and strength in the broader market supported a brief rebound in thrift stocks in mid-July, which was followed a sharp sell off on fears of spreading subprime problems and some second quarter earnings reports showing deterioration in credit quality.  A disappointing second quarter earnings report by Countrywide Financial and a larger-than-expected decline in new home sales knocked thrift equities lower in late-July.  The downturn in thrift stocks continued into the beginning of August on news that American Home Mortgage Investment Corp. was shutting down operations due to liquidity problems.  Thrift stocks participated in the volatility exhibited in the broader market volatility in mid-August, but, in general, the downward trend in thrift equities continued during the first half of August.  Thrift equities benefited from the mid-August discount rate cut by the Federal Reserve and then fluctuated along with the broader market through the end of August based on speculation over the outcome of the Federal Reserve’s next meeting.  On August 31, 2007, the SNL Index for all publicly-traded thrifts closed at 1,537.5 a decrease of 8.8% from one year ago and a decrease of 16.0% year-to-date.  The SNL MHC Index closed at 3,516.6 on August 31, 2007, an increase of 4.1% from one year ago and a decrease of 9.2% year-to-date.

          B.          The New Issue Market

                        In addition to thrift stock market conditions in general, the new issue market for converting thrifts is also an important consideration in determining the Company’s pro forma market value.  The new issue market is separate and distinct from the market for seasoned thrift issues in that the pricing ratios for converting issues are computed on a pro forma basis, specifically:  (1) the numerator and denominator are both impacted by the conversion offering amount, unlike existing stock issues in which price change affects only the numerator; and (2) the pro forma pricing ratio incorporates assumptions regarding source and use of proceeds, effective tax rates, stock plan purchases, etc. which impact pro forma financials, whereas pricing

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for existing issues are based on reported financials.  The distinction between pricing of converting and existing issues is perhaps no clearer than in the case of the price/book (“P/B”) ratio in that the P/B ratio of a converting thrift will typically result in a discount to tangible book value whereas in the current market for existing thrifts the P/B ratio often reflects a premium to book value.  Therefore, it is appropriate to also consider the market for new issues, both at the time of the conversion and in the aftermarket.

                        The market for converting thrift issues has weakened over the past several quarters.  In contrast to the new issue market prevailing through 2006 and into early 2007, the selloff in the broader market has translated into a weakening of the thrift IPO market.  In this regard, fewer offerings have been oversubscribed and all but one of the thrift conversion offerings (all transaction structures) were trading below their IPO prices as of August 31, 2007. 

                        As shown in Table 4.2, two standard and three mutual holding company offerings were completed during the past three months.  However, second-step conversion offerings are considered to be more relevant for our analysis, and only one was completed over the last three months.  In general, second-step conversions tend to be priced (and trade in the aftermarket) at a higher P/B ratio than standard conversions.  We believe investors take into consideration the generally more leveraged pro forma balance sheets of second-step companies, their track records as public companies prior to conversion, and their generally higher pro forma ROE measures relative to standard conversions in pricing their common stocks. 

                        As indicated at the beginning of this chapter, RP Financial’s analysis of recent conversion offering pricing characteristics at closing and in the aftermarket has been limited to a “technical” analysis and, thus, the pricing characteristics of recent conversion offerings can not be a primary determinate of value.  Particular focus was placed on the P/TB approach in this analysis, since the P/E multiples do not reflect the actual impact of reinvestment and the source of the stock proceeds (i.e., external funds vs. deposit withdrawals).

                        Abington Bancorp, Inc. of Pennsylvania converted to full stock form in June 2007 at a pro forma P/TB ratio of 102.9% and a pro forma P/E ratio of 27.2 times.  During their first week of trading as a fully-converted company, the stock price of Abington Bancorp decreased by 1.6% from its IPO price, and by 7.5% over the first month of trading.  As of August 31, 2007,

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Table 4.2
Pricing Characteristics and After-Market Trends
Recent Conversions Completed (Last Three Months)

				Pre-Conversion Data
Institutional Information				Financial Info.					Asset Quality						Offering Information
Institution	Conver. Date		Ticker	Assets		Equity/ Assets			NPAs/ Assets			Res. Cov.			Gross Proc.		% Offered			% of Mid.			Exp./ Proc.
				($Mil)		(%)			(%)			(%)			($Mil.)		(%)			(%)			(%)
Standard Conversions
Louisiana Bancorp, Inc., LA		7/10/07	LABC-NASDAQ	$	216		13.74	%		0.12	%		852	%	$	63.5		100	%		120	%		2.3	%
Quaint Oak Bancorp, Inc., PA*(1)		7/5/07	QNTO-OTCBB	$	61		7.96	%		1.46	%		64	%	$	13.9		100	%		132	%		4.0	%
Averages - Standard Conversions:				$	139		10.85	%		0.79	%		458	%	$	38.7		100	%		126	%		3.1	%
Medians - Standard Conversions:				$	139		10.85	%		0.79	%		458	%	$	38.7		100	%		126	%		3.1	%
Second Step Conversions
Abington Bancorp, Inc., PA*		6/28/07	ABBC-NASDAQ	$	951		12.15	%		0.25	%		67	%	$	139.7		57	%		87	%		3.6	%
Averages - Second Step Conversions:				$	951		12.15	%		0.25	%		67	%	$	139.7		57	%		87	%		3.6	%
Medians - Second Step Conversions:				$	951		12.15	%		0.25	%		67	%	$	139.7		57	%		87	%		3.6	%
Mutual Holding Company Conversions
FSB Community Bncshrs, Inc., NY*		8/15/07	FSBC-OTCBB	$	151		9.05	%		0.03	%		700	%	$	8.4		47	%		85	%		10.2	%
Beneficial Mutual Bancorp, Inc., PA*		7/16/07	BNCL-NASDAQ	$	3,483		11.44	%		0.50	%		207	%	$	236.1		44	%		132	%		1.3	%
Hometown Bancorp, Inc., NY		6/29/07	HTWC-OTCBB	$	124		7.04	%		0.39	%		167	%	$	10.7		45	%		132	%		6.5	%
Averages - Mutual Holding Company Conversions:				$	1,253		9.18	%		0.31	%		358	%	$	85.1		45	%		117	%		6.0	%
Medians - Mutual Holding Company Conversions:				$	151		9.05	%		0.39	%		207	%	$	10.7		45	%		132	%		6.5	%
Averages - All Conversions:				$	831		10.23	%		0.46	%		343	%	$	78.7		66	%		115	%		4.7	%
Medians - All Conversions:				$	184		10.25	%		0.32	%		187	%	$	38.7		52	%		126	%		3.8	%

