UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C.  20549





FORM
10-Q


(Mark
One)


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





For the
quarterly period ended March
31,
2010





OR





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





For the
transition period from ____________ to _______________





Commission
File Number:0-51176





KENTUCKY FIRST FEDERAL
    BANCORP(Exact
      name of registrant as specified in its
charter)





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





479 Main Street, Hazard,
      Kentucky  41702(Address
      of principal executive offices)(Zip
Code)





(606) 436-3860(Registrant’s
      telephone number, including area
code)





(Former
      name, former address and former fiscal year, if changed since last
      report)





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months or such shorter period that the issuer was required to file
such reports and (2) has been subject to such filing requirements for the past
ninety days:  Yes xNo
 ̈





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files).  Yes  ̈    No
 ̈




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or smaller reporting
company.  See the definitions of “large accelerated filer,”
“accelerated filer,” and “smaller reporting company,” in Rule 12b-2 of the
Exchange Act.  (Check one):





Large accelerated filer  ̈
                      
                      Accelerated filer  ̈Non-accelerated filer  ̈
                      
                      Smaller Reporting Company x(Do not check if a smaller reporting company)





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act.)


Yes  ̈                             No
x




APPLICABLE
ONLY TO CORPORATE ISSUERS





Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date:  At May 14, 2010, the latest
practicable date, the Corporation had 7,840,534 shares of $.01 par value common
stock outstanding.








INDEX





PagePART
      I   -
                                      ITEM
      1
                                      FINANCIAL
      INFORMATIONConsolidated
      Balance Sheets
                                      3Consolidated
      Statements of Income
                                      4Consolidated
      Statements of Comprehensive Income
                                      5Consolidated
      Statements of Cash Flows
                                      6Notes
      to Consolidated Financial Statements
                                      8ITEM
      2
                                      Management’s
      Discussion and Analysis of
                                        Financial
      Condition and Results of Operations
                                      20ITEM
      3
                                      Quantitative
      and Qualitative Disclosures About Market Risk
                                      26ITEM
      4
                                      Controls
      and Procedures
                                      26PART
      II  - OTHER
      INFORMATION
                                      27SIGNATURES
                                      28




2


PART
I


ITEM 1:
Financial
Information


Kentucky
First Federal Bancorp





CONSOLIDATED
BALANCE SHEETS


(Unaudited)


(Dollars
in thousands, except per share data)





March 31,
                
                
                June 30,2010
                
                
                2009ASSETSCash
      and due from financial institutions
                
                $
                968
                
                
                $
                1,548Interest-bearing
      demand deposits
                
                
                2,438
                
                
                
                2,669Cash
      and cash equivalents
                
                
                3,406
                
                
                
                4,217Interest-bearing
      deposits
                
                
                100
                
                
                
                100Available-for-sale
      securities
                
                
                5,280
                
                
                
                5,451Held-to-maturity
      securities, at amortized cost- approximate fair value of $10,596 and
      $15,317 at March 31, 2010 and June 30, 2009, respectively
                
                
                10,158
                
                
                
                14,999Loans
      held for sale
                
                
                95
                
                
                
                230Loans
      receivable
                
                
                193,329
                
                
                
                189,609Allowance
      for loan losses
                
                
                (1,689
                )
                
                
                (678
                )Real
      estate acquired through foreclosure
                
                
                110
                
                
                
                109Office
      premises and equipment, net
                
                
                2,761
                
                
                
                2,844Federal
      Home Loan Bank stock
                
                
                5,641
                
                
                
                5,641Accrued
      interest receivable
                
                
                644
                
                
                
                750Bank-owned
      life insurance
                
                
                2,490
                
                
                
                2,428Goodwill
                
                
                14,507
                
                
                
                14,507Other
      intangible assets, net
                
                
                251
                
                
                
                349Prepaid
      federal income taxes
                
                
                298
                
                
                
                —Prepaid
      expenses and other assets
                
                
                974
                
                
                
                345Total
      assets
                
                $
                238,355
                
                
                $
                240,901LIABILITIES
      AND SHAREHOLDERS’ EQUITYDeposits
                
                $
                144,450
                
                
                $
                139,743Advances
      from the Federal Home Loan Bank
                
                
                33,663
                
                
                
                40,156Advances
      by borrowers for taxes and insurance
                
                
                163
                
                
                
                290Accrued
      interest payable
                
                
                164
                
                
                
                189Accrued
      federal income taxes
                
                
                —
                
                
                
                67Deferred
      federal income taxes
                
                
                1,384
                
                
                
                1,339Other
      liabilities
                
                
                606
                
                
                
                723Total
      liabilities
                
                
                180,430
                
                
                
                182,507Commitments
      and contingencies (Note 8)
                
                
                -
                
                
                
                -Shareholders’
      equityPreferred
      stock, 500,000 shares authorized, $.01 par value;  no shares
      issued
                
                
                -
                
                
                
                -Common
      stock, 20,000,000 shares authorized, $.01 par value; 8,596,064 shares
      issued and outstanding
                
                
                86
                
                
                
                86Additional
      paid-in capital
                
                
                36,568
                
                
                
                36,223Retained
      earnings
                
                
                31,223
                
                
                
                31,930Shares
      acquired by stock benefit plans
                
                
                (2,415
                )
                
                
                (2,557
                )Treasury
      shares at cost, 745,530 and 728,930 common shares at March 31, 2010 and
      June 30, 2009, respectively
                
                
                (7,560
                )
                
                
                (7,379
                )Accumulated
      other comprehensive income
                
                
                23
                
                
                
                91Total
      shareholders’ equity
                
                
                57,925
                
                
                
                58,394Total
      liabilities and shareholders’ equity
                
                $
                238,355
                
                
                $
                240,901





See
accompanying notes.





3


Kentucky
First Federal Bancorp





CONSOLIDATED
STATEMENTS OF INCOME


(Unaudited)


(Dollars
in thousands, except per share data)


Nine
      months ended
                  March
      31,
                
                
                Three
      months ended
                  March
      31,2010
                
                
                2009
                
                
                2010
                
                
                2009Interest
      incomeLoans
                
                $
                7,984
                
                
                $
                8,342
                
                
                $
                2,701
                
                
                $
                2,787Mortgage-backed
      securities
                
                
                367
                
                
                
                433
                
                
                
                115
                
                
                
                141Investment
      securities
                
                
                135
                
                
                
                202
                
                
                
                44
                
                
                
                67Interest-bearing
      deposits and other
                
                
                197
                
                
                
                271
                
                
                
                64
                
                
                
                64Total
      interest income
                
                
                8,683
                
                
                
                9,248
                
                
                
                2,924
                
                
                
                3,059Interest
      expenseDeposits
                
                
                2,656
                
                
                
                3,137
                
                
                
                814
                
                
                
                1,002Borrowings
                
                
                1,195
                
                
                
                1,350
                
                
                
                389
                
                
                
                428Total
      interest expense
                
                
                3,851
                
                
                
                4,487
                
                
                
                1,203
                
                
                
                1,430Net
      interest income
                
                
                4,832
                
                
                
                4,761
                
                
                
                1,721
                
                
                
                1,629Provision
      for losses on loans
                
                
                1,099
                
                
                
                15
                
                
                
                71
                
                
                
                -Net
      interest income after provision for losses on loans
                
                
                3,733
                
                
                
                4,746
                
                
                
                1,650
                
                
                
                1,629Non-interest
      incomeEarnings
      on bank-owned life insurance
                
                
                62
                
                
                
                69
                
                
                
                17
                
                
                
                22Gain
      on sale of loans
                
                
                96
                
                
                
                40
                
                
                
                37
                
                
                
                22Loss
      on sale of real estate acquired through foreclosure
                
                
                (27
                )
                
                
                -
                
                
                
                -
                
                
                
                -Other
      operating
                
                
                75
                
                
                
                66
                
                
                
                23
                
                
                
                17Total
      non-interest income
                
                
                206
                
                
                
                175
                
                
                
                77
                
                
                
                61Non-interest
      expenseEmployee
      compensation and benefits
                
                
                2,304
                
                
                
                2,155
                
                
                
                778
                
                
                
                737Occupancy
      and equipment
                
                
                247
                
                
                
                319
                
                
                
                102
                
                
                
                116Franchise
      taxes
                
                
                141
                
                
                
                132
                
                
                
                49
                
                
                
                41Data
      processing
                
                
                177
                
                
                
                123
                
                
                
                64
                
                
                
                42FDIC
      insurance premiums
                
                
                139
                
                
                
                18
                
                
                
                46
                
                
                
                6Amortization
      of intangible assets
                
                
                98
                
                
                
                98
                
                
                
                33
                
                
                
                33Other
      operating
                
                
                599
                
                
                
                617
                
                
                
                196
                
                
                
                195Total
      non-interest expense
                
                
                3,705
                
                
                
                3,462
                
                
                
                1,268
                
                
                
                1,170Income
      before income taxes
                
                
                234
                
                
                
                1,459
                
                
                
                459
                
                
                
                520Federal
      income tax expense (benefit)Current
                
                
                (1
                )
                
                
                487
                
                
                
                209
                
                
                
                552Deferred
                
                
                80
                
                
                
                (14
                )
                
                
                (52
                )
                
                
                (383
                )Total
      federal income tax expense
                
                
                79
                
                
                
                473
                
                
                
                157
                
                
                
                169NET
      INCOME
                
                $
                155
                
                
                $
                986
                
                
                $
                302
                
                
                $
                351EARNINGS
      PER SHAREBasic
                
                $
                0.02
                
                
                $
                0.13
                
                
                $
                0.04
                
                
                $
                0.05Diluted
                
                $
                0.02
                
                
                $
                0.13
                
                
                $
                0.04
                
                
                $
                0.05DIVIDENDS
      PER SHARE
                
                $
                0.30
                
                
                $
                0.30
                
                
                $
                0.10
                
                
                $
                0.10





See
accompanying notes.


