UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549  FORM 10-Q  (Mark One) xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) of THE SECURITIES EXCHANGE ACT OF 1934  For the quarterly period ended:March 31, 2007  OR  oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) of THE SECURITIES EXCHANGE ACT OF 1934  For the transition period from _____ to _____  Commission File Number:000-50592  K-FED BANCORP (Exact name of registrant as specified in its charter)  Federal
        
        20-0411486(State or other jurisdiction of incorporation)
        
        (I.R.S. Employer Identification No.)1359 N. Grand Avenue, Covina, CA
        
        91724(Address of principal executive offices)
        
        (Zip Code)  (800) 524-2274 (Registrants telephone number, including area code)  Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YesxNoo  Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange act. (Check one): Large accelerated filero
        Accelerated filero
        Non-accelerated filerx  Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YesoNox  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:  Common Stock, $.01 par value  13,969,661 shares outstanding as of May 1, 2007. 
        Form 10-Q  K-FED BANCORP Table of Contents  PagePart I.
        Financial InformationItem 1:
        Financial Statements (Unaudited)Consolidated Statements of Financial Condition at March 31, 2007 and June 30, 2006
        1Consolidated Statements of Income and Comprehensive Income for the Three and Nine Months Ended March 31, 2007 and 2006
        2Consolidated Statement of Stockholders Equity and Other Comprehensive Income for the Nine Months Ended March 31, 2007
        3Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2007 and 2006
        4Notes to Consolidated Financial Statements
        5Item 2:
        Managements Discussion and Analysis of Financial Condition and Results of Operations
        10Item 3:
        Quantitative and Qualitative Disclosures About Market Risk
        18Item 4:
        Controls and Procedures
        20Part II.
        Other InformationItem 1:
        Legal Proceedings
        21Item 1A:
        Risk Factors
        21Item 2:
        Unregistered Sales of Equity Securities and Use of Proceeds
        21Item 3:
        Defaults upon Senior Securities
        21Item 4:
        Submission of Matters to a Vote of Security Holders
        21Item 5:
        Other Information
        21Item 6:
        Exhibits
        21SIGNATURES
        22         Table of contents Part I  FINANCIAL INFORMATION Item 1. Financial Statements K-FED BANCORP AND SUBSIDIARY Consolidated Statements of Financial Condition (Unaudited) (Dollars in thousands, except share data) March 312007
        
        June 302006ASSETSCash and due from banks
        
        $
        11,974
        
        $
        7,244Federal funds sold
        
        
        45,890
        
        
        18,335Total cash and cash equivalents
        
        
        57,864
        
        
        25,579Interest bearing deposits in other financial institutions
        
        
        2,970
        
        
        9,010Securities available-for-sale
        
        
        10,661
        
        
        11,289Securities held-to-maturity, fair value of $21,675 and$23,939 at March 31, 2007 and June 30, 2006, respectively
        
        
        22,013
        
        
        24,738Federal Home Loan Bank stock, at cost
        
        
        9,186
        
        
        8,746Loans receivable
        
        
        673,278
        
        
        636,822Deferred net loan origination fees
        
        
        (149
        )
        
        (202
        )Net premium on purchased loans
        
        
        94
        
        
        195Allowance for loan losses
        
        
        (2,882
        )
        
        (2,722
        )Loans receivable, net
        
        
        670,341
        
        
        634,093Accrued interest receivable
        
        
        3,181
        
        
        2,767Premises and equipment, net
        
        
        3,562
        
        
        3,416Core deposit intangible
        
        
        350
        
        
        437Goodwill
        
        
        3,950
        
        
        3,950Bank-owned life insurance
        
        
        10,840
        
        
        10,514Other assets
        
        
        3,926
        
        
        4,360Total assets
        
        $
        798,844
        
        $
        738,899LIABILITIES AND STOCKHOLDERS EQUITYLiabilitiesDepositsNoninterest bearing
        
        $
        58,277
        
        $
        43,137Interest bearing
        
        
        455,653
        
        
        420,317Total deposits
        
        
        513,930
        
        
        463,454Federal Home Loan Bank advances, short-term
        
        
        10,000
        
        
        10,000Federal Home Loan Bank advances, long-term
        
        
        180,002
        
        
        169,948Accrued expenses and other liabilities
        
        
        3,236
        
        
        2,840Total liabilities
        
        
        707,168
        
        
        646,242Commitments and contingent liabilities
        
        
        
        
        
        Stockholders equityNonredeemable serial preferred stock, $.01 par value;2,000,000 shares authorized; issued and outstanding  none
        
        
        
        
        
        Common stock, $0.01 par value; 18,000,000 authorized;March 31, 2007  14,724,760 shares issued.June 30, 2006  14,702,040 shares issued.
        
        
        147
        
        
        147Additional paid-in capital
        
        
        57,334
        
        
        56,456Retained earnings
        
        
        48,419
        
        
        46,224Accumulated other comprehensive loss, net of tax
        
        
        (87
        )
        
        (247
        )Unearned employee stock ownership plan shares
        
        
        (3,184
        )
        
        (3,526
        )Treasury stock, at cost (March 31, 2007  755,099 shares;June 30, 2006  495,970 shares)
        
        
        (10,953
        )
        
        (6,397
        )Total stockholders equity
        
        
        91,676
        
        
        92,657Total liabilities and stockholders equity
        
        $
        798,844
        
        $
        738,899The accompanying notes are an integral part of these financial statements   1        Table of contents K-FED BANCORP AND SUBSIDIARY Consolidated Statements of Income and Comprehensive Income (Unaudited) (Dollars in thousands, except per share data)  Three Months Ended
March 31
        
        Nine Months Ended
March 312007
        
        2006
        
        2007
        
        2006Interest IncomeInterest and fees on loans
        
        $
        9,617
        
        $
        8,776
        
        $
        27,634
        
        $
        24,072Interest on securities, taxable
        
        
        324
        
        
        410
        
        
        1,008
        
        
        1,237Federal Home Loan Bank dividends
        
        
        133
        
        
        86
        
        
        369
        
        
        174Other interest
        
        
        394
        
        
        202
        
        
        1,428
        
        
        690Total interest income
        
        
        10,468
        
        
        9,474
        
        
        30,439
        
        
        26,173Interest ExpenseInterest on Federal Home Loan Bank advances
        
        
        2,071
        
        
        1,904
        
        
        6,162
        
        
        4,219Interest on deposits
        
        
        3,867
        
        
        2,868
        
        
        10,788
        
        
        8,298Total interest expense
        
        
        5,938
        
        
        4,772
        
        
        16,950
        
        
        12,517Net interest income
        
        
        4,530
        
        
        4,702
        
        
        13,489
        
        
        13,656Provision for loan losses
        
        
        116
        
        
        128
        
        
        419
        
        
        488Net interest income after provisionfor loan losses
        
        
        4,414
        
        
        4,574
        
        
        13,070
        
        
        13,168Noninterest incomeService charges and fees
        
        
        509
        
        
        428
        
        
        1,510
        
        
        1,382ATM fees and charges
        
        
        441
        
        
        371
        
        
        1,214
        
        
        1,108Referral commissions
        
        
        54
        
        
        53
        
        
        195
        
        
        168Loss on equity investment
        
        
        (30
        )
        
        (101
        )
        
        (85
        )
        
        (443
        )Bank-owned life insurance
        
        
        113
        
        
        107
        
        
        325
        
        
        321Other noninterest income
        
        
        6
        
        
        15
        
        
        20
        
        
        32Total noninterest income
        
        
        1,093
        
        
        873
        
        
        3,179
        
        
        2,568Noninterest expenseSalaries and benefits
        
        
        2,048
        
        
        1,850
        
        
        5,745
        
        
        5,436Occupancy and equipment
        
        
        516
        
        
        448
        
        
        1,545
        
        
        1,263ATM expense
        
        
        308
        
        
        282
        
        
        933
        
        
        862Advertising and promotional
        
        
        130
        
        
        93
        
        
        262
        
        
        296Professional services
        
        
        280
        
        
        180
        
        
        636
        
        
        560Postage
        
        
        82
        
        
        77
        
        
        230
        
        
        219Telephone
        
        
        122
        
        
        86
        
        
        340
        
        
        262Other operating expense
        
        
        365
        
        
        353
        
        
        1,122
        
        
        1,029Total noninterest expense
        
        
        3,851
        
        
        3,369
        
        
        10,813
        
        
        9,927Income before income tax expense
        
        
        1,656
        
        
        2,078
        
        
        5,436
        
        
        5,809Income tax expense
        
        
        543
        
        
        723
        
        
        1,863
        
        
        2,078Net income
        
        $
        1,113
        
        $
        1,355
        
        $
        3,573
        
        $
        3,731Comprehensive Income
        
        $
        1,149
        
        $
        1,356
        
        $
        3,733
        
        $
        3,657Earnings per common share:Basic
        
        $
        0.08
        
        $
        0.10
        
        $
        0.26
        
        $
        0.27Diluted
        
        $
        0.08
        
        $
        0.10
        
        $
        0.26
        
        $
        0.27The accompanying notes are an integral part of these financial statements   2        Table of contents K-FED BANCORP AND SUBSIDIARY Consolidated Statements of Stockholders Equity And Other Comprehensive Income (Unaudited) (Dollars in thousands, except share data)  Common Stock
        