									Insider Purchases
									% Off Incl. Fdn
				Contribution to Charitable Found..
Institutional Information									Benefit Plans
																					Initial Dividend Yield
Institution	Conver. Date		Ticker	Form		% of Offering			ESOP			Recog. Plans			Stk Option			Mgmt.& Dirs.
						(%)			(%)			(%)			(%)			(%)(2)			(%)
Standard Conversions
Louisiana Bancorp, Inc., LA		7/10/07	LABC-NASDAQ		N.A.		N.A.			8.0	%		4.0	%		10.0	%		3.4	%		0.00	%
Quaint Oak Bancorp, Inc., PA*(1)		7/5/07	QNTO-OTCBB		N.A.		N.A.			8.0	%		4.0	%		10.0	%		6.1	%		0.00	%
Averages - Standard Conversions:					N.A.		N.A.			8.0	%		4.0	%		10.0	%		4.8	%		0.00	%
Medians - Standard Conversions:					N.A.		N.A.			8.0	%		4.0	%		10.0	%		4.8	%		0.00	%
Second Step Conversions
Abington Bancorp, Inc., PA*		6/28/07	ABBC-NASDAQ		N.A.		N.A.			7.5	%		3.7	%		9.3	%		4.9	%		1.50	%
Averages - Second Step Conversions:					N.A.		N.A.			7.5	%		3.7	%		9.3	%		4.9	%		1.50	%
Medians - Second Step Conversions:					N.A.		N.A.			7.5	%		3.7	%		9.3	%		4.9	%		1.50	%
Mutual Holding Company Conversions
FSB Community Bncshrs, Inc., NY*		8/15/07	FSBC-OTCBB		N.A.		N.A.			8.3	%		4.2	%		10.4	%		3.2	%		0.00	%
Beneficial Mutual Bancorp, Inc., PA*		7/16/07	BNCL-NASDAQ		C/S		500K/4.02	%		8.8	%		4.4	%		11.1	%		1.3	%		0.00	%
Hometown Bancorp, Inc., NY		6/29/07	HTWC-OTCBB		N.A.		N.A.			8.7	%		4.4	%		10.9	%		4.2	%		0.00	%
Averages - Mutual Holding Company Conversions:					NA		NA			8.6	%		4.3	%		10.8	%		2.9	%		0.00	%
Medians - Mutual Holding Company Conversions:					NA		NA			8.7	%		4.4	%		10.9	%		3.2	%		0.00	%
Averages - All Conversions:					NA		NA			8.2	%		4.1	%		10.3	%		3.8	%		0.25	%
Medians - All Conversions:					NA		NA			8.2	%		4.1	%		10.2	%		3.8	%		0.00	%

				Pro Forma Data
Institutional Information				Pricing Ratios(3)								Financial Charac.
Institution	Conver. Date		Ticker	P/TB			Core P/E		P/A			Core ROA			TE/A			Core ROE			IPO Price
				(%)			(x)		(%)			(%)			(%)			(%)			($)
Standard Conversions
Louisiana Bancorp, Inc., LA		7/10/07	LABC-NASDAQ		75.5	%		31.5x		23.5	%		0.7	%		31.1	%		2.4	%	$	10.00
Quaint Oak Bancorp, Inc., PA*(1)		7/5/07	QNTO-OTCBB		84.1	%		20.3x		19.1	%		0.9	%		22.3	%		4.2	%	$	10.00
Averages - Standard Conversions:					79.8	%		25.9x		21.3	%		0.8	%		26.7	%		3.3	%	$	10.00
Medians - Standard Conversions:					79.8	%		25.9x		21.3	%		0.8	%		26.7	%		3.3	%	$	10.00
Second Step Conversions
Abington Bancorp, Inc., PA*		6/28/07	ABBC-NASDAQ		102.9	%		27.2x		22.8	%		0.8	%		22.1	%		3.8	%	$	10.00
Averages - Second Step Conversions:					102.9	%		27.2x		22.8	%		0.8	%		22.1	%		3.8	%	$	10.00
Medians - Second Step Conversions:					102.9	%		27.2x		22.8	%		0.8	%		22.1	%		3.8	%	$	10.00
Mutual Holding Company Conversions
FSB Community Bncshrs, Inc., NY*		8/15/07	FSBC-OTCBB		88.5	%		166.7x		11.3	%		0.1	%		12.8	%		0.6	%	$	10.00
Beneficial Mutual Bancorp, Inc., PA*		7/16/07	BNCL-NASDAQ		97.6	%		44.9x		20.2	%		0.3	%		12.2	%		2.0	%	$	10.00
Hometown Bancorp, Inc., NY		6/29/07	HTWC-OTCBB		82.6	%		23.9x		16.6	%		0.7	%		13.1	%		4.9	%	$	10.00
Averages - Mutual Holding Company Conversions:					89.5	%		78.5x		16.0	%		0.3	%		12.7	%		2.5	%	$	10.00
Medians - Mutual Holding Company Conversions:					88.5	%		44.9x		16.6	%		0.3	%		12.8	%		2.0	%	$	10.00
Averages - All Conversions:					88.5	%		52.4x		18.9	%		0.6	%		18.9	%		3.0	%	$	10.00
Medians - All Conversions:					86.3	%		29.4x		19.7	%		0.7	%		17.6	%		3.1	%	$	10.00

