UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549





FORM
10-Q





(Mark
One)


x QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) of


THE
SECURITIES EXCHANGE ACT OF 1934





For
the quarterly period ended:  March 31,
2009





OR





o TRANSITION 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.


Yes x
No o





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate web site, if any, every Interactive Data file required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months(or for such shorter period that the registrant was required to submit
and post such files).


Yes o
No o





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





Large
accelerated filer o                                                      Accelerated
filer o
Non-accelerated filer o
Smaller Reporting Company x





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


Yes o
No x





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 – 13,305,113 shares outstanding as of April 30,
2009.











Form
10-Q





K-FED
BANCORP


Table
of Contents





PagePart
      I.
            FINANCIAL INFORMATIONItem
      1:
            Financial Statements
      (Unaudited)Consolidated
      Statements of Financial ConditionatMarch
      31, 2009andJune 30, 2008
            1Consolidated
      Statements of Income and Comprehensive Income for theThree  and  Nine MonthsEndedMarch 31, 2009and2008
            2Consolidated Statement of Stockholders’ Equity and
      Comprehensive Income for theNine
      MonthsEndedMarch 31, 2009
            3Consolidated Statements of Cash Flows for theNine MonthsEndedMarch
      31, 2009and2008
            4Notes to
      Consolidated Financial Statements
            5Item
      2:
            Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
            10Item
      3:
            Quantitative and Qualitative Disclosuresabout Market Risk
            21Item
      4:
            Controls and
      Procedures
            23Part
      II.
            OTHER INFORMATIONItem
      1:
            Legal
      Proceedings
            23Item
      1A:
            Risk
      Factors
            23Item
      2:
            Unregistered
      Sales of Equity Securities and Use of Proceeds
            23Item
      3:
            Defaults upon Senior
      Securities
            23Item
      4:
            Submission of
      Matters to a Vote of Security Holders
            24Item
      5:
            Other
      Information
            24Item
      6:
            Exhibits
            24SIGNATURES
            25






















Part
I — FINANCIAL INFORMATION


Item
1. Financial Statements


K-FED BANCORP AND SUBSIDIARY


Consolidated
Statements of Financial Condition


(Unaudited)


(Dollars
in thousands, except per share data)


March
      31
              2009
            
            June
      30
              2008ASSETSCash
      and due from banks
            
            $
            31,183
            
            $
            18,580Federal
      funds sold
            
            
            38,505
            
            
            32,660Total
      cash and cash equivalents
            
            
            69,688
            
            
            51,240Interest
      earning time deposits in other financial institutions
            
            
            9,042
            
            
            —Securities
      available-for-sale, at fair value
            
            
            4,928
            
            
            8,539Securities
      held-to-maturity, fair value of $7,070 and
              $7,308  at
      March 31, 2009 and June 30, 2008, respectively
            
            
            6,942
            
            
            7,504Federal
      Home Loan Bank stock, at cost
            
            
            12,649
            
            
            12,540Loans
      receivable, net of allowance for loan losses of $4,303 and
              $3,229
      at March 31, 2009 and June 30, 2008, respectively
            
            
            752,056
            
            
            742,191Accrued
      interest receivable
            
            
            3,262
            
            
            3,278Premises
      and equipment, net
            
            
            2,692
            
            
            3,059Core
      deposit intangible
            
            
            166
            
            
            226Goodwill
            
            
            3,950
            
            
            3,950Bank-owned
      life insurance
            
            
            11,765
            
            
            11,408Other
      real estate owned
            
            
            781
            
            
            1,045Other
      assets
            
            
            3,275
            
            
            4,036Total
      assets
            
            $
            881,196
            
            $
            849,016LIABILITIES
      AND STOCKHOLDERS’ EQUITYLiabilitiesDepositsNoninterest
      bearing
            
            $
            61,965
            
            $
            43,267Interest
      bearing
            
            
            492,285
            
            
            451,791Total
      deposits
            
            
            554,250
            
            
            495,058Federal
      Home Loan Bank advances, short-term
            
            
            60,000
            
            
            28,000Federal
      Home Loan Bank advances, long-term
            
            
            147,008
            
            
            207,019State
      of California time deposit
            
            
            25,000
            
            
            25,000Accrued
      expenses and other liabilities
            
            
            2,943
            
            
            3,211Total
      liabilities
            
            
            789,201
            
            
            758,288Commitments
      and contingent liabilities
            
            
            —
            
            
            —Stockholders’
      equityNonredeemable
      serial preferred stock, $.01 par value;
              2,000,000
      shares authorized; issued — none
            
            
            —
            
            
            —Common
      stock, $0.01 par value; 18,000,000 authorized;
              March
      31, 2009 — 14,718,440 shares issued
              June
      30, 2008 — 14,713,440 shares issued
            
            
            147
            
            
            147Additional
      paid-in capital
            
            
            58,963
            
            
            58,448Retained
      earnings
            
            
            53,155
            
            
            51,035Accumulated
      other comprehensive income, net of tax
            
            
            73
            
            
            20Unearned
      employee stock ownership plan (ESOP) shares
            
            
            (2,275
            )
            
            (2,616
            )Treasury
      stock, at cost (March 31, 2009 — 1,413,327 shares;
              June
      30, 2008 — 1,243,134 shares)
            
            
            (18,068
            )
            
            (16,306
            )Total
      stockholders’ equity
            
            
            91,995
            
            
            90,728Total
      liabilities and stockholders’ equity
            
            $
            881,196
            
            $
            849,016The
      accompanying notes are an integral part of these unaudited consolidated
      financial statements








Page
1





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
      312009
            
            2008
            
            2009
            
            2008Interest
      IncomeInterest
      and fees on loans
            
            $
            11,059
            
            $
            10,948
            
            $
            32,678
            
            $
            31,855Interest
      on securities, taxable
            
            
            146
            
            
            224
            
            
            485
            
            
            882Federal
      Home Loan Bank dividends
            
            
            —
            
            
            146
            
            
            314
            
            
            398Other
      interest
            
            
            79
            
            
            268
            
            
            425
            
            
            690Total
      interest income
            
            
            11,284
            
            
            11,586
            
            
            33,902
            
            
            33,825Interest
      ExpenseInterest
      on deposits
            
            
            3,145
            
            
            3,575
            
            
            10,098
            
            
            11,493Interest
      on borrowings
            
            
            2,333
            
            
            2,924
            
            
            7,556
            
            
            7,955Total
      interest expense
            
            
            5,478
            
            
            6,499
            
            
            17,654
            
            
            19,448Net
      interest income
            
            
            5,806
            
            
            5,087
            
            
            16,248
            
            
            14,377Provision
      for loan losses
            
            
            660
            
            
            200
            
            
            2,007
            
            
            551Net
      interest income after provision
              for
      loan losses
            
            
            5,146
            
            
            4,887
            
            
            14,241
            
            
            13,826Noninterest
      incomeService
      charges and fees
            
            
            514
            
            
            558
            
            
            1,755
            
            
            1,739ATM
      fees and charges
            
            
            380
            
            
            410
            
            
            1,256
            
            
            1,144Referral
      commissions
            
            
            76
            
            
            98
            
            
            230
            
            
            232Loss
      on equity investment
            
            
            (75
            )
            
            (105
            )
            
            (207
            )
            