        
        
        
        
        
        
        
        
        Treasury StockComprehensiveIncome
        
        Shares
        
        Amount
        
        AdditionalPaid-inCapital
        
        RetainedEarnings
        
        AccumulatedOtherComprehensiveLoss, net
        
        UnearnedESOPShares
        
        Shares
        
        Amount
        
        TotalBalance June 30, 2006
        
        
        
        
        14,702,040
        
        $
        147
        
        $
        56,456
        
        $
        46,224
        
        $
        (247
        )
        $
        (3,526
        )
        (495,970
        )
        $
        (6,397
        )
        $
        92,657Comprehensive incomeNet income for the nine months ended March 31, 2007
        
        $
        3,573
        
        
        
        
        
        
        
        
        
        
        3,573
        
        
        
        
        
        
        
        
        
        
        
        
        
        3,573Other comprehensive income  unrealized gain on securities, net of tax
        
        
        160
        
        
        
        
        
        
        
        
        
        
        
        
        
        160
        
        
        
        
        
        
        
        
        
        
        160Total comprehensive income
        
        $
        3,733Dividends paid ($0.29 per share) *
        
        
        
        
        
        
        
        
        
        
        
        
        
        (1,378
        )
        
        
        
        
        
        
        
        
        
        
        
        
        (1,378
        )Purchase of treasury stock
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        (259,129
        )
        
        (4,556
        )
        
        (4,556
        )Stock options earned
        
        
        
        
        
        
        
        
        
        
        181
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        181Stock options exercised
        
        
        
        
        11,720
        
        
        
        
        
        170
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        170Allocation of stock awards
        
        
        
        
        
        
        
        
        
        
        249
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        249Tax benefit of RRP shares vesting
        
        
        
        
        
        
        
        
        
        
        35
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        35Issuance of stock awards
        
        
        
        
        35,000
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        Forfeiture of stock awards
        
        
        
        
        (24,000
        )
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        Allocation of ESOP common stock
        
        
        
        
        
        
        
        
        
        
        243
        
        
        
        
        
        
        
        
        342
        
        
        
        
        
        
        
        585Balance March 31, 2007
        
        
        
        
        14,724,760
        
        $
        147
        
        $
        57,334
        
        $
        48,419
        
        $
        (87
        )
        $
        (3,184
        )
        (755,099
        )
        $
        (10,953
        )
        $
        91,676* K-Fed Mutual Holding Company waived its receipt of dividends on the 8,861,750 shares it owns.The accompanying notes are an integral part of these financial statements   3       Table of contents K-FED BANCORP AND SUBSIDIARY Consolidated Statements of Cash Flows (Unaudited) (Dollars in thousands) Nine Months Ended
March 312007
        
        2006Operating ActivitiesNet income
        
        $
        3,573
        
        $
        3,731Adjustments to reconcile net income to cash provided by operating activities:Amortization of net premiums on securities
        
        
        37
        
        
        81Amortization of net premiums on loan purchases
        
        
        239
        
        
        430Accretion of net loan origination fees
        
        
        (52
        )
        
        (54
        )Provision for loan losses
        
        
        419
        
        
        488Federal Home Loan Bank stock dividend
        
        
        (369
        )
        
        (174
        )Depreciation and amortization
        
        
        537
        
        
        346Amortization of core deposit intangible
        
        
        87
        
        
        99Loss on equity investment
        
        
        85
        
        
        443Increase in cash surrender value of bank-owned life insurance
        
        
        (325
        )
        
        (321
        )Accretion of net premiums on purchased certificates of deposits
        
        
        (37
        )
        
        (47
        )Amortization of debt exchange costs
        
        
        54
        
        
        133Allocation of ESOP common stock
        
        
        585
        
        
        423Allocation of stock awards
        
        
        249
        
        
        339Stock options earned
        
        
        181
        
        
        277Net change in accrued interest receivable
        
        
        (414
        )
        
        (689
        )Net change in other assets
        
        
        235
        
        
        (1,550
        )Net changes in accrued expenses and other liabilities
        
        
        396
        
        
        355Net cash provided by operating activities
        
        
        5,480
        
        
        4,310Investing ActivitiesProceeds from maturities of available-for-sale securities
        
        
        869
        
        
        1,518Purchases of held-to-maturity investments
        
        
        
        
        
        (2,000
        )Proceeds from maturities of held-to-maturity securities
        
        
        2,719
        
        
        6,842Decrease in interest bearing deposits at other institutions
        
        
        6,040
        
        
        Purchases of loans
        
        
        (72,670
        )
        
        (161,071
        )Net change in loans, excluding loan purchases
        
        
        35,817
        
        
        52,391Purchase of FHLB stock
        
        
        (71
        )
        
        (4,440
        )Purchase of equity investment
        
        
        
        
        
        (167
        )Purchases of premises and equipment
        
        
        (683
        )
        
        (1,717
        )Net cash used in investing activities
        
        
        (27,979
        )
        
        (108,644
        )Financing ActivitiesProceeds from FHLB advances
        
        
        20,000
        
        
        128,000Repayment of FHLB advances
        
        
        (10,000
        )
        
        (19,000
        )Dividends paid on common stock
        
        
        (1,378
        )
        
        (998
        )Purchase of treasury stock
        
        
        (4,556
        )
        