				Post-IPO Pricing Trends
Institutional Information				Closing Price:
Institution	Conver. Date		Ticker	First Trading Day		% Change			After First Week(4)		% Change			After First Month(5)		% Change			Thru 8/31/07		% Change
				($)		(%)			($)		(%)			($)		(%)			($)		(%)
Standard Conversions
Louisiana Bancorp, Inc., LA		7/10/07	LABC-NASDAQ	$	10.95		9.5	%	$	10.40		4.0	%	$	10.91		9.1	%	$	10.86		8.6	%
Quaint Oak Bancorp, Inc., PA*(1)		7/5/07	QNTO-OTCBB	$	9.80		-2.0	%	$	9.30		-7.0	%	$	8.90		-11.0	%	$	9.00		-10.0	%
Averages - Standard Conversions:				$	10.38		3.8	%	$	9.85		-1.5	%	$	9.91		-0.9	%	$	9.93		-0.7	%
Medians - Standard Conversions:				$	10.38		3.8	%	$	9.85		-1.5	%	$	9.91		-0.9	%	$	9.93		-0.7	%
Second Step Conversions
Abington Bancorp, Inc., PA*		6/28/07	ABBC-NASDAQ	$	9.60		-4.0	%	$	9.84		-1.6	%	$	9.25		-7.5	%	$	9.59		-4.1	%
Averages - Second Step Conversions:				$	9.60		-4.0	%	$	9.84		-1.6	%	$	9.25		-7.5	%	$	9.59		-4.1	%
Medians - Second Step Conversions:				$	9.60		-4.0	%	$	9.84		-1.6	%	$	9.25		-7.5	%	$	9.59		-4.1	%
Mutual Holding Company Conversions
FSB Community Bncshrs, Inc., NY*		8/15/07	FSBC-OTCBB	$	10.00		0.0	%	$	10.00		0.0	%	$	8.75		-12.5	%	$	8.75		-12.5	%
Beneficial Mutual Bancorp, Inc., PA*		7/16/07	BNCL-NASDAQ	$	9.21		-7.9	%	$	9.38		-6.2	%	$	8.70		-13.0	%	$	9.50		-5.0	%
Hometown Bancorp, Inc., NY		6/29/07	HTWC-OTCBB	$	10.00		0.0	%	$	10.00		0.0	%	$	8.75		-12.5	%	$	8.25		-17.5	%
Averages - Mutual Holding Company Conversions:				$	9.74		-2.6	%	$	9.79		-2.1	%	$	8.73		-12.7	%	$	8.83		-11.7	%
Medians - Mutual Holding Company Conversions:				$	10.00		0.0	%	$	10.00		0.0	%	$	8.75		-12.5	%	$	8.75		-12.5	%
Averages - All Conversions:				$	9.93		-0.7	%	$	9.82		-1.8	%	$	9.21		-7.9	%	$	9.33		-6.8	%
Medians - All Conversions:				$	9.90		-1.0	%	$	9.92		-0.8	%	$	8.83		-11.8	%	$	9.25		-7.5	%

Note:  * - Appraisal performed by RP Financial; BOLD=RP Financial did the Conversion Business Plan.  “NT” - Not Traded; “NA” - Not Applicable, Not Available; C/S-Cash/Stock.

(1)	Non-OTS regulated thrift.
(2)	As a percent of MHC offering for MHC transactions.
(3)	Does not take into account the adoption of SOP 93-6.
(4)	Latest price if offering is less than one week old.
(5)	Latest price if offering is more than one week but less than one month old.
(6)	Mutual holding company pro forma data on full conversion basis.
(7)	Simultaneously completed acquisition of another financial institution.
(8)	Simultaneously converted to a commercial bank charter.
(9)	Former credit union.

August 31, 2007

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Abington Bancorp was trading at a price of $9.59 per share, or 4.1% below its IPO price, at a pro forma P/TB ratio and P/Core Earnings multiple of 96.0% and 38.4 times, respectively.  Kaiser Federal Financial’s midpoint pricing ratios are near parity with Abington Bancorp’s pro forma pricing at closing while Kaiser Federal Financial’s pro forma midpoint pricing ratios are at premium (6.5% premium to P/TB and 19.9% discount to the P/Core Earnings multiple) to Abington Bancorp’s pricing ratios based on its August 31, 2007, trading level. 

                        Although less comparable to the Company given their different transaction structures, the two standard conversion offerings and two minority stock offerings by MHCs also provide insight into the current state of the new issue market.  The two standard conversion offerings by Louisiana Bancorp and Quaint Oak Bancorp (Pennsylvania), respectively, were completed at an average pro forma P/TB of 79.8% and P/E multiple of 25.9 times.  Demand for both issues was relatively strong, although the Louisiana Bancorp transaction was not oversubscribed closing between the maximum and supermaximum of the range taking all orders received.  Quaint Oak Bancorp’s offering was oversubscribed and closed at the supermaximum of the offering range.  As of August 31, 2007, Louisiana Bancorp was trading modestly above its IPO price (8.6%) while Quaint Oak Bancorp’s price had fallen by 10.0% relative to its IPO price.

                        Weakness is also evident in the aftermarket trading in the minority stock of recent offerings completed by MHCs.  The recent offerings completed by Beneficial Mutual Bancorp (Pennsylvania) and Hometown Bancorp (New York) were oversubscribed and closed at the supermaximum of their respective offering ranges at pro forma full-converted P/TBs of 97.6% and 82.6%, respectively.  FSB Community Bancshares’ offering had to be extended to close at the minimum of the offering range and, to date, the stock has only traded on one day since closing on August 15, 2007.  As of August 31, 2007, both Beneficial Mutual Bancorp and Hometown Bancorp were trading below their IPO prices by 5.0% and 17.5%, respectively.  FSB Community Bancshares’ stock did not trade until August 31, 2007 and closed down 17.5% from the IPO price.

                        In response to market weakness, the majority of the conversions just commencing their offerings faced reductions in pro forma valuations immediately prior to going effective, which such reductions falling in the 10% to 15% range generally.  The results of these offerings

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and after-market performance will be important indicators to consider in an updated valuation of the Company prior to going effective. 

          C.          The Acquisition Market

                        Also considered in the valuation was the potential impact on the Company’s stock price of recently completed and pending acquisitions of other savings institutions headquartered in California.  As shown in Exhibit IV-4, there were ten thrift acquisitions completed from the beginning of 2004 through year-to-date 2007.  The recent acquisition activity involving savings institutions may imply a certain degree of acquisition speculation for the Company’s stock.  To the extent that acquisition speculation may impact the Company’s Offering, we have largely taken this into account in selecting companies for the Peer Group which operate in markets that have experienced a comparable level of acquisition activity as the Company’s market and, thus, are subject to the same type of acquisition speculation that may influence Kaiser Federal Financial’s stock.  However, since converting thrifts are subject to a three-year regulatory moratorium from being acquired, acquisition speculation in Kaiser Federal Financial’s stock would tend to be less compared to the stocks of the Peer Group companies.

          D.          Trading in Kaiser Federal Financial’s Stock

                        Since Kaiser Federal Financial’s minority stock currently trades under the symbol “KFED” on the NASDAQ national stock market, RP Financial also considered the recent trading activity in the valuation analysis.  Kaiser Federal Financial had a total of 13,948,945 shares issued and outstanding at August 31, 2007, of which 5,087,195 shares were held by public shareholders and traded as public securities.  As of August 31, 2007, the Company’s closing stock price was $13.72 per share, implying an aggregate value of $191,379,525.  There are significant differences between the Company’s minority stock (currently being traded) and the conversion stock that will be issued by the Company.  Such differences include different liquidity characteristics (the new conversion stock will be more liquid owing to larger number of public shares available to trade) and a different return on equity for the conversion stock.  Since the pro forma impact has not been publicly disseminated to date, it is appropriate to discount the current trading level.  As the pro forma impact is made known publicly, the trading level will become more informative.

