Item 1A. Risk Factors.
Interest Rate Risk
Rising interest rates may hurt our profits
and asset values.
In response to the COVID-19 virus pandemic, the
Federal Reserve Board’s Open Market Committee (“FOMC”) decreased interest rates to near zero in March 2020. The low
interest rate environment remained in effect until March 2022. However, in light of elevated inflation and a strong labor market, the
FOMC commenced increasing the target range for the federal funds rate by implementing a 25 basis point increase to a range of 0.25% to
0.50% in March 2022, a 50 basis point increase to a range of 0.75% to 1.00% in May 2022, a 75 basis point increase to a range of 1.50%
to 1.75% in June 2022 and in July 2022, the FOMC implemented another 75 basis point increase to a range of 2.25% to 2.50%. At its September
2022 meeting the FOMC raised the overnight rate 75 basis points totaling an increase of 3.0% since March 2022 and announced that it would
continue to battle inflation with additional increases in interest rates in 2022 and 2023.
If interest rates continue to rise, our net interest
income may decline in the short term since, due to the generally shorter terms of interest-bearing liabilities, interest expense paid
on interest-bearing liabilities, increases more quickly than interest income earned on interest-earning assets, such as loans and investments.
In addition, rising interest rates may hurt our income because of reduced demand for new loans and refinancing loans may in turn result
in reduced interest and fee income earned on new loans and loan refinancings. While we believe that modest interest rate increases will
not significantly hurt our interest rate spread over the long term due to our high level of liquidity and the presence of a significant
amount of adjustable-rate mortgage loans in our loan portfolio, interest rate increases may initially reduce our interest rate spread
until such time as our loans and investments reprice to higher levels.
Changes in interest rates also affect the value
of our interest-earning assets, and in particular our securities portfolio. Generally, the value of fixed-rate securities fluctuates inversely
with changes in interest rates. Unrealized gains and losses on securities available for sale are reported as separate components of equity.
Decreases in the fair value of securities available for sale resulting from increases in interest rates therefore could have an adverse
effect on stockholders’ equity.
We offer fixed-rate and adjustable-rate mortgage
loans with terms of up to 30 years; however, across our loan portfolio, interest rates and payments adjust annually after a one-, three-,
five- or seven-year initial fixed period. At June 30, 2022, 88.4% of our residential real estate loan portfolio were adjustable-rate loans.
Changes in interest rates could have a negative impact on our results of operations by reducing the ability of borrowers to repay their
current loan obligations as interest rates rise, the borrower’s payments rise, increasing the potential for delinquencies and defaults.
Risks Related to the COVID-19 Pandemic and
Associated Economic Slowdown
The ongoing COVID-19 pandemic and measures
taken to limit its spread could adversely our business, financial condition, and results of operations.
The COVID-19 pandemic has negatively impacted
economic and commercial activity and financial markets, both globally and within the United States. Measures to contain the virus, such
as stay-at-home orders, travel restrictions, closure of non-essential businesses, occupancy limitations and social distancing requirements,
resulted in significant business and operational disruptions, including business closures, and mass layoffs and furloughs. Though most
restrictions have generally been lifted or eased and consumer and business spending and unemployment levels have improved significantly,
the economic recovery has been uneven, with industries such as travel, entertainment, hospitality and food service lagging, and, as of
June 30, 2022, many companies have not returned workers to their offices. Supply chain disruptions precipitated by the abrupt economic
slowdown have contributed to increased costs, lost revenue, and inflationary pressures for many segments of the economy. Further, a significant
number of workers left their jobs during the COVID-19 pandemic, leading to wage inflation in many industries as businesses attempt to
fill vacant positions.
17
The United States government has taken significant
steps to attempt to mitigate the economic effects of the pandemic. Congress appropriated approximately $4.7 trillion of fiscal stimulus
in response to the COVID-19 pandemic pursuant to the Coronavirus Aid, Relief, and Economic Security Act, the American Rescue Plan Act
and other supplemental legislation. In March 2020, the Federal Open Market Committee of the Federal Reserve reduced the target range for
the federal funds rate to between 0.0% and 0.25%, compared to the previous target of between 1.00% and 1.25%. The Federal Reserve also
took several actions to support financial markets, enable banks to continue to lend through the pandemic, and support businesses of all
sizes. Whether the economic stimulus will have a lasting positive effect or whether it will contribute to higher inflation or other economic
ill effects is unknown.
Several vaccines for COVID-19 have been developed
and widely distributed in the United States. However, it is unknown how effective they will be long-term or whether variants of the virus
will develop against which the vaccines are less effective.
