Kentucky First Federal Bancorp - Quarter Report: 2021 March (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2021

☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from ____________ to _______________

Commission File Number: 0-51176

KENTUCKY FIRST FEDERAL BANCORP

(Exact name of registrant as specified in its charter)

United States of America		61-1484858
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

655 Main Street, Hazard, Kentucky 41702

(Address of principal executive offices)(Zip Code)

(502) 223-1638

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading symbol(s)		Name of each exchange on which registered
Common Stock, $0.01 par value per share		KFFB		The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days: Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-Accelerated filer	☐	Smaller Reporting Company	☒
		Emerging Growth Company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: At May 7, 2021, the latest practicable date, the Corporation had 8,226,715 shares of $.01 par value common stock outstanding.

INDEX

			Page
PART I	FINANCIAL INFORMATION		1

	ITEM 1	FINANCIAL STATEMENTS	1

		Condensed Consolidated Balance Sheets	1

		Condensed Consolidated Statements of Operations	2

		Condensed Consolidated Statements of Comprehensive Income	3

		Consolidated Statements of Changes in Shareholders’ Equity	4

		Condensed Consolidated Statements of Cash Flows	6

		Notes to Condensed Consolidated Financial Statements	8

	ITEM 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27

	ITEM 3	Quantitative and Qualitative Disclosures About Market Risk	38

	ITEM 4	Controls and Procedures	38

PART II	OTHER INFORMATION		39

SIGNATURES			41

PART I

ITEM 1: Financial Statements

Kentucky First Federal Bancorp

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

	March 31,			June 30,
	2021			2020
	Unaudited
ASSETS

Cash and due from financial institutions	$	1,724		$	1,662
Fed funds sold		5,001			--
Interest-bearing demand deposits		8,042			12,040
Cash and cash equivalents		14,767			13,702

Time deposits in other financial institutions		247			2,229
Securities available-for-sale		33			541
Securities held-to-maturity, at amortized cost- approximate fair value of $508 and $611 at March 31, 2021 and June 30, 2020, respectively		491			598
Loans held for sale		1,261			667
Loans, net of allowance of $1,622 and $1,488 at March 31, 2021 and June 30, 2020, respectively		299,190			285,887
Real estate owned, net		141			640
Premises and equipment, net		4,766			4,916
Federal Home Loan Bank stock, at cost		6,498			6,498
Accrued interest receivable		727			830
Bank-owned life insurance		2,652			2,594
Goodwill		947			947
Prepaid federal income taxes		64			135
Prepaid expenses and other assets		848			952

Total assets	$	332,632		$	321,136

LIABILITIES AND SHAREHOLDERS’ EQUITY

Deposits	$	225,543		$	212,273
Federal Home Loan Bank advances		53,193			54,715
Advances by borrowers for taxes and insurance		560			800
Accrued interest payable		25			27
Deferred income taxes		725			837
Other liabilities		696			573
Total liabilities		280,742			269,225

Commitments and contingencies		–			–

Shareholders’ equity
Preferred stock, 500,000 shares authorized, $.01 par value; no shares issued and outstanding		–			–
Common stock, 20,000,000 shares authorized, $.01 par value; 8,596,064 shares issued		86			86
Additional paid-in capital		34,901			34,981
Retained earnings		20,020			19,932
Unearned employee stock ownership plan (ESOP), 14,924 shares and 28,931 shares at March 31, 2021 and June 30, 2020, respectively		(149	)		(289	)
Treasury shares at cost, 369,349 and 342,849 common shares at March 31, 2021 and June 30, 2020, respectively		(2,968	)		(2,801	)
Accumulated other comprehensive income		–			2
Total shareholders’ equity		51,890			51,911

Total liabilities and shareholders’ equity	$	332,632		$	321,136

See accompanying notes to condensed consolidated financial statements.

Kentucky First Federal Bancorp

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(Dollars in thousands, except per share data)

	Nine months ended March 31,						Three months ended March 31,
	2021			2020			2021		2020
Interest income
Loans, including fees	$	8,835		$	9,401		$	2,899	$	3,104
Mortgage-backed securities		11			17			3		6
Other securities		3			14			--		3
Interest-bearing deposits and other		122			364			38		92
Total interest income		8,971			9,796			2,940		3,205

Interest expense
Interest-bearing demand deposits		23			16			8		5
Savings		194			154			69		51
Certificates of Deposit		1,110			1,654			310		572
Deposits		1,327			1,824			387		628
Borrowings		333			927			105		254
Total interest expense		1,660			2,751			492		882
Net interest income		7,311			7,045			2,448		2,323
Provision for loan losses		192			64			--		--
Net interest income after provision for loan losses		7,119			6,981			2,448		2,323

Non-interest income
Earnings on bank-owned life insurance		58			58			19		20
Net gain on sales of loans		280			75			125		35
Net gain (loss) on sales of real estate owned		(18	)		6			--		(1	)
Valuation adjustment for real estate owned		(19	)		(36	)		--		(12	)
Other		132			130			38		39
Total non-interest income		433			233			182		81
Non-interest expense
Employee compensation and benefits		4,027			4,168			1,383		1,400
Occupancy and equipment		425			420			145		141
FDIC insurance premiums		129			--			41		--
Voice and data communications		80			128			23		28
Advertising		114			133			38		41
Outside service fees		139			137			43		43
Data processing		430			388			138		149
Auditing and accounting		119			151			40		52
Franchise and other taxes		130			194			--		65
Foreclosure and real estate owned expenses (net)		66			57			19		17
Other		472			540			149		170
Total non-interest expense		6,131			6,316			2,019		2,106

Income before income taxes		1,421			898			611		298

Federal income tax expense		293			176			138		58

NET INCOME	$	1,128		$	722		$	473	$	240

EARNINGS PER SHARE
Basic and diluted	$	0.14		$	0.09		$	0.06	$	0.03
DIVIDENDS PER SHARE	$	0.30		$	0.30		$	0.10	$	0.10

See accompanying notes to condensed consolidated financial statements.

Kentucky First Federal Bancorp

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In thousands)

	Nine months ended March 31,					Three months ended March 31,
	2021			2020		2021		2020
Net income	$	1,128		$	722	$	473	$	240

Other comprehensive gains (losses), net of tax:
Unrealized holding Gains (losses) on securities designated as available-for-sale, net of taxes of $(1), $0, $0 and $0 during the respective periods		(2	)		--		--		1
Comprehensive income	$	1,126		$	722	$	473	$	241

See accompanying notes to condensed consolidated financial statements.

Kentucky First Federal Bancorp

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

For the nine months ended

(Unaudited)

(Dollar amounts in thousands, except per share data)

March 31, 2021

	Common stock		Additional paid-in capital			Retained earnings			Unearned employee stock ownership plan (ESOP)			Treasury shares			Accumulated other comprehensive income (loss)			Total
Balance at June 30, 2020	$	86	$	34,981		$	19,932		$	(289	)	$	(2,801	)	$	2		$	51,911

Net income		–		–			1,128			–			–			–			1,128
Allocation of ESOP shares		–		(80	)		–			140			–			–			60
Acquisition of shares for Treasury		–		–			–			–			(167	)		–			(167	)
Other comprehensive loss		–		–			–			–			–			(2	)		(2	)
Cash dividends of $0.30 per common share		–		–			(1,040	)		–			–			–			(1,040	)

Balance at March 31, 2021	$	86	$	34,901		$	20,020		$	(149	)	$	(2,968	)	$	--		$	51,890

March 31, 2020

	Common stock		Additional paid-in capital			Retained earnings			Unearned employee stock ownership plan (ESOP)			Treasury shares			Accumulated other comprehensive income		Total
Balance at June 30, 2019	$	86	$	35,056		$	33,867		$	(476	)	$	(2,259	)	$	4	$	66,278

Net income		–		–			722			–			–			–		722
Allocation of ESOP shares		–		(58	)		–			140			–			–		82
Acquisition of shares for treasury		–		–			–			–			(475	)		–		(475	)
Other comprehensive loss		–		–			–			–			–			–		–
Cash dividends of $0.30 per common share		–		–			(1,038	)		–			–			–		(1,038	)

Balance at March 31, 2020	$	86	$	34,998		$	33,551		$	(336	)	$	(2,734	)	$	4	$	65,569

See accompanying notes to condensed consolidated financial statements.

