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 December
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
                    
                    (I.R.S.
      Employer Identification No.)incorporation
      or organization)
 
 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 February 10, 2011, the
latest practicable date, the Corporation had 7,740,703 shares of $.01 par value
common stock outstanding.
  
  INDEX
 
 PagePART I -
                            ITEM
      1
                            FINANCIAL
      INFORMATIONConsolidated
      Balance Sheets
                            3Consolidated
      Statements of Operations
                            4Consolidated
      Statements of Comprehensive Income (Loss)
                            5Consolidated
      Statements of Cash Flows
                            6Notes
      to Consolidated Financial Statements
                            8ITEM
      2
                            Management’s
      Discussion and Analysis of  Financial Condition and Results of
      Operations
                            24ITEM
      3
                            Quantitative
      and Qualitative Disclosures About Market Risk
                            32ITEM
      4
                            Controls
      and Procedures
                            32PART
      II -OTHER
      INFORMATION
                            33SIGNATURES
                            34
  2
  PART
I
 ITEM 1:
Financial
Information
 Kentucky
First Federal Bancorp
 
 CONSOLIDATED
BALANCE SHEETS
 (Unaudited)
 (Dollars
in thousands, except per share data)
 
 December 31,
                  
                  
                  June 30,2010
                  
                  
                  2010(Restated)ASSETSCash
      and due from financial institutions
                  
                  $
                  1,209
                  
                  
                  $
                  1,118Interest-bearing
      demand deposits
                  
                  
                  4,609
                  
                  
                  
                  7,244Cash
      and cash equivalents
                  
                  
                  5,818
                  
                  
                  
                  8,362Interest-bearing
      deposits in other financial institutions
                  
                  
                  100
                  
                  
                  
                  100Securities
      available for sale
                  
                  
                  224
                  
                  
                  
                  246Securities
      held-to-maturity, at amortized cost- approximate fair value of $19,286 and
      $10,026 at December 31, and June 30, 2010, respectively
                  
                  
                  18,880
                  
                  
                  
                  9,435Loans
      held for sale
                  
                  
                  202
                  
                  
                  
                  370Loans
                  
                  
                  190,206
                  
                  
                  
                  192,153Allowance
      for loan and lease losses
                  
                  
                  (1,567
                  )
                  
                  
                  (1,535
                  )Real
      estate owned, net
                  
                  
                  342
                  
                  
                  
                  748Premises
      and equipment, net
                  
                  
                  2,710
                  
                  
                  
                  2,731Federal
      Home Loan Bank stock
                  
                  
                  5,641
                  
                  
                  
                  5,641Accrued
      interest receivable
                  
                  
                  600
                  
                  
                  
                  518Bank-owned
      life insurance
                  
                  
                  2,563
                  
                  
                  
                  2,518Goodwill
                  
                  
                  14,507
                  
                  
                  
                  14,507Other
      intangible assets
                  
                  
                  153
                  
                  
                  
                  218Prepaid
      FDIC assessments
                  
                  
                  447
                  
                  
                  
                  542Prepaid
      expenses and other assets
                  
                  
                  611
                  
                  
                  
                  385Total
      assets
                  
                  $
                  241,437
                  
                  
                  $
                  236,939LIABILITIES
      AND SHAREHOLDERS’ EQUITYDeposits
                  
                  $
                  143,270
                  
                  
                  $
                  144,969Federal
      Home Loan Bank advances
                  
                  
                  38,196
                  
                  
                  
                  32,009Advances
      by borrowers for taxes and insurance
                  
                  
                  154
                  
                  
                  
                  335Accrued
      interest payable
                  
                  
                  130
                  
                  
                  
                  145Other
      liabilities
                  
                  
                  1,530
                  
                  
                  
                  1,673Total
      liabilities
                  
                  
                  183,280
                  
                  
                  
                  179,131Commitments
      and contingencies
                  
                  
                  -
                  
                  
                  
                  -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
                  
                  
                  36,851
                  
                  
                  
                  36,623Retained
      earnings
                  
                  
                  31,418
                  
                  
                  
                  31,216Unearned
      employee stock ownership plan (ESOP)
                  
                  
                  (2,078
                  )
                  
                  
                  (2,169
                  )Treasury
      shares at cost, 806,375 and 745,530 common shares at December 31, and June
      30, 2010, respectively
                  
                  
                  (8,123
                  )
                  
                  
                  (7,952
                  )Accumulated
      other comprehensive income
                  
                  
                  3
                  
                  
                  
                  4Total
      shareholders’ equity
                  
                  
                  58,157
                  
                  
                  
                  57,808Total
      liabilities and shareholders’ equity
                  
                  $
                  241,437
                  
                  
                  $
                  236,939
 
 See
accompanying notes.
  3
  Kentucky
First Federal Bancorp
 CONSOLIDATED
STATEMENTS OF OPERATIONS
 (Unaudited)
 (Dollars
in thousands, except per share data)
 
 Six
      months ended
                  
                  
                  Three
      months endedDecember
      31,
                  
                  
                  December
      31,2010
                  
                  
                  2009
                  
                  
                  2010
                  
                  
                  2009(Restated)
                  
                  
                  
                  
                  
                  (Restated)Interest
      incomeLoans
                  
                  $
                  5,159
                  
                  
                  $
                  5,282
                  
                  
                  $
                  2,577
                  
                  
                  $
                  2,634Mortgage-backed
      securities
                  
                  
                  193
                  
                  
                  
                  252
                  
                  
                  
                  93
                  
                  
                  
                  123Other
      securities
                  
                  
                  1
                  
                  
                  
                  91
                  
                  
                  
                  1
                  
                  
                  
                  44Interest-bearing
      deposits and other
                  
                  
                  119
                  
                  
                  
                  134
                  
                  
                  
                  55
                  
                  
                  
                  64Total
      interest income
                  
                  
                  5,472
                  
                  
                  
                  5,759
                  
                  
                  
                  2,726
                  
                  
                  
                  2,865Interest
      expenseDeposits
                  
                  
                  1,420
                  
                  
                  
                  1,841
                  
                  
                  
                  681
                  
                  
                  
                  891Borrowings
                  
                  
                  404
                  
                  
                  
                  807
                  
                  
                  
                  161
                  
                  
                  
                  391Total
      interest expense
                  
                  
                  1,824
                  
                  
                  
                  2,648
                  
                  
                  
                  842
                  
                  
                  
                  1,282Net
      interest income
                  
                  
                  3,648
                  
                  
                  
                  3,111
                  
                  
                  
                  1,884
                  
                  
                  
                  1,583Provision
      for losses on loans
                  
                  
                  68
                  
                  
                  
                  1,028
                  
                  
                  
                  43
                  
                  
                  
                  60Net
      interest income after provision for losses on loans
                  
                  
                  3,580
                  
                  
                  
                  2,083
                  
                  
                  
                  1,841
                  
                  
                  
                  1,523Non-interest
      incomeEarnings
      on bank-owned life insurance
                  
                  
                  45
                  
                  
                  
                  45
                  
                  
                  
                  22
                  
                  
                  
                  22Gain
      on sale of loans
                  
                  
                  92
                  
                  
                  
                  59
                  
                  
                  
                  64
                  
                  
                  
                  31Loss
      on sale of real estate acquired through foreclosure
                  
                  
                  (36
                  )
                  
                  
                  (27
                  )
                  
                  
                  (39
                  )
                  
                  
                  (15
                  )Other
                  
                  
                  53
                  
                  
                  
                  51
                  
                  
                  
                  27
                  
                  
                  
                  23Total
      non-interest income
                  
                  
                  154
                  
                  
                  
                  128
                  
                  
                  
                  74
                  
                  
                  
                  61Non-interest
      expenseEmployee
      compensation and benefits
                  
                  
                  1,521
                  
                  
                  
                  1,563
                  
                  
                  
                  723
                  
                  
                  
                  798Occupancy
      and equipment
                  
                  
                  166
                  
                  
                  
                  145
                  
                  
                  
                  81
                  
                  
                  
                  74Franchise
      taxes
                  
                  
                  98
                  
                  
                  
                  92
                  
                  
                  
                  49
                  
                  
                  
                  46Data
      processing
                  
                  
                  126
                  
                  
                  
                  112
                  
                  
                  
                  64
                  
                  
                  
                  59FDIC
      insurance premiums
                  
                  
                  103
                  
                  
                  
                  93
                  
                  
                  
                  49
                  
                  
                  
                  51Auditing
      and accounting
                  
                  
                  87
                  
                  
                  
                  76
                  
                  
                  
                  49
                  
                  
                  
                  42Amortization
      of intangible assets
                  
                  
                  65
                  
                  
                  
                  65
                  
                  
                  
                  33
                  
                  
                  
                  65Other
      operating
                  
                  
                  442
                  
                  
                  
                  327
                  
                  
                  
                  234
                  
                  
                  
                  142Total
      non-interest expense
                  
                  
                  2,608
                  
                  
                  
                  2,473
                  
                  
                  
                  1,282
                  
                  
                  
                  1,277Income
      (loss) before income taxes
                  
                  
                  1,126
                  
                  
                  
                  (262
                  )
                  
                  
                  633
                  
                  
                  
                  307Federal
      income tax expense (benefit)Current
                  
                  
                  334
                  
                  
                  
                  (223
                  )
                  
                  
                  59
                  
                  
                  
                  (36
                  )Deferred
                  
                  
                  35
                  
                  
                  
                  132
                  
                  
                  
                  150
                  
                  
                  
                  140Total
      federal income tax expense (benefit)
                  
                  
                  369
                  
                  
                  
                  (91
                  )
                  
                  
                  209
                  
                  
                  
