KENTUCKY FIRST FEDERAL BANCORP: MANAGEMENT REPORT AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS (Form 10-Q)

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, 2021. 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.



                                      27





                         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 six month
periods ended December 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.



                                                             Six Months Ended December 31,
                                                    2021                                       2020
                                                  Interest                                   Interest
                                    Average          And          Yield/       Average          And          Yield/
                                    Balance       Dividends        Cost        Balance       Dividends        Cost
                                                                (Dollars in thousands)
Interest-earning assets:
Loans 1                            $ 293,644     $     5,677         3.87 %   $ 292,778     $     5,936         4.06 %
Mortgage-backed securities               467               6         2.57           604               8         2.65
Other securities                           -               -            -           196               3         3.06
Other interest-earning assets         34,924              72         0.41        21,341              84         0.79
Total interest-earning assets        329,035           5,755         3.50       314,919           6,031         3.83
Less: Allowance for loan losses       (1,611 )                             
     (1,518 )
Non-interest-earning assets           12,254                                     12,555
Total assets                       $ 339,678                                  $ 325,956

Interest-bearing liabilities:
Demand deposits                    $  20,786     $        19         0.18 %   $  17,675     $        15         0.17 %
Savings                               71,762             135         0.38        60,298             125         0.42
Certificates of deposit              126,564             565         0.89       130,479             800         1.23
Total deposits                       219,112             719         0.66       208,452             940         0.90
Borrowings                            52,423             198         0.76        54,261             228         0.84
Total interest-bearing
liabilities                          271,535             917         0.68       262,713           1,168         0.89

Noninterest-bearing demand
deposits                              13,766                                      9,006
Noninterest-bearing liabilities        2,131                               
      2,247
Total liabilities                    287,432                                    273,966

Shareholders' equity                  52,246                                     51,990
Total liabilities and
shareholders' equity               $ 339,678                                  $ 325,956
Net interest spread                              $     4,838         2.82 %                 $     4,863         2.94 %
Net interest margin                                                  2.94 %                                     3.09 %
Average interest-earning assets
to average interest-bearing
liabilities                                                        121.18 %                                   119.87 %



1 Includes loan fees, of an insignificant amount, both in interest income and in

    calculation of yield on loans. Also includes loans on nonaccrual status.




                                      28





                         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 December 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 December 31,
                                                    2021                                       2020
                                                  Interest                                   Interest
                                    Average          And          Yield/       Average          And          Yield/
                                    Balance       Dividends        Cost        Balance       Dividends        Cost
                                                                (Dollars in thousands)
Interest-earning assets:
Loans 1                            $ 289,434     $     2,743         3.79 %   $ 296,294     $     2,960         4.00 %
Mortgage-backed securities               453               3         2.65           587               4         2.73
Other securities                           -               -            -             -               -            -
Other interest-earning assets         38,318              35         0.37        20,859              38         0.73
Total interest-earning assets        328,205           2,781         3.39       317,740           3,002         3.78
Less: Allowance for loan losses       (1,607 )                             
     (1,544 )
Non-interest-earning assets           12,549                                     12,579
Total assets                       $ 339,147                                  $ 328,775

Interest-bearing liabilities:
Demand deposits                    $  20,423     $        10         0.20 %   $  18,358     $         8         0.17 %
Savings                               73,086              67         0.37        63,112              66         0.42
Certificates of deposit              127,088             274         0.86       127,215             352         1.11
Total deposits                       220,597             351         0.64       208,685             426         0.82
Borrowings                            49,963              97         0.78        56,730             103         0.73
Total interest-bearing
liabilities                          270,560             448         0.66       265,415             529         0.80

Noninterest-bearing demand
deposits                              14,129                                      9,380
Noninterest-bearing liabilities        2,042                               
      2,158
Total liabilities                    286,731                                    276,953

Shareholders' equity                  52,416                                     51,822
Total liabilities and
shareholders' equity               $ 339,147                                  $ 328,775
Net interest spread                              $     2,333         2.73 %                 $     2,473         2.98 %
Net interest margin                                                  2.84 %                                     3.11 %
Average interest-earning assets
to average interest-bearing
liabilities                                                        121.31 %                                   119.71 %



1 Includes loan fees, of an insignificant amount, both in interest income and in

    calculation of yield on loans. Also includes loans on nonaccrual status.