4


Kentucky
First Federal Bancorp





CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME





(Unaudited)


(In
thousands)





Nine
      months ended
                  March
      31,
                
                
                Three
      months ended
                  March
      31,2010
                
                
                2009
                
                
                2010
                
                
                2009Net
      income
                
                $
                155
                
                
                $
                986
                
                
                $
                302
                
                
                $
                351Other
      comprehensive income (loss), net of taxes (benefits):Unrealized
      holding gains (losses) on securities designated as available for sale, net
      of taxes (benefits) of $(35), $38, $(13) and $5 during the
      respective periods
                
                
                (68
                )
                
                
                73
                
                
                
                (25
                )
                
                
                (9
                )Comprehensive
      income
                
                $
                87
                
                
                $
                1,059
                
                
                $
                277
                
                
                $
                342





See
accompanying notes.


5


Kentucky
First Federal Bancorp





CONSOLIDATED
STATEMENTS OF CASH FLOWS





(Unaudited)


(In
thousands)


Nine months endedMarch 31,2010
                    
                    
                    2009Cash
      flows from operating activities:Net
      income for the period
                    
                    $
                    155
                    
                    
                    $
                    986Adjustments
      to reconcile net earnings to net cash provided by operating
      activities:Amortization
      of discounts and premiums on loans,investments
      and mortgage-backed securities – net
                    
                    
                    —
                    
                    
                    
                    4Amortization
      of deferred loan origination fees
                    
                    
                    (23
                    )
                    
                    
                    12Amortization
      of premiums on FHLB advances
                    
                    
                    (314
                    )
                    
                    
                    (377
                    )Amortization
      of core deposit intangibles
                    
                    
                    98
                    
                    
                    
                    98Depreciation
      and amortization
                    
                    
                    131
                    
                    
                    
                    131Amortization
      of stock benefit plans
                    
                    
                    467
                    
                    
                    
                    425Provision
      for losses on loans
                    
                    
                    1,099
                    
                    
                    
                    15Federal
      Home Loan Bank stock dividends
                    
                    
                    —
                    
                    
                    
                    (75
                    )Bank-owned
      life insurance earnings
                    
                    
                    (62
                    )
                    
                    
                    (69
                    )Mortgage
      loans originated for sale
                    
                    
                    (3,434
                    )
                    
                    
                    (3,512
                    )Proceeds
      from sale of mortgage loans
                    
                    
                    3,665
                    
                    
                    
                    3,638Gain
      on sale of loans
                    
                    
                    (96
                    )
                    
                    
                    (40
                    )Loss
      on sale of real estate acquired through foreclosure
                    
                    
                    27
                    
                    
                    
                    —Increase
      (decrease) in cash, due to changes in:Accrued
      interest receivable
                    
                    
                    106
                    
                    
                    
                    (45
                    )Prepaid
      expenses and other assets
                    
                    
                    (629
                    )
                    
                    
                    (7
                    )Accrued
      interest payable
                    
                    
                    (25
                    )
                    
                    
                    (23
                    )Other
      liabilities
                    
                    
                    (97
                    )
                    
                    
                    87Federal
      income taxesCurrent
                    
                    
                    (365
                    )
                    
                    
                    127Deferred
                    
                    
                    80
                    
                    
                    
                    (14
                    )Net
      cash provided by operating activities
                    
                    
                    783
                    
                    
                    
                    1,361Cash
      flows provided by (used in) investing activities:Investment
      securities maturities, prepayments and calls:Held
      to maturity
                    
                    
                    4,841
                    
                    
                    
                    1,473Available
      for sale
                    
                    
                    68
                    
                    
                    
                    83Proceeds
      from sale of real estate acquired through foreclosure
                    
                    
                    223
                    
                    
                    
                    8Loans
      originated for investment, net of principal collected
                    
                    
                    (4,036
                    )
                    
                    
                    (6,119
                    )Purchase
      of office equipment
                    
                    
                    (48
                    )
                    
                    
                    (288
                    )Net
      cash provided by (used in)  investing activities
                    
                    
                    1,048
                    
                    
                    
                    (4,843
                    )Cash
      flows provided by (used in) financing activities:Net
      increase in deposit accounts
                    
                    
                    4,707
                    
                    
                    
                    794Proceeds
      from Federal Home Loan Bank advances
                    
                    
                    9,500
                    
                    
                    
                    17,800Repayment
      of Federal Home Loan Bank advances
                    
                    
                    (15,679
                    )
                    
                    
                    (24,927
                    )Advances
      by borrowers for taxes and insurance
                    
                    
                    (127
                    )
                    
                    
                    (112
                    )Dividends
      paid on common stock
                    
                    
                    (862
                    )
                    
                    
                    (885
                    )Treasury
      stock repurchases, net of options exercised
                    
                    
                    (181
                    )
                    
                    
                    (1,626
                    )Net
      cash used in financing activities
                    
                    
                    (2,642
                    )
                    
                    
                    (8,956
                    )Net
      decrease in cash and cash equivalents
                    
                    
                    (811
                    )
                    
                    
                    (12,438
                    )Cash
      and cash equivalents at beginning of period
                    
                    
                    4,217
                    
                    
                    
                    15,966Cash
      and cash equivalents at end of period
                    
                    $
                    3,406
                    
                    
                    $
                    3,528





See
accompanying notes.


6


Kentucky
First Federal Bancorp





CONSOLIDATED
STATEMENTS OF CASH FLOWS (CONTINUED)





(Unaudited)


(In
thousands)


Nine months ended
                  March 31,2010
                
                
                2009Supplemental
      disclosure of cash flow information:Cash
      paid during the period for:Federal
      income taxes
                
                $
                360
                
                
                $
                360Interest
      on deposits and borrowings
                
                $
                4,190
                
                
                $
                4,887Transfers
      from loans to real estate acquired through foreclosure,
net
                
                $
                261
                
                
                $
                86Loans
      made on sale of real estate acquired through forclosure
                
                $
                146
                
                
                $
                -





See
accompanying notes.


7


Kentucky
First Federal Bancorp





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





Nine-
and three-months ended March 31, 2010 and 2009


(unaudited)





On March
2, 2005, First Federal Savings and Loan Association of Hazard (“First Federal of
Hazard” or the “Association”) completed a Plan of Reorganization (the “Plan” or
the “Reorganization”) pursuant to which the Association reorganized into the
mutual holding company form of ownership with the incorporation of a stock
holding company, Kentucky First Federal Bancorp (the “Company”) as parent of the
Association.  Coincident with the Reorganization, the Association
converted to the stock form of ownership, followed by the issuance of all the
Association’s outstanding stock to Kentucky First Federal
Bancorp.  Completion of the  Plan of Reorganization
culminated with Kentucky First Federal Bancorp issuing 4,727,938 common shares,
or 55% of its common shares, to First Federal Mutual Holding Company (“First
Federal MHC”), a federally chartered mutual holding company, with 2,127,572
common shares, or 24.8% of its shares offered for sale at $10.00 per share to
the public and a newly formed Employee Stock Ownership Plan
(“ESOP”).  The Company received net cash proceeds of $16.1 million
from the public sale of its common shares.  The Company’s remaining
1,740,554 common shares were issued as part of the $31.4 million cash and stock
consideration paid for 100% of the common shares of Frankfort First Bancorp
(“Frankfort First”) and its wholly-owned subsidiary, First Federal Savings Bank
of Frankfort (“First Federal of Frankfort”).  The acquisition was
accounted for using the purchase method of accounting and resulted in the
recordation of goodwill and other intangible assets totaling $15.4
million.