                  104NET
      INCOME (LOSS)
                  
                  $
                  757
                  
                  
                  $
                  (171
                  )
                  
                  $
                  424
                  
                  
                  $
                  203EARNINGS
      (LOSS) PER SHAREBasic
      and diluted
                  
                  $
                  0.10
                  
                  
                  $
                  (0.02
                  )
                  
                  $
                  0.06
                  
                  
                  $
                  0.03DIVIDENDS
      PER SHARE
                  
                  $
                  0.20
                  
                  
                  $
                  0.20
                  
                  
                  $
                  0.10
                  
                  
                  $
                  0.10
 
 See
accompanying notes.
  4
  Kentucky
First Federal Bancorp
 
 CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
 
 (Unaudited)
 (In
thousands)
 
 Six
      months ended
                    
                    
                    Three
      months endedDecember
      31,
                    
                    
                    December
      31,2010
                    
                    
                    2009
                    
                    
                    2010
                    
                    
                    2009(Restated)
                    
                    
                    
                    
                    
                    (Restated)Net
      income (loss)
                    
                    $
                    757
                    
                    
                    $
                    (171
                    )
                    
                    $
                    424
                    
                    
                    $
                    203Other
      comprehensive income (loss), net of taxes (benefits):Unrealized
      holding gains (losses) on securities designated as available for sale, net
      of taxes (benefits) of $—, $(22), $— and $(11) during the respective
      periods
                    
                    
                    (1
                    )
                    
                    
                    (43
                    )
                    
                    
                    -
                    
                    
                    
                    (21
                    )Comprehensive
      income (loss)
                    
                    $
                    756
                    
                    
                    $
                    (214
                    )
                    
                    $
                    424
                    
                    
                    $
                    182
 
 See
accompanying notes.
  5
  Kentucky
First Federal Bancorp
 
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 
 (Unaudited)
 (In
thousands)
 Six
      months endedDecember
      31,2010
                  
                  
                  2009(Restated)Cash
      flows from operating activities:Net
      income (loss)
                  
                  $
                  757
                  
                  
                  $
                  (171
                  )Adjustments
      to reconcile net income (loss) to net cash provided by operating
      activities:Depreciation
                  
                  
                  90
                  
                  
                  
                  85Amortization
      of deferred loan origination (fees) costs
                  
                  
                  (19
                  )
                  
                  
                  (1
                  )Amortization
      of premiums on FHLB advances
                  
                  
                  (76
                  )
                  
                  
                  (226
                  )Amortization
      of core deposit intangibles
                  
                  
                  65
                  
                  
                  
                  65Net
      gain on sale of loans
                  
                  
                  (92
                  )
                  
                  
                  (59
                  )Net
      loss on sale of real estate owned
                  
                  
                  36
                  
                  
                  
                  27ESOP
      compensation expense
                  
                  
                  91
                  
                  
                  
                  130Amortization
      of stock benefit plans and stock options expense
                  
                  
                  228
                  
                  
                  
                  283Earnings
      on bank-owned life insurance
                  
                  
                  (45
                  )
                  
                  
                  (45
                  )Provision
      for loan losses
                  
                  
                  68
                  
                  
                  
                  1,028Origination
      of loans held for sale
                  
                  
                  (2,250
                  )
                  
                  
                  (2,141
                  )Proceeds
      from loans held for sale
                  
                  
                  2,510
                  
                  
                  
                  2,325Increase
      (decrease) in cash, due to changes in:Accrued
      interest receivable
                  
                  
                  (82
                  )
                  
                  
                  137Prepaid
      expenses and other assets
                  
                  
                  (131
                  )
                  
                  
                  (726
                  )Accrued
      interest payable
                  
                  
                  (15
                  )
                  
                  
                  (16
                  )Accounts
      payable and other liabilities
                  
                  
                  (142
                  )
                  
                  
                  (628
                  )Net
      cash provided by operating activities
                  
                  
                  993
                  
                  
                  
                  67Cash
      flows from investing activities:Purchase
      of U.S. Treasury Notes
                  
                  
                  (11,000
                  )
                  
                  
                  —Securities
      maturities, prepayments and calls:Held
      to maturity
                  
                  
                  1,555
                  
                  
                  
                  4,027Available
      for sale
                  
                  
                  20
                  
                  
                  
                  59Loans
      originated for investment, net of principal collected
                  
                  
                  1,415
                  
                  
                  
                  (3,249
                  )Proceeds
      from sale of real estate owned
                  
                  
                  885
                  
                  
                  
                  223Additions
      to premises and equipment, net
                  
                  
                  (69
                  )
                  
                  
                  (35
                  )Net
      cash provided by (used in) investing activities
                  
                  
                  (7,194
                  )
                  
                  
                  1,025Cash
      flows from financing activities:Net
      change in deposits
                  
                  
                  (1,699
                  )
                  
                  
                  2,809Payments
      by borrowers for taxes and insurance, net
                  
                  
                  (181
                  )
                  
                  
                  (290
                  )Proceeds
      from Federal Home Loan Bank advances
                  
                  
                  16,000
                  
                  
                  
                  4,000Repayments
      on Federal Home Loan Bank advances
                  
                  
                  (9,737
                  )
                  
                  
                  (7,093
                  )Dividends
      paid on common stock
                  
                  
                  (555
                  )
                  
                  
                  (567
                  )Treasury
      stock repurchases
                  
                  
                  (171
                  )
                  
                  
                  (67
                  )Net
      cash provided by (used in) financing activities
                  
                  
                  3,657
                  
                  
                  
                  (1,208
                  )Net
      decrease in cash and cash equivalents
                  
                  
                  (2,544
                  )
                  
                  
                  (116
                  )Beginning
      cash and cash equivalents
                  
                  
                  8,362
                  
                  
                  
                  4,217Ending
      cash and cash equivalents
                  
                  $
                  5,818
                  
                  
                  $
                  4,101
 
 See
accompanying notes.
  6
  Kentucky
First Federal Bancorp
 
 CONSOLIDATED
STATEMENTS OF CASH FLOWS (CONTINUED)
 
 (Unaudited)
 (In
thousands)
 
 Six
      months endedDecember
      31,2010
                  
                  
                  2009Supplemental
      disclosure of cash flow information:Cash
      paid during the period for:Federal
      income taxes
                  
                  $
                  350
                  
                  
                  $
                  330Interest
      on deposits and borrowings
                  
                  $
                  1,915
                  
                  
                  $
                  2,890Transfers
      from loans to real estate acquired through foreclosure,
net
                  
                  $
                  523
                  
                  
                  $
                  261Loans
      made on sale of real estate acquired through foreclosure
                  
                  $
                  593
                  
                  
                  $
                  184Capitalization
      of mortgage servicing rights
                  
                  $
                  20
                  
                  
                  $
                  17
 
 See
accompanying notes.
  7
  Kentucky
First Federal Bancorp
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 December
31, 2010
 (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 U.S.
generally accepted accounting principles.  However, in the opinion of
management, all adjustments (consisting of only normal recurring adjustments,
except for the ESOP adjustments referenced below) which are necessary for a fair
presentation of the consolidated financial statements have been
included.  The results of operations for the six- and three-month
periods ended December 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, 2010 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 2010 filed
with the Securities and Exchange Commission.
 
 Allowance for Loan
Losses:  The allowance for loan losses is a valuation allowance
for probable incurred credit losses.  Loan losses are charged against
the allowance when management believes the uncollectibility of a loan balance is
confirmed.  Subsequent recoveries, if any, are credited to the
allowance. Management estimates the allowance balance required using past loan
loss experience, the nature and volume of the portfolio, information about
specific borrower situations and estimated collateral values, economic
conditions, and other factors.  Allocations of the allowance may be
made for specific loans, but the entire allowance is available for any loan
that, in management’s judgment, should be charged off.
  8
  Kentucky
First Federal Bancorp
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 December
31, 2010
 (unaudited)
 
 1. Basis of presentation
(continued)
 
 The
allowance consists of specific and general components.  The specific
component relates to loans that are individually classified as
impaired.
 
 A loan is
impaired when, based on current information and events, it is probable that the
Company will be unable to collect all amounts due according to the contractual
terms of the loan agreement.  Loans for which the terms have been
modified resulting in a concession, and for which the borrower is experiencing
financial difficulties, are considered troubled debt restructurings and
classified as impaired.
 
 Factors
considered by management in determining impairment include payment status,
collateral value, and the probability of collecting scheduled principal and
interest payments when due. Loans that experience insignificant payment delays
and payment shortfalls generally are not classified as
impaired.  Management determines the significance of payment delays
and payment shortfalls on case-by-case basis, taking into consideration all of
the circumstances surrounding the loan and the borrower, including the length of
the delay, the reasons for the delay, the borrower’s prior payment record, and
the amount of the shortfall in relation to the principal and interest
owed.
 
 Real
estate loans are individually evaluated for impairment.  If a loan is
impaired, a portion of the allowance is allocated so that the loan is reported,
net, at the present value of estimated future cash flows using the loan’s
existing rate or at the fair value of collateral if repayment is expected solely
from the collateral.  Large groups of smaller balance homogeneous
loans, such as consumer and residential real estate loans, are collectively
evaluated for impairment, and accordingly, they are not separately identified
for impairment disclosures.  Troubled debt restructurings are
separately identified for impairment disclosures and are measured at the present
value of estimated future cash flows using the loan’s effective rate at
inception.  If a troubled debt restructuring is considered to be a
collateral dependent loan, the loan is reported, net, at the fair value of the
collateral.  For troubled debt restructurings that subsequently
default, the Company determines the amount of reserve in accordance with the
accounting policy for the allowance for loan losses.
 