        (812
        )Net change in deposits
        
        
        50,513
        
        
        14,312Exercise of stock options
        
        
        170
        
        
        Tax benefit from RRP shares vesting
        
        
        35
        
        
        Net cash provided by financing activities
        
        
        54,784
        
        
        121,502Net change in cash and cash equivalents
        
        
        32,285
        
        
        17,168Cash and cash equivalents, at beginning of year
        
        
        25,579
        
        
        17,315Cash and cash equivalents, at end of period
        
        $
        57,864
        
        $
        34,483The accompanying notes are an integral part of these financial statements    4       Table of contents K-FED BANCORP AND SUBSIDIARY Notes to Consolidated Financial Statements (Unaudited)  Note 1 Nature of Business and Significant Accounting Policies  Nature of Business:  K-Fed Bancorp (or the Company) is a majority-owned subsidiary of K-Fed Mutual Holding Company (or the Parent). The Company and its Parent are holding companies that are federally chartered. The Companys sole subsidiary, Kaiser Federal Bank (or the Bank), is a federally chartered savings association, which provides retail and commercial banking services to individuals and business customers from its nine branch locations throughout California. While the Bank originates all types of retail and commercial real estate loans, the majority of its residential real estate loans have been purchased from other financial institutions.  The Companys business activities generally are limited to passive investment activities and oversight of our investment in the Bank. Unless the context otherwise requires, all references to the Company include the Bank and the Company on a consolidated basis.  Basis of Presentation:The financial statements of K-Fed Bancorp have been prepared in conformity with accounting principals generally accepted in the United States (GAAP) for interim financial information and predominant practices followed by the financial services industry, and are unaudited. In the opinion of the Companys management, all adjustments consisting of normal recurring accruals necessary for a fair presentation of the financial condition and results of operations for the interim periods included herein have been made.  The results of operations for the three and nine months ended March 31, 2007 are not necessarily indicative of the results of operations that may be expected for any other interim period or for the fiscal year ending June 30, 2007. Certain information and note disclosures normally included in the Companys annual financial statements have been condensed or omitted. Therefore, these consolidated financial statements and notes thereto should be read in conjunction with the consolidated financial statements and notes included in the 2006 Annual Report on Form 10-K filed with the Securities and Exchange Commission.  Principles of Consolidation:The consolidated financial statements presented in this quarterly report include the accounts of K-Fed Bancorp and its wholly-owned subsidiary, Kaiser Federal Bank. All material intercompany balances and transactions have been eliminated in consolidation.  Use of Estimates:The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of income and expenses during the reporting period. Changes in these estimates and assumptions are considered reasonably possible and may have a material impact on the consolidated financial statements and thus actual results could differ from the amounts reported and disclosed herein. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, the valuation of financial instruments, and mortgage-loan prepayment assumptions used to determine the effective
interest amortization of loan purchase premiums and discounts.  Newly Issued But Not Yet Effective Accounting Standards:In June 2006, the FASB issued Interpretation No. 48,Accounting for Uncertainty in Income Taxes(FIN 48) which supplements SFAS No. 109,Accounting for Income Taxes,by defining the confidence level that a tax position must meet in order to be recognized in the financial statements. The Interpretation requires that the tax effects of a position be recognized only if it is more-likely-than-not to be sustained based solely on its technical merits as of the reporting date. The more-likely-than-not threshold represents a positive assertion by management that a company is entitled to economic benefits of a tax position. If a tax position is not considered more-likely-than-not to be sustained based solely
on its technical merits, no benefits of the position are to be recognized. Moreover, the more-likely-than-not threshold must continue to be met in each reporting period to support continued recognition of a benefit.  At adoption, companies must adjust their financial statements to reflect only those tax positions that are more-likely-than-not to be sustained as of the adoption date. Any necessary adjustment would be recorded directly to retained earnings in the period of adoption and reported as a change in accounting principle.  FIN 48 is effective for fiscal years beginning after December 15, 2006.  We do not expect the adoption of this standard will have a significant impact on our financial condition or results of operations.  5        Table of contents  In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements which clarifies the principle that fair value should be based on  the  assumptions market participants would use when pricing an asset or liability  and  establishes  a  fair  value  hierarchy that prioritizes the information  used  to  develop  those assumptions. Under the standard, fair value measurement would be separately disclosed by level within the fair value hierarchy. SFAS 157 is effective for financial statements issued for fiscal  years  beginning  after November 15, 2007 (July 1, 2008 for us), and  interim  periods  within  those  fiscal  years,  with  early  adoption permitted.  We do not expect the adoption of this standard will have a significant impact on our financial condition or results of operations.  In  September  2006, the SEC issued Staff Accounting Bulletin No. 108 Considering  the  Effects  of  Prior  Year  Misstatements when Quantifying Misstatements  in  Current  Year Financial Statements (SAB 108). SAB 108 requires the evaluation of prior-year misstatements using both the balance sheet approach and the income statement approach. In the initial year of adoption should either approach result in quantifying an error that is material in light of quantitative and qualitative factors, SAB 108 guidance allows for a one-time cumulative-effect adjustment to beginning retained earnings.  In years subsequent to adoption, previously undetected misstatements deemed material shall result in the restatement of previously issued financial statements in accordance with FAS 154.  SAB 108 is effective for fiscal years ending on or after November 15, 2006.  We do not expect the adoption of
this standard will have a significant impact on our financial condition or results of operations.  Under  Emerging  Issues  Task  Force  (EITF)  06-4:  Accounting for deferred  compensation  and  postretirement  benefit aspects of endorsement split dollar life insurance arrangements, the EITF reached a consensus that requires  the  recognition  of  a  liability  related to the postretirement benefits covered by an endorsement split-dollar life insurance arrangement.  The consensus highlights that the employer who is the policy holder has a liability for the benefit it is providing to the employee. The employer has agreed to maintain the insurance policy in force for the employee's benefit during retirement, then the liability recognized during the employee's active service period should be based on the future cost of insurance to be incurred during the employee's retirement. Also, if the employer has agreed to provide the employee with a death benefit, then the liability for the future death
benefit should be recognized under SFAS 106. As of September 20, 2006, this FASB board ratified the above. It is applicable for fiscal years beginning after December 15, 2006. We do not expect the adoption of this standard will have a significant impact on our financial condition or results of operations.  Under EITF 06-5: Accounting for Purchases of Life Insurance - Determining the Amount That Could be Realized in Accordance with FASB Technical Bulletin No. 85-4, "Accounting for Purchases of Life Insurance", the Task Force reached a consensus that a policyholder should consider any additional amounts included in the contractual terms of the policy in determining the amount that could be realized under the insurance contract.  The task forces agreed that contractual limitations should be considered when determining the realizable amounts. Those amounts that are recoverable by the policyholder at the discretion of the insurance company should be excluded from the amount that could be realized. The task force also agreed that fixed amounts that are recoverable by the policyholder in future periods in excess of one year from the surrender of the policy should be recognized at their present value. The task force
also reached a consensus that a policyholder should determine the amount that could be realized under the life insurance contract assuming the surrender of an individual life by individual life policy. The Task force also noted that any amount that is ultimately realized by the policyholder upon the assumed surrender of the final policy shall be included in the amount that could be realized under the insurance contract. The issue should be effective for fiscal years beginning after December 15, 2006, but early adoption is permitted. This was ratified at the Task Force, September 20, 2006 meeting.  We do not expect the adoption of this standard will have a significant impact on our financial condition or results of operations.  In February 2007, the Financial Accounting Standards Board (the FASB) issued Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities-Including an amendment of FASB Statement No. 115, (FAS 159). FAS 159 provide companies with an option to report selected financial assets and liabilities at fair value. Most of the provisions of this statement apply only to entities that elect the fair value option. However, the amendment to FASB Statement No. 115, Accounting for Certain Investments in Debt and Equity Securities, applies to all entities with available-for-sale and trading securities. FAS 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. This statement is
effective as of the beginning of an entitys first fiscal year that begins after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the entity makes that election within the first 120 days of that fiscal year and also elects to apply the provisions of FASB Statement No. 157, Fair Value Measurements. We do not believe adoption of this Statement will have a material effect on the Companys consolidated financial statements.  6        Table of contents  Note 2 Employee Stock Ownership Plan  In connection with the stock offering of the Company in 2004, the Bank established an Employee Stock Ownership Plan (ESOP) for the benefit of its employees. The Company issued 454,940 shares of common stock to the ESOP in exchange for a ten-year note in the amount of approximately $4.5 million. The $4.5 million loan for the ESOP purchase was borrowed from the Company.  Shares issued to the ESOP are allocated to ESOP participants based on principal and interest payments made by the ESOP on the loan from the Company. The loan is secured by shares purchased with the loan proceeds and will be repaid by the ESOP with funds from the Companys contributions to the ESOP and earnings on ESOP assets. The $4.5 million loan for the ESOP purchase was borrowed from the Company and requires quarterly payments to be made by the Bank of approximately $139,000, which represents principal plus interest at 4.00%.  As shares are released from collateral, the Company will report compensation expense equal to the current market price of the shares and the shares will become outstanding for earnings-per-share (EPS) computations. Dividends on allocated ESOP shares reduce retained earnings; dividends on unearned ESOP shares reduce accrued interest expense.  Note 3 Employee Stock Compensation  Stock Option Plan (SOP). The Companys SOP provides for the issuance of options to directors, officers and employees.  Pursuant to the Companys 2004 SOP, 568,675 shares of the Companys common stock may be awarded.  Under the SOP, options become exercisable in equal installments over a five-year period from the date of grant and expire ten years from the date of grant.  Compensation expense, net of tax effects related to the SOP was $70,000 for the three months ended March 31, 2007 and $158,000 for the nine months ended March 31, 2007.  Compensation expense, net of tax effects related to the SOP was $82,000 for the three months ended March 31, 2006 and $247,000 for the nine months ended March 31, 2006.  The reduction in compensation expense related to stock options for the three and nine months ended March 31, 2007 was attributable to forfeitures.  A
summary of stock option activity follows:  Three months ended March 31, 2007
        
        Nine months ended March 31, 2007Shares
        
        
        Weighted
Average
Exercise Price
        
        
        Shares
        
        
        Weighted
Average
Exercise Price
        
        Weighted
Average
Remaining
Contractual
Term
        
        
        Aggregate
Intrinsic
ValueOutstanding at beginning of period
        349,860
        
        $
        14.50
        
        
        350,720
        
        $
        14.50Granted
        
        
        
        17.40
        
        
        62,000
        
        
        16.77Exercised
        1,460
        
        
        14.50
        
        
        11,720
        
        
        14.50Forfeited or expired
        
        
        
        14.50
        
        
        52,600
        
        
        14.50Outstanding at end of period
        348,400
        
        $
        14.83
        
        
        348,400
        
        $
        14.90
        
        7.63 years
        
        $
        1,322,872Options exercisable at end of period
        114,560
        
        $
        14.50
        
        
        114,560
        
        $
        14.50
        
        7.63 years
        
        $
        484,589  Three months ended March 31, 2007
        
        Nine months ended March 31, 2007(In thousands)Intrinsic value of stock options exercised
        
        $
        7
        
        $
        28Cash received from options exercised
        
        
        21
        
        
        170Tax benefit realized from option exercises
        
        
        
        
        
            7        Table of contents  Stock options granted during the three and nine months ended March 31, 2007 were computed using the Black-Scholes option pricing model to determine the fair value of options with the following assumptions as of the date of grant:  Three months ended March 31, 2007
        
        Nine months ended March 31, 2007Risk-free interest rate
        
        
        
        %
        
        4.67
        %Expected option life
        
        
        
        
        
        6.52 yearsExpected price volatility
        
        
        
        %
        
        23.35
        %Expected dividend yield
        
        
        
        %
        
        2.33
        %Estimated fair value of stock options granted
        
        $
        
        
        $
        4.25   Recognition and Retention Plan (RRP).The Companys RRP provides for the issuance of shares to directors, officers, and employees.  Compensation expense is recognized over the vesting period of the shares based on the market value at date of grant.  These shares vest over a five year period.  Compensation expense related to the RRP awards was $116,000 and $249,000 for the three months and nine months ended March 31, 2007, respectively.  Compensation expense related to the RRP awards was $108,000 and $339,000 for the three months and nine months ended March 31, 2006, respectively.  The reduction in compensation expense related to RRPs for the three and nine months ended March 31, 2007 was attributable to forfeitures.  There were 107,660 restricted shares outstanding and the Company had an aggregate of 62,930 restricted shares available for future issuance under the
RRP at March 31, 2007.  A summary of changes in the Companys RRP shares for the year follows:  Shares
        
        
        Weighted Average
Grant Date
Fair ValueRRP shares at July 1, 2006
        120,880
        
        $
        14.10Granted
        35,000
        
        
        17.58Vested
        (24,220
        )
        