            (315
            )Bank-owned
      life insurance
            
            
            120
            
            
            113
            
            
            357
            
            
            335Other
      noninterest income
            
            
            23
            
            
            58
            
            
            35
            
            
            77Total
      noninterest income
            
            
            1,038
            
            
            1,132
            
            
            3,426
            
            
            3,212Noninterest
      expenseSalaries
      and benefits
            
            
            2,095
            
            
            2,064
            
            
            6,077
            
            
            6,056Occupancy
      and equipment
            
            
            588
            
            
            571
            
            
            1,777
            
            
            1,702ATM
      expense
            
            
            450
            
            
            326
            
            
            1,172
            
            
            952Advertising
      and promotional
            
            
            106
            
            
            99
            
            
            300
            
            
            225Professional
      services
            
            
            176
            
            
            242
            
            
            635
            
            
            709Federal
      deposit insurance premiums
            
            
            195
            
            
            96
            
            
            373
            
            
            326Postage
            
            
            67
            
            
            73
            
            
            211
            
            
            221Telephone
            
            
            160
            
            
            123
            
            
            412
            
            
            377Stock
      offering costs
            
            
            —
            
            
            10
            
            
            —
            
            
            1,279Other
      operating expense
            
            
            381
            
            
            324
            
            
            1,163
            
            
            1,013Total
      noninterest expense
            
            
            4,218
            
            
            3,928
            
            
            12,120
            
            
            12,860Income
      before income tax expense
            
            
            1,966
            
            
            2,091
            
            
            5,547
            
            
            4,178Income
      tax expense
            
            
            772
            
            
            766
            
            
            2,013
            
            
            1,453Net
      income
            
            $
            1,194
            
            $
            1,325
            
            $
            3,534
            
            $
            2,725Comprehensive
      Income
            
            $
            1,226
            
            $
            1,426
            
            $
            3,587
            
            $
            2,948Earnings
      per common share:Basic
            
            $
            0.09
            
            $
            0.10
            
            $
            0.27
            
            $
            0.20Diluted
            
            $
            0.09
            
            $
            0.10
            
            $
            0.27
            
            $
            0.20The
      accompanying notes are an integral part of these unaudited consolidated
      financial statements


Page
2





K-FED BANCORP AND SUBSIDIARY


Consolidated
Statements of Stockholders’ Equity


And
Comprehensive Income


(Unaudited)


(Dollars
in thousands, except per share data)





Common
      Stock
            
            
            
            
            
            
            
            
            
            Treasury
      StockComprehensive
              Income
            
            Shares
            
            Amount
            
            Additional
              Paid-in
              Capital
            
            Retained
              Earnings
            
            Accumulated
              Other
              Comprehensive
              Income,
      net
            
            Unearned
              ESOP
              Shares
            
            Shares
            
            Amount
            
            TotalBalance
      June 30, 2008
            
            
            
            
            14,713,440
            
            $
            147
            
            $
            58,448
            
            $
            51,035
            
            $
            20
            
            $
            (2,616
            )
            (1,243,134
            )
            $
            (16,306
            )
            $
            90,728Comprehensive
      incomeNet
      income for the nine months ended March 31, 2009
            
            $
            3,534
            
            —
            
            
            —
            
            
            —
            
            
            3,534
            
            
            —
            
            
            —
            
            —
            
            
            —
            
            
            3,534Other
      comprehensive income – unrealized gain on securities, net of
      tax
            
            
            53
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            53
            
            
            —
            
            —
            
            
            —
            
            
            53Total
      comprehensive income
            
            $
            3,587Dividends
      declared ($0.33 per share) *
            
            
            
            
            —
            
            
            —
            
            
            —
            
            
            (1,414
            )
            
            —
            
            
            —
            
            —
            
            
            —
            
            
            (1,414
            )Purchase
      of treasury stock
            
            
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            (170,193
            )
            
            (1,762
            )
            
            (1,762
            )Stock
      options earned
            
            
            
            
            —
            
            
            —
            
            
            265
            
            
            —
            
            
            —
            
            
            —
            
            —
            
            
            —
            
            
            265Allocation
      of stock awards
            
            
            
            
            —
            
            
            —
            
            
            306
            
            
            —
            
            
            —
            
            
            —
            
            —
            
            
            —
            
            
            306Issuance
      of stock awards
            
            
            
            
            5,000
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            —
            
            
            —
            
            
            —Allocation
      of ESOP common stock
            
            
            
            
            —
            
            
            —
            
            
            (56
            )
            
            —
            
            
            —
            
            
            341
            
            —
            
            
            —
            
            
            285Balance
      March 31, 2009
            
            
            
            
            14,718,440
            
            $
            147
            
            $
            58,963
            
            $
            53,155
            
            $
            73
            
            $
            (2,275
            )
            (1,413,327
            )
            $
            (18,068
            )
            $
            91,995*
      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 unaudited consolidated
      financial statements





Page
3





K-FED BANCORP AND SUBSIDIARY


Consolidated
Statements of Cash Flows


(Unaudited)


(Dollars
in thousands)


Nine
      Months Ended
              March
      312009
            
            2008Operating
      ActivitiesNet
      income
            
            $
            3,534
            
            $
            2,725Adjustments
      to reconcile net income to cash provided by operating
      activities:Amortization
      of net premiums on securities
            
            
            7
            
            
            17Amortization
      of net premiums on loan purchases
            
            
            39
            
            
            113Accretion
      of net loan origination fees
            
            
            (43
            )
            
            (41
            )Provision
      for loan losses
            
            
            2,007
            
            
            551Federal
      Home Loan Bank (FHLB) stock dividend
            
            
            (314
            )
            
            (398
            )Depreciation
      and amortization
            
            
            646
            
            
            636Amortization
      of core deposit intangible
            
            
            60
            
            
            74Loss
      on equity investment
            
            
            207
            
            
            315Increase
      in cash surrender value of bank-owned life insurance
            
            
            (357
            )
            
            (335
            )Accretion
      of net premiums on purchased certificates of deposits
            
            
            —
            
            
            (37
            )(Accretion)
      amortization of debt exchange costs
            
            
            (11
            )
            
            4Allocation
      of ESOP common stock
            
            
            285
            
            
            413Allocation
      of stock awards
            
            
            306
            
            
            325Stock
      options earned
            
            
            265
            
            
            238Net
      decrease (increase) in accrued interest receivable
            
            
            16
            
            
            (4
            )Net
      decrease (increase) in other assets
            
            
            497
            
            
            (269
            )Net
      (decrease) increase in accrued expenses and other
    liabilities
            
            
            (268
            )
            
            555Net
      cash provided by operating activities.
            
            
            6,876
            
            
            4,882Investing
      ActivitiesProceeds
      from maturities and principal repayments of available-for-sale
      securities
            
            
            3,698
            
            
            4,423Proceeds
      from maturities and principal repayments of held-to-maturity
      securities
            
            
            562
            
            
            11,330(Increase)
      decrease in interest earning deposits at other
institutions
            
            
            (9,042
            )
            
            2,970Increase
      in loans
            
            
            (13,153
            )
            
            (31,209)Proceeds
      from sale of other real estate owned
            
            
            1,565
            
            
            —Redemption
      (purchases) of FHLB stock
            
            
            205
            
            
            (2,099
            )Purchases
      of premises and equipment
            
            
            (279
            )
            
            (212
            )Net
      cash used in investing activities
            
            
            (16,444
            )
            
            (14,797
            )Financing
      ActivitiesProceeds
      from FHLB advances
            
            
            —
            
            
            93,500Repayment
      of FHLB advances
            
            
            (28,000
            )
            
            (58,500
            )Dividends
      paid on common stock
            
            
            (1,414
            )
            
            (1,464
            )Purchases
      of treasury stock
            
            
            (1,762
            )
            
            (1,282
            )Net
      increase in deposits
            
            
            59,192
            
            
            2,311Increase
      in State of California time deposit
            
            
            —
            
            
            25,000Tax
      benefit from RRP shares vesting
            
            
            —
            
            
            (30
            )Net
      cash provided by financing activities
            
            
            28,016
            
            
            59,535Net
      increase in cash and cash equivalents
            
            
            18,448
            
            
            49,620Beginning
      cash and cash equivalents
            
            
            51,240
            
            
            26,732Ending
      cash and cash equivalents
            
            $
            69,688
            
            $
            76,352The
      accompanying notes are an integral part of these unaudited consolidated
      financial statements


Page
4





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 many types of residential 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 principles generally accepted in the
United States of America (“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 (i) a fair presentation of
the financial condition and results of operations for the interim periods
included herein and (ii) to make such statements not misleading have been
made.





The
results of operations for the three and nine months ended March 31, 2009 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, 2009. 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
2008 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. K-Fed Mutual Holding
Company is owned by the depositors of the bank. These financial statements do
not include the transactions and balances of K-Fed Mutual Holding
Company.





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 and the valuation of financial instruments.





Reclassifications:Some
items in prior year financial statements were reclassified to conform to the
current presentation.