1.  Basis of
Presentation





The
accompanying unaudited consolidated financial statements, which represent the
consolidated balance sheets and results of operations of the Company, were
prepared in accordance with the instructions for Form 10-Q and, therefore, do
not include information or footnotes necessary for a complete presentation of
financial position, results of operations and cash flows in conformity with
accounting principles generally accepted in the United States of
America.  However, in the opinion of management, all adjustments
(consisting of only normal recurring adjustments) which are necessary for a fair
presentation of the consolidated financial statements have been
included.  The results of operations for the nine- and three-month
periods ended March 31, 2010, are not necessarily indicative of the results
which may be expected for an entire fiscal year.  The consolidated
balance sheet as of June 30, 2009 has been derived from the audited consolidated
balance sheet as of that date.  Certain information and note
disclosures normally included in the Company’s annual financial statements
prepared in accordance with U.S. generally accepted accounting principles have
been condensed or omitted.  These consolidated financial statements
should be read in conjunction with the consolidated financial statements and
notes thereto included in the Company’s Form 10-K annual report for 2009 filed
with the Securities and Exchange Commission.





2.  Principles of
Consolidation





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





8


Kentucky
First Federal Bancorp





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)





Nine- and
three-months ended March 31, 2010 and 2009


(unaudited)





3.  Earnings Per
Share





Basic
earnings per share is computed based upon the weighted-average common shares
outstanding during the period less shares in the Company’s ESOP that are
unallocated and not committed to be released.  Weighted average common
shares deemed outstanding give effect to 247,465 unallocated ESOP shares for
the  nine- and three-month periods ended March 31, 2010, and 263,572
unallocated ESOP shares for the nine- and three-month periods ended March 31,
2009.





Nine months endedMarch 31,2010
                
                
                2009Weighted-average
      common shares outstanding
                
                
                7,521,493
                
                
                
                7,505,717Weighted-average
      unvested common shares outstanding
                
                
                43,167
                
                
                
                69,067Weighted-average
      common shares including unvested common shares outstanding
                
                
                7,564,660
                
                
                
                7,574,784Dilutive
      effect of:Assumed
      exercise of stock options
                
                
                41,815
                
                
                
                -Weighted-average
      common shares outstanding (diluted)
                
                
                7,606,475
                
                
                
                7,574,784





Three months endedMarch 31,2010
                
                
                2009Weighted-average
      common shares outstanding
                
                
                7,542,219
                
                
                
                7,494,258Weighted-average
      unvested common shares outstanding
                
                
                25,900
                
                
                
                51,800Weighted-average
      common shares including unvested common shares outstanding
                
                
                7,568,119
                
                
                
                7,546,058Dilutive
      effect of:Assumed
      exercise of stock options
                
                
                18,862
                
                
                
                -Weighted-average
      common shares outstanding (diluted)
                
                
                7,586,981
                
                
                
                7,546,058





There
were 334,644 and 391,000 stock option shares outstanding for the nine- and
three-month periods ended March 31, 2010 and 2009, respectively, but the stock
option shares in the 2009 periods were not considered in computing diluted
earnings per share, because they were anti-dilutive.





4.  New Accounting
Standards





FASB
Staff Position (“FSP”) ASC 260-10 is effective for fiscal years beginning after
December 15, 2008 and is to be applied retrospectively.  This FSP
requires share-based compensation awards that qualify as participating
securities to be included in basic EPS using the two-class method.  A
share-based compensation award is considered a participating security if it
receives non-forfeitable dividends.  A non-forfeitable dividend would
be a dividend that the participant receives before the award is vested and if
the participant forfeits the actual shares awarded the dividends he/she has
received do not have to be paid back to the company.  This guidance
was adopted in the first quarter and has been applied to all periods
shown.





9





Kentucky
First Federal Bancorp





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)





Nine- and
three-months ended March 31, 2010 and 2009


(unaudited)





4.  New Accounting Standards
(continued)





In
connection with our adoption of FSP ASC 260-10, weighted average voting and
unvested common shares outstanding include unvested shares issued through the
year 2010 incentive compensation plan shares of 25,900 and 51,800 at March 31,
2010 and 2009, respectively.  This FSP requires share-based
compensation awards that qualify as participating securities to be included in
basic EPS using the two-class method.  Adoption of this FSP had no
effect on the basic and diluted EPS for either of the nine- or three-month
periods ended March 31, 2009.





In April
2009, the FASB issued FSP No. 107-1 and APB 28-1, “Interim Disclosures about
Fair Value of Financial Instruments,” which was subsequently incorporated into
ASC Topic 825, “Financial Instruments.”  This guidance amended FASB
Statement No. 107, “Disclosures about Fair Value of Financial Instruments,” to
require disclosures about fair value of financial instruments for interim
reporting periods of publicly traded companies that were previously only
required in annual financial statements.  The adoption of this
guidance at December 31, 2009, did not impact our results of operations or
financial position, as it only required disclosures, which are included in the
following section.





In June
2009 the FASB issued Statement No. 168 (ASC 105-10), “The FASB Accounting
Standards Codification and Hierarchy of Generally Accepted Accounting
Principles-a replacement of FASB Statement No. 162,” which was subsequently
incorporated into ASC 405.  This Statement has become the source of
authoritative U.S. generally accepted accounting principles (“GAAP”) recognized
by the FASB to be applied by nongovernmental entities.  Rules and
interpretive releases of the Securities and Exchange Commission (“SEC”) under
authority of federal securities laws are also sources of authoritative GAAP for
SEC registrants.  On the effective date of this Statement, the
Codification superseded all then-existing non-SEC accounting and reporting
standards.  All other non-grandfathered non-SEC accounting literature
not included in the Codification will become
non-authoritative.  Management has adopted this Statement for the
period ended March 31, 2010.  All authoritative language has been
updated to comply with ASC 405.





On June
12, 2009, the FASB issued new guidance impacting FASB ASC 860, Transfers and
Servicing.The new
guidance amends ASC 860, and will require more information about transfers of
financial assets, including securitization transactions, and where entities have
continuing exposure to the risks related to transferred financial assets. It
eliminates the concept of a “qualifying special-purpose entity,” changes the
requirements for derecognizing financial assets, and requires additional
disclosures. The new standard will be effective July 1, 2010 and the adoption of
this standard is not expected to have a material effect on the Company’s results
of operations or financial position.


10





Kentucky
First Federal Bancorp





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)





Nine- and
three-months ended March 31, 2010 and 2009


(unaudited)





4.  New Accounting Standards
(continued)





On June
12, 2009, the FASB issued new guidance impacting FASB ASC 810-10, Consolidation
(Statement No. 167 amends FIN 46(R)).  The new guidance replaces the
quantitative-based risks and rewards calculation for determining which
enterprise, if any, has a controlling financial interest in a variable interest
entity with a qualitative approach focused on identifying which enterprise has
the power to direct the activities of a variable interest entity (VIE) that most
significantly impact the entity’s economic performance and (1) the obligation to
absorb losses of the entity or (2) the right to receive benefits from the
entity.   Unlike previous guidance, this Statement requires ongoing
reconsideration of whether (1) an entity is a VIE and (2) an enterprise is the
primary beneficiary of a VIE.  It is expected that the amendments will
result in more entities consolidating VIEs that previously were not consolidated
 This new guidance will also require additional disclosures about the
Company’s involvement in variable interest entities.   This new guidance
will become effective July 1, 2010 and its adoption is not expected to have a
material effect on the Company’s results of operations or financial
position.





The FASB
issued new accounting guidance under Accounting Standards Update (ASU) No.
2010-06 that requires new disclosures and clarifies existing disclosure
requirements about fair value measurement as set forth in ASC Subtopic
820-10.  The objective of the new guidance is to improve these
disclosures and increase transparency in financial
reporting.  Specifically, the new guidance requires a reporting entity
to disclose separately the amounts of significant transfers in and out of Level
1 and Level 2 fair value measurements and describe the reasons for the
transfers.  It also requires in the reconciliation for fair value
measurements using significant unobservable inputs, separate presentation of
information about purchases, sales, issuances and settlements.  In
addition, the guidance clarifies the requirements of the following existing
disclosures:





·
            For
      purposes of reporting fair value measurement for each class of assets and
      liabilities, a reporting entity needs to use judgment in determining the
      appropriate classes of assets and liabilities;
  and


·
            A
      reporting entity should provide disclosures about the valuation techniques
      and inputs used to measure fair value for both recurring and nonrecurring
      fair value measurements.





ASU
2010-06 is effective for interim and annual reporting periods beginning after
December 15, 2009, except for the disclosures about purchases, sales, issuances
and settlements in the roll forward of activity in Level 3 fair value
measurements.  Those disclosures are effective for fiscal years
beginning after December 15, 2010, and for interim periods within those fiscal
years.  Early application is permitted.