        14.10Forfeited
        (24,000
        )
        
        14.10RRP shares at March 31, 2007
        107,660
        
        $
        15.23   8        Table of contents  Note 4 Earnings Per Share  Basic earnings per common share is net income divided by the weighted average number of common shares outstanding during the period. ESOP shares are considered outstanding for this calculation unless unearned. Diluted earnings per common share includes the dilutive effect of additional potential common shares issuable under stock options and stock awards. Three months endedMarch 31,
        
        
        
        Nine months endedMarch 31,2007
        
        
        
        2006
        
        
        
        2007
        
        
        
        2006(Dollars in thousands)Net income as reported
        
        $
        1,113
        
        
        
        $
        1,355
        
        
        
        $
        3,573
        
        
        
        $
        3,731Weighted average common shares outstanding
        
        
        13,582,837
        
        
        
        
        13,867,828
        
        
        
        
        13,654,354
        
        
        
        
        13,872,284Basic earnings per share
        
        $
        0.08
        
        
        
        $
        0.10
        
        
        
        $
        0.26
        
        
        
        $
        0.27Earnings per share assuming dilutionNet income available to common shareholders
        
        $
        1,113
        
        
        
        $
        1,355
        
        
        
        $
        3,573
        
        
        
        $
        3,731Weighted average common shares outstandingDilutive effect of stock options
        
        
        21,023
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        Dilutive effect of stock awards
        
        
        23,894
        
        
        
        
        
        
        
        
        
        20,871
        
        
        
        
        Average common shares and dilutive potential common shares
        
        
        13,627,754
        
        
        
        
        13,867,828
        
        
        
        
        13,675,225
        
        
        
        
        13,872,284Diluted earnings per share
        
        $
        0.08
        
        
        
        $
        0.10
        
        
        
        $
        0.26
        
        
        
        $
        0.27  The effect of stock options and stock awards was not included in the calculation of diluted earnings per share for the three and nine months ended March 31, 2006 because to do so would have been anti-dilutive.  Note 5 Legal Matters  In March 2007, U.S. Mortgage converted its Chapter 11 bankruptcy to a Chapter 7 in the District Court of Nevada. U.S. Mortgage was responsible for servicing various commercial real estate participation loans totaling approximately $1 million for the Bank. Through this transition period, all servicing functions of U.S. Mortgage are being handled by the Bankruptcy Trustee.  During the course of these proceedings, U.S. Bank has asserted a claim against $500,000 of the $1 million being serviced by U.S. Mortgage. Kaiser Federal Bank is vigorously contesting this claim and believes it has the proper ownership interest in these loans. As a result, no significant material losses are expected at this time.   9        Table of contents  Item 2.
        MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS  Forward-Looking Information  This Quarterly Report on Form 10-Q contains certain forward-looking statements and information relating to the Company and the Bank that are based on the beliefs of management as well as assumptions made by and information currently available to management. In addition, in portions of this document the words anticipate, believe, estimate, expect, intend, should and similar expressions or the negative thereof, as they relate to the Company or the Bank or their management, are intended to identify forward-looking statements. Such statements reflect the current views of the Company and/or the Bank with respect to forward-looking events and are subject to certain risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize or should underlying assumptions prove incorrect, actual results may vary
materially from those described herein as anticipated, believed, estimated, expected or intended. The Company does not intend to update these forward-looking statements.  Comparison of Financial Condition at March 31, 2007 and June 30, 2006.  Assets:Cash and cash equivalents increased $32.3 million, or 126.2% to $57.9 million at March 31, 2007 from $25.6 million at June 30, 2006. The increase related to federal funds sold, which increased $27.6 million to $45.9 million at March 31, 2007 from $18.3 million at June 30, 2006 and cash and cash equivalents which increased $4.8 million to $12.0 million at March 31, 2007 from $7.2 million at June 30, 2006.  Our investment portfolio decreased $3.4 million, or 9.3% to $32.7 million at March 31, 2007 from $36.0 million at June 30, 2006. The decrease was attributable to normal repayments of principal on our mortgage-backed securities and collateralized mortgage obligations.  Our net loan portfolio increased $36.2 million, or 5.7% to $670.3 million at March 31, 2007 from $634.1 million at June 30, 2006. One-to-four family real estate loans increased $14.0 million, or 3.2% to $451.1 million at March 31, 2007 from $437.0 million at June 30, 2006.  Commercial real estate loans increased $8.9 million, or 15.2% to $67.8 million at March 31, 2007 from $58.9 million at June 30, 2006.  Multifamily loans decreased $155,000 to $89.1 million at March 31, 2007 from $89.2 million at June 30, 2006.  Other loans which are comprised primarily of auto loans increased $13.6 million, or 26.3% to $65.4 million at March 31, 2007 from $51.7 million at June 30, 2006. The overall loan mix remained relatively constant, with real estate loans comprising 90.3% of the total loan portfolio at March 31, 2007, compared with 91.9% at June 30, 2006.  Deposits:Total deposits increased $50.5 million, or 10.9% to $513.9 million at March 31, 2007 from $463.5 million at June 30, 2006. This increase was primarily due to increases of $15.1 million in checking accounts, $42.1 million in savings accounts and $18.2 million in certificates of deposits.  These increases were offset by reductions of $24.9 million in money market accounts.  The increase in checking account balances was primarily attributable to Kaiser Permanentes payroll cycle coinciding with the March 31, 2007 quarter end date. Based on our historical experience with Kaiser Permanentes bi-weekly payroll cycle, deposit inflows coinciding with a third payroll cycle in one month are withdrawn at a faster than normal rate and we expect this to occur in subsequent months.  Savings account balances grew as a result of a tiered, high yield product introduced in
September 2006.  Certificates of deposit balances grew as a result of higher yield, short term products introduced in October 2006.  Borrowings:Advances from the Federal Home Loan Bank of San Francisco increased $10.1 million, or 5.6% to $190.0 million at March 31, 2007 from $179.9 million at June 30, 2006.  This increase in FHLB borrowings was used to fund loan growth during the period. The Company interchanges the use of deposits and borrowings to fund assets depending on various factors including liquidity and asset/liability management strategies.   10        Table of contents  Stockholders Equity:Stockholders equity decreased $981,000 to $91.7 million at March 31, 2007 from $92.7 million at June 30, 2006.  The decrease resulted from the repurchase of 259,129 of our outstanding common shares at an average price of $17.58 for a total cost of $4.6 million and cash payments of $1.4 million in dividends to shareholders of record, excluding shares held by K-Fed Mutual Holding Company, of $0.29 per share for the nine months ended March 31, 2007.  This decrease was offset by $3.6 million in income earned for the nine months ended March 31, 2007 in addition to the allocation of ESOP shares, stock awards, and stock options earned during the same period totaling $1.2 million.  Average Balances, Net Interest Income, Yields Earned and Rates Paid  For the three months ended March 31,2007 (4)
        
        
        
        
        
        
        
        2006 (4)Average
        
        
        
        
        
        
        
        AverageAverage
        
        
        
        Yield/
        
        
        
        Average
        
        
        
        Yield/Balance
        
        Interest
        
        Cost
        
        
        
        Balance
        
        Interest
        
        Cost(Dollars in thousands)INTEREST-EARNING ASSETSLoans receivable(1)
        
        $
        670,319
        
        $
        9,617
        
        5.74
        %
        
        
        $
        643,812
        
        $
        8,776
        
        5.45
        %Securities(2)
        
        
        32,992
        
        
        324
        
        3.93
        %
        
        
        
        43,985
        
        
        410
        
        3.73
        %Fed Funds
        
        
        25,832
        
        
        333
        
        5.16
        %
        
        
        
        10,535
        
        
        110
        
        4.18
        %Federal Home Loan Bank stock
        
        
        9,142
        
        
        133
        
        5.82
        %
        
        
        
        8,570
        
        
        86
        
        4.01
        %Interest-bearing deposits in other financial institutions
        
        
        2,970
        
        
        25
        
        3.37
        %
        
        
        
        9,010
        
        
        80
        
        3.55
        %Other interest-earning assets
        
        
        2,700
        
        
        36
        
        5.33
        %
        
        
        
        1,214
        
        
        12
        
        3.95
        %Total interest-earning assets
        
        
        743,955
        
        
        10,468
        
        5.63
        %
        
        
        
        717,126
        
        
        9,474
        
        5.28
        %Noninterest earning assets
        
        
        34,177
        
        
        
        
        
        
        
        
        
        31,264Total assets
        
        $
        778,132
        
        
        
        
        
        
        
        
        $
        748,390INTEREST-BEARING  LIABILITIESMoney Market
        
        $
        88,028
        
        $
        631
        
        2.87
        %
        
        
        $
        113,301
        
        $
        632
        
        2.23
        %Savings deposits
        
        
        124,827
        
        
        585
        
        1.87
        %
        
        
        
        91,116
        
        
        92
        
        0.40
        %Certificates of deposit
        
        
        233,447
        
        
        2,651
        
        4.54
        %
        
        
        
        220,364
        
        
        2,144
        
        3.89
        %FHLB advances
        
        
        189,996
        
        
        2,071
        
        4.36
        %
        
        
        