Newly
Issued Accounting Standards:




In April
2009, the Financial Accounting Standards Board (“FASB”) issued three final Staff
Positions (“FSP”s) intended to provide additional application guidance and
enhance disclosures regarding fair value measurementsand impairments of
securities. FSP FAS 157-4, Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly, provides
guidelines for making fair value measurements more consistent with the
principles presented in FASB Statement No. 157, Fair Value Measurements. FSP FAS
107-1 and APB 28-1, Interim
Disclosures about Fair Value of Financial Instruments, enhances
consistency in financial reporting by increasing the frequency of fair value
disclosures. FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of
Other-Than-Temporary Impairments, provides additional guidance designed
to create greater clarity and consistency in accounting for and presenting
impairment losses on securities.




Page
5




FSP FAS
157-4 relates to determining fair values when there is no active market or where
the price inputs being used represent distressed sales. It reaffirms what
Statement 157 states is the objective of fair value measurement—to reflect how
much an asset would be sold for in an orderly transaction (as opposed to a
distressed or forced transaction) at the date of the financial statements under
current market conditions. Specifically, it reaffirms the need to use judgment
to ascertain if a formerly active market has become inactive and in determining
fair values when markets have become inactive.






FSP FAS
107-1 and APB 28-1 relate to fair value disclosures for any financial
instruments that are not currently reflected on the balance sheet of companies
at fair value. Prior to issuing this FSP, fair values for these assets and
liabilities were only disclosed once a year. The FSP requires these disclosures
on a quarterly basis, providing qualitative and quantitative information about
fair value estimates for all those financial instruments not measured on the
balance sheet at fair value.






FSP FAS
115-2 and FAS 124-2 on other-than-temporary impairments is intended to bring
greater consistency to the timing of impairment recognition, and provide greater
clarity to investors about the credit and noncredit components of impaired debt
securities that are not expected to be sold. The measure of impairment in
comprehensive income remains fair value. The FSP also requires increased and
more timely disclosures regarding expected cash flows, credit losses, and an
aging of securities with unrealized losses.






The FSPs
are effective for interim and annual periods ending after June 15, 2009 and are
not expected to have a material effect on the financial statements of the
Company.




In
December 2007, the FASB issued Statement of Financial Accounting Standards
(“SFAS”) No. 141R, Business
Combinations. SFAS No. 141R replaces the current standard on business
combinations and will significantly change the accounting for and reporting of
business combinations in consolidated financial statements. This statement
requires an entity to measure the business acquired at fair value and to
recognize goodwill attributable to any noncontrolling interests (previously
referred to as minority interests) rather than just the portion attributable to
the acquirer.  The statement will also result in fewer exceptions to
the principle of measuring assets acquired and liabilities assumed in a business
combination at fair value.  In addition, the statement will result in
payments to third parties for consulting, legal, and similar services associated
with an acquisition to be recognized as expenses when incurred rather than
capitalized as part of the business combination.  SFAS No. 141R is
effective for fiscal years beginning on or after December 15, 2008. The adoption
of this statement will not have a material effect on the financial statements of
the Company.





Adoption
of New Accounting Standards:





In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. SFAS
No. 157 defines fair value, establishes a framework for measuring fair value and
expands disclosures about fair value measurements. This Statement establishes a
fair value hierarchy about the assumptions used to measure fair value and
clarifies assumptions about risk and the effect of a restriction on the sale or
use of an asset. The standard is effective for fiscal years beginning after
November 15, 2007.  The impact of the adoption of SFAS No. 157 was not
material.  See Note 3, “Fair Value” for disclosures related to the
adoption of SFAS No. 157.





In
February 2008, the FASB issued FSP 157-2, Effective Date of FASB Statement No.
157. FSP 157-2 delays the effective date of SFAS No. 157 for all
nonfinancial assets and nonfinancial liabilities, except those that are
recognized or disclosed at fair value on a recurring basis (at least annually)
to fiscal years beginning after November 15, 2008, and interim periods within
those fiscal years.





In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities. The standard provides companies with an
option to report selected financial assets and liabilities at fair value and
establishes presentation and disclosure requirements designed to facilitate
comparisons between companies that choose different measurement attributes for
similar types of assets and liabilities. The Company did not elect the fair
value option for any financial assets or financial liabilities as of July 1,
2008, the effective date of the standard.





Page
6





Note
2 – Earnings Per
Share





Basic
earnings per common share is net income divided by the weighted average number
of common shares outstanding during the period. Employee Stock Ownership Plan
(“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 ended
              March
      31,
            
            
            
            Nine
      months ended
              March
      31,2009
            
            
            
            2008
            
            
            
            2009
            
            
            
            2008Basic
            
            (Dollars
      in thousands, except per share data)Net
      income
            
            $
            1,194
            
            
            
            $
            1,325
            
            
            
            $
            3,534
            
            
            
            $
            2,725Weighted
      average common shares outstanding
            
            
            13,079,837
            
            
            
            
            13,543,148
            
            
            
            
            13,103,740
            
            
            
            
            13,559,650Basic
      earnings per share
            
            $
            0.09
            
            
            
            $
            0.10
            
            
            
            $
            0.27
            
            
            
            $
            0.20DilutedNet
      income
            
            $
            1,194
            
            
            
            $
            1,325
            
            
            
            $
            3,534
            
            
            
            $
            2,725Weighted
      average common shares outstanding
            
            
            13,079,837
            
            
            
            
            13,543,148
            
            
            
            
            13,103,740
            
            
            
            
            13,559,650Dilutive
      effect of stock options
            
            
            —
            
            
            
            
            —
            
            
            
            
            123,314
            
            
            
            
            —Dilutive
      effect of stock awards
            
            
            —
            
            
            
            
            —
            
            
            
            
            —
            
            
            
            
            —Average
      shares and dilutive potential common shares
            
            
            13,079,837
            
            
            
            
            13,543,148
            
            
            
            
            13,227,054
            
            
            
            
            13,559,650Diluted
      earnings per share
            
            $
            0.09
            
            
            
            $
            0.10
            
            
            
            $
            0.27
            
            
            
            $
            0.20





For the
three months ended March 31, 2009, outstanding stock options to purchase 491,900
shares and outstanding stock awards of 43,780 shares were anti-dilutive and not
considered in computing diluted earnings per common share. For the nine months
ended March 31, 2009, outstanding stock options to purchase 304,400 shares and
outstanding stock awards of 43,780 shares were anti-dilutive and not considered
in computing diluted earnings per common share. For the three and nine months
ended March 31, 2008, outstanding stock options to purchase 339,400 shares and
outstanding stock awards of 78,560 shares were anti-dilutive and not considered
in computing diluted earnings per common share.




Note 3 –Fair
Value





SFAS No.
157 establishes a fair value hierarchy which requires an entity to maximize the
use of observable inputs and minimize the use of unobservable inputs when
measuring fair value. The standard describes three levels of inputs that may be
used to measure fair value:





Level 1: Quoted prices
(unadjusted) for identical assets or liabilities in active markets that the
entity has the ability to access as of the measurement date.





Level 2: Significant other
observable inputs other than Level 1 prices such as quoted prices for similar
assets or liabilities; quoted prices in markets that are not active; or other
inputs that are observable or can be corroborated by observable market
data.





Level 3: Significant
unobservable inputs that reflect a reporting entity’s own assumptions about the
assumptions that market participants would use in pricing an asset or
liability.





The fair
values of securities available for sale are determined by obtaining quoted
prices on nationally recognized securities exchanges (Level 1 inputs) or matrix
pricing, which is a mathematical technique widely used in the industry to value
debt securities without relying exclusively on quoted prices for the specific
securities but rather by relying on the securities’ relationship to other
benchmark quoted securities (Level 2 inputs).