11





Kentucky
First Federal Bancorp





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)





Nine- and
three-months ended March 31, 2010 and 2009


(unaudited)





5.  Investment
Securities





The
amortized cost, gross unrealized gains, gross unrealized losses and estimated
fair values of investment securities are summarized as follows:





March
      31, 2010Amortized
                  
                  
                  Gross
                  
                  
                  Gross
                  
                  
                  Estimatedcost
                  
                  
                  unrealized
                  
                  
                  unrealized
                  
                  
                  fairgains
                  
                  
                  losses
                  
                  
                  value(In
      thousands)Available-for-sale
      SecuritiesU.S.
      Government and federal agency
                  
                  $
                  5,000
                  
                  
                  $
                  30
                  
                  
                  $
                  -
                  
                  
                  $
                  5,030Agency
      residential mortgage-backed securities
                  
                  
                  245
                  
                  
                  
                  5
                  
                  
                  
                  -
                  
                  
                  
                  250$
                  5,245
                  
                  
                  $
                  35
                  
                  
                  $
                  -
                  
                  
                  $
                  5,280Held-to-maturity
      SecuritiesU.S.
      Government and federal agency
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -Agency
      residential mortgage-backed securities
                  
                  
                  10,158
                  
                  
                  
                  438
                  
                  
                  
                  -
                  
                  
                  
                  10,596$
                  10,158
                  
                  
                  $
                  438
                  
                  
                  $
                  -
                  
                  
                  $
                  10,596





June
      30, 2009Gross
                          
                          
                          GrossAmortized
                          
                          
                          unrealized
                          
                          
                          unrealized
                          
                          
                          Estimatedcost
                          
                          
                          gains
                          
                          
                          losses
                          
                          
                          fair(In
      thousands)
                          
                          
                          valueAvailable-for-sale
      SecuritiesU.S.
      Government and federal agency
                          
                          $
                          5,000
                          
                          
                          $
                          136
                          
                          
                          $
                          -
                          
                          
                          $
                          5,136Agency
      residential mortgage-backed securities
                          
                          
                          314
                          
                          
                          
                          2
                          
                          
                          
                          (1
                          )
                          
                          
                          315$
                          5,314
                          
                          
                          $
                          138
                          
                          
                          $
                          (1
                          )
                          
                          $
                          5,451Held-to-maturity
      SecuritiesU.S.
      Government and federal agency
                          
                          $
                          3,000
                          
                          
                          $
                          2
                          
                          
                          $
                          -
                          
                          
                          $
                          3,002Agency
      residential mortgage-backed securities
                          
                          
                          11,999
                          
                          
                          
                          316
                          
                          
                          
                          -
                          
                          
                          
                          12,315$
                          14,999
                          
                          
                          $
                          318
                          
                          
                          $
                          -
                          
                          
                          $
                          15,317




12





Kentucky
First Federal Bancorp





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)





Nine- and
three-months ended March 31, 2010 and 2009


(unaudited)





5.
              Investment Securities
      (continued)





The
amortized cost and estimated fair value of investment securities by contractual
maturity are shown below.  Actual maturities may differ from
contractual maturities, because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.  Securities
with no single maturity are shown separately.





March
      31,
                                                  
                                                  
                                                  June
      30,2010
                                                  
                                                  
                                                  2009Estimated
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  Estimatedfair
                                                  
                                                  
                                                  Amortized
                                                  
                                                  
                                                  fair
                                                  
                                                  
                                                  Amortizedvalue
                                                  
                                                  
                                                  cost
                                                  
                                                  
                                                  value
                                                  
                                                  
                                                  cost(In
      thousands)Available-for-saleWithin
      one year
                                                  
                                                  $
                                                  5,030
                                                  
                                                  
                                                  $
                                                  5,000
                                                  
                                                  
                                                  $
                                                  5,136
                                                  
                                                  
                                                  $
                                                  5,000One
      year through five years
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -5,030
                                                  
                                                  
                                                  
                                                  5,000
                                                  
                                                  
                                                  
                                                  5,136
                                                  
                                                  
                                                  
                                                  5,000Mortgage-backed
      securities
                                                  
                                                  
                                                  250
                                                  
                                                  
                                                  
                                                  245
                                                  
                                                  
                                                  
                                                  315
                                                  
                                                  
                                                  
                                                  314Totals
                                                  
                                                  $
                                                  5,280
                                                  
                                                  
                                                  $
                                                  5,245
                                                  
                                                  
                                                  $
                                                  5,451
                                                  
                                                  
                                                  $
                                                  5,314Held-to-maturityWithin
      one year
                                                  
                                                  $
                                                  -
                                                  
                                                  
                                                  $
                                                  -
                                                  
                                                  
                                                  $
                                                  3,002
                                                  
                                                  
                                                  $
                                                  3,000One
      year through five years
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  --
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  3,002
                                                  
                                                  
                                                  
                                                  3,000Mortgage-backed
      securities
                                                  
                                                  
                                                  10,596
                                                  
                                                  
                                                  
                                                  10,158
                                                  
                                                  
                                                  
                                                  12,315
                                                  
                                                  
                                                  
                                                  11,999Totals
                                                  
                                                  $
                                                  10,596
                                                  
                                                  
                                                  $
                                                  10,158
                                                  
                                                  
                                                  $
                                                  15,317
                                                  
                                                  
                                                  $
                                                  14,999





There
were no sales of investment securities during the fiscal year ended June 30,
2009 or the nine- and three- month periods ended March 31, 2010.





We
evaluated securities in unrealized loss positions for evidence of
other-than-temporary impairment, considering duration, severity, financial
condition of the issuer, our intention to sell or requirement to
sell.  Management does not believe other-than-temporary impairment is
evident.


13




Kentucky
First Federal Bancorp





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)





Nine- and
three-months ended March 31, 2010 and 2009


(unaudited)





6.
              Loans
      Receivable





The
composition of the loan portfolio was as follows:


March 31,
                  
                  
                  June 30,2010
                  
                  
                  2009(In
      thousands)Residential
      real estateOne-
      to four-family
                  
                  $
                  165,656
                  
                  
                  $
                  163,108Multi-family
                  
                  
                  9,238
                  
                  
                  
                  7,303Construction
                  
                  
                  744
                  
                  
                  
                  735Nonresidential
      real estate and land
                  
                  
                  10,730
                  
                  
                  
                  11,460Loans
      on deposits
                  
                  
                  2,611
                  
                  
                  
                  2,909Consumer
      and other
                  
                  
                  4,829
                  
                  
                  
                  4,497193,808
                  
                  
                  
                  190,012Less:Undisbursed
      portion of loans in process
                  
                  
                  488
                  
                  
                  
                  404Deferred
      loan origination fees (cost)
                  
                  
                  (9
                  )
                  
                  
                  (1
                  )Allowance
      for loan losses
                  
                  
                  1,689
                  
                  
                  
                  678$
                  191,640
                  
                  
                  $
                  188,931





Impaired
loans were as follows:





March 31,
                  
                  
                  June 30,2010
                  
                  
                  2009(In
      thousands)Loans
      with no allocated allowance for loan losses
                  
                  $
                  2,490
                  
                  
                  $
                  4,086Loans
      with allocated allowance for loan losses
                  
                  
                  5,590
                  
                  
                  
                  1,153Total
                  
                  $
                  8,080
                  
                  
                  $
                  5,239Amount
      of allowance for loan losses allocated
                  
                  $
                  1,054
                  
                  
                  $
                  56





7.
            Allowance for Loan
      Losses





The
activity in the allowance for loan losses is summarized as follows:





For the Nine Months EndedMarch 31,
                  
                  
                  March 31,2010
                  
                  
                  2009(In
      thousands)Beginning
      balance
                  
                  $
                  678
                  
                  
                  $
                  666Provision
      for losses on loans
                  
                  
                  1,099
                  
                  
                  
                  15Charge-offs
                  
                  
                  (88
                  )
                  
                  
                  (14
                  )Ending
      balance
                  
                  $
                  1,689
                  
                  
                  $
                  667




14




Kentucky
First Federal Bancorp





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)





Nine- and
three-months ended March 31, 2010 and 2009


(unaudited)





7.  Allowance for Loan Losses
(continued)


For the Three Months EndedMarch 31,
                        
                        
                        March 31,2010
                        
                        
                        2009(In
      thousands)Beginning
      balance
                        
                        $
                        1,618
                        
                        
                        $
                        681Provision
      for losses on loans
                        
                        
                        71
                        
                        
                        
                        -Charge-offs
                        
                        
                        -
                        
                        
                        
                        (14
                        )Ending
      balance
                        
                        $
                        1,689
                        
                        
                        $
                        667




8.  Commitments




As of
March 31, 2010, loan commitments and unused lines of credit totaled $12.0
million, including $450,000 in undisbursed construction loans, $2.0 million in
one- to four-family mortgage loans and $9.5 million in lines of credit secured
by equity in real property.