The extent to which the COVID-19 pandemic will
ultimately affect our business is unknown and will depend, among other things, on the duration of the pandemic, the actions undertaken
by national, state and local governments and health officials to contain the virus or mitigate its effects, the safety and effectiveness
of the vaccines that have been developed and the extent to which they are accepted by the public, the development of effective therapies,
the permanence of operating conditions that developed during the pandemic, and how quickly and to what extent economic conditions improve
and normal business and operating conditions resume. The longer the pandemic persists, the more pronounced the ultimate effects are likely
to be.
The continuation of the COVID-19 pandemic and
the efforts to contain the virus, including effects of economic stimulus, and the exhaustion or expiration of stimulus benefits, could:
● reduce the demand for loans and other financial services;
● result in increases in loan delinquencies, problem assets, and foreclosures;
● reduce the availability and productivity of our employees;
● cause the value of our securities portfolio to decline; and
Any one or a combination of the above events could
have a material, adverse effect on our business, financial condition, and results of operations.
Risks Related to Our Lending Activities
Inflationary pressures and rising prices
may affect our results of operations and financial condition.
Inflation rose sharply at the end of 2021 and
has continued rising in 2022 at levels not seen for over 40 years. Inflationary pressures are currently expected to remain elevated throughout
2022. Inflation could lead to increased costs to our customers, making it more difficult for them to repay their loans or other obligations.
High interest rates may be needed to tame persistent inflationary price pressures, which could also push down asset prices and weaken
economic activity. A deterioration in economic conditions in the United States and our markets could result in an increase in loan delinquencies
and non-performing assets, decreases in loan collateral values and a decrease in demand for our products and services, all of which, in
turn, would adversely affect our business, financial condition and results of operations.
If our allowance for loan losses is not
sufficient to cover actual loan losses, our results of operations would be negatively affected.
In determining the amount of the allowance for
loan losses, we analyze our loss and delinquency experience by loan categories and we consider the effect of existing economic conditions.
In addition, we make various assumptions and judgments about the collectability of our loan portfolio, including the creditworthiness
of our borrowers and the value of the real estate and other assets serving as collateral for the repayment of many of our loans. If the
actual results are different from our estimates, or our analyses are incorrect, our allowance for loan losses may not be sufficient to
cover losses inherent in our loan portfolio, which would require additions to our allowance and would decrease our net income. Our emphasis
on loan growth and on increasing our portfolio, as well as any future credit deterioration, will require us to increase our allowance
further in the future. In addition, our banking regulators periodically review our allowance for loan losses and could require us to increase
our provision for loan losses. Any increase in our allowance for loan losses or loan charge-offs as required by regulatory authorities
may have a material adverse effect on our results of operations and financial condition.
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A large percentage of our loans are collateralized
by real estate and disruptions in the real estate market may result in losses and hurt our earnings.
Approximately 96.3% of our loan portfolio at June
30, 2022 was comprised of loans collateralized by real estate. Disruptions in the real estate market could significantly impair the value
of our collateral and our ability to sell the collateral upon foreclosure. The real estate collateral in each case provides an alternate
source of repayment in the event of default by the borrower and may deteriorate in value during the time the credit is extended. If real
estate values decline, it will become more likely that we would be required to increase our allowance for loan losses. If during a period
of reduced real estate values, we are required to liquidate the collateral securing a loan to satisfy the debt or to increase our allowance
for loan losses, it could materially reduce our profitability and adversely affect our financial condition.
Our concentration of residential mortgage
loans exposes us to increased lending risks.
At June 30, 2022, $216.4 million, or 78.4%, of
our loan portfolio was secured by one-to-four family real estate, all of which is located in the Commonwealth of Kentucky, and we intend
to continue this type of lending in the foreseeable future. One-to-four family residential mortgage lending is generally sensitive to
regional and local economic conditions that significantly impact the ability of borrowers to meet their loan payment obligations, making
loss levels difficult to predict. A decline in residential real estate values as a result of a downturn in the local housing markets or
in the markets in neighboring states in which we originate residential mortgage loans could reduce the value of the real estate collateral
securing these types of loans. Declines in real estate values could cause some of our residential mortgages to be inadequately collateralized,
which would expose us to a greater risk of loss if we seek to recover on defaulted loans by selling the real estate collateral.
The distressed economy in First Federal
of Hazard’s market area could hurt our profits and slow our growth.
Our banks operate in three distinct market areas.