Assets
and liabilities measured at fair value on a recurring basis are summarized in
the following table:





Page
7






Fair
      Value Measurements at March 31, 2009 UsingAssets at March 31, 2009:
            
            Total
            
            Quoted
      Prices in Active Markets for Identical Assets
              (Level
      1)
            
            Significant
      Other Observable Inputs (Level 2)
            
            Significant
      Unobservable Inputs
              (Level
      3)(Dollars
      in thousands)Available
      for sale securities
            $
            4,928
            $
            —
            $
            4,928
            $
            —  The
Company may also be required, from time to time, to measure certain other
financial assets at fair value on a non-recurring basis in accordance with
GAAP.  The following assets and liabilities were measured at fair
value on a non-recurring basis:





Fair
      Value Measurements at March 31, 2009 UsingAssets at March 31, 2009:
            
            Total
            
            Quoted
      Prices in Active Markets for Identical Assets
              (Level
      1)
            
            Significant
      Other Observable Inputs (Level 2)
            
            Significant
      Unobservable Inputs
              (Level
      3)(Dollars
      in thousands)Impaired
      loans
            $
            4,899
            $
            —
            $
            —
            $
            4,899








Impaired
loans, which are measured for impairment using the fair value of the collateral
for collateral dependent loans, had a carrying amount of $5,995,000 at March 31,
2009 as compared to $3,842,000 at June 30, 2008.  The fair value of collateral is
calculated using a third party appraisal.  The valuation allowance for
these loans was $1,096,000 at March 31, 2009 as compared to $334,000 at June 30,
2008.  An additional provision for loan losses of $147,000 and
$762,000 was made for the three and nine months ended March 31, 2009 relating to
impaired loans. (Level 3 inputs).





Note
4 – Loans





The
composition of loans consists of the following:




March
      31,
              2009
            
            June
      30,
              2008(In
      thousands)Real
      Estate:One-to-four family residential,
      fixed rate
            
            $
            314,930
            
            $
            335,453One-to-four family residential,
      variable rate
            
            
            81,072
            
            
            93,274Multi-family residential,
      variable rate
            
            
            177,833
            
            
            132,290Commercial real estate,
      variable rate
            
            
            121,651
            
            
            115,831695,486
            
            
            676,848Consumer:Automobile
            
            
            44,595
            
            
            52,299Home equity
            
            
            1,434
            
            
            1,405Other consumer loans, primarily
      unsecured
            
            
            14,624
            
            
            14,88360,653
            
            
            68,587Total
      loans
            
            
            756,139
            
            
            745,435Deferred
      net loan origination costs
            
            
            307
            
            
            33Net
      discounts on purchased loans
            
            
            (87
            )
            
            (48
            )Allowance
      for loan losses
            
            
            (4,303
            )
            
            (3,229
            )$
            752,056
            
            $
            742,191





Page
8





The
following is the activity in the allowance for loan losses:




Three
      months ended
              March
      31,
            
            
            
            Nine
      months ended
              March
      31,2009
            
            
            
            2008
            
            
            
            2009
            
            
            
            2008(In
      thousands)Balance,
      beginning of period
            
            $
            3,932
            
            
            
            
            2,882
            
            
            
            $
            3,229
            
            
            
            
            2,805Provision
      for loan losses
            
            
            660
            
            
            
            
            200
            
            
            
            
            2,007
            
            
            
            
            551Recoveries
            
            
            50
            
            
            
            
            90
            
            
            
            
            189
            
            
            
            
            304Loans
      charged off
            
            
            (339
            )
            
            
            
            (115
            )
            
            
            
            (1,122
            )
            
            
            
            (603
            )Balance,
      end of year
            
            $
            4,303
            
            
            
            
            3,057
            
            
            
            $
            4,303
            
            
            
            
            3,057








At March
31, 2009, non-accrual loans totaled $6.1 million, compared to $1.7 million at
June 30, 2008.  At March 31, 2009 and June 30, 2008, there were no
loans past due more than 90 days and still accruing interest.




A loan is
impaired when it is probable, based on current information and events, the Bank
will be unable to collect all contractual principal and interest payments due in
accordance with the terms of the loan agreement.  When we determine
that a loss is probable, a valuation is established and included in the
allowance for loan losses.  The amount of impairment is determined by
the difference between our recorded investment in the loan and estimated net
realizable value of the underlying collateral on collateral dependent
loans.
  At March
31, 2009 and June 30, 2008, the Company had a gross investment in impaired loans
of $6.0 million and $3.8 million, respectively.  Impaired loans at
March 31, 2009 included $4.1 million of loans for which valuation allowances of
$1.1 million had been established and $1.9 million of loans for which no
valuation allowances were established.  At June 30, 2008, the Company
had $3.0 million of impaired loans for which valuation allowances of $334,000
had been established and $885,000 of loans for which no valuation allowances
were established. All valuation allowances are recorded as part of the total
allowance for loan losses. For the three and nine months ended March 31, 2009,
the Company’s average investment in impaired loans was $5.8 and $5.3 million,
respectively.  For the three and nine months ended March 31, 2008, the
Company’s average investment in impaired loans was $1.6 million and $1.3
million, respectively.
  Payments
received on impaired loans are recorded as a reduction of principal or as
interest income depending on management’s assessment of the ultimate
collectability of the loan principal.  Generally, interest income on
an impaired loan is recorded on a cash basis when the outstanding principal is
brought current.  For the three and nine months ended March 31, 2009,
income recorded on impaired loans totaled $18,000 and $52,000,
respectively.  For the three and nine months ended March 31, 2008,
income recorded on impaired loans totaled $8,000 and $32,000,
respectively.  Interest income recorded on impaired loans for all
periods presented were recorded on a cash basis.








Note 5 –Employee
Stock Compensation





During
January 2009, our Board of Directors granted 187,500 stock options to employees
and directors of the Company.  These options were granted at an
exercise price of $7.80 per share.  The options become exercisable in
equal installments over a five-year period beginning one year from the date of
grant and the options expire ten years from the date of grant.  As of
March 31, 2009, the remaining vesting period is 4.8 years and the remaining
contractual term is 9.8 years.





The fair
value of each option is estimated on the grant date using the Black-Scholes
model that applies the following assumptions: volatility based on the historical
volatility of our stock is 33.11%; the expected term of seven years represents
the period of time the options are expected to be outstanding; the risk-free
interest rate of 1.80% is the implied yield available on U.S. Treasury
zero-coupon issues with a remaining term equal to the expected term of the
options granted; and dividend yield of 5.64% is calculated using the anticipated
dividend payout rate over the life of the option.  The fair value of
options granted was $1.33 per share.





Compensation
expense associated with these options was $8,000 for the three and nine months
ended March 31, 2009 and the unrecognized compensation cost as of March 31, 2009
was $241,000.





Page
9







Item
      2.
            Management’s Discussion and Analysis of
      Financial Condition and Results of
  Operations





Forward-Looking
Statements





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.
Forward-looking statements can be identified by the fact that they do not relate
strictly to historical or current facts.  They often includes words
like” “believe,” “expect,” “anticipate,” “estimate,” and “intend” or future or
conditional verbs such as “will,” “should,” “could,” or “may” and similar
expressions or the negative thereof.  Certain factors that could cause
actual results to differ materially from expected results include, changes in
the interest rate environment, changes in general economic conditions,
legislative and regulatory changes that adversely affect the business of K-Fed
Bancorp and Kaiser Federal Bank, and changes in the securities markets. 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.  We caution readers not to place undue reliance on
forward-looking statements.  The Company disclaims any obligation to
revise or update any forward-looking statements contained in this Form 10-Q to
reflect future events or developments.








Recent
Developments





Troubled Asset Relief Program-Capital
Purchase Program.On October 3, 2008, Congress passed the Emergency
Economic Stabilization Act of 2008 (“EESA”), which provides the Secretary of the
United States Treasury with broad authority to implement certain actions to help
restore stability and liquidity to U.S. financial markets.  One of the
initiatives resulting from the Act is the Treasury’s Capital Purchase Program,
which provides direct equity investment of perpetual preferred stock by the
Treasury in qualified financial institutions.  The program is
voluntary and requires an institution to comply with a number of restrictions
and provisions.  After careful consideration and given that the Bank
is well capitalized and profitable with strong credit quality the Company
elected not to apply for such funds.