9.  Disclosures About Fair Value
of Assets and Liabilities




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




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




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




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




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




Securities




Where
quoted market prices are available in an active market, securities are
classified within Level 1 of the valuation hierarchy.  If quoted
market prices are not available, then fair values are estimated by using pricing
models, quoted prices of securities with similar characteristics or discounted
cash flows.  Level 2 securities include mortgage
products.


15




Kentucky
First Federal Bancorp





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)





Nine- and
three-months ended March 31, 2010 and 2009


(unaudited)





9.
              Disclosures About Fair
      Value of Assets and Liabilities
  (continued)




Impaired
Loans




Impaired
loans are evaluated at the time the loan is identified as impaired and are
recorded at fair value.  Fair value is measured based on the value of
the collateral securing these loans and is classified as Level 3 in the fair
value hierarchy.  Fair value is determined using several
methods.  Generally, the fair value of real estate is determined based
on appraisals by qualified licensed appraisers.  If an appraisal is
not available, the fair value of the collateral may be determined by using a
cash flow analysis, a broker’s opinion of value, the net present value of future
cash flows, or an observable market price from an active market.  Fair
value on non-real estate collateral loans is determined using similar
methods.  In addition, business equipment may be valued by using the
net book value from the business’ financial statements.  Impaired
loans are evaluated quarterly for additional impairment.




Other
Real Estate Owned (“OREO”)




OREO is
evaluated at the time of acquisition and recorded at fair value as determined by
independent appraisal or internal market evaluation less cost to sell, resulting
in a Level 3 classification.  OREO is further evaluated quarterly for
impairment.  The aggregate fair value of OREO acquired and/or written
down to fair value during the period is disclosed below.




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





Fair Value Measurements at March 31, 2010.(in thousands)Quotes Pricesin Active
                    
                    
                    SignificantMarketsfor
                    
                    
                    Other
                    
                    
                    SignificantIdentical
                    
                    
                    Observable
                    
                    
                    UnobservableAssets
                    
                    
                    Inputs
                    
                    
                    InputsDescription
                    
                    Fair Value
                    
                    
                    (Level 1)
                    
                    
                    (Level 2)
                    
                    
                    (Level 3)Available-for-sale
      securities:U.S.
      Government and federal agency
                    
                    $
                    5,030
                    
                    
                    $
                    -
                    
                    
                    $
                    5,030
                    
                    
                    $
                    -Agency
      residential mortgage-backed securities
                    
                    
                    250
                    
                    
                    
                    -
                    
                    
                    
                    250
                    
                    
                    
                    - .Totals
                    
                    $
                    5,280
                    
                    
                    $
                    -
                    
                    
                    $
                    5,280
                    
                    
                    $
                    -




Fair Value Measurements at
      June 30, 2009.(in thousands)Quotes Pricesin Active
                    
                    
                    SignificantMarkets for
                    
                    
                    Other
                    
                    
                    SignificantIdentical
                    
                    
                    Observable
                    
                    
                    UnobservableAssets
                    
                    
                    Inputs
                    
                    
                    InputsDescription
                    
                    Fair Value
                    
                    
                    (Level 1)
                    
                    
                    (Level 2)
                    
                    
                    (Level 3)Available-for-sale
      securities:U.S.
      Government and federal agency
                    
                    $
                    5,136
                    
                    
                    $
                    -
                    
                    
                    $
                    5,136
                    
                    
                    $
                    -Agency
      residential mortgage-backed securities
                    
                    
                    315
                    
                    
                    
                    -
                    
                    
                    
                    315
                    
                    
                    
                    - .Totals
                    
                    $
                    5,451
                    
                    
                    $
                    -
                    
                    
                    $
                    5,451
                    
                    
                    $
                    -


16




Kentucky
First Federal Bancorp





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)





Nine- and
three-months ended March 31, 2010 and 2009


(unaudited)





9.
              Disclosures About Fair
      Value of Assets and Liabilities
  (continued)





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





Fair Value Measurements at March 31, 2010.(in thousands)Quotes Pricesin Active
                    
                    
                    SignificantMarketsfor
                    
                    
                    Other
                    
                    
                    SignificantIdentical
                    
                    
                    Observable
                    
                    
                    UnobservableAssets
                    
                    
                    Inputs
                    
                    
                    InputsDescription
                    
                    Fair Value
                    
                    
                    (Level 1)
                    
                    
                    (Level 2)
                    
                    
                    (Level 3)Impaired
      loans
                    
                    $
                    4,536
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    4,536Other
      real estate owned
                    
                    
                    110
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    110Totals
                    
                    $
                    4,646
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    4,646





Impaired
loans with allocated allowance for loan losses had a carrying amount of $5.6
million and a specific valuation allowance of $1.1 million at March 31, 2010,
resulting in an additional provision for loan losses of $61,000 for the quarter
just ended.  Other real estate owned, which is measured at the lower
of carrying or fair value less costs to sell, had a net carrying amount of
$110,000 at March 31, 2010.  There were no write-downs on other real
estate owned during the quarter ended March 31, 2010.





Fair Value Measurements at
      June 30, 2009.(in thousands)Quotes Pricesin Active
                        
                        
                        SignificantMarkets for
                        
                        
                        Other
                        
                        
                        SignificantIdentical
                        
                        
                        Observable
                        
                        
                        UnobservableAssets
                        
                        
                        Inputs
                        
                        
                        InputsFair Value
                        
                        
                        (Level 1)
                        
                        
                        (Level 2)
                        
                        
                        (Level 3)Impaired
      loans
                        
                        $
                        1,097
                        
                        
                        $
                        -
                        
                        
                        $
                        -
                        
                        
                        $
                        1,097Other
      real estate owned
                        
                        
                        109
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        109Totals
                        
                        $
                        1,206
                        
                        
                        $
                        -
                        
                        
                        $
                        -
                        
                        
                        $
                        1,206





Impaired
loans with allocated allowance for loan losses had a carrying amount of $1.2
million and a specific valuation allowance of $56,000 at June 30,2009, while
other real estate owned had a net carrying amount of $109,000.





ASC 829,
“Disclosures about Fair Value of Financial Instruments,” requires disclosure of
the fair value of financial instruments, both assets and liabilities, whether or
not recognized in the consolidated statement of financial condition, for which
it is practicable to estimate that value.  For financial instruments
where quoted market prices are not available, fair values are based on estimates
using present value and other valuation methods.





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





17





Kentucky
First Federal Bancorp





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)





Nine- and
three-months ended March 31, 2010 and 2009


(unaudited)





9.
            Disclosures About Fair
      Value of Assets and Liabilities
  (continued)





The
following methods were used to estimate the fair value of all other financial
instruments recognized in the accompanying statements of financial condition at
amounts other than fair value at June 30, 2009 and 2008:





Cash and cash
equivalents:  The carrying amounts presented in the
consolidated statements of financial condition for cash and cash equivalents are
deemed to approximate fair value.





Held-to-maturity
securities:  For held-to-maturity securities, fair value is
estimated by using pricing models, quoted price of securities with similar
characteristics or discounted cash flows, which is level 2 pricing.





Loans held for
sale:  Loans originated and intended for sale in the secondary
market are carried at the lower of cost or fair value, as determined by
outstanding commitments from investors.





Loans
receivable:  The loan portfolio has been segregated into
categories with similar characteristics, such as one- to four-family
residential, multi-family residential and nonresidential real
estate.  These loan categories were further delineated into fixed-rate
and adjustable-rate loans.  The fair values for the resultant loan
categories were computed via discounted cash flow analysis, using current
interest rates offered for loans with similar terms to borrowers of similar
credit quality.  For loans on deposit accounts and consumer and other
loans, fair values were deemed to equal the historic carrying
values.





Federal Home Loan Bank
stock, interest-earning deposits and accrued interest
receivable:  It is not practicable to determine the fair value
of FHLB stock due to restrictions placed on its transferability.  The
carrying amounts presented in the consolidated statements of financial condition
for interest-earning deposits and accrued interest receivable are deemed to
approximate fair value.





Deposits:  The
fair value of NOW accounts, passbook accounts, money market deposits and
advances by borrowers for taxes and insurance are deemed to approximate the
amount payable on demand.  Fair values for fixed-rate certificates of
deposit have been estimated using a discounted cash flow calculation using the
interest rates currently offered for deposits of similar remaining
maturities.  The historical carrying amount of accrued interest
payable on deposits is deemed to approximate fair value.