Kentucky First Federal Bancorp

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

For the three months ended

(Unaudited)

(Dollar amounts in thousands, except per share data)

March 31, 2021

	Common stock		Additional paid-in capital			Retained earnings			Unearned employee stock ownership plan (ESOP)			Treasury shares			Accumulated other comprehensive income		Total
Balance at December 31, 2020	$	86	$	34,948		$	19,896		$	(196	)	$	(2,902	)	$	--	$	51,832

Net income		–		–			473			–			–			–		473
Allocation of ESOP shares		–		(47	)		–			47			–			–		--
Acquisition of shares for Treasury		–		–			–			–			(66	)		–		(66	)
Cash dividends of $0.10 per common share		–		–			(349	)		–			–			–		(349	)

Balance at March 31, 2021	$	86	$	34,901		$	20,020		$	(149	)	$	(2,968	)	$	–	$	51,890

March 31, 2020

	Common stock		Additional paid-in capital			Retained earnings			Unearned employee stock ownership plan (ESOP)			Treasury shares			Accumulated other comprehensive income		Total
Balance at December 31, 2019	$	86	$	35,011		$	33,663		$	(383	)	$	(2,571	)	$	3	$	65,809

Net income		–		–			240			–			–			–		240
Allocation of ESOP shares		–		(13	)		–			47			–			–		34
Acquisition of shares for treasury		–		–			–			–			(163	)		–		(163	)
Other comprehensive income		–		–			–			–			–			1		1
Cash dividends of $0.10 per common share		–		–			(352	)		–			–			–		(352	)

Balance at March 31, 2020	$	86	$	34,998		$	33,551		$	(336	)	$	(2,734	)	$	4	$	65,569

See accompanying notes to condensed consolidated financial statements.

Kentucky First Federal Bancorp

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

	Nine months ended March 31,
	2021			2020
Cash flows from operating activities:
Net income	$	1,128		$	722
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation		218			205
Accretion of purchased loan credit discount		(43	)		(83	)
Amortization of purchased loan premium		26			8
Amortization of deferred loan origination costs (fees)		(1	)		70
Amortization of premiums on investment securities		7			6
Net gain on sale of loans		(280	)		(75	)
Net (gain) loss on sale of real estate owned		18			(6	)
Valuation adjustments of real estate owned		19			36
ESOP compensation expense		60			82
Earnings on bank-owned life insurance		(58	)		(58	)
Provision for loan losses		192			64
Origination of loans held for sale		(6,468	)		(2,655	)
Proceeds from loans held for sale		6,154			2,170
Increase (decrease) in cash, due to changes in:
Accrued interest receivable		103			46
Prepaid expenses and other assets		104			135
Accrued interest payable		(2	)		5
Other liabilities		123			99
Income taxes		(41	)		180
Net cash provided by operating activities		1,259			951

Cash flows from investing activities:
Purchase of time deposits in other financial institutions		--			(2,500	)
Maturities of time deposits in other financial institutions		1,982			6,739
Securities maturities, prepayments and calls:
Held to maturity		100			144
Available for sale		506			500
Purchase of FHLB stock		--			(16	)
Loans originated for investment, net of principal collected		(13,767	)		2,062
Proceeds from sale of real estate owned		753			180
Additions to real estate owned		(1	)		(39	)
Additions to premises and equipment, net		(68	)		(156	)
Net cash provided by (used in) investing activities		(10,495	)		6,914

Cash flows from financing activities:
Net increase in deposits		13,270			12,719
Payments by borrowers for taxes and insurance, net		(240	)		(246	)
Proceeds from Federal Home Loan Bank advances		38,600			13,800
Repayments on Federal Home Loan Bank advances		(40,122	)		(25,461	)
Treasury stock purchased		(167	)		(475	)
Dividends paid on common stock		(1,040	)		(1,038	)
Net cash provided by (used in) financing activities		10,301			(701	)

Net increase in cash and cash equivalents		1,065			7,164

Beginning cash and cash equivalents		13,702			9,861

Ending cash and cash equivalents	$	14,767		$	17,025

See accompanying notes to condensed consolidated financial statements.

Kentucky First Federal Bancorp

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(Unaudited)

(In thousands)

	Nine months ended March 31,
	2021		2020
Supplemental disclosure of cash flow information:

Cash paid during the period for:

Federal income taxes	$	191	$	–

Interest on deposits and borrowings	$	1,662	$	2,746

Transfers of loans to real estate owned, net	$	327	$	304

Loans made on sale of real estate owned	$	37	$	95

See accompanying notes to condensed consolidated financial statements.

Kentucky First Federal Bancorp

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2021

(unaudited)

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

In December 2012, the Company acquired CKF Bancorp, Inc., a savings and loan holding company which operated three banking locations in Boyle and Garrard Counties in Kentucky. In accounting for the transaction, the assets and liabilities of CKF Bancorp were recorded on the books of First Federal of Kentucky in accordance with accounting standard ASC 805, Business Combinations.

1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements, which represent the condensed consolidated balance sheets and results of operations of the Company, were prepared in accordance with the instructions for Form 10-Q and, therefore, do not include information or footnotes necessary for a complete presentation of financial position, results of operations and cash flows in conformity with U.S. generally accepted accounting principles. However, in the opinion of management, all adjustments (consisting of only normal recurring adjustments) which are necessary for a fair presentation of the condensed consolidated financial statements have been included. The results of operations for the nine-month period ended March 31, 2021, are not necessarily indicative of the results which may be expected for an entire fiscal year. The condensed consolidated balance sheet as of June 30, 2020 has been derived from the audited consolidated balance sheet as of that date. Certain information and note disclosures normally included in the Company’s annual financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Form 10-K annual report for 2020 filed with the Securities and Exchange Commission.

Principles of Consolidation - The consolidated financial statements include the accounts of the Company, Frankfort First, and its wholly-owned banking subsidiaries, First Federal of Hazard and First Federal of Kentucky (collectively hereinafter “the Banks”). All intercompany transactions and balances have been eliminated in consolidation.

Kentucky First Federal Bancorp

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2021

(unaudited)

1. Basis of Presentation (continued)

New Accounting Standards

FASB ASC 326 - In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The final standard will change estimates for credit losses related to financial assets measured at amortized cost such as loans, held-to-maturity debt securities, and certain other contracts. For estimating credit losses, the FASB is replacing the incurred loss model with an expected loss model, which is referred to as the current expected credit loss (CECL) model. The Company will now use forward-looking information to enhance its credit loss estimates. The amendment requires enhanced disclosures to aid investors and other users of financial statements to better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of our portfolio. The largest impact to the Company will be on its allowance for loan and lease losses, although the ASU also amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The standard is effective for public companies for annual periods and interim periods within those annual periods beginning after December 15, 2019. However, the FASB has delayed the implementation of the ASU for smaller reporting companies until years beginning after December 15, 2022, or in the Company’s case the fiscal year beginning July 1, 2023. ASU 2016-13 will be applied through a cumulative effect adjustment to retained earnings (modified-retrospective approach), except for debt securities for which an other-than-temporary impairment had been recognized before the effective date. A prospective transition approach is required for these debt securities. We have formed a functional committee that is assessing our data and system needs and are evaluating the impact of adopting the new guidance. We expect to recognize a one-time cumulative effect adjustment to the allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective, but cannot yet determine the magnitude of any such one-time adjustment or the overall impact of the new guidance on the consolidated financial statements. However, the Company does expect ASU 2016-13 to add complexity and costs to its current credit loss evaluation process.

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

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

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

Kentucky First Federal Bancorp

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2021

(unaudited)

2. Earnings Per Share

Diluted earnings per share is computed taking into consideration common shares outstanding and dilutive potential common shares to be issued or released under the Company’s share-based compensation plans. The factors used in the basic and diluted earnings per share computations follow:

	Nine months ended March 31,				Three months ended March 31,
(in thousands)	2021		2020		2021		2020
Net income allocated to common shareholders, basic and diluted	$	1,128	$	722	$	473	$	240

	Nine months ended March 31,				Three months ended March 31,
	2021		2020		2021		2020
Weighted average common shares outstanding, basic and diluted		8,217,654		8,259,807		8,211,789		8,246,574

There were no stock option shares outstanding for the nine- or three-month periods ended March 31, 2021 and 2020.

3. Investment Securities

The following table summarizes the amortized cost and fair value of securities available-for-sale and securities held-to-maturity at March 31, 2021 and June 30, 2020, the corresponding amounts of gross unrealized gains recognized in accumulated other comprehensive income and gross unrecognized gains and losses:

	March 31, 2021
(in thousands)	Amortized cost		Gross unrealized/ unrecognized gains		Gross unrealized/ unrecognized losses		Estimated fair value
Available-for-sale Securities
Agency mortgage-backed: residential	$	33	$	–	$	–	$	33

Held-to-maturity Securities
Agency mortgage-backed: residential	$	491	$	20	$	3	$	508

	June 30, 2020
(in thousands)	Amortized cost		Gross unrealized/ unrecognized gains		Gross unrealized/ unrecognized losses		Estimated fair value
Available-for-sale Securities
Agency bonds	$	500	$	3	$	–	$	503
Agency mortgage-backed: residential		38		–		–		38
	$	538	$	3	$	–	$	541

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

Kentucky First Federal Bancorp

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2021

(unaudited)

3. Investment Securities (continued)

Our pledged securities (including overnight and time deposits in other financial institutions) totaled $1.8 million and $1.9 million at March 31, 2021 and June 30, 2020, respectively.