Federal Deposit Insurance Corporation
(“FDIC”) Coverage/Assessments.The EESA temporarily increased
the limit on FDIC coverage for deposits to $250,000 from $100,000 through
December 31, 2009.  In addition, on October 14, 2008, the FDIC
announced the creation of the Temporary Liquidity Guarantee Program (“TLGP”) as
part of a larger government effort to strengthen confidence and encourage
liquidity in the nation’s banking system.  All eligible institutions
were automatically enrolled in the program through December 5, 2008 at no
cost.  Organizations that did not wish to participate in the TLGP
needed to opt out by December 5, 2008.  After that time, participating
entities will be charged fees.  One component of the TLGP provides
full FDIC insurance coverage for non-interest bearing transaction deposit
accounts, regardless of dollar amount until December 31, 2009.  An
annualized 10 basis point assessment on balances in noninterest-bearing
transaction accounts that exceed the existing deposit insurance limit of
$250,000 will be assessed on a quarterly basis.  The Company did not
opt out and is participating in this component of the TLGP; however, as of March
31, 2009 the Company did not have any non-interest bearing transaction accounts
in excess of $250,000.





The FDIC
currently imposes an assessment against institutions for deposit insurance based
on the risk category of the institution.  Federal law requires that
the designated reserve ratio for the deposit insurance fund be establish by the
FDIC at 1.15% to 1.50% of estimated insured deposits.  Recent bank
failures coupled with deteriorating economic conditions have significantly
reduced the deposit insurance fund’s reserve ratio.  As a result of
the reduced reserve ratio, on December 22, 2008, the Federal Deposit Insurance
Corporation published a final rule that raises the current deposit insurance
assessment rates uniformly for all institutions by 7 basis points (to a range
from 12 to 50 basis points) effective for the first quarter of
2009.  On February 27, 2009, the Federal Deposit Insurance Corporation
issued a final rule that would also alter the way the Federal Deposit Insurance
Corporation calculates federal deposit insurance assessment rates beginning in
the second quarter of 2009 and thereafter.




Under the
rule, the Federal Deposit Insurance Corporation would first establish an
institution’s initial base assessment rate.  This initial base
assessment rate would range, depending on the risk category of the institution,
from 12 to 45 basis points.  The Federal Deposit Insurance Corporation
would then adjust the initial base assessment (higher or lower) to obtain the
total base assessment rate.  The adjustments to the initial base
assessment rate would be based




Page
10


upon an
institution’s levels of unsecured debt, secured liabilities, and brokered
deposits.  The total base assessment rate would range from 7 to 77.5
basis points of the institution’s deposits. Additionally, the Federal Deposit
Insurance Corporation issued an interim final rule that would impose a special
20 basis points assessment on June 30, 2009, which would be collected on
September 30, 2009. The Federal Deposit Insurance Corporation has indicated that
it would reduce the special assessment 10 basis point if Congress expands the
FDIC’s borrowing authority.  Future special assessments could also be
assessed.





Federal Home Loan Bank (“FHLB”) Stock
Dividends.On January 8, 2009 and on April 10, 2009, the FHLB of San
Francisco announced that it will not pay a quarterly dividend and will not
repurchase excess capital stock on the next regularly scheduled repurchase
date.  FHLB dividends received by us for the three and nine months
ended March 31, 2009 were $0 and $314,000, respectively.





Comparison
of Financial Condition at March 31, 2009 and June 30, 2008.





Assets. Cash and cash
equivalents increased $18.5 million, or 36.0% to $69.7 million at March 31, 2009
from $51.2 million at June 30, 2008. We also invested $9.0 million in interest
earning time deposits in other financial institutions during the
period.  The increase in cash and interest earning time deposits was a
result of an overall increase in liquidity due to increased deposits during the
period.





Our
investment portfolio decreased $4.2 million, or 26.0% to $11.9 million at March
31, 2009 from $16.0 million at June 30, 2008. The decrease was attributable to
maturities and normal repayments of principal on our mortgage-backed securities
and collateralized mortgage obligations.





Our gross
loan portfolio increased by $10.7 million, or 1.4% to $756.1 million at March
31, 2009 from $745.4 million at June 30, 2008. One-to-four family real estate
loans decreased $32.7 million, or 7.6% to $396.0 million at March 31, 2009 from
$428.7 million at June 30, 2008.  Commercial real estate loans
increased $5.8 million, or 5.0% to $121.6 million at March 31, 2009 from $115.8
million at June 30, 2008.  Multi-family loans increased $45.5 million,
or 34.4% to $177.8 million at March 31, 2009 from $132.3 million at June 30,
2008.  Other loans which are comprised primarily of automobile loans
decreased $7.9 million, or 11.6% to $60.7 million at March 31, 2009 from $68.6
million at June 30, 2008. Real estate loans comprised 92.0% of the total loan
portfolio at March 31, 2009, compared with 90.8% at June 30, 2008. The decrease
in one-to-four family loans and increase in multi-family loans was due to our
ongoing focus on originating income producing property loans as a means of
diversifying the loan portfolio.





Deposits. Total deposits
increased $59.2 million or 12.0% to $554.3 million at March 31, 2009 from $495.1
million at June 30, 2008 as depositors look for the safety of banks with strong
capital positions.  The change was comprised of increases of $23.1
million in money market accounts, $18.7 million in noninterest-bearing demand
accounts, $15.5 million in certificates of deposit and $1.9 million in savings
accounts.  The increase in money market and certificates of deposit
accounts was a result of promotions for these types of accounts.





Borrowings. Advances from the
FHLB of San Francisco decreased $28.0 million, or 11.9% to $207.0 million at
March 31, 2009 from $235.0 million at June 30, 2008.  The decline was
the result of scheduled advance repayments in August and October 2008 and was
funded with available liquidity due to increased deposits.





Stockholders’ Equity.
Stockholders’ equity increased $1.3 million, to $92.0 million at March 31, 2009
from $90.7 million at June 30, 2008 primarily as a result of $3.5 million in net
income for the nine months ended March 31, 2009 and the allocation of ESOP
shares, stock awards, and stock options earned totaling $856,000. This increase
was offset in part by cash payments of $1.8 million for the repurchase of shares
of common stock and $1.4 million in dividends ($0.33 per share) paid to
stockholders of record for the nine months ended March 31, 2009, excluding
shares held by K-Fed Mutual Holding Company which waved receipt of its dividend
payments.


Page
11


Average
Balances, Net Interest Income, Yields Earned and Rates Paid




For
      the three months ended March 31,2009
      (1)
            
            
            
            
            
            
            
            2008
      (1)Average
            
            
            
            
            
            
            
            AverageAverage
            
            
            
            Yield/
            
            
            
            Average
            
            
            
            Yield/Balance
            
            Interest
            
            Cost
            
            
            
            Balance
            
            Interest
            
            Cost(Dollars
      in thousands)INTEREST-EARNING
      ASSETSLoans
      receivable(2)
            
            $
            750,189
            
            $
            11,059
            
            5.90
            %
            
            
            $
            738,462
            
            $
            10,948
            
            5.93
            %Securities(3)
            
            
            12,903
            
            
            146
            
            4.53
            %
            
            
            
            19,631
            
            
            224
            
            4.56
            %Federal
      funds sold
            
            
            26,568
            
            
            13
            
            0.20
            %
            
            
            
            40,263
            
            
            268
            
            2.66
            %Federal
      Home Loan Bank stock
            
            
            12,649
            
            
            —
            
            0.00
            %
            
            
            
            12,257
            
            
            146
            
            4.76
            %Interest-earning
      deposits in other financial institutions
            
            
            18,380
            
            
            66
            
            1.44
            %
            
            
            
            —
            
            
            —
            
            —
            %Total
      interest-earning assets
            
            
            820,689
            
            
            11,284
            
            5.50
            %
            
            
            
            810,613
            
            
            11,586
            
            5.72
            %Noninterest
      earning assets
            
            
            37,401
            
            
            
            
            
            
            
            
            
            33,021Total
      assets
            
            $
            858,090
            
            
            
            
            
            
            
            
            $
            843,634INTEREST-BEARING  LIABILITIESMoney
      market
            
            $
            95,057
            
            $
            412
            
            1.73
            %
            
            
            $
            74,833
            
            $
            446
            
            2.38
            %Savings
      deposits
            
            
            119,071
            
            
            238
            
            0.80
            %
            
            
            
            120,037
            
            
            402
            
            1.34
            %Certificates
      of deposit
            
            
            262,251
            
            
            2,495
            
            3.81
            %
            
            
            
            233,742
            
            
            2,727
            
            4.67
            %Borrowings
            
            
            232,009
            
            
            2,333
            
            4.02
            %
            
            
            