        179,890
        
        
        1,904
        
        4.23
        %Total interest-bearing liabilities
        
        
        636,298
        
        
        5,938
        
        3.73
        %
        
        
        
        604,671
        
        
        4,772
        
        3.16
        %Noninterest bearing liabilities
        
        
        49,986
        
        
        
        
        
        
        
        
        
        50,722Total liabilities
        
        
        686,284
        
        
        
        
        
        
        
        
        
        655,393Equity
        
        
        91,848
        
        
        
        
        
        
        
        
        
        92,997Total liabilities and equity
        
        $
        778,132
        
        
        
        
        
        
        
        
        $
        748,390Net interest/spread
        
        
        
        
        $
        4,530
        
        1.90
        %
        
        
        
        
        
        $
        4,702
        
        2.12
        %Margin(3)
        
        
        
        
        
        
        
        2.44
        %
        
        
        
        
        
        
        
        
        2.62
        %Ratio of interest-earning assets to interest bearing liabilities
        
        
        116.92
        %
        
        
        
        
        
        
        
        
        118.60
        %(1) Calculated net of deferred fees and loss reserves and includes non-accrual loans(2) Calculated based on amortized cost(3) Net interest income divided by interest-earning assets(4) Rates have been annualized    11        Table of contents  For the nine months ended March 31,2007 (4)
        
        
        
        
        
        
        
        2006 (4)Average
        
        
        
        
        
        
        
        AverageAverage
        
        
        
        Yield/
        
        
        
        Average
        
        
        
        Yield/Balance
        
        Interest
        
        Cost
        
        
        
        Balance
        
        Interest
        
        Cost(Dollars in thousands)INTEREST-EARNING ASSETSLoans receivable(1)
        
        $
        652,651
        
        $
        27,634
        
        5.65
        %
        
        
        $
        602,463
        
        $
        24,072
        
        5.33
        %Securities(2)
        
        
        34,255
        
        
        1,008
        
        3.92
        %
        
        
        
        45,929
        
        
        1,237
        
        3.59
        %Fed Funds
        
        
        30,220
        
        
        1,166
        
        5.14
        %
        
        
        
        15,544
        
        
        423
        
        3.63
        %Federal Home Loan Bank stock
        
        
        8,998
        
        
        369
        
        5.47
        %
        
        
        
        6,645
        
        
        174
        
        3.49
        %Interest-bearing deposits in other financial institutions
        
        
        5,911
        
        
        153
        
        3.45
        %
        
        
        
        9,010
        
        
        220
        
        3.26
        %Other interest-earning assets
        
        
        2,495
        
        
        109
        
        5.82
        %
        
        
        
        1,311
        
        
        47
        
        4.78
        %Total interest-earning assets
        
        
        734,530
        
        
        30,439
        
        5.53
        %
        
        
        
        680,902
        
        
        26,173
        
        5.13
        %Noninterest earning assets
        
        
        28,575
        
        
        
        
        
        
        
        
        
        30,243Total assets
        
        $
        763,105
        
        
        
        
        
        
        
        
        $
        711,145INTEREST-BEARING  LIABILITIESMoney Market
        
        $
        100,273
        
        $
        2,145
        
        2.85
        %
        
        
        $
        110,995
        
        $
        1,645
        
        1.98
        %Savings deposits
        
        
        110,221
        
        
        1,221
        
        1.48
        %
        
        
        
        95,465
        
        
        298
        
        0.42
        %Certificates of deposit
        
        
        229,545
        
        
        7,422
        
        4.31
        %
        
        
        
        223,516
        
        
        6,355
        
        3.79
        %FHLB advances
        
        
        186,978
        
        
        6,162
        
        4.39
        %
        
        
        
        138,950
        
        
        4,219
        
        4.05
        %Total interest-bearing liabilities
        
        
        627,017
        
        
        16,950
        
        3.60
        %
        
        
        
        568,926
        
        
        12,517
        
        2.93
        %Noninterest bearing liabilities
        
        
        43,622
        
        
        
        
        
        
        
        
        
        50,192Total liabilities
        
        
        670,639
        
        
        
        
        
        
        
        
        
        619,118Equity
        
        
        92,466
        
        
        
        
        
        
        
        
        
        92,027Total liabilities and equity
        
        $
        763,105
        
        
        
        
        
        
        
        
        $
        711,145Net interest/spread
        
        
        
        
        $
        13,489
        
        1.93
        %
        
        
        
        
        
        $
        13,656
        
        2.20
        %Margin(3)
        
        
        
        
        
        
        
        2.45
        %
        
        
        
        
        
        
        
        
        2.67
        %Ratio of interest-earning assets to interest bearing liabilities
        
        
        117.15
        %
        
        
        
        
        
        
        