                                      29





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


Discussion of changes in the financial situation of June 30, 2021 at December 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. 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 December 31, 2021 totaled $8.1 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



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



                                      30





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


Discussion of changes in the financial situation of June 30, 2021 at December 31, 2021 (continued)

Financial condition and results of operations

Bank regulators have issued guidance and are encouraging banks to work with
customers affected by COVID-19. Accordingly, we actively worked 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 continued to accrue to income While interest and fees,
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
December 31, 2021 all loans had returned to current status. The deferral program
did not have a material impact to the Company's financial condition and results
of operation.



At December 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. During the year
ended June 30, 2021, a total of $815,000 in loans were accepted into the
Company's loan payment deferral plan. At June 30, 2021 all of those loans had
reached the end of their three-month deferral periods and returned to regular
payment status.



The CARES Act includes a Paycheck Protection Program ("PPP"), which is
administered by the Small Business Administration ("SBA") and is designed to aid
small- and medium-sized businesses through federally-guaranteed loans disbursed
through banks. These loans are intended to provide eight weeks of payroll and
other costs to assist those businesses to either remain open or to re-open
quickly and allow their workers to pay their bills. First Federal of Kentucky
qualified as an SBA lender to assist the small business community in securing
this important funding. As of December 31, 2021, First Federal of Kentucky had
approved and closed with the SBA 75 PPP loans representing $2.6 million in
funding. Of those loans a total of 50 loans aggregating $2.2 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.



                                      31





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


Discussion of changes in the financial situation of June 30, 2021 at December 31, 2021 (continued)

Assets: To December 31, 2021the Company’s assets totaled $339.6 millionan augmentation of $1.5 millioni.e. 0.4%, of total assets at June 30, 2021. This increase is mainly attributable to an increase in cash and cash equivalents.



Cash and cash equivalents: Cash and cash equivalents increased $23.6 million or
109.2% to $45.3 million at December 31, 2021, and was primarily due to increased
deposits and loan repayments.



Investment securities: At December 31, 2021, our securities portfolio consisted
of mortgage-backed securities. Investment securities decreased $54,000 or 10.9%
to $441,000 at December 31, 2021.



Loans: Loans receivable, net, decreased by $21.2 million or 7.1% to $276.7
million at December 31, 2021. There are multiple reasons for the decline in loan
balances.  Some borrowers have decided to take advantage of high prices and sell
all or part of their real estate holdings. Some borrowers have sold their
properties due to age or death and some loans have been lost to competing
financial institutions who offered terms that our Banks did not believe were
prudent to match.


Non-Performing and Classified Loans: At December 31, 2021, the Company had
non-performing loans (loans 90 or more days past due or on nonaccrual status) of
approximately $6.4 million, or 2.3% of total loans (including acquired loans),
compared to $6.7 million or 2.2%, of total loans at June 30, 2021. The Company's
allowance for loan losses totaled $1.6 million at December 31, 2021 and June 30,
2021. The allowance for loan losses at December 31, 2021, represented 24.9% of
nonperforming loans and 0.6% of total loans (including acquired loans), while at
June 30, 2021, the allowance represented 24.4% of nonperforming loans and 0.5%
of total loans.



The Company had $8.1 million in assets classified as substandard for regulatory
purposes at December 31, 2021, including loans ($8.0 million) and real estate
owned ("REO") ($51,000.) Classified loans as a percentage of total loans
(including loans acquired) was 2.9% and 3.0% at December 31, 2021 and June 30,
2021, 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 classified assets for regulatory purposes as of the dates indicated:


                          December 31,       June 30,
(dollars in thousands)        2021             2021
Substandard assets        $       8,097     $    8,925
Doubtful assets                       -              -
Loss assets                           -              -
Total classified assets   $       8,097     $    8,925




At December 31, 2021, the Company's real estate acquired through foreclosure
represented 0.6% of substandard assets compared to 0.9% at June 30, 2021. During
the period presented the Company made one loan totaling $32,000 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 $43,000 at December 31, 2021 and June 30, 2021.

                                      32





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


Discussion of changes in the financial situation of June 30, 2021 at December 31, 2021 (continued)



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



                             December 31, 2021                   June 30, 2021
                         Number               Net           Number             Net
                           of               Carrying          of             Carrying
                       Properties            Value        Properties          Value
One- to four-family              1         $       51               2       $       82
Building lot                    --                  -               1                -
Total REO                        1         $       51               3       $       82




At December 31, 2021 and June 30, 2021, the Company had $1.5 million and $1.6
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 $1.1 million, or 0.4% to $286.9 million
at December 31, 2021, primarily as a result an increase in deposits. Deposits
increased $10.0 million or 4.4% to $236.8 million at December 31, 2021, while
advances decreased $8.1 million or 14.2% to $48.8 million.