We evaluated securities in unrealized loss positions for evidence of other-than-temporary impairment, considering duration, severity, financial condition of the issuer, our intention to sell or requirement to sell. Those securities were agency mortgage-backed securities, which carry a very limited amount of risk. Also, we have no intention to sell nor feel that we will be compelled to sell such securities before maturity. Based on our evaluation, no impairment has been recognized through earnings.

4. Loans receivable

The composition of the loan portfolio was as follows:

	March 31,			June 30,
(in thousands)	2021			2020
Residential real estate
One- to four-family	$	222,878		$	222,489
Multi-family		19,773			12,373
Construction		5,959			4,045
Land		1,286			765
Farm		2,217			2,354
Nonresidential real estate		37,884			33,503
Commercial nonmortgage		2,082			2,214
Consumer and other:
Loans on deposits		1,126			1,245
Home equity		7,004			7,645
Automobile		75			67
Unsecured		528			675
		300,812			287,375
Allowance for loan losses		(1,622	)		(1,488	)
	$	299,190		$	285,887

Kentucky First Federal Bancorp

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2021

(unaudited)

4. Loans receivable (continued)

The following table presents the activity in the allowance for loan losses by portfolio segment for the nine months ended March 31, 2021:

(in thousands)	Beginning balance		Provision for loan losses			Loans charged off			Recoveries		Ending balance
Residential real estate:
One- to four-family	$	671	$	(3	)	$	(23	)	$	–	$	645
Multi-family		184		96			–			–		280
Construction		6		3			–			–		9
Land		1		1			–			–		2
Farm		4		--			–			–		4
Nonresidential real estate		405		61			–			–		466
Commercial nonmortgage		3		--			–			–		3
Consumer and other:
Loans on deposits		2		–			–			–		2
Home equity		11		37			(45	)		7		10
Automobile		–		–			–			–		–
Unsecured		1		(3	)		–			3		1
Unallocated		200		–			–			–		200
Totals	$	1,488	$	192		$	(68	)	$	10	$	1,622

The following table presents the activity in the allowance for loan losses by portfolio segment for the three months ended March 31, 2021:

(in thousands)	Beginning balance		Provision for loan losses			Loans charged off		Recoveries		Ending balance
Residential real estate:
One- to four-family	$	647	$	(2	)	$	--	$	–	$	645
Multi-family		277		3			–		–		280
Construction		6		3			–		–		9
Land		2		--			–		–		2
Farm		5		(1	)		–		–		4
Nonresidential real estate		469		(3	)		–		–		466
Commercial nonmortgage		2		1			–		–		3
Consumer and other:
Loans on deposits		2		--			–		–		2
Home equity		11		(1	)		–		–		10
Automobile		–		–			–		–		–
Unsecured		1		--			–		--		1
Unallocated		200		–			–		–		200
Totals	$	1,622	$	--		$	--	$	--	$	1,622

Kentucky First Federal Bancorp

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2021

(unaudited)

4. Loans receivable (continued)

The following table presents the activity in the allowance for loan losses by portfolio segment for the nine months ended March 31, 2020:

(in thousands)	Beginning balance		Provision for loan losses			Loans charged off			Recoveries		Ending balance
Residential real estate:
One- to four-family	$	685	$	59		$	(65	)	$	1	$	680
Multi-family		200		(31	)		–			–		169
Construction		6		1			–			–		7
Land		1		1			–			–		2
Farm		6		(2	)		–			–		4
Nonresidential real estate		336		32			–			–		368
Commercial nonmortgage		5		(2	)		–			–		3
Consumer and other:
Loans on deposits		3		(1	)		–			–		2
Home equity		14		(2	)		–			–		12
Automobile		–		8			(8	)		–		–
Unsecured		–		1			–			–		1
Unallocated		200		–			–			–		200
Totals	$	1,456	$	64		$	(73	)	$	1	$	1,448

The following table presents the activity in the allowance for loan losses by portfolio segment for the three months ended March 31, 2020:

(in thousands)	Beginning balance		Provision for loan losses			Loans charged off		Recoveries		Ending balance
Residential real estate:
One- to four-family	$	684	$	(5	)	$	–	$	1	$	680
Multi-family		172		(3	)		–		–		169
Construction		6		1			–		–		7
Land		2		--			–		–		2
Farm		4		--			–		–		4
Nonresidential real estate		361		7			–		–		368
Commercial nonmortgage		4		(1	)		–		–		3
Consumer and other:
Loans on deposits		2		–			–		–		2
Home equity		11		1			–		–		12
Automobile		–		--			--		–		–
Unsecured		1		--			–		–		1
Unallocated		200		–			–		–		200
Totals	$	1,447	$	--		$	--	$	1	$	1,448

Kentucky First Federal Bancorp

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2021

(unaudited)

4. Loans receivable (continued)

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio class and based on impairment method as of March 31, 2021. The recorded investment in loans excludes accrued interest receivable due to immateriality.

March 31, 2021:

(in thousands)	Loans individually evaluated		Loans acquired with deteriorated credit quality		Unpaid principal balance and recorded investment		Ending allowance attributed to loans		Unallocated allowance		Total allowance
Loans individually evaluated for impairment:
Residential real estate:
One- to four-family	$	3,903	$	667	$	4,570	$	–	$	–	$	–
Multi-family		652		–		652		–		–		–
Farm		290		–		290		–		–		–
Nonresidential real estate		636		–		636		–		–		–
Consumer:
Unsecured		17		--		17		--		--		--
		5,498		667		6,165		–		–		–

Loans collectively evaluated for impairment:
Residential real estate:
One- to four-family					$	218,308	$	645	$	–	$	645
Multi-family						19,121		280		–		280
Construction						5,959		9		–		9
Land						1,286		2		–		2
Farm						1,927		4		–		4
Nonresidential real estate						37,248		466		–		466
Commercial nonmortgage						2,082		3		–		3
Consumer:
Loans on deposits						1,126		2		–		2
Home equity						7,004		10		–		10
Automobile						75		–		–		–
Unsecured						511		1		–		1
Unallocated						–		–		200		200
						294,647		1,422		200		1,622
					$	300,812	$	1,422	$	200	$	1,622

Kentucky First Federal Bancorp

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2021

(unaudited)

4. Loans receivable (continued)

The following tables present the balance in the allowance for loan losses and the recorded investment in loans by portfolio class and based on impairment method as of June 30, 2020.

June 30, 2020:

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

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

Kentucky First Federal Bancorp

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2021

(unaudited)

4. Loans receivable (continued)

The following table presents interest income on loans individually evaluated for impairment by class of loans for the nine months ended March 31:

(in thousands)	Average Recorded Investment		Interest Income Recognized		Cash Basis Income Recognized		Average Recorded Investment		Interest Income Recognized		Cash Basis Income Recognized
	2021						2020
With no related allowance recorded:
One- to four-family	$	3,941	$	120	$	120	$	3,866	$	74	$	74
Multi-family		662		18		18		681		25		25
Construction		32		–		–		–		–		–
Farm		300		23		23		310		11		11
Nonresidential real estate		648		24		24		698		23		23
Consumer and other		9		--		--		--		--		--
Purchased credit-impaired loans		709		40		40		859		60		60
		6,301		225		225		6,413		193		193
With an allowance recorded:
One- to four-family		–		–		–		–		–		–
	$	6,301	$	225	$	225	$	6,413	$	193	$	193

The following table presents interest income on loans individually evaluated for impairment by class of loans for the three months ended March 31:

(in thousands)	Average Recorded Investment		Interest Income Recognized		Cash Basis Income Recognized		Average Recorded Investment		Interest Income Recognized		Cash Basis Income Recognized
	2021						2020
With no related allowance recorded:
Residential real estate:
One- to four-family	$	3,971	$	36	$	36	$	3,951	$	12	$	12
Multi-family		655		6		6		680		8		8
Farm		291		--		--		310		6		6
Nonresidential real estate		641		17		17		717		9		9
Consumer and other		9		--		--		--		--		--
Purchased credit-impaired loans		676		16		16		846		25		25
		6,243		75		75		6,503		60		60
With an allowance recorded:
One- to four-family		–		–		–		–		–		–
	$	6,243	$	75	$	75	$	6,503	$	60	$	60

Kentucky First Federal Bancorp

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2021

(unaudited)

4. Loans receivable (continued)

The following table presents the recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans as of March 31, 2021 and June 30, 2020:

	March 31, 2021				June 30, 2020
(in thousands)	Nonaccrual		Loans Past Due Over 90 Days Still Accruing		Nonaccrual		Loans Past Due Over 90 Days Still Accruing
Residential real estate:
One- to four-family residential real estate	$	4,339	$	248	$	4,458	$	1,135
Multifamily		652		–		671		–
Construction		--		–		63		–
Farm		290		–		309		–
Nonresidential real estate and land		636		–		660		–
Commercial and industrial		–		–		4		–
Consumer		22		19		95		–
	$	5,939	$	267	$	6,260	$	1,135

One- to four-family loans in process of foreclosure totaled $649,000 and $694,000 at March 31, 2021 and June 30, 2020, respectively.