Advances from the Federal
Home Loan Bank:  The fair value of these advances is estimated
using the rates currently offered for similar advances of similar remaining
maturities or, when available, quoted market prices.





Advances by borrowers for
taxes and insurance and accrued interest payable:  The carrying
amount presented in the consolidated statement of financial condition is deemed
to approximate fair value.





Commitments to extend
credit:  For fixed-rate and adjustable-rate loan commitments,
the fair value estimate considers the difference between current levels of
interest rates and committed rates.  The fair value of outstanding
loan commitments at March 31, 2010 and June 30, 2009, was not
material.


18





Kentucky
First Federal Bancorp





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)





Nine- and
three-months ended March 31, 2010 and 2009


(unaudited)





9.
            Disclosures About Fair
      Value of Assets and Liabilities
  (continued)





Based on
the foregoing methods and assumptions, the carrying value and fair value of the
Company’s financial instruments at March 31, 2010 and June 30, 2009 are as
follows:





March 31,
      2010
                                    
                                    
                                    June 30,
      2009Carrying
                                      value
                                    
                                    
                                    Fair
                                      value
                                    
                                    
                                    Carrying
                                      value
                                    
                                    
                                    Fairvalue(In
      Thousands)Financial
      assetsCash
      and cash equivalents
                                    
                                    $
                                    3,406
                                    
                                    
                                    $
                                    3,406
                                    
                                    
                                    $
                                    4,217
                                    
                                    
                                    $
                                    4,217Interest-earning
      deposits
                                    
                                    
                                    100
                                    
                                    
                                    
                                    100
                                    
                                    
                                    
                                    100
                                    
                                    
                                    
                                    100Available-for-sale
      securities
                                    
                                    
                                    5,280
                                    
                                    
                                    
                                    5,280
                                    
                                    
                                    
                                    5,451
                                    
                                    
                                    
                                    5,451Held-to-maturity
      securities
                                    
                                    
                                    10,158
                                    
                                    
                                    
                                    10,596
                                    
                                    
                                    
                                    14,999
                                    
                                    
                                    
                                    15,317Loans
      held for sale
                                    
                                    
                                    95
                                    
                                    
                                    
                                    95
                                    
                                    
                                    
                                    230
                                    
                                    
                                    
                                    230Loans
      receivable - net
                                    
                                    
                                    191,640
                                    
                                    
                                    
                                    197,208
                                    
                                    
                                    
                                    188,931
                                    
                                    
                                    
                                    193,165Federal
      Home Loan Bank stock
                                    
                                    
                                    5,641
                                    
                                    
                                    
                                    n/a
                                    
                                    
                                    
                                    5,641
                                    
                                    
                                    
                                    n/aAccrued
      interest receivable
                                    
                                    
                                    644
                                    
                                    
                                    
                                    644
                                    
                                    
                                    
                                    750
                                    
                                    
                                    
                                    750Financial
      liabilitiesDeposits
                                    
                                    $
                                    144,450
                                    
                                    
                                    $
                                    146,795
                                    
                                    
                                    $
                                    139,743
                                    
                                    
                                    $
                                    142,772Advances
      from the Federal Home Loan Bank
                                    
                                    
                                    33,663
                                    
                                    
                                    
                                    32,208
                                    
                                    
                                    
                                    40,156
                                    
                                    
                                    
                                    41,613Advances
      by borrowers for taxes and insurance
                                    
                                    
                                    163
                                    
                                    
                                    
                                    163
                                    
                                    
                                    
                                    290
                                    
                                    
                                    
                                    290Accrued
      interest payable
                                    
                                    
                                    164
                                    
                                    
                                    
                                    164
                                    
                                    
                                    
                                    189
                                    
                                    
                                    
                                    189




19


Kentucky
First Federal Bancorp





ITEM
2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION


AND
RESULTS OF OPERATIONS





Forward-Looking
Statements





Certain
statements contained in this report that are not historical facts are
forward-looking statements that are subject to certain risks and
uncertainties.  When used herein, the terms “anticipates,” “plans,”
“expects,” “believes,” and similar expressions as they relate to Kentucky First
Federal Bancorp or its management are intended to identify such forward looking
statements.  Kentucky First Federal Bancorp’s actual results,
performance or achievements may materially differ from those expressed or
implied in the forward-looking statements.  Risks and uncertainties
that could cause or contribute to such material differences include, but are not
limited to, general economic conditions, prices for real estate in the Company’s
market areas, interest rate environment, competitive conditions in the financial
services industry, changes in law, governmental policies and regulations,
rapidly changing technology affecting financial services and the other matters
mentioned in Item 1A of the Company’s Annual Report on Form 10-K for the year
ended June 30, 2009.





Discussion of Financial
Condition Changes from June 30, 2009 to March 31, 2010





Assets:  At
March 31, 2010, the Company’s assets totaled $238.4 million, a decrease of $2.5
million, or 1.1%, from total assets at June 30, 2009.  This decrease
was attributed primarily a decrease in investment securities as well as an
increase in the allowance for loan losses, offset by an increase in loans
receivable, net.





Cash and cash
equivalents:Cash and cash
equivalents decreased by $811,000 to $3.4 million at March 31,
2010.  It is management’s intention to continue deploying excess
liquidity into mortgage loans to the extent possible.





Loans:  Loans
receivable, net, increased by $2.7 million or 1.4% to $191.6 million at March
31, 2010, despite an increased level of allowance for loan losses.  A
provision for loan losses of $1.1 million was made during the nine months just
ended, chiefly to establish a specific valuation allowance in response to
deterioration in the financial position of a single
borrower.  Otherwise, gross loans receivable increased $3.7 million or
2.0% to $193.3 million at March 31, 2010.  Management believes that
the successful redeployment of the Company’s excess liquidity to higher-yielding
mortgage loans is important for the long-term success of the
Company.  The Company will continue to emphasize loan originations to
the extent that it is profitable and prudent.





Non-Performing
Loans: At March 31, 2010,
the Company had approximately $3.0 million, or 1.5% of net loans, in loans 90
days or more past due, compared to $3.9 million or 2.0%, of net loans at June
30, 2009.  At March 31, 2010, the Company’s allowance for loan losses of
$1.7 million represented 57.0% of nonperforming loans and 0.9% of gross loans
compared to an allowance balance of $678,000 at June 30, 2009, representing
17.5% of nonperforming loans and 0.4% of gross loans.





20


Kentucky
First Federal Bancorp





MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION


AND
RESULTS OF OPERATIONS (continued)





Discussion of Financial
Condition Changes from June 30, 2009 to March 31, 2010
(continued)





The
Company had $7.3 million in assets classified as substandard for regulatory
purposes at March 31, 2010, including loans and real estate acquired through
foreclosure (“REO”).  Classified assets as a percentage of net loans
was 3.8% and 4.2% at March 31, 2010 and June 30, 2009,
respectively.  REO at March 31, 2010, included four single-family
homes with an aggregate carrying value of $110,000.  All substandard
loans were secured by residential property on which the banks have priority lien
position.  The table below summarizes substandard loans at March 31,
2010:





Numberof
                    
                    
                    CarryingLoans
                    
                    
                    ValueSingle
      family, owner occupied
                    
                    
                    32
                    
                    
                    $
                    2,303Single
      family, non-owner occupied
                    
                    
                    4
                    
                    
                    
                    227More
      than one single family, non-owner occupied
                    
                    
                    3
                    
                    
                    
                    2,6332-4
      family, owner occupied
                    
                    
                    2
                    
                    
                    
                    412-4
      family, non-owner occupied
                    
                    
                    11
                    
                    
                    
                    1,5885
      or more family, non-owner occupied
                    
                    
                    1
                    
                    
                    
                    403Total
      substandard loans
                    
                    
                    53
                    
                    
                    $
                    7,195





Included
in classified loans is one credit relationship which, within the last nine
months, experienced significant deterioration and is responsible for most of the
provision for losses during that period.  The loans to this borrower
totaled $4.7 million at March 31, 2010, and all of the underlying collateral is
comprised of 1-4 family residential rental units.  Management
determined this loan to be impaired under ASC 310 “Receivables” and that it
would be unable to collect all amounts due according to the contractual terms of
the loan agreement.  During the nine month period ended March 31,
2010, a specific reserve of $925,000 was established for this specific credit
relationship based on the estimated fair value of the underlying collateral less
cost to sell.





At March
31, 2010, the Company had $33,000 in loans classified as special mention
compared to $639,000 at June 30, 2009.  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.  At March 31, 2010, no loans were
classified as doubtful or loss for regulatory purposes.