Shareholders' Equity: At December 31, 2021, the Company's shareholders' equity
totaled $52.7 million, an increase of $363,000 or 0.7% from the June 30, 2021
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 $696,000 or 66.3% of net income for the six-month
period just ended. On July 8, 2021, 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
2022. 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, 2021 for
additional discussion regarding dividends.



                                      33





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


Comparison of results of operations for the six-month periods ended December 31, 2021 and 2020


General


Net income totaled $1.1 million or $0.13 diluted earnings per share for the six
months ended December 31, 2021, an increase of $395,000 or 60.3% from net income
of $655,000 or $0.08 diluted earnings per share for the same period in 2020. The
increase in net income on a six-month basis was primarily attributable to lower
non-interest expense, decreased provision for loan losses, and higher
non-interest income, which were partially offset by increased provision for
income tax and decreased net interest income.



Net Interest Income



Net interest income before provision for loan losses decreased $25,000 or 0.5%
to $4.8 million for the six-month period just ended. Interest income decreased
by $276,000, or 4.6%, to $5.8 million, while interest expense decreased $251,000
or 21.5% to $917,000 for the six months ended December 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, which decreased 33 basis
points to 3.50% for the recently-ended six-month period compared to the prior
year period. The average balance of interest-earning assets increased $14.1
million or 4.5% to $329.0 million for the six months ended December 31, 2021.



Interest income on loans decreased $259,000 or 4.4% to $5.7 million, due
primarily to a decrease in the average rate earned on the loan portfolio, which
decreased 19 basis points to 3.87%, while the average balance increased $866,000
or 0.3% to $293.6 million for the six-month period ended December 31, 2021.
Interest income from interest-bearing deposits and other decreased $12,000 or
14.3% to $72,000 for the six months just ended due to a decrease in the average
rate earned, which decreased 38 basis points to 0.41% for the recently-ended
period compared to the period a year ago.



Interest expense decreased $251,000 or 21.5% to $917,000 for the six months
ended December 31, 2021. The decrease in interest expense was due primarily to a
decrease in the average rate paid on funding sources, which decreased 21 basis
points and totaled 0.68% for the recently-ended period. Interest expense on
deposits decreased $221,000 or 23.5% to $719,000 for the six months just ended,
while the average balance of deposits increased $10.7 million or 5.1% to $219.1
million. Interest expense on certificates of deposit decreased $235,000 or 29.4%
to $565,000, for the six months just ended primarily due to a decrease in the
average cost, which decreased by 34 bps to 0.89%. Also contributing to the
overall decrease in interest expense was a decrease in interest expense on
borrowings, which decreased $30,000 or 13.2% to $198,000 for the period. The
decrease in interest expense on borrowings was attributed primarily to a lower
average rate paid on the borrowings, which decreased eight bps to 0.76% for the
recently-ended period. The average balance of borrowings outstanding decreased
$1.8 million or 3.4% to $52.4 million for the recently ended six-month period.



The net interest spread decreased from 2.94% for the semi-annual period of the previous year to 2.82% for the six-month period ended December 31, 2021.

Allowance for loan losses

The Company recorded no provision for loan losses for the six-month period ended
December 31, 2021, compared to a provision of $192,000 recorded for the prior
year period. The lower provision was primarily in response to decreases in total
loans during the period.



                                      34





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


Comparison of results of operations for the six-month periods ended December 31, 2021 and 2020 (continued)


Non-interest Income



Non-interest income increased $77,000 or 30.7% to $328,000 for the six months
ended December 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
$53,000 to $208,000 for the recently-ended six-month period. In the current
interest rate environment, many borrowers are choosing long-term, fixed rate
loans, which the Banks usually sell 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 $237,000 i.e. 5.8% and total $3.9 million for the six months ended December 31, 2021primarily due to a decrease in compensation and benefits expenses for the Company’s employees.



Employee compensation and benefits decreased $165,000 or 6.3% to $2.4 million
primarily due to a decrease in the required contribution to its defined benefit
("DB") pension plan for the current fiscal year. The Company's DB plan
administrator estimates contributions for the fiscal year ending June 30, 2022,
to be approximately $376,000, compared to $955,000 in contributions for the
fiscal year ended June 30, 2021. FDIC insurance decreased $62,000 or 70.5% to
$26,000 for the six months just ended, as premiums decreased. FDIC insurance
premiums increased in the prior year due primarily to a goodwill impairment
charge recognized at one of the Company's Banks in the three month period ended
June 30, 2020. Franchise and other taxes decreased $39,000 or 30.0% period to
period as the Banks became subject to Kentucky income taxes rather than the
Kentucky Savings & Loan Deposits tax effective January 1, 2021. Occupancy and
equipment expense decreased $20,000 or 6.2% to $301,000 for the six months ended
December 31, 2021, primarily due to lower general computer and software
expenses, depreciation expenses and utilities.