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*  *  *  *  *  *  *  *  *  *  *

                        In determining our valuation adjustment for marketing of the issue, we considered trends in both the overall thrift market, the new issue market including the new issue market for second-step conversions, the acquisition market and recent trading activity in the Company’s minority stock.  Taking these factors and trends into account, RP Financial concluded that a slight downward adjustment was appropriate in the valuation analysis for purposes of marketing of the issue.

          8.          Management

                        Kaiser Federal Financial’s management team appears to have experience and expertise in all of the key areas of the Company’s operations.  Exhibit IV-5 provides summary resumes of Kaiser Federal Financial’s Board of Directors and senior management.  The financial characteristics of the Company suggest that the Board and senior management have been effective in implementing an operating strategy that can be well managed by the Company’s present organizational structure.  The Company currently does not have any senior management positions that are vacant.

                        Similarly, the returns, capital positions, and other operating measures of the Peer Group companies are indicative of well-managed financial institutions, which have Boards and management teams that have been effective in implementing competitive operating strategies.  Therefore, on balance, we concluded no valuation adjustment relative to the Peer Group was appropriate for this factor.

          9.          Effect of Government Regulation and Regulatory Reform

                        In summary, as a fully-converted federally-insured institution, Kaiser Federal Financial will operate in substantially the same regulatory environment as the Peer Group members – all of whom are well capitalized institutions and are operating with no apparent restrictions.  Exhibit IV-6 reflects the Company’s pro forma regulatory capital ratios, while the Peer Group’s regulatory capital ratios were previously shown in Table 3.2.  On balance, no adjustment has been applied for the effect of government regulation and regulatory reform.

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Summary of Adjustments

          Overall, based on the factors discussed above, we concluded that the Company’s pro forma market value should reflect the following valuation adjustments relative to the Peer Group:

Key Valuation Parameters:	Valuation Adjustment
Financial Condition	No Adjustment
Profitability, Growth and Viability of Earnings	Slight Downward
Asset Growth	Slight Upward
Primary Market Area	No Adjustment
Dividends	No Adjustment
Liquidity of the Shares	No Adjustment
Marketing of the Issue	Slight Downward
Management	No Adjustment
Effect of Government Regulations and Regulatory Reform	No Adjustment

Valuation Approaches

          In applying the accepted valuation methodology promulgated by the OTS and adopted by the FDIC, i.e., the pro forma market value approach, including the fully-converted analysis described above, we considered the three key pricing ratios in valuing the Company’s to-be-issued stock – price/earnings (“P/E”), price/book (“P/B”), and price/assets (“P/A”) approaches -- all performed on a pro forma basis including the effects of the stock proceeds.  In computing the pro forma impact of the Second Step Conversion and the related pricing ratios, we have incorporated the valuation parameters disclosed in Kaiser Federal Financial’s prospectus for Offering expenses, reinvestment rate, effective tax rate and stock benefit plan assumptions (summarized in Exhibits IV-7 and IV-8).

          RP Financial’s valuation placed an emphasis on the following:

• P/E Approach.  The P/E approach is generally the best indicator of long-term value for a stock.  Given the similarities between the Company’s and the Peer Group’s operating strategies, earnings composition and overall financial condition, the P/E approach was carefully considered in this valuation.  At the same time, since reported earnings for both the Company and the Peer Group included certain non-recurring items, we also made adjustments to earnings to

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	arrive at core earnings estimates for the Company and the Peer Group and resulting price/core earnings ratios.
•	P/B Approach.  P/B ratios have generally served as a useful benchmark in the valuation of thrift stocks, particularly in the context of a public offering, as the earnings approach involves assumptions regarding the use of proceeds.  RP Financial considered the P/B approach to be a useful indicator of pro forma value, taking into account the pricing ratios under the P/E and P/A approaches.  We have also modified the P/B approach to exclude the impact of intangible assets (i.e., price/tangible book value or “P/TB”), in that the investment community frequently makes this adjustment in its evaluation of this pricing approach.
•	P/A Approach.  P/A ratios are generally a less reliable indicator of market value, as investors typically assign less weight to assets and attribute greater weight to book value and earnings - we have also given less weight to the assets approach.  Furthermore, this approach as set forth in the regulatory valuation guidelines does not take into account the amount of stock purchases funded by deposit withdrawals, thus understating the pro forma P/A ratio.  At the same time, the P/A ratio is an indicator of franchise value, and, in the case of highly capitalized institutions, high P/A ratios may limit the investment community’s willingness to pay market multiples for earnings or book value when ROE is expected to be low.
•	Trading of Kaiser Federal Financial stock.  Converting institutions generally do not have stock outstanding.  Kaiser Federal Financial, however, has public shares outstanding due to the mutual holding company form of ownership.  Since Kaiser Federal Financial is currently traded on NASDAQ, it is an indicator of investor interest in the Company’s conversion stock and therefore received some weight in our valuation.  Based on the August 31, 2007 stock price of $13.72 per share and the 13,948,945 shares of Kaiser Federal Financial stock outstanding, the Company’s implied market value of $191.4 million was considered in the valuation process.  However, since the conversion stock will have different characteristics than the minority shares, and since pro forma information has not been publicly disseminated to date, the current trading price of Kaiser Federal Financial’s stock was somewhat discounted herein and may become more informative towards the closing of the Offering.

          The Company has adopted Statement of Position (“SOP”) 93-6, which causes earnings per share computations to be based on shares issued and outstanding excluding unreleased ESOP shares.  For purposes of preparing the pro forma pricing analyses, we have reflected all shares issued in the Offering, including all ESOP shares, to capture the full dilutive impact, particularly

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since the ESOP shares are economically dilutive, receive dividends and can be voted.  However, we did consider the impact of SOP 93-6 in the valuation.

          Based on the application of the three valuation approaches, taking into consideration the valuation adjustments discussed above, RP Financial concluded that, as of August 31, 2007, the aggregate pro forma market value of Kaiser Federal Financial’s conversion stock was $204,628,080 at the midpoint, equal to 20,462,808 shares at $10.00 per share.  The midpoint and resulting valuation range is based on the sale of a 63.53% ownership interest to the public, which provides for a $130.0 million public Offering at the midpoint value.