Investment and
Mortgage-Backed Securities:  At March 31,
2010, the Company’s investment and mortgage-backed securities had decreased $5.0
million or 24.5% to $15.4 million.  Approximately $5.0 million of the
Company’s remaining investment and agency securities are scheduled to mature in
the current fiscal year.





Liabilities:At March 31, 2010, the
Company’s liabilities totaled $180.4 million, a decrease of $2.1 million, or
1.1%, from total liabilities at June 30, 2009.  The decrease in
liabilities was attributed primarily to a $6.5 million, or 16.2%, decrease in
Federal Home Loan Bank advances, which decreased to $33.7 million at March 31,
2010, while  deposits increased $4.7 million or 3.4% to $144.5 million
at March 31, 2010.  Approximately $20.0 million in advances will
mature within the next twelve months.   Management plans to
refinance a portion of its advances utilizing longer-term products at prevailing
interest rates, which are lower than the rates currently being paid on the
advances.





21





Kentucky
First Federal Bancorp





MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION


AND
RESULTS OF OPERATIONS (continued)





Discussion of Financial
Condition Changes from June 30, 2009 to March 31, 2010
(continued)





Shareholders’
Equity:  At March 31, 2010, the Company’s shareholders’ equity
totaled $58.0 million, a decrease of $469,000 or 0.8% from the June 30, 2009
total.  The primary reason for the decline was the payment of
dividends of $862,000, which exceeded net income for the nine months, and the
repurchase of the Company’s stock.  The Company purchased 21,600
shares of its own common stock for $235,000.





The
Company believes that a strong dividend is appropriate in light of the high
level of capital that both banks now have.  At March 31, 2010, capital
at the banks exceeded the level necessary to be considered “well capitalized”
and was sufficient, in management’s opinion, to support foreseeable
growth.  Management believes that a relatively high dividend yield is
beneficial in that it makes the Company’s stock attractive in the market and
helps in the retention of long-term investors.  While dividends paid
during the nine months ended March 31, 2010 exceeded net income during that
period, the unusually large provision for loan losses made during the three
months ended September 30, 2009, was primarily responsible for this
circumstance.  For the three months ended March 31, 2010, net income
exceeded dividends paid.  Management cannot speculate on future
dividend levels.  Various factors, including capital levels, income
levels, liquidity levels 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.





Comparison of Operating
Results for the Nine-Month Periods Ended March 31, 2010 and
2009





General





Net
earnings totaled $155,000 for the nine months ended March 31, 2010, a decrease
of $831,000 from the $986,000 in net income for the same period in
2009.  The decrease was primarily attributable to a provision for loan
loss of $1.1 million during the period.  Also contributing to the
decrease in net income was an increase in non-interest expense from period to
period.





Net Interest
Income





Net
interest income increased $71,000 or 1.5% to $4.8 million for the nine month
period ended March 31, 2010, compared to the 2009 period, due to interest
expense decreasing at a faster pace than interest income.  Interest
income decreased by $565,000, or 6.1%, to $8.7 million, while interest expense
decreased $636,000 or 14.2% to $3.9 million for the nine months ended March 31,
2010.





Interest
income on loans decreased $358,000 or 4.3% to $8.0 million, due primarily to a
decrease in the average rate earned on the loan portfolio.  The
average balance of loans outstanding for the nine month period ended March 31,
2010, increased $2.6 million or 1.4% to an average of $190.3 million for the
nine months just ended, while the average rate earned declined 33 basis points
to 5.59% for the period just ended.  Interest income on
interest-bearing deposits and other decreased $74,000 or 27.3% to $197,000 for
the nine months ended March 31, 2010, primarily as a result of reduced
volume.  The average balance outstanding declined $2.4 million or
21.6% to $8.7 million for the nine month period ended March 31, 2010, while the
average rate earned on those assets declined 23 basis points to
3.01%.





22





Kentucky
First Federal Bancorp





MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION


AND
RESULTS OF OPERATIONS (continued)





Comparison of Operating
Results for the Nine-Month Periods Ended March 31, 2010 and 2009
(continued)





Net Interest Income
(continued)





Interest
expense on deposits and borrowings both declined period to
period.  Interest expense on deposits decreased $481,000 or 15.3% to
$2.7 million for the nine month period ended March 31, 2010, while interest
expense on borrowings declined $155,000 or 11.5% to $1.2 million for the same
period.  The decline in interest expense on deposits was attributed
primarily to a reduction in the average rate paid on the deposits, as the
average balance of deposits increased period to period.  The average
rate paid on deposits decreased 56 basis points to 2.48% for the most recent
period, while the average balance of deposits increased $5.4 million or 3.9% to
$142.8 million.  The decline in interest expense on borrowings was
attributed to lower borrowings outstanding, as the average balance of borrowings
declined $8.4 million or 18.9% to $35.8 million for the most recent
period.  The average rate paid on borrowings increased 38 basis points
to 4.45% for the recently ended nine-month period.





The
following table represents key portfolio performance metrics:


For the Nine Months EndedMarch 31,
                    
                    
                    March 31,2010
                    
                    
                    2009Interest
      rate spread
                    
                    
                    2.49
                    %
                    
                    
                    2.29
                    %Net
      interest margin
                    
                    
                    2.99
                    %
                    
                    
                    2.88
                    %





Provision for Losses on
Loans





The
Company charges a provision for losses on loans to earnings to bring the total
allowance for loan losses to a level considered appropriate by management based
on historical experience, the volume and type of lending conducted by the Banks,
the status of past due principal and interest payments, general economic
conditions, particularly as such conditions relate to the Banks’ market areas
and other factors related to the collectibility of the Banks’ loan portfolio.
The Company recorded a provision for losses on loans of $1.1 million during the
nine months ended March 31, 2010, compared to a provision of $15,000 for the
nine months ended March 31, 2009.  Management determined that a
specific valuation allowance of $1.1 million was appropriate for the overall
portfolio, primarily in response to deterioration in the financial position of a
single borrower.  There can be no assurance that the loan loss
allowance will be adequate to absorb unidentified losses on loans in the
portfolio, which could adversely affect the Company’s results of
operations.





Non-interest
Income





Non-interest
income totaled $206,000 for the nine months ended March 31, 2010, an increase of
$31,000 from the same period in 2009, primarily as a result of gain on sale of
loans.  The gain on sale of loans was $96,000 for the nine month
period just ended compared with $40,000 for the prior year period, an increase
of $56,000 or 140.0%.  Somewhat offsetting the increased gain on sale
of loans during the most recent period was a loss of $27,000 on the sale of real
estate acquired through foreclosure.  There was no loss on sale of
real estate acquired through foreclosure in the nine months ended March 31,
2009.


23





Kentucky
First Federal Bancorp





MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION


AND
RESULTS OF OPERATIONS (continued)





Comparison of Operating
Results for the Nine-Month Periods Ended March 31, 2010 and 2009
(continued)





Non-interest
Expense





Non-interest
expense totaled $3.7 million for the nine months ended March 31, 2010, an
increase of $243,000, or 7.0%, compared to the same period in
2009.  The increase was due primarily to an increase in employee
compensation and benefits and FDIC insurance premiums.  Employee
compensation and benefits increased 6.9% or $149,000 to $2.3 million for the
nine month period just ended as a result of higher retirement plan
contributions, higher staffing levels for the period and lower lending levels.
Retirement contributions increased $57,000 or 25.3% to $282,000 for the nine
month period just ended.  Employee compensation increased $46,000 or
4.2% to $1.1 million period to period as additional staff were hired in
anticipation of and in preparation for a planned retirement of an employee on
January 1, 2010.  In addition to additional staff, the Company
experienced lower levels of deferred loan origination costs, which was
attributed to a lower number of loan originations during the
period.  The Company defers certain costs, which are attributable to
the origination of loans, and amortizes those costs over the lives of those
loans.  When fewer loans are originated during a period, a lower level
of cost is deferred.  Deferred employee compensation decreased $32,000
or 25.8% to $92,000 during the period compared to $124,000 for the prior year
period.  FDIC insurance premiums totaled $139,000 for the nine months
ended March 31, 2010, an increase of $121,000, or 672.2%, from the same period
in 2009.  As is the case for most FDIC-insured financial institutions,
the two banks owned by the Company are experiencing higher FDIC insurance
premiums, which were mandated to increase deposit insurance fund levels as a
result of the recent increase in bank failures.    Somewhat
offsetting higher levels of expense in other areas, occupancy and equipment
expense decreased $72,000 or 22.6% to $247,000 for the nine months ended March
31, 2010.  During the previous fiscal period, the Company converted
the core data processing system of one of its banks.  That conversion
was responsible for nonrecurring costs, which were charged to occupancy and
equipment expense in the prior year, as well as higher data processing costs for
the current nine-month period.