        
        119.68
        %(1) Calculated net of deferred fees and loss reserves and includes non-accrual loans(2) Calculated based on amortized cost(3) Net interest income divided by interest-earning assets(4) Rates have been annualized    12        Table of contents  Comparison of Results of Operations for the Three Months Ended March 31, 2007 and March 31, 2006.  General.Net income for the three months ended March 31, 2007 was $1.1 million, a decrease of $242,000, or 17.9%, compared to net income of $1.4 million for the three months ended March 31, 2006. Earnings per basic and diluted common share were $0.08 for the three months ended March 31, 2007 compared to $0.10 for the three months ended March 31, 2006. The change in net income resulted from the fluctuations described below.  Interest Income.Interest income increased by $994,000 or 10.5%, to $10.5 million for the three months ended March 31, 2007 from $9.5 million for the three months ended March 31, 2006. The primary factor for the increase in interest income was an increase in the average loans receivable balance of $26.5 million or 4.1%, from $643.8 million for the three months ended March 31, 2006 to $670.3 million for the three months ended March 31, 2007. This increase was primarily due to whole loan purchases of one-to-four family residential real estate loans. Interest income was also positively impacted by a 29 basis point increase in the average yield on loans receivable, from 5.45% for the three months ended March 31, 2006 to 5.74% for the three months ended March 31, 2007.  The increase was primarily attributable to the addition of higher-yielding single-family loans to our portfolio,
commensurate with increases in general market rates.  Interest income on securities decreased by $86,000 or 21.0%, to $324,000 for the three months ended March 31, 2007 from $410,000 for the three months ended March 31, 2006. The decrease resulted from a $11.0 million, or 25.0% decrease in the average balance of securities as a result of principal repayments. The decrease was partially offset by a 20 basis point increase in the average yield on the securities investment portfolio from 3.73% for the three months ended March 31, 2006 to 3.93% for the three months ended March 31, 2007, commensurate with increases in general market rates.  Other interest income increased by $192,000 or 95.0% to $394,000 for the three months ended March 31, 2007 from $202,000 for the three months ended March 31, 2006.  The increase was attributable to an increase in the average balance of fed funds sold of $15.3 million or 145.2%, from $10.5 million for the three months ended March 31, 2006 to $25.8 million for the three months ended March 31, 2007.  The increase in fed funds was attributable to deposit growth during the comparable periods. Interest income was also positively impacted by a 98 basis point increase in the average yield earned on fed funds sold, from 4.18% for the three months ended March 31, 2006 to 5.16% for the three months ended March 31, 2007.  The increase was primarily attributable to increases in general market rates.  Interest Expense. Interest expense increased $1.1 million, or 24.4%, for the three months ended March 31, 2007 to $5.9 million as compared to $4.8 million for the three months ended March 31, 2006. The increase was primarily attributable to an increase in average deposits and FHLB advances, combined with higher interest rates. The average interest rates on interest-bearing liabilities increased 57 basis points to 3.73% for the three months ended March 31, 2007 from 3.16% for the three months ended March 31, 2006. Average interest-bearing liabilities increased $31.6 million or 5.2% to $636.3 million for the three months ended March 31, 2007 from $604.7 million for the three months ended March 31, 2006.  Net Interest Income.  Net income before provision for loan losses decreased $172,000 or 3.7%, to $4.5 million for the three months ended March 31, 2007 from $4.7 million for the three months ended March 31, 2006.  The decline was attributable to continued compression in our net interest margin as a result of the inverted yield curve.  As a result, the net interest margin decreased 18 basis points from 2.62% for the three months ended March 31, 2006 to 2.44% for the three months ended March 31, 2007. Provision for Loan Losses.We maintain an allowance for loan losses to absorb probable incurred losses inherent in the loan portfolio. The allowance is based on ongoing, quarterly assessments of the probable losses inherent in the loan portfolio. Our methodology for assessing the appropriateness of the allowance consists of several key elements, which include loss ratio analysis by type of loan and specific allowances for identified problem loans, including the results of measuring impaired loans as provided in Statement of Financial Accounting Standards (SFAS) No. 114, Accounting by Creditors for Impairment of a Loan and SFAS No. 118, Accounting by Creditors for Impairment of a Loan  Income Recognition and Disclosures.  These accounting standards prescribe the measurement methods, income
recognition and disclosures related to impaired loans.   13        Table of contents The loss ratio analysis component of the allowance is calculated by applying loss factors to outstanding loans based on the internal risk evaluation of the loans or pools of loans. Changes in risk evaluations of both performing and nonperforming loans affect the amount of the formula allowance. Loss factors are based both on our historical loss experience as well as on significant factors that, in managements judgment, affect the collectibility of the portfolio as of the evaluation date. The appropriateness of the allowance is reviewed and established by management based upon its evaluation of then-existing economic and business conditions affecting our key lending areas and other conditions, such as credit quality trends (including trends in nonperforming loans expected to result from existing conditions), collateral values, loan volumes and concentrations, specific industry conditions within portfolio segments and recent loss experience in particular segments of the portfolio that existed as of the balance sheet date and the impact that such conditions were believed to have had on the collectibility of the loan. Senior management reviews these conditions quarterly in discussions with our senior credit officers. To the extent that any of these conditions is evidenced by a specifically identifiable problem credit or portfolio segment as of the evaluation date, managements estimate of
the effect of such condition may be reflected as a specific allowance applicable to such credit or portfolio segment. Where any of these conditions is not evidenced by a specifically identifiable problem credit or portfolio segment as of the evaluation date, managements evaluation of the loss related to this condition is reflected in the general allowance. The evaluation of the inherent loss with respect to these conditions is subject to a higher degree of uncertainty because they are not identified with specific problem credits or portfolio segments.  Management also evaluates the adequacy of the allowance for loan losses based on a review of individual loans, historical loan loss experience, the value and adequacy of collateral and economic conditions in our market area. This evaluation is inherently subjective as it requires material estimates, including the amounts and timing of future cash flows expected to be received on impaired loans that may be susceptible to significant change. For all specifically reviewed loans for which it is probable that Kaiser Federal Bank will be unable to collect all amounts due according to the terms of the loan agreement, Kaiser Federal Bank determines impairment by computing a fair value either based on discounted cash flows using the loans initial interest rate or the fair value of the collateral if the loan is collateral dependent. Large groups of smaller balance homogenous loans that are collectively
evaluated for impairment and are excluded from specific impairment evaluation, and their allowance for loan losses is calculated in accordance with the allowance for loan losses policy described above. Because the allowance for loan losses is based on estimates of losses inherent in the loan portfolio, actual losses can vary significantly from the estimated amounts. Our methodology as described above permits adjustments to any loss factor used in the computation of the formula allowance in the event that, in managements judgment, significant factors which affect the collectibility of the portfolio as of the evaluation date are not reflected in the loss factors. By assessing the estimated losses inherent in the loan portfolio on a quarterly basis, we are able to adjust specific and inherent loss estimates based upon any more recent information that has become available. In addition, managements determination as to the amount of our allowance for loan losses is subject to review by the Office of Thrift Supervision and the FDIC, which may require the establishment of additional general or
specific allowances based upon their judgment of the information available to them at the time of their examination of Kaiser Federal Bank.  Our provision for loan losses was $116,000 for the three months ended March 31, 2007 compared to $128,000 for the three months ended March 31, 2006.  The allowance for loan losses as a percent of total loans was 0.44% at March 31, 2007 as compared to 0.43% at June 30, 2006. The assumptions are based both on current industry and economic trends in addition to incurring no losses within our real estate portfolio since 1997.  We used the same methodology and generally similar assumptions in assessing the adequacy of the allowance for consumer and real estate loans for both periods.  Noninterest Income.Our noninterest income increased $220,000, or 25.2%, to $1.1 million for the three months ended March 31, 2007 from $873,000 for the three months ended March 31, 2006. The increase was primarily the result of increased fee and transaction income related to customer service fees, increased ATM transaction fees and a reduction in losses attributable to the Banks investment in a California Affordable Housing Program.  Noninterest Expense.Our noninterest expense increased $482,000, or 14.3% to $3.9 million for the three months ended March 31, 2007 from $3.4 million for the three months ended March 31, 2006. The increase was primarily due to a $198,000 increase in salaries and benefits, a $68,000 increase in occupancy and equipment expense and a $100,000 increase in professional services.  14        Table of contents  Salaries and benefits represented 53.2% of total noninterest expense for the three months ended March 31, 2007 compared to 54.9% for the three months ended March 31, 2006. Total salaries and benefits increased $198,000, or 10.7%, to $2.0 million for the three months ended March 31, 2007 from $1.9 million for the three months ended March 31, 2006. The increase was primarily due to an increase of $102,000 in compensation commensurate with annual salary increases and an $80,000 increase in fair market value costs related to our employee stock ownership plan.  Occupancy and equipment expense increased $68,000, or 15.2% to $516,000 for the three months ended March 31, 2007 from $448,000 for the three months ended March 31, 2006. The increase was primarily due to costs associated with non-capitalizable costs and lease expense related to build-outs of financial service centers in Bellflower, Harbor City, Los Angeles and Riverside that opened during the periods of March 2006 through July 2006 in addition to increased equipment maintenance expense.  Professional services increased $100,000 to $280,000 for the three months ended March 31, 2007 from $180,000 for the three months ended March 31, 2006. The increase in professional services was primarily due to increased audit costs as a result of complying with Sarbanes-Oxley and increased legal costs stemming from $1.0 million of commercial real estate loan participations that were serviced by U.S. Mortgage which filed for bankruptcy in December 2006.  Income Tax Expense. Income tax expense for the three months ended March 31, 2007 was $543,000 compared to $723,000 for the three months ended March 31, 2006. This decrease was primarily the result of lower pre-tax income of $1.7 million for the three months ended March 31, 2007 compared to $2.1 million for the three months ended March 31, 2006. The effective tax rate was 32.8% and 34.8% for the three months ended March 31, 2007 and 2006, respectively.  Comparison of Results of Operations for the Nine Months Ended March 31, 2007 and March 31, 2006.  General.Net income for the nine months ended March 31, 2007 was $3.6 million, an decrease of $158,000 or 4.2%, compared to $3.7 million for the nine months ended March 31, 2006. Earnings per basic and diluted common share were $0.26 for the nine months ended March 31, 2007 compared to $0.27 for nine months ended March 31, 2006.  The change in net income resulted from the fluctuations described below.  Interest Income.Interest income increased by $4.3 million, or 16.3%, to $30.4 million for the nine months ended March 31, 2007 from $26.2 million for the nine months ended March 31, 2006. The primary factor for the increase in interest income was an increase in the average loans receivable balance of $50.2 million, or 8.3%, from $602.5 million for the nine months ended March 31, 2006 to $652.7 million for the nine months ended March 31, 2007. The increase was primarily due to whole loan purchases of one-to-four family residential real estate loans. Interest income was also positively impacted by a 32 basis point increase in the average yield on loans receivable, from 5.33% for the nine months ended March 31, 2006 to 5.65% for the nine months ended March 31, 2007.  Interest income on securities decreased by $229,000 or 18.5%, to $1.0 million for the nine months ended March 31, 2007 from $1.2 million for the nine months ended March 31, 2006. The decrease resulted from a $11.7 million, or 25.4% decrease in the average balance of securities as a result of principal repayments. The decrease was partially offset by a 33 basis point increase in the average yield on the securities investment portfolio from 3.59% for the nine months ended March 31, 2006 to 3.92% for the nine months ended March 31, 2007.  Other interest income increased by $738,000 or 107.0% to $1.4 million for the nine months ended March 31, 2007 from $690,000 for the nine months ended March 31, 2006.  The increase was attributable to an increase in the average balance of fed funds sold of $14.7 million or 94.4%, from $15.5 million for the nine months ended March 31, 2006 to $30.2 million for the nine months ended March 31, 2007.  The increase in fed funds was attributable to deposit growth during the comparable periods. Interest income was also positively impacted by a 151 basis point increase in the average yield earned on fed funds sold, from 3.63% for the nine months ended March 31, 2006 to 5.14% for the nine months ended March 31, 2007.  The increase was primarily attributable to increases in general market rates.    15        Table of contents  Interest Expense. Interest expense increased $4.4 million, or 35.4%, for the nine months ended March 31, 2007 to $17.0 million as compared to $12.5 million for the nine months ended March 31, 2006. The increase is primarily attributable to an increase in average deposits and FHLB advances, combined with higher interest rates. The average interest rates on interest-bearing liabilities increased 67 basis points to 3.60% for the nine months ended March 31, 2007 from 2.93% for the nine months ended March 31, 2006. Average interest-bearing liabilities increased $58.1 million or 10.2% to $627.0 million for the nine months ended March 31, 2007 from $568.9 million for the nine months ended March 31, 2006.  Net Interest Income.  Net income before provision for loan losses decreased $167,000 or 1.2%, to $13.5 million for the three months ended March 31, 2007 from $13.7 million for the nine months ended March 31, 2006.  The decline was attributable to continued compression in our net interest margin as a result of the inverted yield curve.  As a result, the net interest margin decreased 22 basis points from 2.67% for the nine months ended March 31, 2006 to 2.45% for the three months ended March 31, 2007.  Provision for Loan Losses. Our provision for loan losses was $419,000 for the nine months ended March 31, 2007 compared to $488,000 for the nine months ended March 31, 2006. The decrease in provision is attributable to continued low levels of charge-offs, adjustments made for current peer ratios and changes in other economic factors affecting the loan loss analysis.  The assumptions are based both on current industry and economic trends in addition to incurring no losses within our real estate portfolio since 1997.  We used the same methodology and generally similar assumptions in assessing the adequacy of the allowance for consumer and real estate loans for both periods.  Noninterest Income.Our noninterest income increased $611,000, or 23.8%, to $3.2 million for the nine months ended March 31, 2007 from $2.6 million for the nine months ended March 31, 2006. The increase is primarily the result of a $358,000 reduction in the loss on our equity investment in a California Affordable Housing Program tax credit fund, a $128,000 increase in service charges and fees from customer service charges and a $106,000 increase in fee and transaction income related to the deployment of additional ATMs.  Noninterest Expense.Our noninterest expense increased $886,000, or 8.9%, to $10.8 million for the nine months ended March 31, 2007 from $9.9 million for the nine months ended March 31, 2006. The increase was primarily due to a $309,000 increase in salaries and benefits, a $282,000 increase in occupancy and equipment expense, a $71,000 increase in ATM expense, a $76,000 increase in professional services and a $93,000 increase in other operating expense.  Salaries and benefits represented 53.1% and 54.8% of total noninterest expense for the nine months ended March 31, 2007 and March 31, 2006, respectively. Total salaries and benefits increased $309,000, or 5.7%, to $5.7 million for the nine months ended March 31, 2007 from $5.4 million for the nine months ended March 31, 2006. The increase was primarily due to an increase of $274,000 in compensation commensurate with annual salary increases, a $162,000 increase in fair market value costs related to our employee stock ownership plan offset by a $185,000 reduction in stock option expense and stock awards as a result of forfeitures.  Occupancy and equipment expense increased $282,000 to $1.5 million for the nine months ended March 31, 2007 from $1.3 million for the nine months ended March 31, 2006. The increase was primarily due to costs associated with non-capitalizable costs and lease expense related to build-outs of financial service centers in Bellflower, Harbor City, Los Angeles and Riverside opened during the periods of March 2006 through July 2006 in addition to increased equipment maintenance expense.  ATM expense increased $71,000 to $933,000 for the nine months ended March 31, 2007 from $862,000 for the nine months ended March 31, 2006. The increase was primarily due to deployment of additional ATMs.  At March 31, 2007, there were 52 ATMs in service as compared to 37 ATMs at March 31, 2006.  Professional services increased $76,000 to $636,000 for the nine months ended March 31, 2007 from $560,000 for the nine months ended March 31, 2006. The increase in professional services was primarily due to increased audit costs as a result of complying with Sarbanes-Oxley and increased legal costs stemming from $1.0 million of commercial real estate loan participations that were serviced by U.S. Mortgage which filed for bankruptcy in December 2006.    16        Table of contents  Other operating expense increased $93,000 to $1.1 million for the nine months ended March 31, 2007 from $1.0 million for the nine months ended March 31, 2006. The increase in other expense was primarily due to increased operational costs to support continued growth of the Bank.  Income Tax Expense. Income tax expense was $1.9 million for the nine months ended March 31, 2007 compared to $2.1 million for the nine months ended March 31, 2006.  The effective tax rate was 34.3% and 35.8% for the nine months ended March 31, 2007 and 2006, respectively.  The effective tax rate decreased due to a certainty realized in one uncertain tax position taken by management.  Liquidity and Commitments  Liquidity may increase or decrease depending upon the availability of funds and comparative yields on investments in relation to the return on loans. Historically, we have maintained liquid assets at levels above the minimum requirements imposed by Office of Thrift Supervision regulations and above levels believed to be adequate to meet the requirements of normal operations, including potential deposit outflows. Cash flow projections are regularly reviewed and updated to assure that adequate liquidity is maintained. See Consolidated Statements of Cash Flows contained in the Consolidated Financial Statements included in this document.  Our liquidity, represented by cash and cash equivalents and mortgage-backed and related securities, is a product of operating, investing and financing activities. Our primary sources of funds are deposits; amortization, prepayments and maturities of outstanding loans and mortgage-backed and related securities, and other short-term investments; and funds provided from operations. While scheduled payments from the amortization of loans and mortgage-backed related securities and maturing investment securities and short-term investments are relatively predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions, and competition. In addition, we invest excess funds in short-term interest-earning assets, which provide liquidity to meet lending requirements. We also generate cash through borrowings. We utilize Federal Home Loan Bank advances
to leverage our capital base and provide funds for our lending and investment activities and enhance our interest rate risk management.  Liquidity management is both a daily and long-term function of business management. Excess liquidity is generally invested in short-term investments such as overnight deposits. On a longer-term basis, we maintain a strategy of investing in various lending products. We use our sources of funds primarily to meet ongoing commitments, to pay maturing time deposits and savings withdrawals, to fund loan commitments and to maintain our portfolio of mortgage-backed and related securities. At March 31, 2007, the total approved loan commitments unfunded amounted to $9.0 million, which includes the unadvanced portion of loans of $6.9 million.  Time deposits and advances from the Federal Home Loan Bank of San Francisco scheduled to mature in one year or less at March 31, 2007, totaled $120.4 million and $10.0 million, respectively. Based on historical experience, management believes that a significant portion of maturing deposits will remain with Kaiser Federal Bank. We anticipate that we will continue to have sufficient funds, through deposits and borrowings, to meet our current commitments.  At March 31, 2007, we had available additional advances from the Federal Home Loan Bank of San Francisco in the amount of $112.0 million.  Kaiser Federal Banks credit limit with the Federal Home Loan Bank is limited to 40 percent of the Banks total assets.   17        Table of contents  Capital  The table below sets forth Kaiser Federal Banks capital position relative to its Office of Thrift Supervision capital requirements at March 31, 2007. The definitions of the terms used in the table are those provided in the capital regulations issued by the Office of Thrift Supervision. Actual
        