Income Tax Expense



Income tax expense increased $86,000 or 55.5% to $241,000 for the six months
ended December 31, 2021, compared to the prior year period. The effective tax
rates for the six-month periods ended December 31, 2021 and 2020, were 18.7% and
19.1%, respectively.



                                      35





                         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 December 31, 2021 and 2020


General



Net income totaled $482,000 or $0.06 diluted earnings per share for the three
months ended December 31, 2021, an increase of $112,000 or 30.3% from net income
of $370,000 or $0.04 diluted earnings per share for the same period in 2020. The
increase in net earnings for the quarter ended December 31, 2021 was primarily
attributable to lower non-interest expense, lower provision for loan losses, and
lower income taxes, which were partially offset by decreased net interest income
and decreased non-interest income.



Net Interest Income


Net interest income before provision for loan losses decreased $140,000 or 5.7%
to $2.3 million for the three-month period just ended, as interest income
decreased at a faster pace than interest expense decreased for the quarter.
Interest income decreased by $221,000, or 7.4%, to $2.8 million, while interest
expense decreased $81,000 or 15.3% to $448,000 for the three months ended
December 31, 2021.



Interest income on loans decreased $217,000 or 7.3% to $2.7 million, due
decreases in the average rate earned on the loan portfolio, as well a decrease
in the average balance. The average rate earned on the loan portfolio decreased
21 basis points to 3.79%, while the average balance decreased $6.8 million or
2.3% to $289.4 million for the three-month period ended December 31, 2021.



Interest expense on deposits decreased $75,000 or 17.6% to $351,000 for the
three months ended December 31, 2021, while interest expense on borrowings
decreased $6,000 or 5.8% to $97,000 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 18 basis points
to 0.64% for the recently ended period, while the average balance of
interest-bearing deposits increased $11.9 million or 5.7% to $220.6 million for
the most recent period. The decrease in interest expense on borrowings was
attributed primarily to a lower average balance of borrowings outstanding period
to period, which decreased $6.7 million or 11.9% to $50.0 million for the
recently ended three-month period.



The net interest spread increased by 25 basis points, from 2.98% for the quarter of the previous year to 2.73% for the three-month period ended December 31, 2021.

Allowance for loan losses



The Company recorded no provision for loan losses for the three-month period
ended December 31, 2021, compared to a provision of $108,000 recorded for the
prior year quarter. The lower provision was primarily in response to decreases
in total loans during the period.

                                      36





                         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 December 31, 2021 and 2020 (continued)


Non-interest Income


Non-interest income decreased $23,000 i.e. 18.7% to $100,000 for the recently ended quarter primarily due to lower net gains on the sale of loans. The decrease in net gains on loan sales is mainly explained by the lower volume of loans sold during the comparable period. The Company sells most of its long-term, fixed rate mortgages to Cincinnati Federal Home Loan Bankwhile retaining loan servicing rights.


Non-interest Expense



Non-interest expense decreased $135,000 or 6.7% to $1.9 million for the quarter
ended December 31, 2021, due primarily to a decrease to expenses relating to the
Company's employee compensation and benefits, which decreased $184,000 or 14.4%
and totaled $1.1 million for the recently-ended quarter. The decrease in
employee compensation and benefits was primarily due to a decrease in the
required contribution to the Company's defined benefit ("DB") pension plan for
the current fiscal year. The Company's DB plan administrator estimates
contributions for the fiscal year ending June 30, 2022, to be approximately
$376,000, compared to $955,000 in contributions for the fiscal year ended June
30, 2021. Somewhat offsetting the decrease in employee compensation and benefits
were increases in outside service fees and data processing. Outside service fees
increased $42,000 or 127.3% to $75,000 for the quarter just ended, while data
processing expenses increased $41,000 or 28.3% to $186,000.



Income Tax Expense



Income tax expense decreased $32,000 or 36.0% to $57,000 for the three months
ended December 31, 2021, compared to the prior year period. The effective tax
rates for the three-month periods ended December 31, 2021 and 2020 were 10.6%
and 19.4%, respectively.



                                      37





                         Kentucky First Federal Bancorp

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