First Federal of Hazard’s market area consists of Perry and surrounding counties in eastern Kentucky. The economy in this market
area has been distressed in recent years due to the decline in the coal industry on which the economy has been dependent. While the region
has seen improvement in the economy from the influx of other industries, such as health care and manufacturing, the competition provided
by new methods of extracting natural gas has recently hurt the coal industry. As a consequence, the economy in First Federal of Hazard’s
market area continues to lag behind the economies of Kentucky and the United States and First Federal of Hazard has experienced insufficient
loan demand in its market area. Moreover, the slow economy in First Federal of Hazard’s market area will limit our ability to grow
our asset base in that market.
Strong competition within our market areas
could hurt our profits and slow growth.
Although we consider ourselves competitive in
our market areas, we face intense competition both in making loans and attracting deposits. Price competition for loans and deposits might
result in our earning less on our loans and paying more on our deposits, which reduces net interest income. Some of the institutions with
which we compete have substantially greater resources than we have and may offer services that we do not provide. We expect competition
to increase in the future as a result of legislative, regulatory and technological changes and the continuing trend of consolidation in
the financial services industry. Our profitability will depend upon our continued ability to compete successfully in our market areas.
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Risks Related to Our Business and Industry
Generally
We expect that the implementation of a new
accounting standard could require us to increase our allowance for loan losses and may have a material adverse effect on our financial
condition and results of operations.
The Financial Accounting Standards Board (“FASB”)
has adopted a new accounting standard that will be effective for the Kentucky First, First Federal of Hazard and First Federal of Kentucky
for our fiscal year beginning July 1, 2023. This standard, referred to as Current Expected Credit Loss, or CECL, will require financial
institutions to determine periodic estimates of lifetime expected credit losses on loans, and provide for the expected credit losses as
allowances for loan losses. This will change the current method of providing allowances for loan losses that are probable, which we expect
could require us to increase our allowance for loan losses, and will likely greatly increase the data we would need to collect and review
to determine the appropriate level of the allowance for loan losses. Any increase in our allowance for loan losses, or expenses incurred
to determine the appropriate level of the allowance for loan losses, may have a material adverse effect on our financial condition and
results of operations.
Ineffective liquidity management could adversely
affect our financial results and condition.
Effective liquidity management is essential for
the operation of our business. We require sufficient liquidity to meet customer loan requests, customer deposit maturities/withdrawals,
payments on our debt obligations as they come due and other cash commitments under both normal operating conditions and other unpredictable
circumstances causing industry or general financial market stress. Our access to funding sources in amounts adequate to finance our activities
on terms that are acceptable to us could be impaired by factors that affect us specifically or the financial services industry or economy
generally. Factors that could detrimentally impact our access to liquidity sources include a downturn in the geographic markets in which
our loans and operations are concentrated or difficult credit markets. Our access to deposits may also be affected by the liquidity needs
of our depositors. In particular, a majority of our liabilities are checking accounts and other liquid deposits, which are payable on
demand or upon several days’ notice, while by comparison, a substantial majority of our assets are loans, which cannot be called
or sold in the same time frame. Although we have historically been able to replace maturing deposits and advances as necessary, we might
not be able to replace such funds in the future, especially if a large number of our depositors seek to withdraw their accounts, regardless
of the reason. A failure to maintain adequate liquidity could materially and adversely affect our business, results of operations or financial
condition.
We may be adversely affected by recent changes
in U.S. tax laws and regulations.
Changes in tax laws contained in the Tax Cuts
and Jobs Act, which was enacted in December 2017, include a number of provisions that will have an impact on the banking industry,
borrowers and the market for residential real estate. Included in this legislation were: (i) a lower limit on the deductibility of
mortgage interest on single-family residential mortgage loans, (ii) the elimination of interest deductions for home equity loans, (iii)
a limitation on the deductibility of business interest expense and (iv) a limitation on the deductibility of property taxes and state
and local income taxes.
The recent changes in the tax laws may have an
adverse effect on the market for, and valuation of, residential properties, and on the demand for such loans in the future, and could
make it harder for borrowers to make their loan payments. If home ownership becomes less attractive, demand for mortgage loans could decrease.
The value of the properties securing loans in our loan portfolio may be adversely impacted as a result of the changing economics of home
ownership, which could require an increase in our provision for loan losses, which would reduce our profitability and could materially
adversely affect our business, financial condition and results of operations.
Regulation of the financial services industry
is undergoing major changes, and we may be adversely affected by changes in laws and regulations.