        Minimum Capital Requirements
        
        Minimum required to be Well Capitalized Under Prompt Corrective Actions ProvisionsAmount
        
        Ratio
        
        Amount
        
        Ratio
        
        Amount
        
        Ratio(Dollars in thousands)Total risk-based capital (to risk-weighted assets)
        
        $66,280
        
        13.60
        %
        $39,000
        
        8.00
        %
        $48,750
        
        10.00
        %Tier 1 risk-based capital (to risk-weighted assets)
        
        63,399
        
        13.00
        
        19,500
        
        4.00
        
        29,250
        
        6.00Tier 1 (core) capital (to adjusted tangible assets)
        
        63,399
        
        8.19
        
        30,969
        
        4.00
        
        38,711
        
        5.00  Consistent with our goal to operate a sound and profitable financial organization, we actively seek to maintain a well capitalized institution in accordance with regulatory standards.  At March 31, 2007, Kaiser Federal Bank was a well-capitalized institution under regulatory standards.  Impact of Inflation  The consolidated financial statements presented herein have been prepared in accordance with GAAP. These principles require the measurement of financial position and operating results in terms of historical dollars, without considering changes in the relative purchasing power of money over time due to inflation.  Our primary assets and liabilities are monetary in nature. As a result, interest rates have a more significant impact on our performance than the effects of general levels of inflation. Interest rates, however, do not necessarily move in the same direction or with the same magnitude as the price of goods and services, since such prices are affected by inflation. In a period of rapidly rising interest rates, the liquidity and maturity structure of our assets and liabilities are critical to the maintenance of acceptable performance levels.  The principal effect of inflation, as distinct from levels of interest rates, on earnings is in the area of noninterest expense. Such expense items as employee compensation, employee benefits and occupancy and equipment costs may be subject to increases as a result of inflation. An additional effect of inflation is the possible increase in the dollar value of the collateral securing loans that we have made. We are unable to determine the extent, if any, to which properties securing our loans have appreciated in dollar value due to inflation.  ITEM 3. Quantitative and Qualitative Disclosures About Market Risk  Our Risk When Interest Rates Change.The rates of interest we earn on assets and pay on liabilities generally are established contractually for a period of time. Market interest rates change over time. Our loans generally have longer maturities than our deposits. Accordingly, our results of operations, like those of other financial institutions, are impacted by changes in interest rates and the interest rate sensitivity of our assets and liabilities. The risk associated with changes in interest rates and our ability to adapt to these changes is known as interest rate risk and is our most significant market risk.  How We Measure Our Risk of Interest Rate Changes.As part of our attempt to manage our exposure to changes in interest rates and comply with applicable regulations, we monitor our interest rate risk. In monitoring interest rate risk we continually analyze and manage assets and liabilities based on their payment streams and interest rates, the timing of their maturities, and their sensitivity to actual or potential changes in market interest rates.  18       Table of contents  In order to minimize the potential for adverse effects of material and prolonged increases in interest rates on our results of operations, we have adopted investment/asset and liability management policies to better match the maturities and repricing terms of our interest-earning assets and interest-bearing liabilities. The board of directors sets and recommends the asset and liability policies of Kaiser Federal Bank, which are implemented by the asset/liability management committee.  The purpose of the asset/liability management committee is to communicate, coordinate and control asset/liability management consistent with our business plan and board approved policies. The committee establishes and monitors the volume and mix of assets and funding sources taking into account relative costs and spreads, interest rate sensitivity and liquidity needs. The objectives are to manage assets and funding sources to produce results that are consistent with liquidity, capital adequacy, growth, risk and profitability goals.  The asset/liability management committee generally meets on a weekly basis to review, among other things, economic conditions and interest rate outlook, current and projected liquidity needs and capital position, anticipated changes in the volume and mix of assets and liabilities and interest rate risk exposure limits versus current projections pursuant to net present value of portfolio equity analysis and income simulations. The asset/liability management committee regularly reviews interest rate risk by forecasting the impact of alternative interest rate environments on net interest income and market value of portfolio equity, which is defined as the net present value of an institutions existing assets, liabilities and off-balance sheet instruments, and evaluating such impacts against the maximum potential changes in net interest income and market value of portfolio equity that are authorized by the
board of directors of Kaiser Federal Bank. The asset/liability management committee recommends appropriate strategy changes based on this review. The chairman or his designee is responsible for reviewing and reporting on the effects of the policy implementations and strategies to the board of directors at least quarterly.  In order to manage our assets and liabilities and achieve the desired liquidity, credit quality, interest rate risk, profitability and capital targets, we have focused our strategies on: (1) originating and purchasing adjustable rate loans; (2) originating a reasonable volume of short- and intermediate-term consumer loans; (3) managing our deposits to establish stable deposit relationships; and (4) using Federal Home Loan Bank advances, and pricing on fixed-term non-core deposits to align maturities and repricing terms.  At times, depending on the level of general interest rates, the relationship between long- and short-term interest rates, market conditions and competitive factors, the asset/liability management committee may determine to increase our interest rate risk position somewhat in order to maintain our net interest margin. In the future, we intend to continue our existing strategy of originating and purchasing relatively short-term and/or adjustable rate loans. The Bank does not maintain any securities for trading purposes. The Bank does not currently engage in trading activities or use instruments such as interest rate swaps, hedges, or other similar derivatives to control interest rate risk.  The Office of Thrift Supervision provides Kaiser Federal Bank with the information presented in the following table, which is based on information provided to the Office of Thrift Supervision by Kaiser Federal Bank. It presents the change in Kaiser Federal Banks net portfolio value at December 31, 2006, which is the latest information available that would occur upon an immediate change in interest rates based on Office of Thrift Supervision assumptions but without giving effect to any steps that management might take to counteract that change.  December 31, 2006Change in interest rates in basis points (bp)
(Rate shock in rates)Net portfolio value (NPV)
        
