Kentucky First Federal Bancorp

Kentucky First Federal Bancorp operates as a mid-tier holding company for two independent, community-oriented federal savings institutions, First Federal Savings and Loan Association of Hazard and First Federal Savings Bank of Kentucky, which are subject to examination and comprehensive regulation by the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation. The Banks operate in four market areas in Kentucky, with First Federal of Hazard serving Perry County and surrounding eastern Kentucky counties, and First Federal of Kentucky serving Franklin, Boyle, Garrard and surrounding counties. The local economy in First Federal of Hazard's market area has been distressed in recent years, with the unemployment rate in July 2026 at 6.9% ¹ compared to 5.1% ² in Kentucky and 4.1% ³ in the United States, while median household income in Perry County is $46,792 ⁴ versus $64,989 ⁵ in Kentucky and $82,091 ⁶ in the United States. The industry is highly competitive, with competition for deposits and loans coming from banks, credit unions, and other financial services companies, several of which are significantly larger with greater resources, and competition is expected to increase due to legislative, regulatory, and technological changes and consolidation trends.

The Company faces significant competition for deposits and loan origination. According to the FDIC, at June 30, 2026, First Federal of Hazard had a deposit market share of 6.1% ⁷ in Perry County, while its largest competitors, Hazard Bancorp (Peoples Bank & Trust Company of Hazard), Community Trust Bancorp, Inc. (Community Trust Bank), and 1st Trust Bank, Inc., had market shares of 43.3% ⁸, 26.4% ⁹, and 19.8% ¹⁰, respectively. First Federal of Kentucky had deposit market shares of 9.9% ¹¹, 6.5% ¹², and 10.9% ¹³ in Franklin, Boyle, and Garrard counties, respectively, with competitors including Boyle Bancorp, Inc. at 25.4% ¹⁴, Wesbanco Bank, Inc. at 15.2% ¹⁵, Community Trust Bancorp, Inc. at 8.3% ¹⁶, and Traditional Bank, Inc. at 7.0% ¹⁷. The Company competes on the basis of interest rates, loan fees, types of loans originated, customer service, and convenience, and First Federal of Kentucky believes it has developed strong relationships with businesses, real estate agents, builders, and the general public in its market area.

The Company generates revenue primarily through traditional banking activities: attracting deposits from the general public and using those funds to originate loans, primarily one- to four-family residential mortgage loans, as well as construction, multi-family, nonresidential, commercial non-mortgage, and consumer loans. Substantially all loans are made within the Banks' respective market areas. The Banks also earn income from selling fixed-rate loans with longer maturities to the Federal Home Loan Bank of Cincinnati, including fees charged on origination, interest spread premiums, and ongoing loan servicing fees, with $36.7 million ¹⁸ in loans being serviced for the FHLB-Cincinnati at June 30, 2026. Deposits, loan repayments and maturities, and sales and repayments of investment and mortgage-backed securities are the major sources of funds, supplemented by borrowings from the FHLB-Cincinnati and, since June 2023, brokered deposits, which totaled $29.6 million ¹⁹ at June 30, 2026.

The loan portfolio is concentrated in residential mortgage loans, which including construction and multi-family loans totaled $265.8 million ²⁰, or 82.6% ²¹, of the total loan portfolio at June 30, 2026. The Company offers a mix of adjustable-rate and fixed-rate mortgages with terms up to 30 years, with $244.7 million ²² in adjustable-rate residential mortgage loans, or 92.1% ²³ of the residential mortgage loan portfolio, indexed primarily to the MIRS Transition Index or the 1-Year Constant Maturity Treasury index. Construction loans totaled $11.8 million ²⁴, or 3.7% ²⁵, of the portfolio, with terms of one year or less and maximum loan-to-value ratios of 80% ²⁶. Multi-family loans totaled $14.0 million ²⁷, or 4.3% ²⁸, of the portfolio, and nonresidential real estate loans totaled $32.8 million ²⁹, or 10.2% ³⁰, of the portfolio, both generally with terms of 25 years or less and loan amounts not exceeding 80% ³¹ of appraised value. Commercial non-mortgage loans totaled $493,000 ³², or 0.2% ³³, of the portfolio, and consumer loans, including home equity lines of credit, loans secured by savings deposits, automobile loans, and unsecured loans, totaled $18.9 million ³⁴, or 5.9% ³⁵, of the portfolio, of which $17.8 million ³⁶ were home equity loans, $488,000 ³⁷ were loans secured by savings deposits, and $636,000 ³⁸ were automobile or unsecured loans.

The investment portfolio at June 30, 2026 consisted of mortgage-backed securities issued and guaranteed by Fannie Mae, Freddie Mac, and Ginnie Mae with stated final maturities of 30 years or less, and the Company held no equity position with Fannie Mae or Freddie Mac. First Federal of Kentucky owns several Bank Owned Life Insurance policies totaling $3.1 million ³⁹ at June 30, 2026, intended to offset future escalation of costs of non-salary employee benefit plans, with the income exempt from federal income taxes. The Company also maintains investments in Federal Home Loan Bank of Cincinnati stock, with First Federal of Hazard and First Federal of Kentucky holding $521,000 ⁴⁰ and $3.4 million ⁴¹, respectively, at June 30, 2026.

On August 13, 2024, First Federal of Kentucky entered into a formal written agreement with the OCC, which was terminated on February 19, 2026, when the OCC also lifted the individual minimum capital requirements imposed in connection with the Agreement, and First Federal of Kentucky is no longer considered to be in troubled condition. In January 2024, the Company announced that dividends to shareholders would be suspended indefinitely, and on July 28, 2026, the Board of Directors announced the resumption of the dividend and declared a cash dividend of $0.05 ⁴² per share payable on September 21, 2026. The Company had 57 full-time employees and two part-time employees at June 30, 2026, none of whom was represented by a collective bargaining unit.