Troubled Debt Restructurings:

A Troubled Debt Restructuring (“TDR”) is the situation where the Bank grants a concession to the borrower that the Banks would not otherwise have considered due to the borrower’s financial difficulties. All TDRs are considered “impaired.”

The provisions of the CARES Act included an election to not apply the guidance on accounting for troubled debt restructurings to loan modifications, such as extensions or deferrals, related to COVID-19 made between March 1, 2020 and the earlier of (i) March 31, 2021 or (ii) 60 days after the end of the COVID-19 national emergency. The relief can only be applied to modifications for borrowers that were not more than 30 days past due as of December 31, 2019. In December 2020, Congress amended the CARES Act through the Consolidated Appropriation Act of 2021, which provided additional COVID-19 relief to American families and businesses, including extending TDR relief under the CARES Act until the earlier of December 31, 2021 or 60 days following the termination of the national emergency. The Company elected to adopt these provisions of the CARES Act. As of March 31, 2021, the Banks had granted deferrals to 101 loans totaling $18.4 million. One borrower who owed $859,000 at March 31, 2021, had been granted an additional extension and returned to normal payment status in April 2021. All other borrowers granted a deferral, composed of 100 loans totaling $17.5 million in principal had resumed regular payments at March 31, 2021.

At March 31, 2021 and June 30, 2020, the Company had $1.9 million and $1.9 million of loans classified as TDRs, respectively. Of the TDRs at March 31, 2021, approximately 29.4% were related to the borrower’s completion of Chapter 7 bankruptcy proceedings with no reaffirmation of the debt to the Banks.

During the nine months ended March 31, 2021, the Company had two loans, which were associated with a single borrower and were both secured by a single-family residence, restructured as TDRs. The loans were classified as TDRs pursuant to court action under Chapter 7 bankruptcy proceedings without the borrower reaffirming the debt personally, and totaled $143,000 at March 31, 2021, and were current on payments as of that date.

Kentucky First Federal Bancorp

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2021

(unaudited)

4. Loans receivable (continued)

During the nine months ended March 31, 2020, the Company had three loans restructured as TDRs. One borrower refinanced a piece of one- to four-family, non-owner occupied, residential property to bring to current amounts owed on other loans with the Bank. Because the borrower’s financial condition had deteriorated, it was unlikely that the borrower could have secured financing elsewhere. The restructured loan is collateralized and cross-collateralized by real estate. Another single-family residential borrower filed for Chapter 7 bankruptcy protection and did not reaffirm the debt personally, although the Company’s collateral position remains intact. Finally, a first and second mortgage on an 8-plex were refinanced into a single loan with a slightly extended maturity term and a lower interest rate, which was consistent with similarly-priced comparable loans at the time of refinance.

The following table summarizes TDR loan modifications that occurred during the nine months ended March 31, 2021 and 2020, and their performance, by modification type:

(in thousands)	Troubled Debt Restructurings Performing to Modified Terms		Troubled Debt Restructurings Not Performing to Modified Terms		Total Troubled Debt Restructurings
Nine months ended March 31, 2021
Residential real estate:
Chapter 7 bankruptcy	$	143	$	–	$	143

Nine months ended March 31, 2020
Residential real estate:
Terms extended	$	677	$	–	$	677
Terms extended and additional funds advanced	$	119	$	–	$	119
Chapter 7 bankruptcy	$	21	$	–	$	21

No TDRs defaulted during the nine-month periods ended March 31, 2021 or 2020.

There were no TDR loan modifications that occurred during the three months ended March 31, 2021 and 2020.

Kentucky First Federal Bancorp

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2021

(unaudited)

4. Loans receivable (continued)

The following table presents the aging of the principal balance outstanding in past due loans as of March 31, 2021, by class of loans:

(in thousands)	30-89 Days Past Due		90 Days or Greater Past Due		Total Past Due		Loans Not Past Due		Total
Residential real estate:
One-to four-family	$	2,162	$	1,582	$	3,744	$	219,134	$	222,878
Multi-family		–		–		–		19,773		19,773
Construction		--		--		--		5,959		5,959
Land		–		–		–		1,286		1,286
Farm		102		–		102		2,115		2,217
Nonresidential real estate		99		245		344		37,540		37,884
Commercial non-mortgage		–		–		–		2,082		2,082
Consumer and other:
Loans on deposits		–		–		–		1,126		1,126
Home equity		176		19		195		6,809		7,004
Automobile		--		–		--		75		75
Unsecured		76		–		76		452		528
Total	$	2,615	$	1,846	$	4,461	$	296,351	$	300,812

The following tables present the aging of the principal balance outstanding in past due loans as of June 30, 2020, by class of loans:

(in thousands)	30-89 Days Past Due		90 Days or Greater Past Due		Total Past Due		Loans Not Past Due		Total
Residential real estate:
One-to four-family	$	2,546	$	2,670	$	5,216	$	217,273	$	222,489
Multi-family		–		–		–		12,373		12,373
Construction		192		63		255		3,790		4,045
Land		–		–		–		765		765
Farm		107		309		416		1,938		2,354
Nonresidential real estate		57		253		310		33,193		33,503
Commercial nonmortgage		–		–		–		2,214		2,214
Consumer:
Loans on deposits		–		–		–		1,245		1,245
Home equity		255		90		345		7,300		7,645
Automobile		–		–		–		67		67
Unsecured		–		–		–		675		675
Total	$	3,157	$	3,385	$	6,542	$	280,833	$	287,375

Kentucky First Federal Bancorp

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
March 31, 2021
(unaudited)

4. Loans receivable (continued)

Credit Quality Indicators:

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis is performed on an annual basis. The Company uses the following definitions for risk ratings:

Special Mention. Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.

Loans not meeting the criteria above that are analyzed individually as part of the above-described process are considered to be pass rated loans. Loans listed that are not rated are included in groups of homogeneous loans and are evaluated for credit quality based on performing status. See the aging of past due loan table above. As of March 31, 2021, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

(in thousands)	Pass		Special Mention		Substandard		Doubtful
Residential real estate:
One- to four-family	$	215,885	$	677	$	6,316	$	–
Multi-family		19,121		–		652		–
Construction		5,959		–		--		–
Land		1,286		–		–		–
Farm		1,927		–		290		–
Nonresidential real estate		35,861		931		1,092		–
Commercial nonmortgage		2,082		–		–		–
Consumer:
Loans on deposits		1,126		–		–		–
Home equity		6,929		40		35		–
Automobile		75		–		–		–
Unsecured		522		–		6		–
	$	290,773	$	1,648	$	8,391	$	–

Kentucky First Federal Bancorp

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
March 31, 2021
(unaudited)

4. Loans receivable (continued)

At June 30, 2020, the risk category of loans by class of loans was as follows:

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

Purchased Credit Impaired Loans:

The Company purchased loans during fiscal year 2013 for which there was, at acquisition, evidence of deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected. The carrying amount of those loans, net of a purchase credit discount of $351,000 and $351,000 at March 31, 2021 and June 30, 2020, respectively, is as follows:

(in thousands)	March 31, 2021		June 30, 2020
One- to four-family residential real estate	$	667	$	751

Kentucky First Federal Bancorp

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2021

(unaudited)

4. Loans receivable (continued)

Accretable yield, or income expected to be collected, is as follows:

(in thousands)	Nine months ended March 31, 2021			Twelve months ended June 30, 2020
Balance at beginning of period	$	447		$	544
Accretion of income		(43	)		(97	)
Disposals, net of recoveries		–			–
Balance at end of period	$	404		$	447

For those purchased loans disclosed above, the Company made no increase in allowance for loan losses for the year ended June 30, 2020, nor for the nine-month period ended March 31, 2021. Neither were any allowance for loan losses reversed during those periods.

5. Disclosures About Fair Value of Assets and Liabilities

ASC topic 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants (exit price) at the measurement date. ASC topic 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes six levels of inputs that may be used to measure fair value:

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in active markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Following is a description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy.

Securities

Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics. Level 2 securities include agency mortgage-backed securities and agency bonds.