          1.          Earnings Approach (“P/E” and “Core P/E”).  The application of the P/E valuation method requires calculating the Company’s pro forma market value by applying a valuation P/E multiple to the pro forma earnings base.  In applying this technique, we considered both reported earnings and a recurring earnings base, that is, earnings adjusted to exclude any one-time non-operating items, plus the estimated after-tax earnings benefit of the reinvestment of the net proceeds.  The Company’s reported earnings equaled $4.704 million for the twelve months ended June 30, 2007.  In deriving the Company’s core earnings, the only adjustment made to reported earnings was to eliminate the loss on the Company’s equity investment in a California Affordable Housing Program of $99,000.  Accordingly, on a tax affected basis, reflecting the marginal tax rate of 41.1%, the Company’s core earnings were determined to equal $4.762 million for the 12 months ended June 30, 2007 (Note:  see Exhibit IV-9 for the adjustments applied to the Peer Group’s earnings in the calculation of core earnings).

          Based on the Company’s reported and estimated core earnings, and incorporating the impact of the pro forma assumptions discussed previously, the Company’s pro forma reported P/E multiples at the $204.6 million midpoint value equaled 30.77 times.  Over the range of value the Company’s reported and core P/E ratios are at substantial premiums based on reported and core earnings (both based on averages and medians), as shown in the table on the following page. 

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Kaiser Fed. Financial P/E Premium/(Discounts) Vs. Peer Group Over Range of Value

	Kaiser Fed. Fin		Peer Group				Kaiser Fed.Fin. Premiums/(Discounts)
			Average		Median		Average		Median
	P/E	Core P/E	P/E	Core P/E	P/E	Core P/E	P/E	Core P/E	P/E	Core P/E
Superrange	37.65x	37.35x	17.73x	18.40x	15.43x	16.10x	112.35%	102.99%	144.01%	131.99%
Maximum	34.26x	33.97x	17.73x	18.40x	15.43x	16.10x	93.23%	84.62%	122.03%	110.99%
Midpoint	31.04x	30.77x	17.73x	18.40x	15.43x	16.10x	75.07%	67.23%	101.17%	91.12%
Minimum	27.54x	27.29x	17.73x	18.40x	15.43x	16.10x	55.33%	48.32%	78.48%	69.50%

Source: Table 4.3

          2.          Book Value Approach (“P/B” and “P/TB”).  The application of the P/B valuation method requires calculating the Company’s pro forma market value by applying a valuation P/B ratio, derived from the Peer Group’s P/B ratio, to the Company’s pro forma book value, including $22,000 of net assets at the MHC.  In applying the P/B approach, we considered both reported book value (“P/B”) and tangible book value (“P/TB”).  Based on the $204.6 million midpoint valuation, Kaiser Federal Financial’s pro forma P/B and P/TB ratios equaled 100.13% and 102.27%, respectively.  The resulting discounts to the Peer Group’s P/B and P/TB ratios, both averages and medians, over the range of value appear below.

Kaiser Fed. Financial P/B Premium/(Discounts) Vs. Peer Group Over Range of Value

	Kaiser Fed. Fin		Peer Group				Kaiser Fed.Fin. Premiums/(Discounts)
			Average		Median		Average		Median
	P/B	P/TB	P/B	P/TB	P/B	P/TB	P/B	P/TB	P/B	P/TB
Superrange	112.74%	1 14.78%	126.99%	137.30%	119.01%	124.46%	-11.2%	-16.4%	-5.27%	-7.78%
Maximum	106.50%	108.60%	126.99%	137.30%	119.01%	124.46%	-16.1%	-20.9%	-10.51%	-12.74%
Midpoint	100.13%	102.27%	126.99%	137.30%	119.01%	124.46%	-21.2%	-25.5%	-15.86%	-17.83%
Minimum	92.63%	94.79%	126.99%	137.30%	119.01%	124.46%	-27.1%	-31.0%	-22.17%	-23.84%

Source: Table 4.3

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Page 4.24

Table 4.3
Public Market Pricing
Kaiser Federal Financial Group, Inc.
As of August 31, 2007

		Market Capitalization				Per Share Data
						Core			Book
		Price/ Share(1)		Market Value		12 Month EPS(2)			Value/ Share
		($)		($Mil)		($)			($)
Kaiser Federal Financial Group, Inc.
Superrange		$	10.00	$	270.62	$	0.27		$	8.87
Maximum		$	10.00	$	235.32	$	0.29		$	9.39
Midpoint		$	10.00	$	204.63	$	0.32		$	9.99
Minimum		$	10.00	$	173.93	$	0.36		$	10.80
All Public Companies(7)
Averages		$	16.62	$	412.92	$	0.74		$	13.46
Medians			14.14		91.89		0.48			11.55
All Non-MHC State of CA(7)
Averages		$	25.23	$	553.61	$	2.05		$	23.61
Medians		$	22.80	$	148.07	$	1.08		$	18.95
Comparable Group Averages
Averages		$	16.95	$	126.93	$	1.07		$	13.57
Medians		$	16.04	$	95.24	$	1.04		$	12.58
State of California
BOFI	Bofi Holding, Inc. Of CA	$	7.27	$	60.11	$	0.32		$	8.19
BYFC	Broadway Financial Corp. of CA	$	10.35	$	17.51	$	0.87		$	10.86
DSL	Downey Financial Corp. of CA	$	56.59	$	1,576.26	$	5.78		$	52.58
FPTB	First PacTrust Bancorp of CA	$	22.80	$	100.41	$	0.98		$	18.95
FED	FirstFed Financial Corp. of CA	$	50.25	$	804.50	$	7.57		$	45.24
HWFG	Harrington West Fncl Grp of CA	$	14.90	$	82.65	$	1.40		$	12.42
IMB	IndyMac Bancorp, Inc. of CA	$	24.20	$	1,782.69	$	(1.34	)	$	27.83
PFB	PFF Bancorp, Inc. of Pomona CA	$	17.52	$	410.32	$	1.77		$	15.82
PROV	Provident Fin. Holdings of CA	$	23.22	$	148.07	$	1.08		$	20.63
Comparable Group
BOFI	Bofi Holding, Inc. Of CA	$	7.27	$	60.11	$	0.32		$	8.19
FPTB	First PacTrust Bancorp of CA	$	22.80	$	100.41	$	0.98		$	18.95
HARL	Harleysville Svgs Fin Cp of PA	$	14.83	$	57.13	$	0.84		$	12.73
HWFG	Harrington West Fncl Grp of CA	$	14.90	$	82.65	$	1.40		$	12.42
PFB	PFF Bancorp, Inc. of Pomona CA	$	17.52	$	410.32	$	1.77		$	15.82
PBCI	Pamrapo Bancorp, Inc. of NJ	$	18.10	$	90.07	$	1.07		$	11.80
RPFG	Rainier Pacific Fin Grp of WA	$	16.16	$	106.14	$	0.42		$	13.69
RVSB	Riverview Bancorp, Inc. of WA	$	14.93	$	172.70	$	1.00		$	8.62
THRD	TF Fin. Corp. of Newtown PA	$	27.05	$	78.04	$	1.77		$	22.95
TSBK	Timberland Bancorp, Inc. of WA	$	15.91	$	111.77	$	1.12		$	10.53