 The
general component covers non-impaired loans and is based on historical loss
experience adjusted for current factors.  The historical loss
experience is determined by portfolio segment and is based on the loss history
experience of the Company over the most recent three years and a rolling average
of the current year’s loss history.  This actual loss experience is
supplemented with other economic factors based on the risks present for each
portfolio segment.  These economic factors include consideration of
the following:  levels of and trends in delinquencies and impaired
loans; levels of and trends in charge-offs and recoveries; trends in volume and
terms of loans; effects of any changes in risk selection and underwriting
standards; other changes in lending policies, procedures, and practices;
experience, ability, and depth of lending management and other relevant staff;
national and local economic trends and conditions; industry conditions; and
effects of changes in credit concentrations.  The following portfolio
segments have been identified:  residential real estate,
nonresidential real estate, loans on deposits and consumer and other
loans.
  9
  Kentucky
First Federal Bancorp
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 December
31, 2010
 (unaudited)
 
 1. Basis of presentation
(continued)
 
 The
Securities and Exchange Commission (the “SEC” or “Commission”) Staff Accounting
Bulletin 108 (“SAB108”) provides guidance on quantifying and evaluating the
materiality of unrecorded misstatements.  SAB 108 requires that a
company uses both the “iron curtain” and “rollover” approaches when quantifying
misstatement amounts.  Under the rollover approach, the error is
quantified as the amount by which the current year income statement is
misstated.  The iron curtain approach, however, quantifies the error
as the cumulative errors using both a balance sheet and an income statement
approach – and evaluate whether either of these approaches results in
quantifying a misstatement that, when all relevant quantitative and qualitative
factors are considered, is material.
 
 The
Company has performed an analysis of its unrecorded misstatements using both the
rollover and iron curtain approaches.  Using the rollover method,
management concluded that none of its unrecorded misstatements were material to
its current period or prior periods’ financial statements.  Under the
iron curtain method, however, management concluded that the Company’s adjustment
related to additional compensation associated with its Employee Stock Ownership
Plan (“ESOP”) was material to the current period’s financial statements, but
using the rollover method was immaterial to its prior periods’ financial
statements.  This misstatement was related to an error associated with
the release of shares to ESOP participants.  The Company recorded a
one-time entry to retained earnings to correct the unrecorded misstatements on
the balance sheet.  The SAB 108 entries posted in the six-month period
ended December 31, 2010 and the effect on retained earnings and net income were
as follows:
 
 (in thousands)
                    
                    Effect on
                      Retained
                      Earnings
                    
                    
                    Effect on
                      Current
                      Year’s
                      EarningsRecording
      of prior years’ additional ESOP compensation expense
                    
                    $
                    (223
                    )
                    
                    $
                    —Income
      tax effect of the item above
                    
                    
                    76
                    
                    
                    
                    —Net
      SAB 108 effect
                    
                    
                    (147
                    )
                    
                    
                    —
 
 The
understatement of ESOP expense was discovered in the three month period ended
December 31, 2010, when the company was notified pursuant to a review by the
United States Department of Labor (“DOL”) that the Company had incorrectly
calculated the number of shares required to be released to participants of its
ESOP.  The incorrect method of calculating shares was in place from
March 2, 2005 through June 30, 2010.  The Company is working with the
DOL to take the necessary corrective action with regard to the
ESOP.  There is no current year effect for the adjustment related to
the additional ESOP compensation expense, which is applicable to prior
periods.
  10
  Kentucky
First Federal Bancorp
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 December
31, 2010
 (unaudited)
 
 1. Basis of presentation
(continued)
 
 The
applicable effect on the prior year balance sheet and statements of operations
related to additional ESOP compensation expense is as follows:
 
 (in thousands)
                      
                      
                      
                      
                      June 30,
                        2010Balance
      Sheet:Other
      liabilities as previously reported
                      
                      
                      
                      
                      $
                      1,749Income
      tax adjustment
                      
                      
                      
                      
                      
                      (76
                      )Other
      liabilities as adjusted
                      
                      
                      
                      
                      $
                      1,673Additional
      paid-in capital as previously reported
                      
                      
                      
                      
                      $
                      36,597ESOP
      compensation expense adjustment
                      
                      
                      
                      
                      
                      26Additional
      paid-in capital as adjusted
                      
                      
                      
                      
                      $
                      36,623Retained
      earnings as previously reported
                      
                      
                      
                      
                      $
                      31,363ESOP
      compensation expense adjustment (net of tax)
                      
                      
                      
                      
                      
                      (147
                      )Retained
      earnings as adjusted
                      
                      
                      
                      
                      $
                      31,216Unearned
      employee stock ownership plan (ESOP) as previously
reported
                      
                      
                      
                      
                      $
                      (2,366
                      )ESOP
      compensation expense adjustment
                      
                      
                      
                      
                      
                      197Unearned
      employee stock ownership plan (ESOP) as adjusted
                      
                      
                      
                      
                      $
                      (2,169
                      )Six-
      and three-months ended December 31, 2009
                      
                      Six
                        months
                        ended
                      
                      
                      Three
                        months
                        endedStatements
      of Operations:Employee
      compensation and benefits as previously reported
                      
                      $
                      1,526
                      
                      
                      $
                      780ESOP
      expense adjustment
                      
                      
                      37
                      
                      
                      
                      18Employee
      compensation and benefits as adjusted
                      
                      $
                      1,563
                      
                      
                      $
                      798Tax
      impact of total federal income tax expense (benefit) as previously
      reported
                      
                      $
                      (78
                      )
                      
                      $
                      110ESOP
      expense adjustment
                      
                      
                      (13
                      )
                      
                      
                      (6
                      )Total
      federal income tax expense (benefit) as adjusted
                      
                      $
                      (91
                      )
                      
                      $
                      104Net
      income (loss) as previously reported
                      
                      $
                      (147
                      )
                      
                      $
                      215ESOP
      expense adjustment (net of tax)
                      
                      
                      (24
                      )
                      
                      
                      (12
                      )Net
      income (loss) as adjusted
                      
                      $
                      (171
                      )
                      
                      $
                      203Earnings
      (loss) per share-basic and diluted as previously reported
                      
                      $
                      (0.02
                      )
                      
                      $
                      0.03ESOP
      expense adjustment
                      
                      
                      —
                      
                      
                      
                      —Earnings
      (loss) per share-basic and diluted as adjusted
                      
                      $
                      (0.02
                      )
                      
                      $
                      0.03
  11
  Kentucky
First Federal Bancorp
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
 December
31, 2010
 (unaudited)
 
 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.
 
 3.  Earnings Per
Share
 
 Diluted
earnings per share is computed taking into consideration common shares
outstanding and dilutive potential common shares to be issued or released under
the Company’s share-based compensation plans.  The factors used in the
basic and diluted earnings per share computations follow:
 
 Six
      months ended December 31,2010
                    
                    
                    2009(Restated)Net
      income (loss)
                    
                    $
                    757
                    
                    
                    $
                    (171
                    )Less
      earnings (loss) allocated to unvested shares
                    
                    
                    7
                    
                    
                    
                    (9
                    )Net
      income (loss) allocated to common shareholders, basic and
      diluted
                    
                    $
                    750
                    
                    
                    $
                    (180
                    )
 
 Three
      months ended December 31,2010
                      
                      
                      2009(Restated)Net
      income
                      
                      $
                      424
                      
                      
                      $
                      203Less
      earnings allocated to unvested shares
                      
                      
                      3
                      
                      
                      
                      7Net
      income allocated to common shareholders, basic and diluted
                      
                      $
                      421
                      
                      
                      $
                      196
 
 Six
      months ended December 31,2010
                          
                          
                          2009BasicWeighted-average
      common shares including unvested common shares outstanding
                          
                          
                          7,499,750
                          
                          
                          
                          7,562,968Less:
      Weighted-average unvested common shares
                          
                          
                          24,629
                          
                          
                          
                          38,850Weighted-average
      common shares outstanding
                          
                          
                          7,475,121
                          
                          
                          
                          7,524,118DilutedAdd:
      Dilutive effect of assumed exercise of stock options
                          
                          
                          -
                          
                          
                          
                          -Weighted-average
      common shares outstanding (diluted)
                          
                          
                          7,475,121
                          
                          
                          
                          7,524,118
  12
  Kentucky
First Federal Bancorp
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
 December
31, 2010
 (unaudited)
 
 3.  Earnings Per Share
(continued)
 
 Three
      months ended December 31,2010
                        
                        
                        2009BasicWeighted-average
      common shares including unvested Common shares outstanding
                        
                        
                        7,498,653
                        
                        
                        
                        7,561,360Less:
      Weighted-average unvested common shares
                        
                        
                        24,900
                        
                        
                        
                        51,800Weighted-average
      common shares outstanding
                        
                        
                        7,473,753
                        
                        
                        
                        7,509,560DilutedAdd:
      Dilutive effect of assumed exercise of stock options
                        
                        
                        -
                        
                        
                        
                        36,566Weighted-average
      common shares outstanding (diluted)
                        
                        
                        7,473,753
                        
                        
                        
                        7,546,126
 
 There
were 325,800 stock option shares outstanding for each of the six- and
three-month periods ended December 31, 2010, which were antidilutive for the
respective periods.  There were 339,200 stock option shares
outstanding for each of the six- and three-month periods ended December 31,
2009, which were antidilutive for the respective periods.
 