            270,019
            
            
            2,924
            
            4.33
            %Total
      interest-bearing liabilities
            
            
            708,388
            
            
            5,478
            
            3.09
            %
            
            
            
            698,631
            
            
            6,499
            
            3.72
            %Noninterest
      bearing liabilities
            
            
            57,922
            
            
            
            
            
            
            
            
            
            51,372Total
      liabilities
            
            
            766,310
            
            
            
            
            
            
            
            
            
            750,003Equity
            
            
            91,780
            
            
            
            
            
            
            
            
            
            93,631Total
      liabilities and equity
            
            $
            858,090
            
            
            
            
            
            
            
            
            $
            843,634Net
      interest/spread
            
            
            
            
            $
            5,806
            
            2.41
            %
            
            
            
            
            
            $
            5,087
            
            2.00
            %Margin(4)
            
            
            
            
            
            
            
            2.83
            %
            
            
            
            
            
            
            
            
            2.51
            %Ratio
      of interest-earning assets to interest bearing liabilities
            
            
            115.85
            %
            
            
            
            
            
            
            
            
            116.03
            %(1)
      Yields earned and rates paid have been annualized.(2)
      Calculated net of deferred fees and loss reserves.(3)
      Calculated based on amortized cost.(4)
      Net interest income divided by interest-earning assets.








Page
12







For
      the nine months ended March 31,2009
      (1)
            
            
            
            
            
            
            
            2008
      (1)Average
            
            
            
            
            
            
            
            AverageAverage
            
            
            
            Yield/
            
            
            
            Average
            
            
            
            Yield/Balance
            
            Interest
            
            Cost
            
            
            
            Balance
            
            Interest
            
            Cost(Dollars
      in thousands)INTEREST-EARNING
      ASSETSLoans
      receivable(2)
            
            $
            743,877
            
            $
            32,678
            
            5.86
            %
            
            
            $
            720,826
            
            $
            31,855
            
            5.89
            %Securities(3)
            
            
            14,292
            
            
            485
            
            4.52
            %
            
            
            
            26,328
            
            
            882
            
            4.47
            %Federal
      funds sold
            
            
            34,373
            
            
            285
            
            1.11
            %
            
            
            
            24,823
            
            
            598
            
            3.21
            %Federal
      Home Loan Bank stock
            
            
            12,632
            
            
            314
            
            3.31
            %
            
            
            
            10,952
            
            
            398
            
            4.85
            %Interest-earning
      deposits in other financial institutions
            
            
            11,707
            
            
            140
            
            1.59
            %
            
            
            
            2,937
            
            
            92
            
            4.18
            %Total
      interest-earning assets
            
            
            816,881
            
            
            33,902
            
            5.53
            %
            
            
            
            785,866
            
            
            33,825
            
            5.74
            %Noninterest
      earning assets
            
            
            36,671
            
            
            
            
            
            
            
            
            
            32,937Total
      assets
            
            $
            853,552
            
            
            
            
            
            
            
            
            $
            818,803INTEREST-BEARING  LIABILITIESMoney
      market
            
            $
            89,211
            
            $
            1,384
            
            2.07
            %
            
            
            $
            74,391
            
            $
            1,484
            
            2.66
            %Savings
      deposits
            
            
            120,494
            
            
            874
            
            0.97
            %
            
            
            
            129,172
            
            
            1,527
            
            1.58
            %Certificates
      of deposit
            
            
            257,318
            
            
            7,840
            
            4.06
            %
            
            
            
            238,916
            
            
            8,482
            
            4.73
            %Borrowings
            
            
            241,213
            
            
            7,556
            
            4.18
            %
            
            
            
            238,525
            
            
            7,955
            
            4.45
            %Total
      interest-bearing liabilities
            
            
            708,236
            
            
            17,654
            
            3.32
            %
            
            
            
            681,004
            
            
            19,448
            
            3.81
            %Noninterest
      bearing liabilities
            
            
            54,059
            
            
            
            
            
            
            
            
            
            44,492Total
      liabilities
            
            
            762,295
            
            
            
            
            
            
            
            
            
            725,496Equity
            
            
            91,257
            
            
            
            
            
            
            
            
            
            93,307Total
      liabilities and equity
            
            $
            853,552
            
            
            
            
            
            
            
            
            $
            818,803Net
      interest/spread
            
            
            
            
            $
            16,248
            
            2.21
            %
            
            
            
            
            
            $
            14,377
            
            1.93
            %Margin(4)
            
            
            
            
            
            
            
            2.65
            %
            
            
            
            
            
            
            
            
            2.44
            %Ratio
      of interest-earning assets to interest bearing liabilities
            
            
            115.34
            %
            
            
            
            
            
            
            
            
            115.40
            %(1)
      Yields earned and rates paid have been annualized.(2)
      Calculated net of deferred fees and loss reserves.(3)
      Calculated based on amortized cost.(4)
      Net interest income divided by interest-earning assets.


Page
13




Comparison
of Results of Operations for the Three Months Ended March 31, 2009 and March 31,
2008.





General.Net income for the
three months ended March 31, 2009 was $1.2 million, a decrease of $131,000 as
compared to net income of $1.3 million for the three months ended March 31,
2008. Earnings per basic and diluted common share were $0.09 for the three
months ended March 31, 2009 compared to $0.10 for the three months ended March
31, 2008.





Interest Income.Interest
income decreased by $302,000 or 2.6%, to $11.3 million for the three months
ended March 31, 2009 from $11.6 million for the three months ended March 31,
2008. The primary reasons for the decline in interest income were decreases in
interest on securities, dividends on FHLB stock and interest on federal funds
sold.





Interest
income on securities decreased by $78,000 or 34.8%, to $146,000 for the three
months ended March 31, 2009 from $224,000 for the three months ended March 31,
2008. The decrease was primarily attributable to a $6.7 million decrease in the
average balance of investment securities from $19.6 million for the three months
ended March 31, 2008 to $12.9 million for the three months ended March 31, 2009
as a result of maturities and normal repayments of principal on our
mortgage-backed securities and collateralized mortgage obligations.





On
January 8, 2009, the FHLB of San Francisco announced that it would not pay a
dividend for the fourth quarter of 2008.  Accordingly we received no
dividends for the three months ended March 31, 2009 as compared to $146,000 for
the three months ended March 31, 2008. On April 10, 2009 the FHLB of San
Francisco announced that it will not pay a dividend for the first quarter of
2009 and will not repurchase excess capital stock on the next regularly
scheduled repurchase date.





Other
interest income decreased by $189,000 or 70.5% to $79,000 for the three months
ended March 31, 2009 from $268,000 for the three months ended March 31, 2008.
The decrease was a result of a 246 basis point decline in the average yield
earned on federal funds sold from 2.66% for the three months ended March 31,
2008 to 0.20% for the three months ended March 31, 2009.  The yield
earned on federal funds sold was impacted by the actions taken by the Federal
Reserve in lowering the targeted federal funds rate.





Interest Expense. Interest
expense decreased $1.0 million or 15.7% to $5.5 million for the three months
ended March 31, 2009 from $6.5 million for the three months ended March 31,
2008. The decrease was primarily attributable to a 63 basis point decline in the
average cost of interest bearing liabilities from 3.72% for the three months
ended March 31, 2008 to 3.09% for the three months ended March 31, 2009 as a
result of a general decline in interest rates during the period.  The
decrease was partially offset by an increase in the average balance of
interest-bearing liabilities of $9.8 million from $698.6 million for the three
months ended March 31, 2008 to $708.4 million for the three months ended March
31, 2009.







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 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.




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 collectability 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
collectability of the loan. Significant factors reviewed in determining the
allowance




Page
14


for loan
losses included loss ratio trends by loan product and concentrations in
geographic regions, interest only loans, stated income loans and loans with
credit scores less than a specified amount. The company also reviewed the debt
service coverage ratios and seasoning for income property loans. 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 we will be unable to collect all amounts due
according to the terms of the loan agreement, we determine 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 homogeneous 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 collectability 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 (OTS) 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 increased to $660,000 for the three months ended March
31, 2009 compared to $200,000 for the three months ended March 31, 2008. The
allowance for loan losses as a percent of total loans was 0.57% at March 31,
2009 as compared to 0.42% at March 31, 2008. Net charge-offs totaled $289,000 or
0.15% of average loans for the three months ended March 31, 2009 as compared to
$25,000 or 0.01% of average loans for the three months ended March 31, 2008. The
increase in provision for loan losses was primarily attributable to an increase
in real estate loan delinquencies as well as an increase in loans that were
reviewed for impairment. The increase in delinquencies was experienced primarily
in our one-to-four family loans as a result of the continued deterioration in
the housing market as well as deteriorating general economic conditions and
increased unemployment in our market area.