		Pricing Ratios(3)
		P/E			P/B			P/A			P/TB			P/Core
		(x)			(%)			(%)			(%)			(x)
Kaiser Federal Financial Group, Inc.
Superrange			37.65	x		112.74	%		28.57	%		114.78	%		37.35	x
Maximum			34.26	x		106.50	%		25.35	%		108.60	%		33.97	x
Midpoint			31.04	x		100.13	%		22.45	%		102.27	%		30.77	x
Minimum			27.54	x		92.63	%		19.43	%		94.79	%		27.29	x
All Public Companies(7)
Averages			19.97	x		130.65	%		16.47	%		149.25	%		20.71	x
Medians			17.89	x		120.79	%		13.46	%		136.61	%		19.09	x
All Non-MHC State of CA(7)
Averages			12.21	x		105.92	%		8.50	%		107.95	%		14.54	x
Medians			11.27	x		110.75	%		8.37	%		111.17	%		11.27	x
Comparable Group Averages
Averages			17.73	x		126.99	%		11.95	%		137.30	%		18.40	x
Medians			15.43	x		119.01	%		11.74	%		124.46	%		16.10	x
State of California
BOFI	Bofi Holding, Inc. Of CA		20.19			88.77	%		6.35	%		88.77	%		22.72	x
BYFC	Broadway Financial Corp. of CA		11.76	x		95.30	%		5.51	%		95.30	%		11.90	x
DSL	Downey Financial Corp. of CA		8.45	x		107.63	%		10.58	%		107.87	%		9.79	x
FPTB	First PacTrust Bancorp of CA		23.27	x		120.32	%		13.05	%		120.32	%		23.27	x
FED	FirstFed Financial Corp. of CA		6.34	x		111.07	%		10.49	%		111.17	%		6.64	x
HWFG	Harrington West Fncl Grp of CA		11.64	x		119.97	%		7.31	%		132.09	%		10.64	x
IMB	IndyMac Bancorp, Inc. of CA		6.97	x		86.96	%		5.63	%		92.33	%		NM
PFB	PFF Bancorp, Inc. of Pomona CA		10.01	x		110.75	%		9.18	%		111.17	%		9.90	x
PROV	Provident Fin. Holdings of CA		11.27	x		112.55	%		8.37	%		112.55	%		21.50	x
Comparable Group
BOFI	Bofi Holding, Inc. Of CA		20.19			88.77	%		6.35	%		88.77	%		22.72	x
FPTB	First PacTrust Bancorp of CA		23.27			120.32	%		13.05	%		120.32	%		23.27	x
HARL	Harleysville Svgs Fin Cp of PA		17.05			116.50	%		7.34	%		116.50	%		17.65	x
HWFG	Harrington West Fncl Grp of CA		11.64			119.97	%		7.31	%		132.09	%		10.64	x
PFB	PFF Bancorp, Inc. of Pomona CA		10.01			110.75	%		9.18	%		111.17	%		9.90	x
PBCI	Pamrapo Bancorp, Inc. of NJ		16.16			153.39	%		14.15	%		153.39	%		16.92	x
RPFG	Rainier Pacific Fin Grp of WA		35.91			118.04	%		11.73	%		122.33	%		38.48	x
RVSB	Riverview Bancorp, Inc. of WA		14.64			173.20	%		20.75	%		235.12	%		14.93	x
THRD	TF Fin. Corp. of Newtown PA		14.70			117.86	%		11.75	%		126.58	%		15.28	x
TSBK	Timberland Bancorp, Inc. of WA		13.72			151.09	%		17.91	%		166.77	%		14.21	x

		Dividends(4)								Financial Characteristics(6)
		Amount/ Share		Yield			Payout Ratio(5)			Total Assets		Equity/ Assets			NPAs/ Assets
		($)		(%)			(%)			($Mil)		(%)			(%)
Kaiser Federal Financial Group, Inc.
Superrange		$	0.21		2.06	%		77.62	%	$	947		25.34	%		0.15	%
Maximum		$	0.24		2.37	%		81.22	%	$	928		23.80	%		0.16	%
Midpoint		$	0.27		2.73	%		84.64	%	$	912		22.42	%		0.16	%
Minimum		$	0.32		3.21	%		88.35	%	$	895		20.98	%		0.16	%
All Public Companies(7)
Averages		$	0.41		2.34	%		35.89	%	$	3,136		12.58	%		0.60	%
Medians		$	0.34		2.39	%		40.68	%	$	778		10.67	%		0.37	%
All Non-MHC State of CA(7)
Averages		$	0.60		2.79	%		25.23	%	$	7,071		7.93	%		0.51	%
Medians		$	0.50		3.10	%		22.99	%	$	1,770		7.43	%		0.46	%
Comparable Group Averages
Averages		$	0.55		3.06	%		37.92	%	$	1,176		9.17	%		0.18	%
Medians		$	0.59		3.10	%		42.94	%	$	805		9.58	%		0.06	%
State of California
BOFI	Bofi Holding, Inc. Of CA	$	0.00		0.00	%		0.00	%	$	947		7.15	%		NA
BYFC	Broadway Financial Corp. of CA	$	0.20		1.93	%		22.99	%	$	318		5.78	%		0.02	%
DSL	Downey Financial Corp. of CA	$	0.48		0.85	%		8.30	%	$	14,903		9.83	%		0.94	%
FPTB	First PacTrust Bancorp of CA	$	0.74		3.25	%		NM		$	769		10.85	%		NA
FED	FirstFed Financial Corp. of CA	$	0.00		0.00	%		0.00	%	$	7,669		9.44	%		0.46	%
HWFG	Harrington West Fncl Grp of CA	$	0.50		3.36	%		35.71	%	$	1,130		6.09	%		0.01	%
IMB	IndyMac Bancorp, Inc. of CA	$	2.00		8.26	%		NM		$	31,659		6.48	%		1.09	%
PFB	PFF Bancorp, Inc. of Pomona CA	$	0.76		4.34	%		42.94	%	$	4,469		8.29	%		0.25	%
PROV	Provident Fin. Holdings of CA	$	0.72		3.10	%		66.67	%	$	1,770		7.43	%		0.83	%
Comparable Group
BOFI	Bofi Holding, Inc. Of CA	$	0.00		0.00	%		0.00	%	$	947		7.15	%		NA
FPTB	First PacTrust Bancorp of CA	$	0.74		3.25	%		NM		$	769		10.85	%		NA
HARL	Harleysville Svgs Fin Cp of PA	$	0.68		4.59	%		NM		$	778		6.30	%		0.06	%
HWFG	Harrington West Fncl Grp of CA	$	0.50		3.36	%		35.71	%	$	1,130		6.09	%		0.01	%
PFB	PFF Bancorp, Inc. of Pomona CA	$	0.76		4.34	%		42.94	%	$	4,469		8.29	%		0.25	%
PBCI	Pamrapo Bancorp, Inc. of NJ	$	0.92		5.08	%		NM		$	636		9.23	%		0.60	%
RPFG	Rainier Pacific Fin Grp of WA	$	0.26		1.61	%		61.90	%	$	905		9.94	%		0.03	%
RVSB	Riverview Bancorp, Inc. of WA	$	0.44		2.95	%		44.00	%	$	832		11.98	%		0.03	%
THRD	TF Fin. Corp. of Newtown PA	$	0.80		2.96	%		45.20	%	$	664		9.97	%		0.42	%
TSBK	Timberland Bancorp, Inc. of WA	$	0.40		2.51	%		35.71	%	$	624		11.85	%		0.06	%