Kentucky First Federal Bancorp

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2021

(unaudited)

5. Disclosures About Fair Value of Assets and Liabilities (continued)

Impaired Loans

At the time a loan is considered impaired, it is evaluated for loss based on the fair value of collateral securing the loan if the loan is collateral dependent. If a loss is identified, a specific allocation will be established as part of the allowance for loan losses such that the loan’s net carrying value is at its estimated fair value. Impaired loans carried at fair value generally receive specific allocations of the allowance for loan losses. For collateral-dependent loans, fair value is commonly based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification. Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

Other Real Estate

Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. Fair value is commonly based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.

Financial assets measured at fair value on a recurring basis are summarized below:

	Fair Value Measurements Using
(in thousands)	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
March 31, 2021
Agency mortgage-backed: residential	$	33	$	–	$	33	$	–

June 30, 2020
Agency bonds	$	503	$	–	$	503	$	–
Agency mortgage-backed: residential		38		–		38		–
	$	541	$	–	$	541	$	–

Kentucky First Federal Bancorp

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2021

(unaudited)

5. Disclosures About Fair Value of Assets and Liabilities (continued)

Assets measured at fair value on a non-recurring basis are summarized below:

Fair Value Measurements Using

(in thousands)

Fair Value

Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

June 30, 2020

Other real estate owned, net

One- to four-family

465

–

465

There were no impaired loans, which were measured using the fair value of the collateral for collateral-dependent loans, at March 31, 2021, or at June 30, 2020. Amounts charged off related to the resolution of impaired loans were $45,000 for the nine-month period ended March 31, 2021 and $9,000 off for the nine-month period ended March 31, 2020.

Other real estate owned (“OREO”) was written down $19,000 and $0 during the nine- and three-months ended March 31, 2020. One single-family residential property, which was held as OREO and was written down by $19,000 during the nine months ended March 31, 2021, was sold during the period. There was no OREO measured at fair value less costs to sell at March 31, 2021.

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

					Range
	Fair Value		Valuation	Unobservable	(Weighted
	(in thousands)		Technique(s)	Input(s)	Average)
Foreclosed and repossessed assets:
One- to four-family	$	465	Sales comparison approach	Adjustments for differences between comparable sales	-2.7% to 41.2% (20.4%)

Kentucky First Federal Bancorp

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2021

(unaudited)

5. Disclosures About Fair Value of Assets and Liabilities (continued)

The following is a disclosure of the fair value of financial instruments, both assets and liabilities, whether or not recognized in the consolidated balance sheet, for which it is practicable to estimate that value. For financial instruments where quoted market prices are not available, fair values are based on estimates using present value and other valuation methods.

The methods used are greatly affected by the assumptions applied, including the discount rate and estimates of future cash flows. Therefore, the fair values presented may not represent amounts that could be realized in an exchange for certain financial instruments.

Based on the foregoing methods and assumptions, the carrying value and fair value of the Company’s financial instruments at March 31, 2021 and June 30, 2020 are as follows:

			Fair Value Measurements at
	Carrying		March 31, 2021 Using
(in thousands)	Value		Level 1		Level 2		Level 3		Total
Financial assets
Cash and cash equivalents	$	14,767	$	14,767					$	14,767
Time deposits in other financial institutions		247		249						249
Available-for-sale securities		33			$	33				33
Held-to-maturity securities		491				508				508
Loans held for sale		1,261					$	1,310		1,310
Loans receivable - net		299,190						309,608		309,608
Federal Home Loan Bank stock		6,498								n/a
Accrued interest receivable		727				727				727

Financial liabilities
Deposits	$	225,543	$	101,627	$	124,445				226,072
Federal Home Loan Bank advances		53,193				53,692				53,692
Advances by borrowers for taxes and insurance		560				560				560
Accrued interest payable		25				25				25

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

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

Kentucky First Federal Bancorp

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2021

(unaudited)

6. Other Comprehensive Income (Loss)

The Company’s other comprehensive income is comprised solely of unrealized gains and losses on available-for-sale securities. The following is a summary of the accumulated other comprehensive income balances, net of tax:

	Nine months ended March 31, 2021
Beginning balance	$	2
Current year change		(2	)
Ending balance	$	–

Other comprehensive income (loss) components and related tax effects for the periods indicated were as follows:

	Nine months ended March 31,
(in thousands)	2021			2020
Unrealized holding gains (losses) on available-for-sale securities	$	(3	)	$	--
Tax effect		1			–
Net-of-tax amount	$	(2	)	$	--

	Three months ended March 31,
(in thousands)	2021		2020
Unrealized holding gains (losses) on available-for-sale securities	$	--	$	1
Tax effect		--		–
Net-of-tax amount	$	--	$	1

Kentucky First Federal Bancorp
ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

Forward-Looking Statements

Certain statements contained in this report that are not historical facts are forward-looking statements that are subject to certain risks and uncertainties. When used herein, the terms “anticipates,” “plans,” “expects,” “believes,” and similar expressions as they relate to Kentucky First Federal Bancorp or its management are intended to identify such forward-looking statements. Kentucky First Federal Bancorp’s actual results, performance or achievements may materially differ from those expressed or implied in the forward-looking statements. Risks and uncertainties that could cause or contribute to such material differences include, but are not limited to, general economic conditions, prices for real estate in the Company’s market areas, interest rate environment, competitive conditions in the financial services industry, changes in law, governmental policies and regulations, rapidly changing technology affecting financial services, the potential effects of the COVID-19 pandemic on the local and national economic environment, on our customers and on our operations (as well as any changes to federal, state and local government laws, regulations and orders in connection with the pandemic), and the other matters mentioned in Item 1A of the Company’s Annual Report on Form 10-K for the year ended June 30, 2020. Except as required by applicable law or regulation, the Company does not undertake the responsibility, and specifically disclaims any obligation, to release publicly the result of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of the statements or to reflect the occurrence of anticipated or unanticipated events.

Kentucky First Federal Bancorp
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)

Average Balance Sheets

The following table represents the average balance sheets for the nine month periods ended March 31, 2021 and 2020, along with the related calculations of tax-equivalent net interest income, net interest margin and net interest spread for the related periods.

	Nine Months Ended March 31,
	2021								2020
	Average Balance			Interest And Dividends		Yield/ Cost			Average Balance			Interest And Dividends		Yield/ Cost
	(Dollars in thousands)
Interest-earning assets:
Loans ¹	$	294,765		$	8,835		4.00	%	$	282,101		$	9,401		4.44	%
Mortgage-backed securities		586			11		2.50			727			17		3.12
Other securities		132			3		3.03			725			14		2.58
Other interest-earning assets		21,646			122		0.75			21,992			364		2.21
Total interest-earning assets		317,129			8,971		3.77			305,545			9,796		4.27

Less: Allowance for loan losses		(1,552	)							(1,445	)
Non-interest-earning assets		12,234								26,080
Total assets	$	327,811							$	330,180

Interest-bearing liabilities:
Demand deposits	$	17,871		$	23		0.17	%	$	13,982		$	16		0.15	%
Savings		62,674			194		0.41			50,331			154		0.41
Certificates of deposit		128,343			1,110		1.15			130,379			1,654		1.69
Total deposits		208,888			1,327		0.85			194,692			1,824		1.25
Borrowings		55,160			333		0.81			61,176			927		2.02
Total interest-bearing liabilities		264,048			1,660		0.84			255,868			2,751		1.43

Noninterest-bearing demand deposits		9,817								6,430
Noninterest-bearing liabilities		2,035								1,844
Total liabilities		275,900								264,142

Shareholders’ equity		51,911								66,038
Total liabilities and shareholders’ equity	$	327,811							$	330,180
Net interest spread				$	7,311		2.93	%				$	7,045		2.84	%
Net interest margin							3.07	%							3.07	%
Average interest-earning assets to average interest-bearing liabilities							120.10	%							119.42	%

¹	Includes loan fees, immaterial in amount, in both interest income and the calculation of yield on loans. Also includes loans on nonaccrual status.

Kentucky First Federal Bancorp
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)

Average Balance Sheets

The following table represents the average balance sheets for the three-month periods ended March 31, 2021 and 2020, along with the related calculations of tax-equivalent net interest income, net interest margin and net interest spread for the related periods.