The
increase in non-performing loans has impacted the level of the allowance for
loan losses at March 31, 2009.  Non-performing loans are assessed to
determine impairment.  Loans that are found to be impaired are
individually evaluated and a specific valuation allowance is
applied.   Accordingly the Company’s specific valuation allowance
has increased from $334,000 at June 30, 2008 to $1.1 million at March 31,
2009.





Noninterest Income.Our
noninterest income decreased $94,000, or 8.3% to $1.0 million for the three
months ended March 31, 2009 compared to $1.1 million for the three months ended
March 31, 2008. The decrease was primarily the result of a decrease in ATM
activity and from non-sufficient funds service charges during the
period.





Noninterest Expense.Our
noninterest expense increased $290,000, or 7.4% to $4.2 million for the three
months ended March 31, 2009 compared to $3.9 million for the three months ended
March 31, 2008. The increase was primarily due to a $124,000 increase in ATM
expense and a $156,000 increase in other operating expense.





ATM
expense increased $124,000, or 38.0% to $450,000 for the three months ended
March 31, 2009 from $326,000 for the three months ended March 31, 2008. The
increase in ATM expense was primarily due to ATM installations, one-time
communication capacity expense, and an increase in ATM fraud losses of
$45,000.





Page
15


Other
operating expense increased $156,000, or 37.1% to $576,000 for the three months
ended March 31, 2009 from $420,000 for the three months ended March 31, 2008.
The increase was primarily attributable to the FDIC imposing additional deposit
insurance premium assessments.





Income Tax Expense. Income tax
expense was relatively unchanged at $772,000 for the three months ended March
31, 2009 as compared to $766,000 for the three months ended March 31, 2008. The
effective tax rate was 39.3% and 36.6% for the three months ended March 31, 2009
and 2008, respectively.  The increase in the effective tax rate was
attributable to an increase in non-deductible expense related to stock options
and stock awards.





Comparison
of Results of Operations for the Nine Months Ended March 31, 2009 and March 31,
2008.





General.Net income for the
nine months ended March 31, 2009 was $3.5 million, an increase of $809,000 as
compared to net income of $2.7 million for the nine months ended March 31, 2008.
Earnings per basic and diluted common share were $0.27 for the nine months ended
March 31, 2009 compared to $0.20 for the nine months ended March 31, 2008. Net
income for the nine months ended March 31, 2008 included $1.3 million in stock
offering costs.  The recognition of these expenses resulted in a
decline of $0.05 per share in basic and diluted earnings per share for the nine
months ended March 31, 2008.Excluding
the effect of the stock offering costs, the increase in net income was primarily
the result of increased net interest income resulting from a lower cost of
funds.





Interest Income.Interest
income increased by $77,000, or 0.23%, to $33.9 million for the nine months
ended March 31, 2009 from $33.8 million for the nine months ended March 31,
2008. Interest and fees on loans increased $823,000, or 2.58%, to $32.7 million
for the nine months ended March 31, 2009 from $31.9 million for the nine months
ended March 31, 2008. The primary factor for the increase in interest income was
an increase in the average loans receivable balance of $23.1 million or 3.20%,
from $720.8 million for the nine months ended March 31, 2008 to $743.9 million
for the nine months ended March 31, 2009.  The increase in interest
and fees on loans was partially offset by the decrease in interest on securities
and other interest income.





Interest
income on securities decreased by $397,000, or 45.0%, to $485,000 for the nine
months ended March 31, 2009 from $882,000 for the nine months ended March 31,
2008. The decrease was attributable to a $12.0 million decrease in the average
balance of investment securities from $26.3 million for the nine months ended
March 31, 2008 to $14.3 million for the nine months ended March 31, 2009 as a
result of maturities and normal repayments of principal on our mortgage-backed
securities and collateralized mortgage obligations.





Other
interest income decreased by $265,000 or 38.4% to $425,000 for the nine months
ended March 31, 2009 from $690,000 for the nine months ended March 31, 2008. The
decrease was a result of a 210 basis point decline in the average yield earned
on federal funds sold from 3.21% for the nine months ended March 31, 2008 to
1.11% for the nine months ended March 31, 2009.  The yield earned on
federal funds sold was impacted by the actions taken by the Federal Reserve in
lowering the targeted federal funds rate.





Interest Expense. Interest
expense decreased $1.8 million, or 9.2% to $17.7 million for the nine months
ended March 31, 2009 compared to $19.4 million for the nine months ended March
31, 2008. The decrease was primarily attributable to a 49 basis point decline in
the average cost of interest bearing liabilities from 3.81% for the nine months
ended March 31, 2008 to 3.32% for the nine months ended March 31, 2009 as a
result of a general decline in interest rates during the period. The decrease
was partially offset by an increase in the average balance of interest-bearing
liabilities of $27.2 million from $681.0 million for the nine months ended March
31, 2008 to $708.2 million for the nine months ended March 31,
2009.





Provision for Loan Losses. Our
provision for loan losses increased to $2.0 million for the nine months ended
March 31, 2009 compared to $551,000 for the nine months ended March 31, 2008.
Net charge-offs totaled $933,000 or 0.17% of average loans for the nine months
ended March 31, 2009 as compared to $299,000 or 0.06% of average loans for the
nine months ended March 31, 2008. The increase in provision for loan losses was
primarily attributable to an increase in real estate loan delinquencies as well
as an increase in loans that were reviewed for impairment. The increase in
delinquencies was experienced primarily in our one-to-four family loans as a
result of the continued deterioration in the housing market as well as
deteriorating general economic conditions and increased
unemployment.





Noninterest Income.Our
noninterest income increased $214,000, or 6.7% to $3.4 million for the nine
months ended March 31, 2009 compared to $3.2 million for the nine months ended
March 31, 2008. The increase was primarily the result of increased customer
service charges and fees due to increased customer activity coupled with an
increase in ATM surcharge fees for non-customers.





Page
16


Noninterest Expense.Our
noninterest expense decreased $740,000, or 5.8% to $12.1 million for the nine
months ended March 31, 2009 compared to $12.9 million for the nine months ended
March 31, 2008.  The decrease resulted from the recognition of $1.3
million in expenses relating to the cancellation of the stock offering in
November 2007.  Excluding the stock offering costs, noninterest
expense increased $539,000 due to increases in ATM expense and other operating
expense.





ATM
expense increased $220,000, or 23.1% to $1.2 million for the nine months ended
March 31, 2009 from $1.0 million for the nine months ended March 31, 2008. The
increase in ATM expense was primarily due to ATM installations, one-time
communication capacity expense, and an increase in ATM fraud losses of $46,000
during the period.





Other
operating expense increased $197,000, or 14.7% to $1.5 million for the nine
months ended March 31, 2009 from $1.3 million for the nine months ended March
31, 2008. The increase was primarily attributable to the FDIC imposing
additional deposit insurance premium assessments.





Income Tax Expense. Income tax
expense increased $560,000 to $2.0 million for the nine months ended March 31,
2009 compared to $1.5 million for the nine months ended March 31, 2008. This
increase was primarily the result of higher pre-tax income of $5.5 million for
the nine months ended March 31, 2009 compared to $4.2 million for the nine
months ended March 31, 2008. The effective tax rate was 36.3% and 34.8% for the
nine months ended March 31, 2009 and 2008, respectively.  The increase
in the effective tax rate was attributable to an increase in non-deductible
expense related to stock options and stock awards.