Federal Income Tax
Expense





The
provision for federal income taxes totaled $79,000 for the nine months ended
March 31, 2010, a decrease of $394,000, compared to a provision of $473,000 for
federal income tax expense in the same period in 2009.  The effective
tax rates were 33.8% and 32.4% for the nine month periods ended March 31, 2010
and 2009, respectively.





Comparison of Operating
Results for the Three Month Periods Ended March 31, 2010 and
2009





General





Net
income totaled $302,000 for the three months ended March 31, 2010, a decrease of
$49,000 from the $351,000 in net income for the same period in
2009.  The decrease was primarily attributable to higher levels of
non-interest expense and additional provision expense for loan losses during the
period, offset slightly by an increase in net interest income and non-interest
income.





Net Interest
Income





Net
interest income increased $92,000 or 5.6% to $1.7 million for the three month
period ended March 31, 2010, compared to the 2009 period, due to interest
expense decreasing at a faster pace than interest income.  Interest
income decreased by $135,000, or 4.4%, to $2.9 million, while interest expense
decreased $227,000 or 15.9% to $1.2 million for the three months ended March 31,
2010.


24





Kentucky
First Federal Bancorp





MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION


AND
RESULTS OF OPERATIONS (continued)





Comparison of Operating
Results for the Three Month Periods Ended March 31, 2010 and 2009
(continued)





Net Interest Income
(continued)





Interest
income on loans decreased $86,000 or 3.1% to $2.7 million, due to a decrease in
the average rate earned on the loan portfolio.  The average balance of
loans outstanding for the three month period ended March 31, 2010, increased
$1.9 million or 1.0% to an average of $191.4 million for the three months just
ended, while the average rate earned declined 24 basis points to 5.64% for the
period just ended.  Interest income on mortgage-backed securities
decreased $26,000 or 18.4% to $115,000 for the three months ended March 31,
2010, primarily as a result of reduced volume.  The average balance
outstanding declined $2.3 million or 17.7% to $10.9 million for the three month
period ended March 31, 2010, while the average rate earned on those assets
decreased 3 basis points to 4.24%.  Interest income on investment
securities decreased $23,000 or 34.3% to $44,000 for the three months just
ended, also primarily as a result of reduced volume.  The average
balance outstanding declined $3.1 million or 37.4% to $5.2 million for the three
month period ended March 31, 2010, while the average rate earned on those assets
increased 16 basis points to 3.41%.





Interest
expense on deposits and borrowings both declined period to
period.  Interest expense on deposits decreased $188,000 or 18.8% to
$814,000 for the three month period ended March 31, 2010, while interest expense
on borrowings declined $39,000 or 9.1% to $389,000 for the same
period.  The decline in interest expense on deposits was attributed
primarily to a reduction in the average rate paid on the deposits, as the
average balance of deposits increased period to period.  The average
rate paid on deposits decreased 69 basis points to 2.22% for the most recent
period, while the average balance of deposits increased $8.8 million or 6.4% to
$147.0 million.  The decline in interest expense on borrowings was
attributed to lower borrowings outstanding, as the average balance of borrowings
declined $6.4 million or 15.0% to $36.3 million for the most recent
period.  The average rate paid on borrowings increased 28 basis points
to 4.28% for the recently ended three-month period.





The
following table represents key portfolio performance metrics:


For the Three Months EndedMarch 31,
                    
                    
                    March 31,2010
                    
                    
                    2009Interest
      rate spread
                    
                    
                    2.76
                    %
                    
                    
                    2.43
                    %Net
      interest margin
                    
                    
                    3.17
                    %
                    
                    
                    2.98
                    %





Provision for Losses on
Loans





The
Company recorded a provision for losses on loans of $71,000 during the three
months ended March 31, 2010, compared to no provision for the three months ended
March 31, 2009.  The $10,000 additional general provision was
necessary to reestablish the appropriate level as determined by management,
while a $61,000 specific provision was made in anticipation of one piece of real
estate to be acquired through foreclosure.  There can be no assurance
that the loan loss allowance will be adequate to absorb unidentified losses on
loans in the portfolio, which could adversely affect the Company’s results of
operations.





Non-interest
Income





Non-interest
income totaled $77,000 for the three months ended March 31, 2010, an increase of
$16,000 from the same period in 2009.


25




Kentucky
First Federal Bancorp





MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION


AND
RESULTS OF OPERATIONS (continued)





Comparison of Operating
Results for the Three Month Periods Ended March 31, 2010 and 2009
(continued)





Non-interest
Expense





Non-interest
expense totaled $1.3 million for the three months ended March 31, 2010, an
increase of $98,000, or 8.4%, compared to the same period in
2009.  The increase was due primarily to higher FDIC insurance
premiums and higher levels of employee compensation.  FDIC insurance
premiums totaled $46,000 for the three months ended March 31, 2010, an increase
of $40,000, or 666.7%, from the same period in 2009.  Employee
compensation and benefits increased 5.6% or $41,000 to $778,000 for the three
month period just ended primarily as a result of higher retirement plan
contribution costs.    Retirement contributions increased
$27,000 or 34.6% to $105,000 for the three month period just ended.





Federal Income Tax
Expense





Federal
income tax expense totaled $157,000 for the three months ended March 31, 2010, a
decrease of $12,000, or 7.1% compared to the same period in 2009.  The
effective tax rates were 34.2% and 32.5% for the three month periods ended March
31, 2010 and 2009, respectively.





ITEM
3:  Quantitative and Qualitative
Disclosures About Market Risk





There has
been no material change in the Company’s market risk since the disclosure
included under the heading “Management’s Discussion and Analysis of Financial
Condition and Results of Operations – Asset and Liability Management” in the
Company’s Form 10-K filed September 28, 2009.





ITEM
4:  Controls
and Procedures





The
Company’s Chief Executive Officer and Chief Financial Officer have evaluated the
Company’s disclosure controls and procedures (as defined under Rules 13a-15(e)
and 15d-15(e) of the Securities Exchange Act of 1934, as amended) as of the end
of the period covered by this report.  Based upon that evaluation, the
Chief Executive Officer and Chief Financial Officer have concluded that the
Company’s disclosure controls and procedures are effective.  During
the quarterly period ended March 31, 2010, there were no changes in the
Company’s internal control over financial reporting which materially affected,
or are reasonably likely to materially affect, the Company’s internal controls
over financial reporting.


26





Kentucky
First Federal Bancorp





PART
II





ITEM
      1.
            Legal
      Proceedings




Not
applicable.





ITEM
      1A.
            Risk
      Factors





The
Registrant’s risk factors have not changed from those set forth in the Annual
Report on Form 10-K.





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




(c)           The
following table sets forth information regarding Company’s repurchases of its
common stock during the quarter ended March 31, 2010.





Total # ofAverage
                  
                  
                  shares purchased
                  
                  
                  Maximum # of sharesTotal
                  
                  
                  price paid
                  
                  
                  as part of publicly
                  
                  
                  that may yet be# of shares
                  
                  
                  per share
                  
                  
                  announced plans
                  
                  
                  purchased underPeriod
                  
                  purchased
                  
                  
                  (incl commissions)
                  
                  
                  or programs
                  
                  
                  the plans or programsJanuary
      1-31, 2010
                  
                  
                  7,200
                  
                  
                  $
                  11.27
                  
                  
                  
                  7,200
                  
                  
                  
                  29,300February
      1-28, 2010
                  
                  
                  8,400
                  
                  
                  $
                  10.10
                  
                  
                  
                  8,400
                  
                  
                  
                  20,900March
      1-31, 2010
                  
                  
                  —
                  
                  
                  $
                  —
                  
                  
                  
                  —
                  
                  
                  
                  20,900





(1) 
On October 17, 2008, the Company announced the completion of the stock
repurchase program begun on February 13, 2008 and initiated another program for
the repurchase of up to 150,000 shares of its Common Stock




ITEM
      3.
            Defaults Upon Senior
      Securities




Not
applicable.





ITEM
      4.
            Removed and
      Reserved.




ITEM
      5.
            Other
      Information




None.





ITEM
      6.
            Exhibits





31.1
                    CEO
      Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of
      200231.2
                    CFO
      Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of
      200232.1
                    CEO
      Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of
      200232.2
                    CFO
      Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002




27


Kentucky
First Federal Bancorp





SIGNATURES





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





KENTUCKY
      FIRST FEDERAL BANCORPDate:
                    May 17, 2010
                    
                    By:
                    /s/Tony D. WhitakerTony
      D. WhitakerChairman
      of the Board and Chief Executive OfficerDate:
                    May 17, 2010
                    
                    By:
                    /s/R. Clay HuletteR.
      Clay HuletteVice
      President and Chief Financial
Officer




28