        
        
        NPV as % of PV of assets$ amount
        
        
        
        $ change
        
        
        
        % change
        
        
        
        NPV ratio
        
        
        
        Change(bp)(Dollars in thousands)+300 bp
        
        $
        50,811
        
        
        
        $
        (30,894
        )
        
        
        (38
        )%
        
        
        7.12
        %
        
        
        (355
        )bp+200 bp
        
        
        63,278
        
        
        
        
        (18,427
        )
        
        
        (23
        )
        
        
        8.64
        
        
        
        (203
        )+100 bp
        
        
        74,126
        
        
        
        
        (7,579
        )
        
        
        (9
        )
        
        
        9.87
        
        
        
        (80
        )0 bp
        
        
        81,705
        
        
        
        
        
        
        
        
        
        
        
        
        10.67
        
        
        
        -100 bp
        
        
        85,766
        
        
        
        
        4,061
        
        
        
        5
        
        
        
        11.02
        
        
        
        35-200 bp
        
        
        83,291
        
        
        
        
        1,586
        
        
        
        2
        
        
        
        10.63
        
        
        
        (4
        )    19        Table of contents  The Office of Thrift Supervision uses certain assumptions in assessing the interest rate risk of savings associations. These assumptions relate to interest rates, loan prepayment rates, deposit decay rates, and the market values of certain assets under differing interest rate scenarios.  As with any method of measuring interest rate risk, shortcomings are inherent in the method of analysis presented in the foregoing tables. For example, although assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in the market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates. Additionally, certain assets, such as adjustable rate mortgage loans, have features, that restrict changes in interest rates on a short-term basis and over the life of the asset. Further, if interest rates change, expected rates of prepayments on loans and early withdrawals from certificates of deposit could deviate significantly from those assumed in calculating the table.  ITEM 4. Controls and Procedures  Our management evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934 (the Act)) as of the end of the period covered by this report. The Companys Chief Executive Officer and Chief Financial Officer concluded that the Companys disclosure controls and procedures as of the end of the period covered by this report are effective in ensuring that the information required to be disclosed by the Company in the reports it files or submits under the Act is (i) accumulated and communicated to the Companys management (including the Chief Executive Officer and Chief Financial Officer) in a timely manner, and (ii) recorded, processed, summarized, and reported within the time periods specified in the SECs
rules and forms.  There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) or 15(d)-15(f) under the Act) that occurred during the most recent fiscal quarter that have materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.  20        Table of contents  PART II. OTHER INFORMATION  Item 1. Legal Proceedings  In March 2007, U.S. Mortgage converted its Chapter 11 bankruptcy to a Chapter 7 in the District Court of Nevada. U.S. Mortgage was responsible for servicing various commercial real estate participation loans totaling approximately $1 million for the Bank. Through this transition period, all servicing functions of U.S. Mortgage are being handled by the Bankruptcy Trustee.  During the course of these proceedings, U.S. Bank has asserted a claim against $500,000 of the $1 million being serviced by U.S. Mortgage. Kaiser Federal Bank is vigorously contesting this claim and believes it has the proper ownership interest in these loans. As a result, no significant material losses are expected at this time.  Item 1A. Risk Factors  There have been no material changes to the risk factors that were previously disclosed in the Companys annual report on Form 10-K for the fiscal year ended June 30, 2006.  Item 2. Unregistered Sales of Equity Securities and Use of Proceeds  Issuer Purchases of Equity Securities Period
        
        Total Number of Shares Purchased
        
        Average Price Paid Per Share
        
        Total Number of Shares Purchased as Part of Publicly Announced Plans*
        
        Maximum Number of Shares That May Yet be Purchased Under the Plan1/1/07  1/31/07
        
        45,000
        
        $
        19.25
        
        201,500
        
        65,7162/1/07  2/28/07
        
        15,000
        
        
        19.35
        
        216,500
        
        50,7163/1/07  3/31/07
        
        30,000
        
        
        19.40
        
        246,500
        
        20,716  * On July 5, 2006, the Company completed its previously disclosed stock repurchase plan of 281,129 shares. On July 5, 2006, the Company announced its intention to repurchase an additional 5% of its outstanding publicly held common stock, or 267,216 shares of stock.  Item 3. Defaults Upon Senior Securities  None.  Item 4. Submission of Matters to a Vote of Security Holders  None.  Item 5. Other Information  None.  Item 6. Exhibits  31.1
        Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act31.1
        Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act32.1
        Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act32.2
        Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act   21        Table of contents 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.   K-Fed BancorpRegistrant    Date:May 9, 2007
        /s/ Kay M. HovelandKay M. HovelandPresident, Chief Executive Officer    /s/ Dustin Luton Dustin Luton Chief Financial Officer  22        Table of contents EXHIBIT 31.1  Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act  I, Kay M. Hoveland, certify that:  1.
        I have reviewed this Quarterly Report on Form 10-Q of K-Fed Bancorp;  2.
        Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;  3.
        Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;  4.
        The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:  (a)
        Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;  (b)
        Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and  (c)
        Disclosed in this report any changes in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially effect, the registrants internal control over financial reporting; and  5.
        The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):  (a)
        All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and  (b)
        Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.   Date:May 9, 2007
        /s/ Kay M. Hoveland Kay M. Hoveland President and Chief Executive Officer              Table of contents EXHIBIT 31.2  Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act  I, Dustin Luton, certify that:  1.
        I have reviewed this Quarterly Report on Form 10-Q of K-Fed Bancorp;  2.
        Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;  3.
        Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;  4.
        The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:  (a)
        Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;  (b)
        Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and  (c)
        Disclosed in this report any changes in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially effect, the registrants internal control over financial reporting; and  5.
        The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):  (a)
        All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and  (b)
        Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.   Date:May 9, 2007
        /s/ Dustin Luton Dustin Luton Chief Financial Officer               Table of contents EXHIBIT 32.1  Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002  In connection with the Quarterly Report of K-Fed Bancorp (the Company) on Form 10-Q for the period ended March 31, 2007 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Kay M. Hoveland, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and in connection with this quarterly report on Form 10-Q that:  1.
        The Report fully complies with the requirements of sections 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and  2.
        The information contained in the report fairly presents, in all material respects, the companys financial condition and results of operations.   Date:May 9, 2007
        /s/ Kay M. Hoveland Kay M. Hoveland Chief Executive Officer            Table of contents EXHIBIT 32.2  Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002  In connection with the Quarterly Report of K-Fed Bancorp (the Company) on Form 10-Q for the period ended March 31, 2007 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Dustin Luton, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and in connection with this quarterly report on Form 10-Q that:  1.
        The Report fully complies with the requirements of sections 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and  2.
        The information contained in the report fairly presents, in all material respects, the companys financial condition and results of operations.   Date:May 9, 2007
        /s/ Dustin Luton Dustin Luton Chief Financial Officer