	Three Months Ended March 31,
	2021								2020
	Average Balance			Interest And Dividends		Yield/ Cost			Average Balance			Interest And Dividends		Yield/ Cost
	(Dollars in thousands)
Interest-earning assets:
Loans ¹	$	298,828		$	2,899		3.88	%	$	281,881		$	3,104		4.41	%
Mortgage-backed securities		550			3		2.18			678			6		3.54
Other securities		--			--		--			504			3		2.38
Other interest-earning assets		22,270			38		0.68			22,573			92		1.63
Total interest-earning assets		321,648			2,940		3.66			305,636			3,205		4.20

Less: Allowance for loan losses		(1,622	)							(1,448	)
Non-interest-earning assets		11,619								26,009
Total assets	$	331,645							$	330,197

Interest-bearing liabilities:
Demand deposits	$	18,567		$	8		0.17	%	$	13,532		$	5		0.15	%
Savings		67,532			69		0.41			50,021			51		0.41
Certificates of deposit		123,975			310		1.00			134,874			572		1.70
Total deposits		210,074			387		0.74			198,427			628		1.27
Borrowings		56,998			105		0.74			57,304			254		1.77
Total interest-bearing liabilities		267,072			492		0.74			255,731			882		1.38

Noninterest-bearing demand deposits		11,181								7,068
Noninterest-bearing liabilities		1,586								1,586
Total liabilities		279,839								264,385

Shareholders’ equity		51,806								65,812
Total liabilities and shareholders’ equity	$	331,645							$	330,197
Net interest spread				$	2,448		2.92	%				$	2,323		2.82	%
Net interest margin							3.04	%							3.04	%
Average interest-earning assets to average interest-bearing liabilities							120.44	%							119.52	%

¹	Includes loan fees, immaterial in amount, in both interest income and the calculation of yield on loans. Also includes loans on nonaccrual status.

Kentucky First Federal Bancorp
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)

Discussion of Financial Condition Changes from June 30, 2020 to March 31, 2021

Risks and Uncertainties Related to COVID-19- In March 2020 the World Health Organization determined that the spread of a new coronavirus, COVID-19, had risen to such a level as to constitute a worldwide pandemic. The spread of this virus has created a global public health crisis. Uncertainty related to the effects of the virus have disrupted financial markets, activity in all aspects of life including governmental, business and consumer routines and the markets in which the Company operates. In response to the crisis governmental authorities closed or limited the operations of many non-essential businesses and required various responses from individuals including stay-at-home restrictions and social distancing. These governmental restrictions, along with a fear of contracting the virus, have resulted in severe reduction of commercial and consumer activity, which is resulting in loss of revenues by businesses, a dramatic spike in unemployment, material decreases in oil and gas prices and in business valuations, disrupted global supply chains and market volatility.

Management continues to monitor the general impact of COVID-19, as well as certain provisions of the Coronavirus Aid, Relief and Economic Security (“CARES”) Act, enacted on March 27, 2020, and other more recent legislative and regulatory relief efforts including the Consolidated Appropriations Act, 2021. Because the impact is contingent upon the duration and severity of the economic downturn, management cannot determine or estimate the magnitude of the impact at this time. While the pandemic has affected the physical operations of the Banks, the business has been mostly unchanged with consistent levels of consumer transactions and loan originations. The potential for a deterioration in asset quality remains, but actual asset quality has improved. Classified assets at March 31, 2021, totaled $8.5 million compared to $10.5 million at March 31, 2020. Management attributes some of this improved performance to the overall strengthening in the residential real estate market. Approximately 95% of the Company’s loans are secured by residential real estate.

Business Continuity, Processes and Controls

As a financial institution, the Banks are considered essential businesses and have remained open for business. We have implemented our pandemic preparedness plan and have maintained regular business hours except for closing for business on Fridays at 4:30 p.m. We continue to offer customer service through drive-thru facilities, automated teller machines, remote deposit capture and online and mobile banking applications. We are offering by-appointment options for transactions requiring in-person contact while maintaining social distancing mandates and surface cleaning protocols. Our staff is practicing recommended personal hygiene protocols and social distancing while working on premises. A small number of employees are working remotely. We do not face current material resource constraints through the implementation of our pandemic preparedness plan and do not anticipate incurring any material cost related to its implementation. We have not identified any material operational or internal control challenges or risks, nor do we anticipate any significant challenges to our ability to maintain our systems and controls, related to operational changes resulting from implementation of the pandemic preparedness plan.

Kentucky First Federal Bancorp
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)

Discussion of Financial Condition Changes from June 30, 2020 to March 31, 2021 (continued)

Financial Position and Results of Operations

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

At March 31, 2021 the Company and the Banks were considered well-capitalized with capital ratios in excess of regulatory requirements. However, an extended economic recession resulting from the COVID-19 pandemic could adversely impact the Company’s and the Banks’ capital position and regulatory capital ratios due to a potential increase in credit losses.

Lending Operations and Credit Risk

As noted herein the Company is working with its borrowers who are negatively impacted by COVID-19 by offering a payment deferral program. As of March 31, 2021, we had borrowers with 101 loans avail themselves of our payment deferral program with a total principal balance of $18.4 million in loans modified. One borrower with outstanding principal of $859,000 had been granted an additional extension and returned to regular paying status in April 2021. All other borrowers granted a deferral, composed of 100 loans totaling $17.5 million in principal had resumed regular payments.

The CARES Act and subsequent Consolidated Appropriations Act, 2021, includes a Paycheck Protection Program (“PPP”), which is administered by the Small Business Administration (“SBA”) and is designed to aid small- and medium-sized businesses through federally-guaranteed loans disbursed through banks. These loans are intended to provide eight weeks of payroll and other costs to assist those businesses to either remain open or to re-open quickly and allow their workers to pay their bills. First Federal of Kentucky qualified as an SBA lender to assist the small business community in securing this important funding. As of March 31, 2021, First Federal of Kentucky had approved and closed with the SBA 73 PPP loans representing $2.6 million in funding. Of those loans a total of 28 loans aggregating $1.2 million had been repaid at the end of the period. It is our understanding that loans funded through the PPP are fully guaranteed by the United States government. Should those circumstances change, the bank could be required to increase its allowance for loan and lease losses related to these loans resulting in an increase in the provision for loan and lease losses.

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

Kentucky First Federal Bancorp
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)

Discussion of Financial Condition Changes from June 30, 2020 to March 31, 2021 (continued)

Assets: At March 31, 2021, the Company’s assets totaled $332.6 million, an increase of $11.5 million, or 3.6%, from total assets at June 30, 2020. This increase was attributed primarily to an increase in loans, net.

Cash and cash equivalents: Cash and cash equivalents increased $1.1 million or 7.8% to $14.8 million at March 31, 2021. Most of the Company’s cash and cash equivalents are held in interest-bearing demand deposits.

Time deposits in other financial institutions: Time deposits in other financial institutions decreased by $2.0 million or 88.9% to $247,000 at March 31, 2021. As short-term time deposits matured the funds were used to repay FHLB advances, reinvested at the highest earning level possible or simply carried as interest-bearing demand deposits.

Investment securities: At March 31, 2021, our securities portfolio consisted of mortgage-backed securities. Investment securities decreased $615,000 or 54.0% to $524,000 at March 31, 2021.

Loans: Loans receivable, net, increased by $13.3 million or 4.7% to $299.2 million at March 31, 2021. Management continues to look for high-quality loans to add to its portfolio and will continue to emphasize loan originations to the extent that it is profitable, prudent and consistent with our interest rate risk strategies.

Non-Performing and Classified Loans: At March 31, 2021, the Company had non-performing loans (loans 90 or more days past due or on nonaccrual status) of approximately $6.2 million, or 2.1% of total loans (including acquired loans), compared to $7.4 million or 2.6%, of total loans at June 30, 2020. The Company’s allowance for loan losses totaled $1.6 million and $1.5 million at March 31, 2021 and June 30, 2020, respectively. The allowance for loan losses at March 31, 2021, represented 26.1% of nonperforming loans and 0.5% of total loans (including acquired loans), while at June 30, 2020, the allowance represented 20.1% of nonperforming loans and 0.5% of total loans.

The Company had $8.5 million in assets classified as substandard for regulatory purposes at March 31, 2021, including loans ($8.4 million), loans acquired in the CKF Bancorp transaction and real estate owned (“REO”) ($141,000.) Classified loans as a percentage of total loans (including loans acquired) was 2.8% and 3.1% at March 31, 2021 and June 30, 2020, respectively. Of substandard loans, 100.0% were secured by real estate on which the Banks have priority lien position.

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

(dollars in thousands)	March 31, 2021		June 30, 2020
Substandard assets	$	8,532	$	9,587
Doubtful assets		–		–
Loss assets		–		–
Total classified assets	$	8,532	$	9,587

At March 31, 2021, the Company’s real estate acquired through foreclosure represented 1.7% of substandard assets compared to 6.7% at June 30, 2020. During the periods presented the Company made one loan totaling $37,000 to facilitate the purchase of its other real estate owned by qualified buyers. Loans to facilitate the sale of other real estate owned, which were included in substandard loans, totaled $44,000 and $23,000 at March 31, 2021 and June 30, 2020, respectively.