At June 30, 2026, Kentucky First had total assets of $362.4 million ⁴³, deposits of $260.8 million ⁴⁴, and stockholders' equity of $50.3 million ⁴⁵. First Federal of Hazard had total assets of $81.3 million ⁴⁶, net loans of $73.1 million ⁴⁷, total mortgage-backed and other securities of $2.1 million ⁴⁸, deposits of $56.6 million ⁴⁹, and total capital of $18.2 million ⁵⁰. First Federal of Kentucky had total assets of $282.6 million ⁵¹, net loans of $247.4 million ⁵², total mortgage-backed and other securities of $8.9 million ⁵³, deposits of $207.8 million ⁵⁴, and total capital of $30.1 million ⁵⁵. Net interest income rose $2.8 million ⁵⁶ from June 30, 2025 to June 30, 2026 as a result of increased interest income and decreased interest expense, with the FOMC decreasing interest rates during the period.

The Company's strategy is to increase earnings, increase core deposits, reduce reliance on higher cost funding sources, and shift more of the loan portfolio towards higher-earning loans. The Company has attempted to shift direction from adjustable-rate loans secured by owner-occupied homes and is well-positioned to originate fixed-rate loans secured by owner-occupied homes for sale into the secondary market, which will free capital and liquidity for potential investment in higher-yielding types of assets. Due to demand in local markets, the Company has increased lending to borrowers who are building homes to sell, typically established borrowers building one or a few moderately-priced homes.

First Federal of Kentucky sells fixed-rate loans with longer maturities to the FHLB-Cincinnati, earning income through origination fees, interest spread premiums, and ongoing loan servicing fees, with servicing rights retained on such loans. At June 30, 2026, $36.7 million in loans were being serviced for the FHLB-Cincinnati. The Company also began utilizing brokered funds in June 2023 as an additional source of funding, with $29.6 million in such deposits at June 30, 2026.

The Company's net interest income rose $2.8 million from June 30, 2025 to June 30, 2026, driven by increased interest income and decreased interest expense, partly due to the FOMC decreasing interest rates. However, the FOMC has since increased their target and subsequently increased rates 25 basis points ⁵⁷ in September 2026, which may cause net interest income to decline in the short term as interest expense on liabilities increases more quickly than interest income on assets.

The Company's liquidity is supported by deposits, loan repayments and maturities, and sales and repayments of investment and mortgage-backed securities, supplemented by borrowings from the FHLB-Cincinnati and brokered deposits. The Banks are required to maintain an investment in FHLB-Cincinnati stock, the level of which is largely dependent on the level of borrowings from the FHLB.

The Company suspended dividends in January 2024, but on July 28, 2026, the Board of Directors announced the resumption of the dividend and declared a cash dividend of $0.05 per share payable on September 21, 2026. The Company's ability to pay future dividends is subject to the ability of First Federal of Hazard and First Federal of Kentucky to make capital distributions to Kentucky First and the waiver of dividends by First Federal MHC.

Rising interest rates may hurt profits and asset values, as net interest income may decline in the short term since interest expense on interest-bearing liabilities increases more quickly than interest income on interest-earning assets. Rising rates may also reduce demand for new loans and refinancings, and decreases in the fair value of securities available for sale could have an adverse effect on stockholders' equity, with accumulated other comprehensive loss totaling $129,000 ⁵⁸ or 1.2% ⁵⁹ of the securities portfolio at June 30, 2026.

The economy in First Federal of Hazard's market area has been distressed, with the local economy depending on the coal industry and other industries such as health care and manufacturing, and the economy continues to lag behind the economies of Kentucky and the United States. The unemployment rate in July 2026 was 6.9% in Perry County, compared to 5.1% in Kentucky and 4.1% in the United States, and median household income in Perry County is $46,792 versus $64,989 in Kentucky and $82,091 in the United States.

The Company faces significant interest rate risk, as rising interest rates may hurt profits and asset values, with net interest income potentially declining in the short term because interest expense on liabilities increases more quickly than interest income on assets, and the FOMC increased rates 25 basis points in September 2026. The local economy in First Federal of Hazard's market area is distressed, with an unemployment rate of 6.9% in July 2026 and median household income of $46,792 , which could increase credit losses. The Company's loan portfolio is concentrated in residential mortgage loans, with $244.7 million in adjustable-rate loans, and rising interest rates could increase default risk as borrower costs rise. The Company's ability to pay dividends is subject to the ability of the Banks to make capital distributions and the waiver of dividends by First Federal MHC, and the Company suspended dividends in January 2024 before resuming with a $0.05 per share dividend. The Company faces significant competition from larger financial institutions, with competitors having assets of $27.8 billion ⁶⁰ (Wesbanco), $6.9 billion ⁶¹ (Community Trust Bancorp), $2.4 billion ⁶² (Traditional Bank), and $1.0 billion ⁶³ (Boyle Bancorp), which could limit growth and profitability.

Management's message emphasizes the successful execution of a strategy to increase earnings, increase core deposits, reduce reliance on higher cost funding sources, and shift more of the loan portfolio towards higher-earning loans. The Company reported that net interest income rose $2.8 million from June 30, 2025 to June 30, 2026, driven by increased interest income and decreased interest expense, partly due to the FOMC decreasing interest rates. Management also highlighted the termination of the formal written agreement with the OCC on February 19, 2026, which lifted individual minimum capital requirements and removed the troubled condition designation, positioning First Federal of Kentucky as an eligible savings association. The Board of Directors announced the resumption of the dividend with a cash dividend of $0.05 per share payable on September 21, 2026, after suspending dividends indefinitely in January 2024.