 4. New Accounting
Standards
 
 In
January 2010, the Financial Accounting Standards Board (FASB) issued Accounting
Standards Update (ASU) 2010-06, “Fair Value Measurements and
Disclosures — Improving Disclosures about Fair Value Measurements.” The
update requires new disclosures including significant transfers in and out of
Level 1 and Level 2 fair value measurements. Also, the ASU provides an
update on the reconciliation for fair value measurements using significant
unobservable inputs (Level 3). The new guidance is effective for interim and
annual periods beginning after December 15, 2009, except for the update on the
reconciliation of Level 3 fair value measurements, which is effective for fiscal
years beginning after December 15, 2010. The standard did not have an impact on
the Company’s consolidated financial statements.
  In July
2010, the FASB issued ASU No. 2010-20, “Disclosures about the Credit Quality
of Financing Receivables and the Allowance for Credit Losses,” which
requires significant new disclosures about the allowance for credit losses and
the credit quality of financing receivables, which for the Company includes
loans and standby letters of credit. The requirements are intended to enhance
transparency regarding credit losses and the credit quality of loan and lease
receivables. Under this standard, allowance for loan losses is to be disclosed
by portfolio segment, while credit quality information, impaired loans and
nonaccrual status are to be presented by class. Disclosure of the nature
and extent, the financial impact and segment information of troubled debt
restructurings will also be required. The disclosures are to be presented at the
level of disaggregation that management uses when assessing and monitoring the
portfolio’s risk and performance. This ASU is effective for interim and annual
reporting periods after December 15, 2010. The adoption of ASU 2010-20
resulted in additional quarterly disclosures regarding the allowance for credit
losses and credit financing receivables.
  13
  Kentucky
First Federal Bancorp
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
 December
31, 2010
 (unaudited)
 
 5.  Investment
Securities
 
 The
amortized cost, gross unrealized gains, gross unrealized losses and estimated
fair values of investment securities are summarized as follows:
 
 December
      31, 2010Gross
                    
                    
                    Gross
                    
                    
                    EstimatedAmortized
                    
                    
                    unrealized
                    
                    
                    unrealized
                    
                    
                    faircost
                    
                    
                    gains
                    
                    
                    losses
                    
                    
                    value(In
      thousands)Available-for-sale
      SecuritiesAgency
      mortgage-backed: residential
                    
                    $
                    219
                    
                    
                    $
                    6
                    
                    
                    $
                    (1
                    )
                    
                    $
                    224Held-to-maturity
      SecuritiesAgency
      mortgage-backed: residential
                    
                    $
                    7,881
                    
                    
                    $
                    405
                    
                    
                    $
                    -
                    
                    
                    $
                    8,286U.S.
      Treasury Notes
                    
                    
                    10,999
                    
                    
                    
                    1
                    
                    
                    
                    -
                    
                    
                    
                    11,000$
                    18,880
                    
                    
                    $
                    406
                    
                    
                    $
                    -
                    
                    
                    $
                    19,286
 
 June 30, 2010Gross
                    
                    
                    Gross
                    
                    
                    EstimatedAmortized
                    
                    
                    unrealized
                    
                    
                    unrealized
                    
                    
                    faircost
                    
                    
                    gains
                    
                    
                    losses
                    
                    
                    value(In
      thousands)Available-for-sale
      SecuritiesAgency
      mortgage-backed: residential
                    
                    $
                    240
                    
                    
                    $
                    7
                    
                    
                    $
                    (1
                    )
                    
                    $
                    246Held-to-maturity
      SecuritiesAgency
      mortgage-backed: residential
                    
                    $
                    9,435
                    
                    
                    $
                    591
                    
                    
                    $
                    -
                    
                    
                    $
                    10,026
 
 Our
securities holdings consist of agency mortgage-backed securities, which do not
have a single maturity date and a U.S. Treasury note that matures in January
2011.
 
 There
were no sales of investment securities during the fiscal year ended June 30,
2010 or the six-month period ended December 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.
  14
  Kentucky
First Federal Bancorp
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
 December
31, 2010
 (unaudited)
 
 6. Loans
Receivable
 
 The
composition of the loan portfolio was as follows:
 December
      31,
                    
                    
                    June
      30,2010
                    
                    
                    2010(In
      thousands)Residential
      real estateOne-
      to four-family
                    
                    $
                    161,841
                    
                    
                    $
                    165,818Multi-family
                    
                    
                    7,580
                    
                    
                    
                    6,689Construction
                    
                    
                    1,543
                    
                    
                    
                    1,916Nonresidential
      real estate and land
                    
                    
                    12,342
                    
                    
                    
                    10,943Loans
      on deposits
                    
                    
                    2,341
                    
                    
                    
                    2,754Consumer
      and other
                    
                    
                    4,873
                    
                    
                    
                    4,802190,520
                    
                    
                    
                    192,922Less:Undisbursed
      portion of loans in process
                    
                    
                    381
                    
                    
                    
                    631Deferred
      loan origination fees (cost)
                    
                    
                    (67
                    )
                    
                    
                    138Allowance
      for loan losses
                    
                    
                    1,567
                    
                    
                    
                    1,535$
                    188,639
                    
                    
                    $
                    190,618
  15
  Kentucky
First Federal Bancorp
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
 December
31, 2010
 (unaudited)
 
 6.  Loans Receivable
(continued)
 
 The
following table presents the balance in the allowance for loan losses and the
recorded investment in loans by portfolio class and based on impairment method
as of December 31, 2010.  There were no loans acquired with
deteriorated credit quality at December 31, 2010.
 
 (in thousands)
                    
                    Recorded
                      investment
                      in loans
                    
                    
                    Ending
                      allowance
                      attributed to
                      loans
                    
                    
                    Unallocated
                      allowance
                    
                    
                    Total
                      allowanceLoans
      individually evaluated for impairment:Residential
      real estate:One-
      to four-family
                    
                    $
                    7,633
                    
                    
                    $
                    896
                    
                    
                    $
                    —
                    
                    
                    $
                    896Multi-family
                    
                    
                    425
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —Construction
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —Nonresidential
      real estate and land
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —Loans
      on deposits
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —Consumer
      and other
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —$
                    8,058
                    
                    
                    $
                    896
                    
                    
                    $
                    —
                    
                    
                    $
                    896Loans
      collectively evaluated for impairment:Residential
      real estate:One-
      to four-family
                    
                    $
                    154,784
                    
                    
                    $
                    400
                    
                    
                    $
                    —
                    
                    
                    $
                    400Multi-family
                    
                    
                    7,180
                    
                    
                    
                    18
                    
                    
                    
                    —
                    
                    
                    
                    18Construction
                    
                    
                    1,167
                    
                    
                    
                    3
                    
                    
                    
                    —
                    
                    
                    
                    3Nonresidential
      real estate and land
                    
                    
                    12,381
                    
                    
                    
                    31
                    
                    
                    
                    —
                    
                    
                    
                    31Loans
      on deposits
                    
                    
                    2,348
                    
                    
                    
                    6
                    
                    
                    
                    —
                    
                    
                    
                    6Consumer
      and other
                    
                    
                    4,888
                    
                    
                    
                    13
                    
                    
                    
                    —
                    
                    
                    
                    13Unallocated
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    200
                    
                    
                    
                    200$
                    182,748
                    
                    
                    $
                    471
                    
                    
                    $
                    200
                    
                    
                    $
                    671
 
 Impaired
loans were as follows:
 December 31,
                    
                    
                    June 30,2010
                    
                    
                    2010(In thousands)Loans
      with no allocated allowance for loan losses
                    
                    $
                    2,382
                    
                    
                    $
                    1,348Loans
      with allocated allowance for loan losses
                    
                    
                    5,676
                    
                    
                    
                    5,370Total
                    
                    $
                    8,058
                    
                    
                    $
                    6,718Amount
      of allowance for loan losses allocated
                    
                    $
                    896
                    
                    
                    $
                    904
 
  16
  Kentucky
First Federal Bancorp
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
 December
31, 2010
 (unaudited)
 
 6.  Loans Receivable
(continued)
 
 The
following table presents loans individually evaluated for impairment by class of
loans as of December 31, 2010:
 
 (in thousands)
                    
                    Outstanding
                      Principal
                      Balance
                    
                    
                    Allowance
                      for Loan
                      Losses
                      AllocatedWith
      no related allowance recorded:One-
      to four-family
                    
                    $
                    1,957
                    
                    
                    $
                    —Multi-family
                    
                    
                    425
                    
                    
                    
                    —$
                    2,382
                    
                    
                    $
                    —With
      an allowance recorded:One-
      to four-family
                    
                    $
                    5,676
                    
                    
                    $
                    896
 
 Nonperforming
loans were as follows:
 December 31,
                          
                          
                          June 30,2010
                          
                          
                          2010(In
      thousands)Nonaccrual
      loans
                          
                          $
                          6,536
                          
                          
                          $
                          7,671Restructured
      loans
                          
                          
                          734
                          
                          
                          
                          —Loans
      past due 90 days or more and still accruing
                          
                          
                          —
                          
                          
                          
                          112Total
                          
                          $
                          7,270
                          
                          
                          $
                          7,783
 
 The
following table presents the recorded investment in nonaccrual and loans past
due over 90 days still on accrual by class of loans as of December 31,
2010:
 
 (in thousands)
                      
                      Nonaccrual
                      
                      
                      Loans Past
                        Due Over 90
                        Days Still
                        AccruingConsumer
      and other
                      
                      $
                      20
                      
                      
                      $
                      -1-4
      Family residential real estate
                      
                      
                      6,516
                      
                      
                      
                      -Total
                      
                      $
                      6,536
                      
                      
                      $
                      -
 
  17
  Kentucky
First Federal Bancorp
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
 December
31, 2010
 (unaudited)
 
 6. Loans Receivable
(continued)
 
 Troubled
Debt Restructurings:
 
 The
Company has allocated $10,000 of specific reserves to customers whose loan terms
have been modified in troubled debt restructurings as of December 31,
2010.  The Company has no commitments to lend additional amounts as of
December 31, 2010, to customers with outstanding loans that are classified as
troubled debt restructurings.
 