Kentucky First Federal Bancorp
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)

Discussion of Financial Condition Changes from June 30, 2020 to March 31, 2021 (continued)

The following table presents the aggregate carrying value of REO at the dates indicated:

	March 31, 2021				June 30, 2020
	Number of Properties		Net Carrying Value		Number of Properties		Net Carrying Value
One- to four-family		3	$	141		5	$	640
Building lot		1		–		1		–
Total REO		4	$	141		6	$	640

At March 31, 2021 and June 30, 2020, the Company had $1.6 million and $1.7 million of loans classified as special mention, respectively (including loans acquired in the CKF Bancorp transaction on December 31, 2012). This category includes assets which do not currently expose us to a sufficient degree of risk to warrant classification, but do possess credit deficiencies or potential weaknesses deserving our close attention.

Liabilities: Total liabilities increased $11.5 million, or 4.3% to $280.7 million at March 31, 2021, primarily as a result of increases in deposits. Deposits increased $13.3 million or 6.3% to $225.5 million at March 31, 2021, while advances decreased $1.5 million or 2.8% to $53.2 million at March 31, 2021.

Shareholders’ Equity: At March 31, 2021, the Company’s shareholders’ equity totaled $51.9 million, a decrease of $21,000 or 0.0% from the June 30, 2020 total. The change in shareholders’ equity was primarily associated with common shares purchased by the Company to hold as treasury shares, and net profits for the period less dividends paid on common stock.

The Company paid dividends of $1.0 million or 92.2% of net income for the nine-month period just ended. On July 7, 2020, the members of First Federal MHC again approved a dividend waiver on annual dividends of up to $0.40 per share of Kentucky First Federal Bancorp common stock. The Board of Directors of First Federal MHC applied for approval of another waiver. The Federal Reserve Bank of Cleveland has notified the Company that it did not object to the waiver of dividends paid by the Company to First Federal MHC, and, as a result, First Federal MHC will be permitted to waive the receipt of dividends for quarterly dividends up to $0.10 per common share through the third calendar quarter of 2021. Management believes that the Company has sufficient capital to continue the current dividend policy without affecting the well-capitalized status of either subsidiary bank. Management cannot speculate on future dividend levels, because various factors, including capital levels, income levels, liquidity levels, regulatory requirements and overall financial condition of the Company are considered before dividends are declared. However, management continues to believe that a strong dividend is consistent with the Company’s long-term capital management strategy. See “Risk Factors” in Part II, Item 1A, of the Company’s Annual Report on Form 10-K for the year ended June 30, 2020 for additional discussion regarding dividends.

Kentucky First Federal Bancorp
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)

Comparison of Operating Results for the Nine-month Periods Ended March 31, 2021 and 2020

General

Net income totaled $1.1 million or $0.14 diluted earnings per share for the nine months ended March 31, 2021, an increase of $406,000 or 56.2% from net income of $722,000 or $0.09 diluted earnings per share for the same period in 2020. The increase in net income on a nine-month basis was primarily attributable to higher net interest income, higher non-interest income and lower non-interest expense, which were partially offset by increased provision for loan losses and increased provision for income tax.

Net Interest Income

Net interest income before provision for loan losses increased $266,000 or 3.8% to $7.3 million for the nine-month period just ended. Interest income decreased by $825,000, or 8.4%, to $9.0 million, while interest expense decreased $1.1 million or 39.7% to $1.7 million for the nine months ended March 31, 2021.

The decrease in interest income period-to-period was due primarily to a decrease in the average rate earned on interest-earning assets, as the average volume of interest-earning assets increased period-to-period. The average rate decreased 50 basis points to 3.77% for the recently-ended nine-month period compared to the prior year period, while the average balance of interest-earning assets increased $11.6 million or 3.8% to $317.1 million for the nine months ended March 31, 2021. Interest income on loans decreased $566,000 or 6.0% to $8.8 million, due primarily to a decrease in the average rate earned on the loan portfolio, which decreased 44 basis points to 4.00%, while the average balance increased $12.7 million or 4.5% to $294.8 million for the nine-month period ended March 31, 2021. Interest income from interest-bearing deposits and other decreased $242,000 or 66.5% to $122,000 for the nine months just ended due primarily to a decrease in the average rate earned, which decreased 146 basis points to 0.75% for the recently-ended period compared to the period a year ago.

The decrease in interest expense was due primarily to a decrease of 59 basis points on the average rate paid on funding sources, which totaled 0.84% for the nine months ended March 31, 2021. The Company’s interest-bearing liabilities have repriced quickly as we are able to take advantage of the low interest rate environment that currently exists. Interest expense on deposits decreased $497,000 or 27.2% to $1.3 million for the nine months ended March 31, 2021, while interest expense on borrowings decreased $594,000 or 64.1% to $333,000 for the same period. The decrease in interest expense on deposits was attributed primarily to a decrease in the average rate paid on interest-bearing deposits, which decreased 40 basis points to 0.85% for the recently ended period, while the average balance of interest-bearing deposits increased $14.2 million or 7.3% to $208.9 million for the most recent period. The decrease in interest expense on borrowings was attributed to both to a lower average rate paid on the borrowings and a lower average balance of borrowings period to period. The average balance of borrowings outstanding decreased $6.0 million or 9.8% to $55.2 million for the recently ended nine-month period, while the average rate paid on borrowings decreased 121 basis points to 0.81% for the most recent period.

Net interest spread increased from 2.84% for the prior year semiannual period to 2.93% for the nine-month period ended March 31, 2021.

Provision for Losses on Loans

Provision for loan losses increased $128,000 for the nine-month period ended March 31, 2021, and totaled $192,000 compared to $64,000 for the prior year semi-annual period. The higher provision was primarily in response to the higher level of loans maintained in the portfolio as well as increased levels of multi-family and commercial real estate loans, which carry somewhat more risk. While management continues to consider the potential impact of COVID-19 on asset quality, no adjustment to the allowance for loan losses has been made for that specific reason. Near the onset of the pandemic, the Company granted deferrals to borrowers representing $18.1 million in loans, but the overwhelming majority of those borrowers have resumed regular payments. Further, 95% of the Company’s loan portfolio is secured by residential real estate, which has performed well during the pandemic.

Kentucky First Federal Bancorp
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)

Comparison of Operating Results for the Nine-month Periods Ended March 31, 2021 and 2020 (continued)

Non-interest Income

Non-interest income increased $200,000 or 85.8% to $433,000 for the nine months ended March 31, 2021, compared to the prior year period, primarily because of an increase in net gains on sales of loans. Net gain on sales of loans increased $205,000 to $280,000 for the recently-ended nine-month period. In the current interest rate environment, many borrowers are choosing long-term, fixed rate loans, which the bank usually sells to the Federal Home Loan Bank of Cincinnati (“FHLB”). An increase in volume of these loans sold was responsible for the increase in gain on sale of loans.

Non-interest Expense

Non-interest expense decreased $185,000 or 2.9% and totaled $6.1 million for the nine months ended March 31, 2021, primarily due to cost-saving measures implemented by management.

Employee compensation and benefits decreased $141,000 or 3.4% to $4.0 million primarily due to lower employee compensation. The Banks were operating with fewer full-time equivalent employees in the nine-month period just ended compared to the prior year period. Also contributing to lower compensation cost was an increase in the number of loans originated in the recently-ended period compared to the prior year period. The Banks are required to defer a portion of the costs associated with loan originations and those costs are primarily related to personnel costs. Somewhat offsetting the decreases in other employee compensation and benefits expense was an increase in contributions to the Company’s Defined Benefit (“DB”) pension plan. DB pension contributions increased $38,000 or 5.5% to $720,000 for the nine-month period recently ended compared to the prior year period. Higher DB pension contributions were a result of higher administrative fees and Pension Benefit Guarantee Corporation premiums, as the Company’s DB plan was frozen effective April 1, 2019. Other non-interest expense decreased $68,000 or 12.6% to $472,000 for the nine months ended March 31, 2021, primarily due to lower general insurance expenses, discretionary employee and meeting expenses, regulatory assessments and general loan expenses. Franchise and other taxes decreased $64,000 or 33.0% and totaled $130,000 for the nine months ended March 31, 2021, as the Banks became subject to Kentucky corporate income tax on its earnings rather than being subject to the Kentucky Savings and Loan tax effective January 1, 2021. Voice and data communications expense decreased $48,000 or 37.5% to $80,000 for the nine-month period just ended as upgraded technology savings were realized.

Somewhat offsetting the decreases in various non-interest expense items were increases in FDIC insurance premiums and data processing expenses. FDIC insurance premiums increased to $129,000 for the nine months ended March 31, 2021. In the prior year semi-annual period the Banks were able to utilize their Small Bank Assessment Credits (“SBAC”). The SBAC were depleted in the quarterly period ended June 30, 2020. Data processing increased $42,000 or 10.8% to $430,000 for the period just ended as core processing costs increased and the Company expanded its technology infrastructure.