We are subject to extensive government regulation,
supervision and examination. Such regulation, supervision and examination governs the activities in which we may engage, and is intended
primarily for the protection of the deposit insurance fund and our depositors.
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In 2010 and 2011, in response to the financial
crisis and recession that began in 2008, significant regulatory and legislative changes resulted in broad reform and increased regulation
affecting financial institutions. The Dodd-Frank Act has created a significant shift in the way financial institutions operate and has
restructured the regulation of depository institutions by merging the Office of Thrift Supervision, which previously regulated the Banks,
into the OCC, and assigning the regulation of savings and loan holding companies, including the Company and the MHC, to the Federal Reserve
Board. The Dodd-Frank Act also created the Consumer Financial Protection Bureau to administer consumer protection and fair lending laws,
a function that was formerly performed by the depository institution regulators. As required by the Dodd-Frank Act, the federal banking
regulators have proposed new consolidated capital requirements that will limit our ability to borrow at the holding company level and
invest the proceeds from such borrowings as capital in the Banks that could be leveraged to support additional growth. The Dodd-Frank
Act contains various other provisions designed to enhance the regulation of depository institutions and prevent the recurrence of a financial
crisis such as that which occurred in 2008 and 2009. The full impact of the Dodd-Frank Act on our business and operations may not be known
for years until final regulations implementing the legislation are adopted. The Dodd-Frank Act may have a material impact on our operations,
particularly through increased regulatory burden and compliance costs. Any future legislative changes could have a material impact on
our profitability, the value of assets held for investment or the value of collateral for loans. Future legislative changes could also
require changes to business practices and potentially expose us to additional costs, liabilities, enforcement action and reputational
risk. In addition to the enactment of the Dodd-Frank Act, the federal regulatory agencies recently have begun to take stronger supervisory
actions against financial institutions that have experienced increased loan losses and other weaknesses as a result of the recent economic
crisis. These actions include the entering into of written agreements and cease and desist orders that place certain limitations on their
operations. Federal banking regulators recently have also been using with more frequency their ability to impose individual minimal capital
requirements on banks, which requirements may be higher than those imposed under the Dodd-Frank Act or which would otherwise qualify the
bank as being “well capitalized” under the OCC’s prompt corrective action regulations. If we were to become subject
to a supervisory agreement or higher individual capital requirements, such action may have a negative impact on our ability to execute
our business plans, as well as our ability to grow, pay dividends, repurchase stock or engage in mergers and acquisitions and may result
in restrictions in our operations. See “Regulation and Supervision—Regulation of Federal Savings Associations—Capital
Requirements” for a discussion of regulatory capital requirements.
We may be subject to more stringent capital
requirements which could result in lower returns on equity, require the raising of additional capital, and limit our ability to pay dividends
or repurchase shares of our common stock.
In July 2013, the OCC and the Federal Reserve
Board approved a new rule that will substantially amend the regulatory risk-based capital rules applicable to First Federal of Hazard,
First Federal of Kentucky and Kentucky First. The final rule implements the “Basel III” regulatory capital reforms and changes
required by the Dodd-Frank Act. The final rule includes new minimum risk-based capital and leverage ratios, which became effective for
First Federal of Hazard, First Federal of Kentucky and Kentucky First on January 1, 2015, and refines the definition of what constitutes
“capital” for purposes of calculating these ratios. The new minimum capital requirements are: (i) a new common equity Tier
1 capital ratio of 4.5%; (ii) a Tier 1 to risk-based assets capital ratio of 6% (increased from 4%); (iii) a total capital ratio of 8%
(unchanged from current rules); and (iv) a Tier 1 leverage ratio of 4%. The final rule also establishes a “capital conservation”
buffer of 2.5%, and will result in the following minimum ratios: (i) a common equity Tier 1 capital ratio of 7%; (ii) a Tier 1 to risk-based
assets capital ratio of 8.5%; and (iii) a total capital ratio of 10.5%. The new capital conservation buffer requirement was phased in
beginning in January 2016 at 0.625% of risk-weighted assets and increased each year until fully implemented in January 2019. An institution
will be subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if its capital level
falls below the buffer amount. These limitations will establish a maximum percentage of eligible retained income that can be utilized
for such actions. As of June 30, 2022, the capital levels of First Federal of Hazard and First Federal of Kentucky exceed the required
capital amounts according to the Community Bank Leverage Ratio regulations and we believe they also meet the fully-phased in minimum capital
requirements. See Note K-Stockholders’ Equity and Regulatory Capital of Notes to Consolidated Financial Statements.