 The
following table presents the aging of the principal balance
outstanding in past due loans as of December 31, 2010, by class of
loans:
 
 (in thousands)
                  
                  30-89 Days
                    Past Due
                  
                  
                  Greater than
                    90 Days Past
                    Due
                  
                  
                  Total
                    Past Due
                  
                  
                  Loans Not
                    Past Due
                  
                  
                  TotalResidential
      real estate:One-to
      four-family
                  
                  $
                  3,572
                  
                  
                  $
                  6,516
                  
                  
                  $
                  10,088
                  
                  
                  $
                  151,753
                  
                  
                  $
                  161,841Multi-family
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  7,580
                  
                  
                  
                  7,580Construction
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  1,543
                  
                  
                  
                  1,543Nonresidential
      real estate and land
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  12,342
                  
                  
                  
                  12,342Loans
      on deposits
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  2,341
                  
                  
                  
                  2,341Consumer
      and other
                  
                  
                  —
                  
                  
                  
                  20
                  
                  
                  
                  20
                  
                  
                  
                  4,853
                  
                  
                  
                  4,873Total
                  
                  $
                  3,572
                  
                  
                  $
                  6,536
                  
                  
                  $
                  10,108
                  
                  
                  $
                  180,412
                  
                  
                  $
                  190,520
 
 Credit
Quality Indicators:
 
 The
Company categorizes loans into risk categories based on relevant information
about the ability of borrowers to service their debt such as: current financial
information, historical payment experience, credit documentation, public
information, and current economic trends, among other factors.  The
Company analyzes loans individually by classifying the loans as to credit
risk.  This analysis is performed on an annual basis.  The
Company uses the following definitions for risk ratings:
 
 Special
Mention.  Loans classified as special mention have a potential
weakness that deserves management’s close attention.  If left
uncorrected, these potential weaknesses may result in deterioration of the
repayment prospects for the loan or of the institution’s credit position at some
future date.
 
 Substandard.Loans
classified as substandard are inadequately protected by the current net worth
and paying capacity of the obligor or of the collateral pledged, if
any.  Loans so classified have a well-defined weakness or weaknesses
that jeopardize the liquidation of the debt.  They are characterized
by the distinct possibility that the institution will sustain some loss if the
deficiencies are not corrected.
 
 Doubtful.Loans
classified as doubtful have all the weaknesses inherent in those classified as
substandard, with the added characteristic that the weaknesses make collection
or liquidation in full, on the basis of currently existing facts, conditions and
values, highly questionable and improbable.
  18
  Kentucky
First Federal Bancorp
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
 December
31, 2010
 (unaudited)
 
 6. Loans Receivable
(continued)
 
 Loans not
meeting the criteria above that are analyzed individually as part of the
above-described process are considered to be pass rated loans.  Loans
listed that are not rated are included in groups of homogeneous loans and are
evaluated for credit quality based on performing status.  See the
aging of past due loan table above.  As of December 31, 2010, and
based on the most recent analysis performed, the risk category of loans by class
of loans is as follows:
 
 (in thousands)
                  
                  Pass
                  
                  
                  Special
                    Mention
                  
                  
                  Substandard
                  
                  
                  Doubtful
                  
                  
                  Not ratedResidential
      real estate:One-
      to four-family
                  
                  $
                  —
                  
                  
                  $
                  69
                  
                  
                  $
                  3,498
                  
                  
                  $
                  —
                  
                  
                  $
                  158,274Multi-family
                  
                  
                  3,920
                  
                  
                  
                  —
                  
                  
                  
                  3,660
                  
                  
                  
                  —
                  
                  
                  
                  —Construction
                  
                  
                  1,543
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —Nonresidential
      real estate and land
                  
                  
                  12,342
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —Loans
      on deposits
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  2,341Consumer
      and other
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  4,873
 
 7.  Allowance for Loan
Losses
 
 The
activity in the allowance for loan losses is summarized as follows:
 
 For
      the Six Months EndedDecember
      31,
                          
                          
                          December
      31,2010
                          
                          
                          2009(In
      thousands)Beginning
      balance
                          
                          $
                          1,535
                          
                          
                          $
                          678Provision
      for losses on loans
                          
                          
                          68
                          
                          
                          
                          1,028Charge-offs
                          
                          
                          (36
                          )
                          
                          
                          (88
                          )Ending
      balance
                          
                          $
                          1,567
                          
                          
                          $
                          1,618
  19
  Kentucky
First Federal Bancorp
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
 December
31, 2010
 (unaudited)
  8.  Commitments
  As of
December 31, 2010, loan commitments and unused lines of credit totaled $10.6
million, a decrease of $171,000 or 1.6% from the June 30, 2010
level.  At December 31, 2010, loan commitments included $381,000 in
undisbursed construction loans, a $250,000 or 39.6% decrease from the June 30,
2010 level, while one- to four-family mortgage loans totaled $987,000, a
$109,000 or 12.4% increase, other real estate totaled $188,000 and lines of
credit secured by equity in real property totaled $9.0 million, a $218,000 or
2.4% decrease between reference points.
 
 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.  Level 2 securities include agency mortgage-backed
securities.
  Impaired
Loans
  The fair
value of impaired loans with specific allocations of the allowance for loan
losses is generally based on recent independent real estate
appraisals.  These appraisals may utilize a single valuation approach
or a combination of approaches including comparable sales and the income
approach.  Adjustments are routinely made in the appraisal process by
the appraisers to adjust for difference between the comparable sales and income
data available.  Such adjustments are usually significant and
typically result in a Level 3 classification of the inputs for determining fair
value.  Independent appraisals for collateral-dependendent loans are
updated periodically (usually every 9-12 months).
  20


Kentucky First Federal
Bancorp





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)





December
31, 2010


(unaudited)





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




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




Fair Value Measurements at December 31, 2010(in thousands)Quotes Pricesin Active
                                                              
                                                              SignificantMarkets for
                                                              
                                                              Other
                                                              
                                                              SignificantIdentical
                                                              
                                                              Observable
                                                              
                                                              UnobservableAssets
                                                              
                                                              Inputs
                                                              
                                                              InputsDescription
                                                              
                                                              Total
                                                              
                                                              (Level 1)
                                                              
                                                              (Level 2)
                                                              
                                                              (Level 3)Agency
      mortgage-backed: residential
                                                              
                                                              $
                                                              224
                                                              
                                                              $
                                                              -
                                                              
                                                              $
                                                              224
                                                              
                                                              $
                                                              -





Fair Value Measurements at June 30, 2010.(in
      thousands)Quotes Pricesin
      Active
                                                  
                                                  SignificantMarkets
      for
                                                  
                                                  Other
                                                  
                                                  SignificantIdentical
                                                  
                                                  Observable
                                                  
                                                  UnobservableAssets
                                                  
                                                  Inputs
                                                  
                                                  InputsDescription
                                                  
                                                  Total
                                                  
                                                  (Level 1)
                                                  
                                                  (Level 2)
                                                  
                                                  (Level 3)Agency
      mortgage-backed: residential
                                                  
                                                  $
                                                  246
                                                  
                                                  $
                                                  -
                                                  
                                                  $
                                                  246
                                                  
                                                  $
                                                  -





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





Fair Value Measurements at December 31, 2010.(in
      thousands)Quotes Pricesin
      Active
                                                  
                                                  SignificantMarkets
      for
                                                  
                                                  Other
                                                  
                                                  SignificantIdentical
                                                  
                                                  Observable
                                                  
                                                  UnobservableAssets
                                                  
                                                  Inputs
                                                  
                                                  InputsDescription
                                                  
                                                  Total
                                                  
                                                  (Level 1)
                                                  
                                                  (Level 2)
                                                  
                                                  (Level 3)Impaired
      loans
                                                  
                                                  $
                                                  4,780
                                                  
                                                  $
                                                  -
                                                  
                                                  $
                                                  -
                                                  
                                                  $
                                                  4,780





Impaired
loans with allocated allowance for loan losses had a carrying amount of $5.7
million and a specific valuation allowance of $896,000 at December 31,
2010.  A specific allowance provision of $27,000 was made for the six-
and three month period ended December 31, 2010.





Fair Value Measurements at June 30, 2010(in
      thousands)Quotes Pricesin
      Active
                                                  
                                                  SignificantMarkets
      for
                                                  
                                                  Other
                                                  
                                                  SignificantIdentical
                                                  
                                                  Observable
                                                  
                                                  UnobservableAssets
                                                  
                                                  Inputs
                                                  
                                                  InputsTotal
                                                  
                                                  (Level 1)
                                                  
                                                  (Level 2)
                                                  
                                                  (Level 3)Impaired
      loans
                                                  
                                                  $
                                                  4,466
                                                  
                                                  $
                                                  -
                                                  
                                                  $
                                                  -
                                                  
                                                  $
                                                  4,466




21


Kentucky
First Federal Bancorp





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)





December
31, 2010


(unaudited)





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





Impaired
loans, which are measured for impairment using the fair value of this collateral
for collateral-dependent loans, with allocated allowance for loan losses had a
carrying amount of $5.4 million with a valuation allowance of $904,000 at June
30, 2010.





The
following 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.





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 December 31, 2010 and June 30,
2010:





Cash and cash
      equivalents and interest-bearing deposits:  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, which is level 1 pricing for the U.S. Treasury
      securities and level 2 pricing for the other
  securities..