		Financial Characteristics(6)
		Reported						Core
														Offering Size		Exchange Ratio
		ROA			ROE			ROA			ROE
		(%)			(%)			(%)			(%)			($Mil)		(x)
Kaiser Federal Financial Group, Inc.
Superrange			0.76	%		2.99	%		0.76	%		3.02	%		171.93		1.94008
Maximum			0.74	%		3.11	%		0.75	%		3.14	%		149.50		1.68703
Midpoint			0.72	%		3.23	%		0.73	%		3.25	%		130.00		1.46698
Minimum			0.71	%		3.36	%		0.71	%		3.39	%		110.50		1.24693
All Public Companies(7)
Averages			0.53	%		5.04	%		0.49	%		4.70	%
Medians			0.55	%		4.54	%		0.54	%		4.64	%
All Non-MHC State of CA(7)
Averages			0.79	%		10.43	%		0.59	%		7.68	%
Medians			0.78	%		10.55	%		0.54	%		8.45	%
Comparable Group Averages
Averages			0.77	%		8.12	%		0.75	%		8.01	%
Medians			0.71	%		8.76	%		0.73	%		8.40	%
State of California
BOFI	Bofi Holding, Inc. Of CA		0.36	%		4.47	%		0.32	%		3.98	%
BYFC	Broadway Financial Corp. of CA		0.50	%		8.54	%		0.49	%		8.45	%
DSL	Downey Financial Corp. of CA		1.15	%		13.43	%		1.00	%		11.59	%
FPTB	First PacTrust Bancorp of CA		0.54	%		5.28	%		0.54	%		5.28	%
FED	FirstFed Financial Corp. of CA		1.39	%		18.33	%		1.32	%		17.49	%
HWFG	Harrington West Fncl Grp of CA		0.62	%		10.55	%		0.68	%		11.54	%
IMB	IndyMac Bancorp, Inc. of CA		0.90	%		12.94	%		-0.35	%		-5.00	%
PFB	PFF Bancorp, Inc. of Pomona CA		0.90	%		10.60	%		0.91	%		10.72	%
PROV	Provident Fin. Holdings of CA		0.78	%		9.70	%		0.41	%		5.09	%
Comparable Group
BOFI	Bofi Holding, Inc. Of CA		0.36	%		4.47	%		0.32	%		3.98	%
FPTB	First PacTrust Bancorp of CA		0.54	%		5.28	%		0.54	%		5.28	%
HARL	Harleysville Svgs Fin Cp of PA		0.44	%		6.88	%		0.42	%		6.64	%
HWFG	Harrington West Fncl Grp of CA		0.62	%		10.55	%		0.68	%		11.54	%
PFB	PFF Bancorp, Inc. of Pomona CA		0.90	%		10.60	%		0.91	%		10.72	%
PBCI	Pamrapo Bancorp, Inc. of NJ		0.87	%		9.43	%		0.83	%		9.01	%
RPFG	Rainier Pacific Fin Grp of WA		0.33	%		3.29	%		0.30	%		3.07	%
RVSB	Riverview Bancorp, Inc. of WA		1.43	%		12.11	%		1.40	%		11.88	%
THRD	TF Fin. Corp. of Newtown PA		0.80	%		8.10	%		0.77	%		7.79	%
TSBK	Timberland Bancorp, Inc. of WA		1.37	%		10.52	%		1.32	%		10.15	%

(1)	Average of High/Low or Bid/Ask price per share.
(2)	EPS (estimate core basis) is based on actual trailing 12 month data, adjusted to omit non-operating items on a tax-effected basis, and is shown on a pro forma basis where appropriate.
(3)	P/E = Price to earnings; P/B = Price to book; P/A = Price to assets; P/TB = Price to tangible book value; and P/Core = Price to core earnings.
(4)	Indicated 12 month dividend, based on last quarterly dividend declared.
(5)	Indicated 12 month dividend as a percent of trailing 12 month estimated core earnings.
(6)	ROA (return on assets) and ROE (return on equity) are indicated ratios based on trailing 12 month common earnings and average common equity and total assets balances.
(7)	Excludes from averages and medians those companies the subject of actual or rumored acquisition activities or unusual operating characteristics.

Source: Corporate reports, offering circulars, and RP Financial, LC. calculations.  The information provided in this report has been obtained from sources we believe are reliable, but we cannot guarantee the accuracy or completeness of such information.

Copyright (c) 2007 by RP^® Financial, LC.

RP^® FINANCIAL, LC.
Page 4.25

          3.          Assets Approach (“P/A”).  The P/A valuation methodology determines market value by applying a valuation P/A ratio to the Company’s pro forma asset base, conservatively assuming no deposit withdrawals are made to fund stock purchases.  In all likelihood there will be deposit withdrawals, which results in understating the pro forma P/A ratio computed herein.  At the midpoint of the valuation range, Kaiser Federal Financial’s value equaled 22.45% of pro forma assets.  The resulting premiums to the Peer Group’s average and median P/A ratios, over the range of value, appear below.