The application of more stringent capital requirements
for us could among other things, result in lower returns on equity, require the raising of additional capital, and result in regulatory
actions constraining us from paying dividends or repurchasing shares if we were unable to comply with such requirements. See “Regulation
and Supervision—Regulation of Federal Savings Associations—Capital Requirements.”
21
We are subject to certain risks in connection
with our use of technology.
Our security measures may not be sufficient to
mitigate the risk of a cyber attack. Communications and information systems are essential to the conduct of our business, as we use such
systems to manage our customer relationships, our general ledger and virtually all other aspects of our business. Our operations rely
on the secure processing, storage, and transmission of confidential and other information in our computer systems and networks. Although
we take protective measures and endeavor to modify them as circumstances warrant, the security of our computer systems, software, and
networks may be vulnerable to breaches, unauthorized access, misuse, computer viruses, or other malicious code and cyber attacks that
could have a security impact. If one or more of these events occur, this could jeopardize our or our customers’ confidential and
other information processed and stored in, and transmitted through, our computer systems and networks, or otherwise cause interruptions
or malfunctions in our operations or the operations of our customers or counterparties. We may be required to expend significant additional
resources to modify our protective measures or to investigate and remediate vulnerabilities or other exposures, and we may be subject
to litigation and financial losses that are either not insured against or not fully covered through any insurance maintained by us. We
could also suffer significant reputational damage.
Security breaches in our Internet banking activities
could further expose us to possible liability and damage our reputation. Any compromise of our security also could deter customers from
using our Internet banking services that involve the transmission of confidential information. We rely on standard Internet security systems
to provide the security and authentication necessary to effect secure transmission of data. These precautions may not protect our systems
from compromises or breaches of our security measures, which could result in significant legal liability and significant damage to our
reputation and our business.
Our security measures may not protect us
from systems failures or interruptions.
While we have established policies and procedures
to prevent or limit the impact of systems failures and interruptions, there can be no assurance that such events will not occur or that
they will be adequately addressed if they do. In addition, we outsource certain aspects of our data processing and other operational functions
to certain third-party providers. If our third-party providers encounter difficulties, or if we have difficulty in communicating with
them, our ability to adequately process and account for transactions could be affected, and our business operations could be adversely
impacted. Threats to information security also exist in the processing of customer information through various other vendors and their
personnel.
The occurrence of any failures or interruptions
may require us to identify alternative sources of such services, and we cannot assure you that we could negotiate terms that are as favorable
to us, or could obtain services with similar functionality as found in our existing systems without the need to expend substantial resources,
if at all. Further, the occurrence of any systems failure or interruption could damage our reputation and result in a loss of customers
and business, could subject us to additional regulatory scrutiny, or could expose us to legal liability. Any of these occurrences could
have a material adverse effect on our financial condition and results of operations.
We must keep pace with technological change
to remain competitive.
Financial products and services have become increasingly
technology-driven. Our ability to meet the needs of our customers competitively, and in a cost-efficient manner, is dependent on the ability
to keep pace with technological advances and to invest in new technology as it becomes available, as well as related essential personnel.
In addition, technology has lowered barriers to entry into the financial services market and made it possible for financial technology
companies and other non-bank entities to offer financial products and services traditionally provided by banks. The ability to keep pace
with technological change is important, and the failure to do so, due to cost, proficiency or otherwise, could have a material adverse
impact on our business and therefore on our financial condition and results of operations.
22
If we are required to impair our goodwill,
intangibles, or other long-lived assets, our financial condition and results of operations would be adversely affected.
Pursuant to Accounting Standards Codification
(“ASC”) 350, Intangibles - Goodwill and Other and ASC 360, Property, Plant and Equipment, we are required to perform an annual
impairment review of goodwill, intangibles and other long lived assets which could result in an impairment charge if it is determined
that the carrying value of the assets are in excess of the fair value. We perform the impairment test annually during our fourth fiscal
quarter. Goodwill, intangibles and other long lived assets are also tested more frequently if changes in circumstances or the occurrence
of events indicates that a potential impairment exists. When changes in circumstances, such as changes in the variables associated with
the judgments, assumptions and estimates made in assessing the appropriate fair value indicate the carrying amount of certain assets may
not be recoverable, the assets are evaluated for impairment. If actual operating results differ from these assumptions, it may result
in an asset impairment. As of June 30, 2020, management early adopted ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying
the Test for Goodwill Impairment, which simplifies the required method for estimating the fair value of the Company. Future write-downs
of intangibles and other long lived assets could affect certain of the financial covenants under our debt agreements, could restrict our
financial flexibility, and would impact our results of operations.