Income Tax Expense

Income tax expense increased $117,000 or 66.5% to $293,000 for the nine months ended March 31, 2021, compared to the prior year period. The effective tax rates for the nine-month periods ended March 31, 2021 and 2020, were 20.6% and 19.6%, respectively.

Kentucky First Federal Bancorp
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)

Comparison of Operating Results for the Three-month Periods Ended March 31, 2021 and 2020

General

Net income totaled $473,000 or $0.06 diluted earnings per share for the three months ended March 31, 2021, an increase of $233,000 or 97.1% from net income of $240,000 or $0.03 diluted earnings per share for the same period in 2020.

Net Interest Income

Net interest income before provision for loan losses increased $125,000 or 5.4% to $2.4 million for the three-month period just ended, as interest expense decreased at a faster pace than interest income decreased for the quarter just ended. Interest income decreased by $265,000, or 8.3%, to $2.9 million, while interest expense decreased $390,000 or 44.2% to $492,000 for the three months ended March 31, 2021.

Interest income on loans decreased $205,000 or 6.6% to $2.9 million, due primarily to a decrease in the average rate earned on the loan portfolio. The average rate earned on the loan portfolio decreased 53 basis points to 3.88%, while the average balance increased $16.9 million or 6.0% to $298.8 million for the three-month period ended March 31, 2021. Interest income from interest-bearing deposits and other decreased $54,000 or 58.7% to $38,000 for the three months just ended due to a decrease in the average rate earned, which decreased 95 basis points to 0.68% for the recently-ended period compared to the period a year ago.

Interest expense on deposits decreased $241,000 or 38.4% to $387,000 for the three months ended March 31, 2021, while interest expense on borrowings decreased $149,000 or 58.7% to $105,000 for the same period. The decrease in interest expense on deposits was attributed primarily to a decrease in the average rate paid on interest-bearing deposits, which decreased 53 basis points to 0.74% for the recently ended period, while the average balance of interest-bearing deposits increased $11.6 million or 5.9% to $210.1 million for the most recent period. The decrease in interest expense on borrowings was attributed to both to a lower average rate paid on the borrowings and a lower average balance of borrowings period to period. The average balance of borrowings outstanding decreased $306,000 or 0.5% to $57.0 million for the recently ended three-month period, while the average rate paid on borrowings decreased 103 basis points to 0.74% for the most recent period.

Net interest spread increased 10 basis points from 2.82% for the prior year quarterly period to 2.92% for the three-month period ended March 31, 2021.

Provision for Losses on Loans

There was no provision for loan losses for the three-month periods ended March 31, 2021 or 2020. The Company had recorded higher provision earlier in the fiscal year in response to the higher level of loans maintained in the portfolio as well as increased levels of multi-family and commercial real estate loans, which carry somewhat more risk.

Kentucky First Federal Bancorp
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)

Comparison of Operating Results for the Three-month Periods Ended March 31, 2021 and 2020 (continued)

Non-interest Income

Non-interest income increased $101,000 or 124.7% to $182,000 for the three months ended March 31, 2021, compared to the prior year period, primarily because of an increase in net gains on sales of loans. Net gain on sales of loans increased $90,000 to $125,000 for the recently-ended three-month period over the prior year amount. In the current interest rate environment, many borrowers are choosing long-term, fixed rate loans, which the Banks usually sell to the FHLB. An increase in volume of these loans sold was responsible for the increase in gain on sale of loans.

Non-interest Expense

Non-interest expense decreased $87,000 or 4.1% and totaled $2.0 million for the three months ended March 31, 2021, primarily due to cost-saving measures implemented by management.

Franchise and other taxes decreased $65,000 or 100.0% for the three months ended March 31, 2021, as the Banks became subject to Kentucky corporate income tax on its earnings rather than being subject to the Kentucky Savings and Loan tax effective January 1, 2021. Other non-interest expense decreased $21,000 or 12.4% to $149,000 for the three months ended March 31, 2021, primarily due to lower discretionary employee and meeting expenses, and expenses associated with management of the loan portfolio. Employee compensation and benefits decreased $17,000 or 1.2% to $1.4 million primarily due to lower employee and director compensation as well as higher deferred compensation cost attributed to an increase in the number of loans originated during the period. The Company’s DB pension contributions decreased $18,000 or 7.1% to $234,000 for the three-month period recently ended compared to the prior year period. Lower DB pension contributions for the quarter were a result of lower total costs than originally anticipated.

Somewhat offsetting the decreases in various non-interest expense items was an increase in FDIC insurance premiums, which totaled $41,000 for the three months ended March 31, 2021, compared to zero for the prior year period due to a lack of SBAC credits for the current period.

Income Tax Expense

Income tax expense increased $80,000 or 137.9% to $138,000 for the three months ended March 31, 2021, compared to the prior year period. As described herein, the Banks became subject to Kentucky corporate income tax on its earnings rather than being subject to the Kentucky Savings and Loan tax effective January 1, 2021. The effective tax rates for the three-month periods ended March 31, 2021 and 2020, were 22.6% and 19.5%, respectively.

Kentucky First Federal Bancorp

ITEM 3: Quantitative and Qualitative Disclosures About Market Risk

This item is not applicable as the Company is a smaller reporting company.

ITEM 4: Controls and Procedures

The Company’s Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined under Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report, and have concluded that the Company’s disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the Securities and Exchange Commission (the “SEC”) (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

Based upon their evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have also concluded that there were no significant changes during the quarter ended March 31, 2021 in the Company’s internal control over financial reporting or in other factors that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Kentucky First Federal Bancorp

PART II

ITEM 1. Legal Proceedings

None.

ITEM 1A. Risk Factors

There have been no material changes in the risk factors disclosed in Part I, “Item 1A- Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended June 30, 2020, as updated by the disclosure in Part II, Item 1A-Risk Factors of our Quarterly Report on Form 10-Q for the quarter ended December 31, 2021, which risk factors could materially affect our business, financial condition or future results. The risks described therein are not the only risks that we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

(c) The following table sets forth information regarding Company’s repurchases of its common stock during the quarter ended March 31, 2021.

Period	Total # of shares purchased		Average price paid per share (including commissions)		Total # of shares purchased as part of publicly announced plans or programs		Maximum # of shares that may yet be purchased under the plans or programs
January 1-31, 2021		–	$	–		–		150,000
February 1-28, 2021		10,000	$	6.65		10,000		140,000
March 1-31, 2021		--	$	--		--		140,000

(1)

On February 3, 2021, the Company announced that it had substantially completed its program initiated on December 19, 2018 to repurchase of up to 150,000 shares of its common stock and that it was initiating a new stock repurchase plan in which the Board of Directors authorized the purchase of up to 150,000 shares of its common stock.

ITEM 3. Defaults Upon Senior Securities

Not applicable.

ITEM 4. Mine Safety Disclosures.

Not applicable.

ITEM 5. Other Information

None.

ITEM 6. Exhibits

3.1¹		Charter of Kentucky First Federal Bancorp
3.2²		Bylaws of Kentucky First Federal Bancorp, as amended and restated
3.3³		Amendment No. 1 to the Bylaws of Kentucky First Federal Bancorp
3.4⁴		Amendment No. 2 to the Bylaws of Kentucky First Federal Bancorp
4.1¹		Specimen Stock Certificate of Kentucky First Federal Bancorp
31.1		CEO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		CFO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1		CEO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2		CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.0		The following materials from Kentucky First Federal Bancorp’s Quarterly Report On Form 10-Q for the quarter ended March 31, 2021 formatted in Extensible Business Reporting Language (XBRL): (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of Income; (iii) the Consolidated Statements of Comprehensive Income; (iv) the Consolidated Statements of Cash Flows: and (v) the related Notes.

(1)	Incorporated herein by reference to the Company’s Registration Statement on Form S-1 (File No. 333-119041).
(2)	Incorporated herein by reference to the Company’s Annual Report on Form 10-K for the Year Ended June 30, 2012 (File No. 0-51176).
(3)	Incorporated herein by reference to the Company’s Current Report on Form 8-K filed August 25, 2017 (File No. 0-51176).
(4)	Incorporated herein by reference to the Company’s Current Report on Form 8-K filed September 28, 2020 (File No. 0-51176).

Kentucky First Federal Bancorp

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		KENTUCKY FIRST FEDERAL BANCORP

Date:	May 17, 2021	By:	/s/ Don D. Jennings
			Don D. Jennings
			Chief Executive Officer

Date:	May 17, 2021	By:	/s/ R. Clay Hulette
			R. Clay Hulette
			Vice President and Chief Financial Officer