Loans held for
      sale:  Loans originated and intended for sale in the
      secondary market are determined by FHLB pricing
  schedules.





Loans:  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:  It is not practicable to determine the fair value
      of FHLB stock due to restrictions placed on its
      transferability.





Accrued interest
      receivable:  The carrying amount is the estimated fair
      value.





Deposits:  The
      fair value of NOW accounts, passbook accounts, and money market deposits
      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.





22


Kentucky First Federal
Bancorp





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)





December
31, 2010


(unaudited)





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





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 December 31, 2010 and June 30, 2010, was not
material.





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





December 31, 2010
                                
                                
                                June 30, 2010Carrying
                                
                                
                                Fair
                                
                                
                                Carrying
                                
                                
                                Fairvalue
                                
                                
                                value
                                
                                
                                value
                                
                                
                                value(In
      Thousands)Financial
      assetsCash
      and cash equivalents
                                
                                $
                                5,818
                                
                                
                                $
                                5,818
                                
                                
                                $
                                8,362
                                
                                
                                $
                                8,362Interest-earning
      deposits
                                
                                
                                100
                                
                                
                                
                                100
                                
                                
                                
                                100
                                
                                
                                
                                100Available-for-sale
      securities
                                
                                
                                224
                                
                                
                                
                                224
                                
                                
                                
                                246
                                
                                
                                
                                246Held-to-maturity
      securities
                                
                                
                                18,880
                                
                                
                                
                                19,286
                                
                                
                                
                                9,435
                                
                                
                                
                                10,026Loans
      held for sale
                                
                                
                                202
                                
                                
                                
                                204
                                
                                
                                
                                370
                                
                                
                                
                                383Loans
      receivable - net
                                
                                
                                188,639
                                
                                
                                
                                194,558
                                
                                
                                
                                190,618
                                
                                
                                
                                198,203Federal
      Home Loan Bank stock
                                
                                
                                5,641
                                
                                
                                
                                n/a
                                
                                
                                
                                5,641
                                
                                
                                
                                n/aAccrued
      interest receivable
                                
                                
                                600
                                
                                
                                
                                600
                                
                                
                                
                                518
                                
                                
                                
                                518Financial
      liabilitiesDeposits
                                
                                $
                                143,270
                                
                                
                                $
                                144,931
                                
                                
                                $
                                144,969
                                
                                
                                $
                                147,280Advances
      from the Federal Home Loan Bank
                                
                                
                                38,196
                                
                                
                                
                                37,711
                                
                                
                                
                                32,009
                                
                                
                                
                                30,590Advances
      by borrowers for taxes and insurance
                                
                                
                                154
                                
                                
                                
                                154
                                
                                
                                
                                335
                                
                                
                                
                                335Accrued
      interest payable
                                
                                
                                130
                                
                                
                                
                                130
                                
                                
                                
                                145
                                
                                
                                
                                145





10.
            Subsequent
      event





Subsequent
to December 31, 2010, the Company reached a settlement with the Internal Revenue
Service regarding a claim made by the Company for a $1.4 million deduction,
which was previously disallowed by the Service and resulted in the Company’s
loss of an anticipated $443,000 tax refund.  The Company had filed a
law suit in the United States Tax Court claiming that it was entitled to deduct
payments that it had made with regard to stock options in March
2005.  The payments were coincident with the initial transactions
which were executed during the creation of the Company and joined the business
entities of the two subsidiary banks.  The court decision, which was
signed by the appropriate judge on February 3, 2011, stated that the Company is
entitled to a refund of $403,706 plus interest.  The Company
anticipates that the tax benefit will be recognized in its statement of
operations for the three-month period ending March 31, 2011.




23


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, 2010.





Average Balance
Sheets





The
following table represents the average balance sheets for the six month periods
ended December 31, 2010 and 2009, along with the related calculations of
tax-equivalent net interest income, net interest margin and net interest spread
for the related periods.





Six
      Months Ended December 31,2010
                  
                  
                  2009Average
                    Balance
                  
                  
                  Interest
                    And
                    Dividends
                  
                  
                  Yield/
                    Cost
                  
                  
                  Average
                    Balance
                  
                  
                  Interest
                    And
                    Dividends
                  
                  
                  Yield/
                    Cost(Dollars
      in thousands)Interest-earning
      assets:Loans
                  
                  $
                  190,924
                  
                  
                  $
                  5,159
                  
                  
                  
                  5.40
                  %
                  
                  $
                  190,695
                  
                  
                  $
                  5,282
                  
                  
                  
                  5.54
                  %Mortgage-backed
      securities
                  
                  
                  9,102
                  
                  
                  
                  193
                  
                  
                  
                  4.24
                  
                  
                  
                  11,815
                  
                  
                  
                  252
                  
                  
                  
                  4.26Other
      securities
                  
                  
                  1,535
                  
                  
                  
                  1
                  
                  
                  
                  0.13
                  
                  
                  
                  5,332
                  
                  
                  
                  91
                  
                  
                  
                  3.41Other
      interest-earning assets
                  
                  
                  13,168
                  
                  
                  
                  119
                  
                  
                  
                  1.81
                  
                  
                  
                  8,321
                  
                  
                  
                  134
                  
                  
                  
                  3.22Total
      interest-earning assets
                  
                  
                  214,729
                  
                  
                  
                  5,472
                  
                  
                  
                  5.10
                  
                  
                  
                  216,163
                  
                  
                  
                  5,759
                  
                  
                  
                  5.33Less:
      Allowance for loan losses
                  
                  
                  (1,526
                  )
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (1,132
                  )Non-interest-earning
      assets
                  
                  
                  24,405
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  22,622Total
      assets
                  
                  $
                  237,608
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  237,653Interest-bearing
      liabilities:Demand
      deposits
                  
                  $
                  13,712
                  
                  
                  $
                  49
                  
                  
                  
                  0.71
                  %
                  
                  $
                  11,600
                  
                  
                  $
                  57
                  
                  
                  
                  0.98
                  %Savings
                  
                  
                  29,626
                  
                  
                  
                  150
                  
                  
                  
                  1.01
                  
                  
                  
                  29,371
                  
                  
                  
                  146
                  
                  
                  
                  0.99Certificates
      of deposit
                  
                  
                  100,973
                  
                  
                  
                  1,221
                  
                  
                  
                  2.42
                  
                  
                  
                  99,323
                  
                  
                  
                  1,638
                  
                  
                  
                  3.30Total
      deposits
                  
                  
                  144,311
                  
                  
                  
                  1,420
                  
                  
                  
                  1.97
                  
                  
                  
                  140,294
                  
                  
                  
                  1,841
                  
                  
                  
                  2.62Borrowings
                  
                  
                  32,506
                  
                  
                  
                  404
                  
                  
                  
                  2.49
                  
                  
                  
                  35,561
                  
                  
                  
                  807
                  
                  
                  
                  4.54Total
      interest-bearing liabilities
                  
                  
                  176,817
                  
                  
                  
                  1,824
                  
                  
                  
                  2.06
                  
                  
                  
                  175,855
                  
                  
                  
                  2,648
                  
                  
                  
                  2.98Noninterest-Bearing
      demand deposits
                  
                  
                  972
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  1,202Noninterest-bearing
      liabilities
                  
                  
                  2,303
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  2,740Total
      liabilities
                  
                  
                  180,092
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  179,797Shareholders’
      equity
                  
                  
                  57,516
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  57,856Total
      liabilities and shareholders’ equity
                  
                  $
                  237,608
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  237,653Net
      interest income/average yield
                  
                  
                  
                  
                  
                  $
                  3,648
                  
                  
                  
                  3.04
                  %
                  
                  
                  
                  
                  
                  $
                  3,111
                  
                  
                  
                  2.35
                  %Net
      interest margin
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  3.40
                  %
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  2.88
                  %Average
      interest-earning assets to average interest-bearing
      liabilities
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  121.44
                  %
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  121.54
                  %




24





Kentucky
First Federal Bancorp





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


AND
RESULTS OF OPERATIONS





Average Balance
Sheets (continued)





The
following table represents the average balance sheets for the three month
periods ended December 31, 2010 and 2009, along with the related calculations of
tax-equivalent net interest income, net interest margin and net interest spread
for the related periods.





Three
      Months Ended December 31,2010
                  
                  
                  2009Average
                    Balance
                  
                  
                  Interest
                    And
                    Dividends
                  
                  
                  Yield/
                    Cost
                  
                  
                  Average
                    Balance
                  
                  
                  Interest
                    And
                    Dividends
                  
                  
                  Yield/
                    Cost(Dollars
      in thousands)Interest-earning
      assets:Loans
                  
                  $
                  190,830
                  
                  
                  $
                  2,577
                  
                  
                  
                  5.40
                  %
                  
                  $
                  191,355
                  
                  
                  $
                  2,634
                  
                  
                  
                  5.51
                  %Mortgage-backed
      securities
                  
                  
                  8,742
                  
                  
                  
                  93
                  
                  
                  
                  4.26
                  
                  
                  
                  11,554
                  
                  
                  
                  123
                  
                  
                  
                  4.26Other
      securities
                  
                  
                  2,969
                  
                  
                  
                  1
                  
                  
                  
                  0.14
                  
                  
                  
                  5,188
                  
                  
                  
                  44
                  
                  
                  
                  3.39Other
      interest-earning assets
                  
                  
                  12,277
                  
                  
                  
                  55
                  
                  
                  
                  1.79
                  
                  
                  
                  8,051
                  
                  
                  
                  64
                  
                  
                  
                  3.18Total
      interest-earning assets
                  
                  
                  214,818
                  
                  
                  
                  2,726
                  
                  
                  