Risks Related to Our Holding Company Structure
First Federal MHC owns a majority of our
common stock and is able to exercise voting control over most matters put to a vote of stockholders, including preventing sale or merger
transactions you may like or a second-step conversion by First Federal MHC.
First Federal MHC owns a majority of our common
stock and, through its Board of Directors, is able to exercise voting control over most matters put to a vote of stockholders. As a federally
chartered mutual holding company, the board of directors of First Federal MHC must ensure that the interests of depositors of First Federal
of Hazard are represented and considered in matters put to a vote of stockholders of Kentucky First. Therefore, the votes cast by First
Federal MHC may not be in your personal best interests as a stockholder. For example, First Federal MHC may exercise its voting control
to prevent a sale or merger transaction in which stockholders could receive a premium for their shares, prevent a second-step conversion
transaction by First Federal MHC or defeat a stockholder nominee for election to the Board of Directors of Kentucky First Federal. However,
implementation of a stock-based incentive plan will require approval of Kentucky First Federal’s stockholders other than First Federal
MHC. Federal Reserve Board regulations would likely prevent an acquisition of Kentucky First other than by another mutual holding company
or a mutual institution.
Our ability to pay dividends is subject
to the ability of First Federal of Hazard and First Federal of Kentucky to make capital distributions to Kentucky First Federal and the
waiver of dividends by First Federal MHC.
Our long-term ability to pay dividends to our
stockholders is based primarily upon the ability of the Banks to make capital distributions to Kentucky First Federal, and also on the
availability of cash at the holding company level in the event earnings are not sufficient to pay dividends according to the cash dividend
payout policy. Under Office of the Comptroller of the Currency safe harbor regulations, the Banks may each distribute to Kentucky First
capital not exceeding net retained income for the current calendar year and the prior two calendar years. First Federal MHC owns a majority
of Kentucky First Federal’s outstanding stock. First Federal MHC has historically waived its right to dividends on the Kentucky
First common shares it owns, in which case the amount of dividends paid to public stockholders is significantly higher than it would be
if First Federal MHC accepted dividends. First Federal MHC is not required to waive dividends, but Kentucky First expects this practice
to continue, subject to member and regulatory approval annually. First Federal MHC is required to obtain a waiver from the Federal Reserve
Board allowing it to waive its right to dividends.
The Federal Reserve Board in 2011 issued regulations
that govern the activities of Kentucky First Federal and First Federal MHC and the regulations were implemented in the fourth quarter
of 2011. Under Section 239.8(d) of the Federal Reserve Board’s Regulation MM governing dividend waivers, a mutual holding company
may waive its right to dividends on shares of its subsidiary if the mutual holding company gives written notice of the waiver to the Federal
Reserve Board and the Federal Reserve Board does not object. For a company such as First Federal MHC that waived dividends prior to December
1, 2009, the Federal Reserve Board may not object to a dividend waiver if such waiver would not be detrimental to the safety and soundness
of the savings association subsidiary and the board of directors of the mutual holding company expressly determines that such dividend
waiver is consistent with the board’s fiduciary duties to the members of the mutual holding company.
To address concerns with respect to the conflict
of interest created by dividend waivers, Regulation MM requires the board of directors of the mutual holding company to adopt a resolution
that describes the conflict of interest that exists because of a director’s ownership of stock in the subsidiary declaring the dividends
and any actions the mutual holding company board have taken to eliminate the conflict of interest, such as the directors’ waiving
their right to receive dividends. Also, the resolution must contain an affirmation that a majority of the mutual members eligible to vote
have, within the 12 months prior to the declaration date of the dividend, voted to approve the waiver of dividends.
First Federal MHC has received Federal Reserve
Board approval to waive quarterly dividends totaling $0.40 per share annually beginning with the dividend paid on September 28, 2012 and
continuing through the dividend payable in the third quarter of 2023. It is expected that First Federal MHC will continue to waive future
dividends, except to the extent dividends are needed to fund First Federal MHC’s continuing operations, subject to the ability of
First Federal MHC to obtain regulatory approval of its requests to waive dividends and to its ability to obtain member approval of dividend
waivers.