Kaiser Fed. Financial P/A Premium/(Discounts) Vs. Peer Group Over Range of Value

	Kaiser Fed. Fin	Peer Group		Kaiser Fed.Fin. Premiums/(Discounts)
		Average	Median	Average	Median
	P/A	P/A	P/A	P/A	P/A
Superrange	28.57%	11.95%	11.74%	139.1%	143.36%
Maximum	25.35%	11.95%	11.74%	112.1%	115.93%
Midpoint	22.45%	11.95%	11.74%	87.9%	91.23%
Minimum	19.43%	11.95%	11.74%	62.6%	65.50%

Valuation Conclusion

          Based on the foregoing, it is our opinion that, as of August 31, 2007, the estimated aggregate pro forma market value of the Company, inclusive of the sale of the MHC’s ownership interest to the public shareholders was $204,628,080 at the midpoint.  Based on this valuation and the approximate 63.53% ownership interest being sold in the public Offering, the midpoint value of the Company’s stock Offering is $130,000,000, equal to 13,000,000 shares at a per share value of $10.00.  The resulting range of value pursuant to regulatory guidelines and the corresponding number of shares based on the Board approved $10.00 per share Offering price is set forth below. The pro forma valuation calculations relative to the Peer Group are shown in Table 4.3 and are detailed in Exhibit IV-7 and Exhibit IV-8.

RP^® FINANCIAL, LC.
Page 4.26

	Total Shares			Offering Shares			Exchange Shares Issued to the Public Shareholders			Exchange Ratio
Shares											(x)
Supermaximum		27,062,063			17,192,500			9,869,563			1.9401
Maximum		23,532,229			14,950,000			8,582,229			1.6870
Midpoint		20,462,808			13,000,000			7,462,808			1.4670
Minimum		17,393,386			11,050,000			6,343,386			1.2469
Distribution of Shares
Supermaximum		100.00	%		63.53	%		36.47	%
Maximum		100.00	%		63.53	%		36.47	%
Midpoint		100.00	%		63.53	%		36.47	%
Minimum		100.00	%		63.53	%		36.47	%
Aggregate Market Value (1)
Supermaximum	$	270,620,630		$	171,925,000		$	98,695,630
Maximum		235,322,290			149,500,000			85,822,290
Midpoint		204,628,080			130,000,000			74,628,080
Minimum		173,933,860			110,500,000			63,433,860

(1)      Based on offering price of $10.00 per share.

Establishment of the Exchange Ratio

          OTS regulations provide that in a conversion of a mutual holding company, the minority stockholders are entitled to exchange the public shares for newly issued shares of Kaiser Federal Financial stock as a fully converted company.  The Board of Directors of the MHC has independently determined the exchange ratio.  The determined exchange ratio has been designed to preserve the current aggregate percentage ownership in Kaiser Federal Financial equal to 36.47% as of August 31, 2007.  The exchange ratio to be received by the existing minority shareholders of Kaiser Federal Financial will be determined at the end of the Offering, based on the total number of shares sold in the subscription and community offerings.  Based upon this calculation, and the valuation conclusion and Offering range concluded above, the exchange ratio would be 1.2470 shares, 1.4670 shares, 1.6870 shares and 1.9401 shares of newly issued shares of Kaiser Federal Financial stock for each share of stock held by the public shareholders

RP^® FINANCIAL, LC.
Page 4.27

at the minimum, midpoint, maximum and supermaximum of the Offering range, respectively.  RP Financial expresses no opinion on the proposed exchange of newly issued Company shares for the shares held by the public stockholders or on the proposed exchange ratio.

EX-99.4

Exhibit 99.4

RP^® FINANCIAL, LC.

Financial Services Industry Consultants

August 31, 2007                              

Board of Directors
K-Fed Mutual Holding Company
K-Fed Bancorp
Kaiser Federal Bank
1359 North Grand Avenue, Suite 200
Covina, California  91724

Re:	Plan of Conversion and Stock Issuance
	K-Fed Mutual Holding Company
	K-Fed Bancorp
	Kaiser Federal Bank

Members of the Boards of Directors:

          All capitalized terms not otherwise defined in this letter have the meanings given such terms in the Plan of Conversion and Reorganization (the “Plan”) adopted by the Board of Directors of  K-Fed Mutual Holding Company (the “MHC”), K-Fed Bancorp, (to be succeeded by Kaiser Federal Financial Group, Inc.), Covina, California (the “Company”) and Kaiser Federal Bank (the “Bank”).  The Plan provides for the conversion of the Mutual Holding Company into the capital stock form of organization.  Pursuant to the Plan, the Company, which owns 100% of the Bank, will be converted into new shares of the Company pursuant to an exchange ratio determined by the Board of Directors of the MHC and the Company.  As part of the conversion, the Company will sell shares of common stock in an offering that will represent the ownership interest in Kaiser Federal Financial Group, Inc. (the successor to K-Fed Bancorp, Inc.) currently owned by the MHC.

          We understand that in accordance with the Plan, subscription rights to purchase shares of common stock in the Company are to be issued to: (1)  Eligible Account Holders; (2)  the Employee Stock Ownership Plan; (3)  Supplemental Eligible Account Holders; and (4) Other Members.  Based solely upon our observation that the subscription rights will be available to such parties without cost, will be legally non-transferable and of short duration, and will afford such parties the right only to purchase shares of common stock at the same price as will be paid by members of the general public in the community offering, but without undertaking any independent investigation of state or federal law or the position of the Internal Revenue Service with respect to this issue, we are of the belief that, as a factual matter:

(1)	the subscription rights will have no ascertainable market value; and,
(2)	the price at which the subscription rights are exercisable will not be more or less than the pro forma market value of the shares upon issuance.

          Changes in the local and national economy, the legislative and regulatory environment, the stock market, interest rates, and other external forces (such as natural disasters or significant world events) may occur from time to time, often with great unpredictability and may materially impact the value of thrift stocks as a whole or the Company’s value alone.  Accordingly, no assurance can be given that persons who subscribe to shares of common stock in the subscription offering will thereafter be able to buy or sell such shares at the same price paid in the subscription offering.

Sincerely,

RP FINANCIAL, LC.

Washington Headquarters
Rosslyn Center
1700 North Moore Street, Suite 2210	Telephone:  (703) 528-1700
Arlington, VA  22209	Fax No.:  (703) 528-1788