                  5.08
                  
                  
                  
                  216,148
                  
                  
                  
                  2,865
                  
                  
                  
                  5.30Less:
      Allowance for loan losses
                  
                  
                  (1,520
                  )
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (1,577
                  )Non-interest-earning
      assets
                  
                  
                  24,542
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  22,710Total
      assets
                  
                  $
                  237,840
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  237,281Interest-bearing
      liabilities:Demand
      deposits
                  
                  $
                  14,205
                  
                  
                  $
                  24
                  
                  
                  
                  0.68
                  %
                  
                  $
                  11,618
                  
                  
                  $
                  24
                  
                  
                  
                  0.83
                  %Savings
                  
                  
                  29,688
                  
                  
                  
                  75
                  
                  
                  
                  1.01
                  
                  
                  
                  29,027
                  
                  
                  
                  74
                  
                  
                  
                  1.02Certificates
      of deposit
                  
                  
                  100,668
                  
                  
                  
                  582
                  
                  
                  
                  2.31
                  
                  
                  
                  99,831
                  
                  
                  
                  793
                  
                  
                  
                  3.18Total
      deposits
                  
                  
                  144,561
                  
                  
                  
                  681
                  
                  
                  
                  1.88
                  
                  
                  
                  140,476
                  
                  
                  
                  891
                  
                  
                  
                  2.54Borrowings
                  
                  
                  32,475
                  
                  
                  
                  161
                  
                  
                  
                  1.98
                  
                  
                  
                  35,242
                  
                  
                  
                  391
                  
                  
                  
                  4.44Total
      interest-bearing liabilities
                  
                  
                  177,036
                  
                  
                  
                  842
                  
                  
                  
                  1.90
                  
                  
                  
                  175,718
                  
                  
                  
                  1,282
                  
                  
                  
                  2.92Noninterest-Bearing
      demand deposits
                  
                  
                  985
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  1,418Noninterest-bearing
      liabilities
                  
                  
                  2,278
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  2,634Total
      liabilities
                  
                  
                  180,299
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  179,770Shareholders’
      equity
                  
                  
                  57,541
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  57,511Total
      liabilities and shareholders’ equity
                  
                  $
                  237,840
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  237,281Net
      interest income/average yield
                  
                  
                  
                  
                  
                  $
                  1,884
                  
                  
                  
                  3.18
                  %
                  
                  
                  
                  
                  
                  $
                  1,583
                  
                  
                  
                  2.38
                  %Net
      interest margin
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  3.51
                  %
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  2.93
                  %Average
      interest-earning assets to average interest-bearing
      liabilities
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  121.34
                  %
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  123.01
                  %




25





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, 2010 to December 31, 2010





Assets:  At
December 31, 2010, the Company’s assets totaled $241.4 million, an increase of
$4.5 million, or 1.9%, from total assets at June 30, 2010.  This
increase was attributed primarily an increase in investment
securities.





Cash and cash
equivalents:Cash and cash
equivalents decreased by $2.5 million to $5.8 million at December 31,
2010.  It is management’s intention to continue deploying excess
liquidity into mortgage loans and investment securities to the extent possible,
while maintaining adequate liquidity at all times.





Loans:  Loans
receivable, net, decreased by $2.0 million or 1.0% to $188.6 million at December
31, 2010, including a $68,000 provision for allowance for loan losses during the
six-month period.  Management continues to look for high-quality loans
to add to its portfolio and will continue to emphasize loan originations to the
extent that it is profitable and prudent.





Non-Performing
Loans: At December 31,
2010, the Company had non-performing loans of approximately $7.3 million, or
3.82% of total loans, compared to $7.8 million or 4.05%, of total loans at June
30, 2010.  At December 31, 2010, the Company’s allowance for loan losses of
$1.6 million represented 21.55% of nonperforming loans and 0.82% of total loans
compared to an allowance balance of $1.5 million at June 30, 2010, representing
19.72% of nonperforming loans and 0.8% of total loans.





The
Company had $7.5 million in assets classified as substandard for regulatory
purposes at December 31, 2010, including loans and real estate acquired through
foreclosure (“REO”).  Classified loans as a percentage of net loans
was 3.8% and 3.7% at December 31, 2010 and June 30, 2010,
respectively.  All substandard loans were secured by residential
property on which the banks have priority lien position.  The table
below summarizes substandard loans at December 31, 2010:





Numberof
                  
                  
                  CarryingLoans
                  
                  
                  Value1-4
      family, owner occupied
                  
                  
                  30
                  
                  
                  $
                  1,4891-4
      family, non-owner occupied
                  
                  
                  16
                  
                  
                  
                  2,010Multi-family,
      non-owner occupied
                  
                  
                  5
                  
                  
                  
                  3,660Total
      substandard loans
                  
                  
                  51
                  
                  
                  $
                  7,159





Included
in classified loans is one credit relationship which was determined to be
impaired during the three-month period ended December 31, 2009.  Since
that time foreclosure action has been commenced against the borrower and for the
three months ended December 31, 2010, the Company has been overseeing the rental
units under its assignment of rents.  At December 31, 2010, loans to
this borrower totaled $4.7 million, which had been written down to their
estimated fair value of $3.8 million and have underlying collateral of 1-4
family residential rental units.


26





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, 2010 to December 31, 2010
(continued)





At
December 31 2010, the Company had $69,000 of loans classified as special mention
compared to $269,000 at June 30, 2010.  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 December 31, 2010, no loans were
classified as doubtful or loss for regulatory purposes.





REO at
December 31, 2010, included five single-family homes and a small building lot
with an aggregate carrying value of $342,000.





Mortgage-Backed
and other Securities:  At December 31,
2010, the Company’s investment and mortgage-backed securities had increased $9.4
million or 97.3% to $19.1 million.  Shortly after the quarter-ended
December 31, 2010, the Company’s $11.0 million short-term investment in a U.S.
Treasury note matured and the short-term FHLB advance used to finance the
investment was repaid.





Liabilities:At December 31, 2010,
the Company’s liabilities totaled $183.3 million, an increase of $4.1 million,
or 2.3%, from total liabilities at June 30, 2010.  The increase in
liabilities was attributed primarily to a $6.2 million, or 19.3%, increase in
Federal Home Loan Bank advances, which increased to $38.2 million at December
31, 2010, while  deposits decreased $1.7 million or 1.2% to $143.3
million at December 31, 2010.  Shortly after the quarter-ended
December 31, 2010, an $11.0 million short-term FHLB advance was repaid with
proceeds from a matured short-term U.S. Treasury note.





Shareholders’
Equity:  At December 31, 2010, the Company’s shareholders’
equity totaled $58.2 million, an increase of $349,000 or 0.6% from the June 30,
2010 total.





The
Company paid dividends of $555,000 or 73.3% of net income for the six-month
period just ended.  First Federal MHC has waived its right to
dividends on its common shares of the Company.  The Company believes
that a strong dividend is appropriate in light of the high level of capital that
both banks now have.  At December 31, 2010, capital on a consolidated
basis and at each of the banks exceeded the level necessary to be considered
“well capitalized” and was sufficient, in management’s opinion, to support
foreseeable growth.  Management cannot speculate on future dividend
levels.  Various factors, including capital levels, income levels,
liquidity levels, regulatory requirements and overall financial condition of the
Company are considered before dividends are declared.  However,
management continues to believe that a strong dividend is consistent with the
Company’s long-term capital management strategy.





Comparison of Operating
Results for the Six-Month Periods Ended December 31, 2010 and
2009





General





Net
income totaled $757,000 for the six months ended December 31, 2010, an increase
of $928,000 from the net loss of $(171,000) for the same period in
2009.  The increase was primarily attributable to lower provision for
loan losses.  Also contributing to the increase in net income was an
increase in net interest income between periods.


27





Kentucky
First Federal Bancorp





MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION


AND
RESULTS OF OPERATIONS (continued)





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





Net Interest
Income





Net
interest income increased $537,000 or 17.3% to $3.6 million for the six month
period ended December 31, 2010, compared to the 2009 period, due to interest
expense decreasing at a faster pace than interest income.  Interest
income decreased by $287,000, or 5.0%, to $5.5 million, while interest expense
decreased $824,000 or 31.1% to $1.8 million for the six months ended December
31, 2010.





Interest
income on loans decreased $123,000 or 2.3% to $5.2 million, due primarily to a
decrease in the average rate earned on the loan portfolio.  The
average balance of loans outstanding for the six month period ended December 31,
2010, increased $230,000 or 0.1% to an average of $190.9 million for the six
months just ended, while the average rate earned declined 14 basis points to
5.40% for the period just ended.  Interest income on mortgage-backed
residential securities and other securities decreased $59,000 or 23.4% and
$90,000 or 98.9%, respectively, to $193,000 and $1,000, respectively, for the
six months ended December 31, 2010.  The decrease in the income from
securities was related to reduced volume, as securities matured and principal
from mortgage-backed securities flowed back to the Company.  There
were no sales of investments during the six month period just
ended.





Interest
expense on deposits and borrowings both declined period to
period.  Interest expense on deposits decreased $421,000 or 22.9% to
$1.4 million for the six month period ended December 31, 2010, while interest
expense on borrowings declined $403,000 or 49.9% to $404,000 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 65 basis points to 1.97% for the most recent
period, while the average balance of deposits increased $4.0 million or 2.9% to
$144.3 million.  The decline in interest expense on borrowings was
attributed primarily to lower rates paid on those borrowings outstanding, as the
average rate paid declined 205 basis points to 2.49% for the most recent
period.  The average balance of borrowings outstanding decreased $3.1
million or 8.6% to $32.5 million for the recently ended six-month
period.