23
We cannot predict whether members will continue
to approve annual dividend waiver requests or whether the Federal Reserve Board will grant future dividend waiver requests and, if granted,
there can be no assurance as to the conditions, if any, the Federal Reserve Board will place on future dividend waiver requests by grandfathered
mutual holding companies such as First Federal MHC. If First Federal MHC is unable to waive the receipt of dividends, our ability to pay
dividends to our stockholders may be substantially impaired and the amounts of any such dividends may be significantly reduced.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
We conduct our business through seven offices.
The following table sets forth certain information relating to our offices at June 30, 2022.
(Dollars in thousands)
The net book value of our investment in premises
and equipment was $4.6 million at June 30, 2022. See Note E of Notes to Consolidated Financial Statements.
Item 3. Legal Proceedings.
From time to time, we may be defendants in claims
and lawsuits against us, such as claims to enforce liens, condemnation proceedings on properties in which we hold security interests,
claims involving the making and servicing of real property loans and other issues incident to our business. We are not a party to any
pending legal proceedings that we believe could have a material adverse effect on our financial condition, results of operations or cash
flows.
Item 4. Mine Safety Disclosures.
Not applicable.
24
PART II
Item 5.Market for the
Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
(b) Not applicable.
April 2022 Beginning date: April 1 Ending date: April 30 — — — 131,500
25
Item 6. [Reserved].
Not applicable.
Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations.
The information contained in the section captioned
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Annual Report,
is incorporated herein by reference.
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk.
This item is not applicable, as the Company is
a smaller reporting company.
Item 8. Financial Statements and Supplementary
Data.
The Consolidated Financial Statements, Notes to
Consolidated Financial Statements, Report of Independent Registered Public Accounting Firm and Selected Financial Data, which are listed
under Item 15 herein, are included in the Annual Report and are incorporated herein by reference.
Item 9. Changes in and Disagreements With
Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
(a) Disclosure Controls and Procedures
The Company’s management, including the
Company’s principal executive officer and principal financial officer, have evaluated the effectiveness of the Company’s “disclosure
controls and procedures,” as such term is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended,
(the “Exchange Act”). Based upon their evaluation, the principal executive officer and principal financial officer concluded
that, as of the end of the period covered by this report, 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.
(b) Internal Control Over Financial Reporting
Parent Company of First Federal Savings and
Loan Association of Hazard and First Federal Savings Bank of Kentucky
26
MANAGEMENT’S ANNUAL REPORT ON INTERNAL
CONTROL
OVER FINANCIAL REPORTING
Management of Kentucky First Federal Bancorp (the
“Company”) is responsible for the preparation, integrity, and fair presentation of the consolidated financial statements included
in this annual report. The Company’s consolidated financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America and, as such, include some amounts that are based on the best estimates and judgments
of management.
The Company’s management is responsible
for establishing and maintaining adequate internal control over financial reporting. The internal control system is designed to provide
reasonable assurance to management and the Board of Directors regarding the reliability of the company’s financial reporting and
the preparation and presentation of financial statements for external reporting purposes in conformity with accounting principles generally
accepted in the United States of America, as well as to safeguard assets from unauthorized use or disposition. The system of internal
control over financial reporting is evaluated for effectiveness by management and tested for reliability through a program of internal
audit with actions taken to correct potential deficiencies as they are identified. Because of inherent limitations in any internal control
system, no matter how well designed, misstatements due to error or fraud may occur and not be detected, including the possibility of the
circumvention or overriding controls. Accordingly, even an effective internal control system can provide only reasonable assurance with
respect to financial statement preparation. Further, because of changes in conditions, internal control effectiveness may vary over time.
Management assessed the effectiveness of the company’s
internal control over financial reporting as of June 30, 2022, based upon criteria set forth in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission – 2013 (“COSO”).
Based on this assessment and on the forgoing criteria,
management has concluded that, as of June 30, 2022, the Company’s internal control over financial reporting is effective.
This annual report does not include an attestation
report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s
report was not subject to attestation by the Company’s registered public accounting firm pursuant to the exemption provided to issuers
that are not “large accelerated filers” or “accelerated filers” under the Dodd-Frank Wall Street Reform and Consumer
Protection Act.
/s/ Don D. Jennings /s/ R. Clay Hulette
Don D. Jennings R. Clay Hulette
Chief Executive Officer Vice President and Chief Financial Officer
27
(c) Changes to Internal Control Over Financial Reporting
There were no changes in our internal control
over financial reporting that occurred during the quarter ended June 30, 2022 that have materially affected, or are reasonably likely
to materially affect, our internal control over financial reporting.
Item 9B. Other Information.
Not applicable.
Item 9C. Disclosure Regarding Foreign Jurisdictions
that Prevent Inspections.
Not applicable.
28
PART III
Item 10. Directors, Executive Officers,
and Corporate Governance.
Directors
The information contained under the section captioned
“Item I – Election of Directors” in the Company’s definitive proxy statement for the Company’s 2022
Annual Meeting of Stockholders (the “Proxy Statement”) is incorporated herein by reference.
Executive Officers
The information regarding the Company’s
executive officers is incorporated herein by reference to “Item I – Election of Directors” in the Proxy Statement.
Corporate Governance
Information regarding the Company’s Audit
Committee and Audit Committee financial expert is incorporated herein by reference to the section captioned “Corporate Governance
and Board Matters – Committees of the Board of Directors – Audit Committee” in the Proxy Statement.
Compliance with Section 16(a) of the Exchange
Act
Information regarding compliance with Section
16(a) of the Exchange Act is incorporated by reference to section captioned “Other Information Relating to Directors and Executive
Officers – Section 16(a) Beneficial Ownership Reporting Compliance” in the Proxy Statement.
Disclosure of Code of Ethics
Kentucky First has adopted a Code of Ethics and
Business Conduct that applies to all of its directors, officers and employees. To obtain a copy of this document at no charge, please
write to Kentucky First Federal Bancorp, P.O. Box 535, Frankfort, Kentucky 40602-0535, or call toll-free (888) 818-3372 and ask for Investor
Relations.
Item 11. Executive Compensation.
The information contained under the section captioned
“Executive Compensation” in the Proxy Statement is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial
Owners and Management and Related Stockholder Matters.
29
Equity compensation plans approved by security holders — — —
Equity compensation plans not approved by security holders — — —
Total1 — — —
Item 13. Certain Relationships and Related
Transactions, and Director Independence.
Certain Relationships and Related Transactions
The information required by this item is incorporated
herein by reference to the section captioned “Other Information Relating to Directors and Executive Officers – Transactions
with Related Persons” in the Proxy Statement.
Corporate Governance
For information regarding director independence,
the section captioned, “Corporate Governance and Board Matters – Director Independence” is incorporated herein
by reference.
Item 14. Principal Accountant Fees and Services.
The information required by this item is incorporated
herein by reference to the section captioned “Audit Related Matters” in the Proxy Statement.
1 The Company currently has no equity-based compensation plans in place.
30
PART IV
Item 15. Exhibits and Financial Statement
Schedules.
(a) List of Documents Filed as Part of This Report
Consolidated Balance Sheets as of June 30, 2022 and 2021
Consolidated Statements of Income for the Years Ended June 30, 2022 and 2021
Consolidated Statements of Cash Flows for the Years Ended June 30, 2022 and 2021
Notes to Consolidated Financial Statements
No. Description
3.11 Charter of Kentucky First Federal Bancorp
3.22 Amended and Restated Bylaws of Kentucky First Federal Bancorp
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
3.55 Amendment No. 3 to the Bylaws of Kentucky First Federal Bancorp
4.11 Specimen Stock Certificate of Kentucky First Federal Bancorp
31
13 Annual Report to Stockholders for the Fiscal Year Ended June 30, 2022
21 Subsidiaries
31.1 Rule 13a-14(a) Certification of Chief Executive Officer
31.2 Rule 13a-14(a) Certification of Chief Financial Officer
† Management contract or compensation plan or arrangement.
Item 16. Form 10-K Summary.
Not applicable.
32
SIGNATURES
Pursuant to the requirements of Section 13 or
15(d) 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
September 28, 2022 By: /s/ Don D. Jennings
Don D. Jennings
Chief Executive Officer
Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
/s/ Don D. Jennings September 28, 2022
Don D. Jennings
Chief Executive Officer and Director
(Principal Executive Officer)
/s/ R. Clay Hulette September 28, 2022
R. Clay Hulette
Vice President, Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
/s/ Tony D. Whitaker September 28, 2022
Tony D. Whitaker
Chairman of the Board
/s/ Stephen G. Barker September 28, 2022
Stephen G. Barker
Director
/s/ Walter G. Ecton, Jr. September 28, 2022
Walter G. Ecton, Jr.
Director
/s/ Lou Ella Farler September 28, 2022
Lou Ella Farler
Director
/s/ William D. Gorman, Jr. September 28, 2022
William D. Gorman, Jr.
Director
/s/ David R. Harrod September 28, 2022
David R. Harrod
Director
/s/ William H. Johnson September 28, 2022
William H. Johnson
Director
33