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 $68,000 during the six
months ended December 31, 2010, compared to a provision of $1.0 million for the
six months ended December 31, 2009.  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 $154,000 for the six months ended December 31, 2010, an increase
of $26,000 from the same period in 2009, primarily as a result of an increase of
$33,000 or 55.9% in net gains on sales of loans.  The Company
continues to sell long-term, fixed rate mortgages to the Federal Home Loan Bank
of Cincinnati under the relationship that has been used for a number of
years.


28





Kentucky
First Federal Bancorp





MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION


AND
RESULTS OF OPERATIONS (continued)





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





Non-interest
Expense





Non-interest
expense totaled $2.6 million for the six months ended December 31, 2010, an
increase of $135,000, or 5.5%, compared to the same period in
2009.  The increase was due primarily to an increase in other
operating expense.





Other
operating expense totaled $442,000 for the six months ended December 31, 2010,
an increase of $115,000, or 35.2%, from the same period in 2009, primarily as a
result of increased OREO expenses, legal fees and other outside service
fees.  OREO expenses were $33,000 for the most recent six-month
period, compared to $7,000 for the year ago period, and were primarily
attributed to water damage sustained in a single dwelling unit.  Legal
fees were $69,000 for the six months ended December 31, 2010, an increase of
$29,000 or 72.5%, due chiefly to the Company’s ongoing dispute with the Internal
Revenue Service.  Outside service fees increased $33,000 or 99.2% to
$67,000 for the quarter just ended, and were associated with various consulting
work and fees related to filing the Company’s amended Securities and Exchange
Commission reports.





Federal Income Tax Expense
(Benefit)





Federal
income taxes totaled $369,000 for the six months ended December 31, 2010, an
increase of $460,000, compared to a provision for credit of federal income tax
of $91,000 for the prior year period, which was associated with a net loss from
operations.  The effective tax rates were 32.8% and (34.7%) for the
six month periods ended December 31, 2010 and 2009, respectively.





Subsequent
to December 31, 2010, the Company reached a settlement with the Internal Revenue
Service regarding a claim made by the Company for a $1.4 million deduction,
which was previously disallowed by the Service and resulted in the Company’s
loss of an anticipated $443,000 tax refund.  The Company had filed a
law suit in the United States Tax Court claiming that it was entitled to deduct
payments that it had made with regard to stock options in March
2005.  The payments were coincident with the initial transactions
which were executed during the creation of the Company and joined the business
entities of the two subsidiary banks.  The court decision, which was
signed by the appropriate judge on February 3, 2011, stated that the Company is
entitled to a refund of $403,706 plus interest.  The Company
anticipates that the tax benefit will be recognized in its statement of
operations for the three-month period ending March 31, 2011.




29





Kentucky
First Federal Bancorp





MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION


AND
RESULTS OF OPERATIONS (continued)





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





General





Net
income totaled $424,000 for the three months ended December 31, 2010, an
increase of $221,000 or 108.9% from the net income of $203,000 for the same
period in 2009.  The increase was primarily attributable to an
increase of $301,000 in net interest income and was partially offset by an
increase in non-interest expense of $5,000.





Net Interest
Income





Net
interest income increased $301,000 or 19.0% to $1.9 million for the three month
period ended December 31, 2010, compared to the 2009 period, due to interest
expense decreasing at a faster pace than interest income.  Interest
income decreased by $139,000, or 4.9%, to $2.7 million, while interest expense
decreased $440,000 or 34.3% to $842,000 for the three months ended December 31,
2010.





Interest
income on loans decreased $57,000 or 2.2% to $2.6 million, due primarily to a
decrease in the average rate earned on the loan portfolio.  The
average balance of loans outstanding for the three month period ended December
31, 2010, decreased $525,000 or 0.3% to an average of $190.8 million for the
three months just ended, while the average rate earned declined 11 basis points
to 5.40%.  Interest income on investments and mortgage-backed
securities decreased $73,000 or 43.7% to $94,000 for the three months ended
December 31, 2010, primarily as a result of maturity of the investment
securities.  The average balance of other securities outstanding
declined from $5.2 million for the three months ended December 31, 2009 to $3.0
million for the current period ended, while mortgage-backed residential
securities decreased $2.8 million or 24.3% to $8.7 million for the three month
period ended December 31, 2010.  The average rate earned on
mortgage-backed securities remained at 4.26% during the comparable periods,
while the average rate earned on other securities decreased 325 basis points to
0.14% for the period just ended.





Interest
expense on deposits and borrowings both declined period to
period.  Interest expense on deposits decreased $210,000 or 23.6% to
$681,000 for the three month period ended December 31, 2010, while interest
expense on borrowings declined $230,000 or 58.8% to $161,000 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 66 basis points to 1.88% for the most recent
period, while the average balance of interest-bearing deposits increased $4.1
million or 2.9% to $144.6 million.  The decline in interest expense on
borrowings was attributed both to lower interest rates paid and lower average
borrowings outstanding.  The average balance of borrowings declined
$2.8 million or 7.9% to $32.5 million for the most recent period, while the
average rate paid on borrowings decreased 246 basis points to 1.98% for the
recently ended three-month period.


30





Kentucky
First Federal Bancorp





MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION


AND
RESULTS OF OPERATIONS (continued)





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





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 $43,000 during the three
months ended December 31, 2010, compared to a provision of $60,000 for the three
months ended December 31, 2009.  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 $74,000 for the three months ended December 31, 2010, an increase
of $13,000 from the same period in 2009, primarily as a result of an increase in
the gain on sales of loans.  The gain on sale of  loans was
$64,000 for the recent quarter ended, an increase of $33,000 or 106.5%, compared
three month period in 2009.  Somewhat offsetting the increase in gain
on sale of loans was an increase in loss on sale of OREO.  The $39,000
loss on sale of OREO for the recent quarterly period, was $24,000, or 160.0%
higher compared with the prior year period.





Non-interest
Expense





Non-interest
expense totaled $1.3 million for the three months ended December 31, 2010, an
increase of $5,000, or 0.4%, compared to the same period in 2009.  The
increase was due primarily to an increase in other operating
expenses.  Other operating expense totaled $234,000 for the three
months ended December 31, 2010, an increase of $92,000, or 64.8%, from the same
period in 2009, primarily as a result of increased OREO expenses and outside
service fees.  OREO expenses were $33,000 for the most recent
quarterly period, while outside service fees increased $20,000 or 152.5% to
$34,000 for the quarter just ended.





Federal Income Tax
Expense





The
provision for federal income taxes totaled $209,000 for the three months ended
December 31, 2010, compared to $104,000 federal income tax expense in the same
period in 2009.  The effective tax rates were 33.0% and 33.9% for the
three month periods ended December 31, 2010 and 2009,
respectively.


31





Kentucky
First Federal Bancorp





ITEM
3:  Quantitative and Qualitative
Disclosures About Market Risk





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





ITEM
4:  Controls
and Procedures





The
Company’s Chief Executive Officer and Chief Financial Officer have evaluated the
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 and
a material weakness identified as of June 30, 2010 (see the Company’s Form 10-K
filed October 6, 2010), the Chief Executive Officer and Chief Financial Officer
have concluded that the Company’s disclosure controls and procedures were
ineffective.  In response to the material weakness the Company is
working with its external audit firm to revise its
procedures.




During
the quarter ended December 31, 2010, the Company was notified pursuant to a
review by the United States Department of Labor (“DOL”) that the Company had
incorrectly calculated the number of shares required to be released to
participants of its ESOP. The incorrect method of calculating shares was in
place from March 2, 2005 through June 30, 2010. The Company is working with the
DOL to take the necessary corrective action with regard to the ESOP. As a result
of the DOL notice, the Company recorded a prior period adjustment of $147,000 to
retained earnings for additional ESOP expense, net of tax, for the revised
number of shares required to be released. See Note 1 to the consolidated
financial statements. Management is evaluating actions to be taken to remediate
controls over the calculation of the number of shares released and the
accounting associated with the ESOP.




Notwithstanding
the evaluation and initiation of these remediation actions, the identified
material weaknesses in our internal controls over financial reporting will not
be considered remediated until the new controls are fully implemented, in
operation for a sufficient period of rinse, rested, and concluded by management
to be operating effectively.




32





Kentucky
First Federal Bancorp





PART
II





ITEM 1.
            Legal
      Proceedings




Not applicable.





ITEM1 A.
            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 December 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 programsOctober
      1-31, 2010
                
                
                —
                
                
                $
                —
                
                
                
                —
                
                
                
                97,500November
      1-30, 2010
                
                
                —
                
                
                $
                —
                
                
                
                —
                
                
                
                97,500December
      1-31, 2010
                
                
                —
                
                
                $
                —
                
                
                
                —
                
                
                
                97,500





(1) 
On May 14, 2010, the Company announced the completion of the stock repurchase
program begun on October 17, 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.




Not applicable.





ITEM 5.
            Other
      Information




None.




ITEM 6.
            Exhibits




3.11
                
                Charter
      of Kentucky First Federal Bancorp3.21
                
                Bylaws
      of Kentucky First Federal Bancorp4.11
                
                Specimen
      Stock Certificate of Kentucky First Federal Bancorp31.1
                
                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





(1)
            Incorporated
      herein by reference to the Company’s Registration Statement on Form S-1
      (File No. 333-119041).




33





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:
      February 15,
      2011
                      By:
                      /s/Tony D. WhitakerTony
      D. WhitakerChairman
      of the Board and Chief Executive OfficerDate:
      February 15,
      2011
                      By:
                      /s/R. Clay HuletteR.
      Clay HuletteVice
      President and Chief Financial
Officer


34