Asset
Quality





Asset
quality continues to remain strong despite the continued deterioration in the
housing market and weakened economy as evidenced by non-accrual and delinquency
ratios that are significantly below industry averages.  This has been
accomplished through our conservative and disciplined lending practices
including our strict adherence to a long standing disciplined credit culture
that emphasizes the consistent application of underwriting standards to all
loans. In this regard, the Bank fully underwrites all loans based on an
applicant’s employment history, credit history and an appraised value of the
subject property. With respect to purchased loans, the Bank underwrites each
loan based upon our own underwriting standards prior to making the
purchase.





The
following underwriting guidelines have been used by the Bank as underwriting
tools to further limit the Bank’s potential loss exposure:





1.
            All
      variable rate loans are underwritten using the fully indexed
      rate.


2.
            All
      interest-only loans are underwritten using the fully amortized
      payment.


3.
            We
      only lend up to 80% of the lesser of the appraised value or purchase price
      for one-to-four family residential
loans.





Additionally,
the Bank’s portfolio has remained strongly anchored in traditional mortgage
products. In this regard, we do not originate or purchase construction and
development loans, teaser option-ARM loans, negatively amortizing loans or high
loan to value loans.





Page
17


Delinquent Loans.The
following table sets forth certain information with respect to our loan
portfolio delinquencies at the dates indicated.




Loans
      Delinquent :60-89
      Days
            
            90
      Days or More
            
            Total
      Delinquent LoansNumber
      of Loans
            
            Amount
            
            Number
      of Loans
            
            Amount
            
            Number
      of Loans
            
            Amount(Dollars
      in thousands)At March 31, 2009Real estate loans:One-to-four
      family
            
            
            4
            
            $
            1,705
            
            
            9
            
            $
            3,884
            
            
            13
            
            $
            5,589Commercial
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Multi-family
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Other loans:Automobile
            
            
            4
            
            
            38
            
            
            5
            
            
            57
            
            
            9
            
            
            95Home
      equity
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Other
            
            
            3
            
            
            5
            
            
            5
            
            
            6
            
            
            8
            
            
            11Total
      loans
            
            
            11
            
            $
            1,748
            
            
            19
            
            $
            3,947
            
            
            30
            
            $
            5,695At June 30, 2008Real estate loans:One-to-four
      family
            
            
            —
            
            $
            —
            
            
            4
            
            $
            1,583
            
            
            4
            
            $
            1,583Commercial
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Multi-family
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Other loans:Automobile
            
            
            10
            
            
            159
            
            
            8
            
            
            132
            
            
            18
            
            
            291Home
      equity
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Other
            
            
            22
            
            
            34
            
            
            9
            
            
            15
            
            
            31
            
            
            49Total
      loans
            
            
            32
            
            $
            193
            
            
            21
            
            $
            1,730
            
            
            53
            
            $
            1,923At June 30, 2007Real estate loans:One-to-four
      family
            
            
            —
            
            $
            —
            
            
            2
            
            $
            1,115
            
            
            2
            
            $
            1,115Commercial
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Multi-family
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Other loans:Automobile
            
            
            7
            
            
            111
            
            
            2
            
            
            19
            
            
            9
            
            
            130Home
      equity
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Other
            
            
            5
            
            
            8
            
            
            4
            
            
            7
            
            
            9
            
            
            15Total
      loans
            
            
            12
            
            $
            119
            
            
            8
            
            $
            1,141
            
            
            20
            
            $
            1,260





As
expected, based on the weakened economy and continued decline in the housing
market, the one-to-four family mortgage loan portfolio has shown increased
delinquency.  Delinquent loans 60 days or more increased to $5.7
million or 0.75% of total loans at March 31, 2009 from $1.9 million or 0.26% of
total loans at June 30, 2008.





Non-Performing Assets.The
following table sets forth the amounts and categories of non-performing assets
in our loan portfolio. Non-performing assets consist of non-accrual loans and
foreclosed assets. Loans to a customer whose financial condition has
deteriorated are considered for non-accrual status whether or not the loan is 90
days and over past due. All loans past due 90 days and over are classified as
non-accrual. On non-accrual loans, interest income is not recognized until
actually collected. At the time the loan is placed on non-accrual status,
interest previously accrued but not collected is reversed and charged against
current income.  At March 31, 2009, we had $1.7 million of troubled
debt restructurings (loans for which a concession has been granted due to the
debtor’s financial difficulties) that are included in non-accrual loans in the
following table.





Other
real estate owned and repossessed assets consist of real estate and other assets
which have been acquired through foreclosure on loans. At the time of
foreclosure, assets are recorded at the lower of their estimated fair value less
selling costs or the loan balance, with any write-down charged against the
allowance for loan losses.







Page
18




At
      March 31,
            
            At
      June 30,
            
            At
      June 30,2009
            
            2008
            
            2007(Dollars
      in thousands)Non-accrual loans:Real estate loans:One-to-four
      family
            
            $
            4,284
            
            $
            1,583
            
            $
            1,115Commercial
            
            
            —
            
            
            —
            
            
            —Multi-family
            
            
            —
            
            
            —
            
            
            —Other loans:Automobile
            
            
            57
            
            
            132
            
            
            19Home
      equity
            
            
            —
            
            
            —
            
            
            —Other
            
            
            6
            
            
            15
            
            
            7Troubled debt
restructuring:One-to-four
      family
            
            
            1,480
            
            
            —
            
            
            —Commercial
            
            
            —
            
            
            —
            
            
            —Multi-family
            
            
            236
            
            
            —
            
            
            —Total
      non-accrual loans
            
            
            6,063
            
            
            1,730
            
            
            1,141Other real estate owned and repossessed
      assets:Real estate loans:One-to-four
      family
            
            
            781
            
            
            1,045
            
            
            238Commercial
            
            
            —
            
            
            —
            
            
            —Multi-family
            
            
            —
            
            
            —
            
            
            —Other loans:Automobile
            
            
            55
            
            
            161
            
            
            74Home
      equity
            
            
            —
            
            
            —
            
            
            —Other
            
            
            —
            
            
            —
            
            
            —Total
      other real estate owned
    and  repossessed assets
            
            
            836
            
            
            1,206
            
            
            312Total
      non-performing assets
            
            $
            6,899
            
            $
            2,936
            
            $
            1,453Non-performing
      loans to total loans (1)
            
            
            0.80
            %
            
            0.23
            %
            
            0.16
            %Non-performing
      assets to total assets
            
            
            0.78
            %
            
            0.35
            %
            
            0.18
            %(1)
      Total loans are net of deferred fees and costs





The
increase in non-performing loans was a result of the increased delinquency in
our one-to-four family loans as a result of the continued deterioration in the
housing market as well as deteriorating general economic conditions and
increased unemployment in our market area. The increase in non-performing loans
has impacted our determination of the allowance for loan losses at March 31,
2009.  Non-performing loans are assessed to determine
impairment.  Loans that are found to be impaired are individually
evaluated and a specific valuation allowance is
applied.   Accordingly the Company’s specific valuation allowance
has increased from $334,000 at June 30, 2008 to $1.1 million at March 31,
2009.





Changes
in asset quality were considered in the allowance for loan losses based on a
detailed analysis of loans, including delinquent loans. Each delinquent loan was
evaluated for impairment based on the loan balance, the borrower’s ability to
pay and collateral value. The other factors reviewed in determining the
allowance for loan losses included loss ratio trends by loan product and
concentrations in (1) geographic regions, (2) interest only loans, (3) stated
income loans and (4) loans with credit scores less than a specified amount. The
Company also reviewed the debt service coverage ratios and seasoning for income
property loans.  The Company has not changed its estimation methods or
assumptions related to the allowance for loan losses during the periods
presented.





Page
19





Liquidity,
Capital Resources 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 previously imposed by OTS 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 unaudited Consolidated Financial Statements
included in this document.





Our
liquidity, represented by cash and cash equivalents, interest earning accounts
and mortgage-backed and related securities, is a product of our 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
FHLB advances and State of California time deposits to leverage our capital base
and provide funds for our lending and investment activities as well as 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 as well as interest earning time deposits in other financial
institutions. 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 certificates of deposit and savings withdrawals, to
fund loan commitments and to maintain our portfolio of mortgage-backed and
related securities. At March 31, 2009, total approved loan commitments amounted
to $6.0 million, which included the unfunded portion of loans of $3.1
million.





Certificates
of deposit, State of California time deposits, and advances from the FHLB of San
Francisco scheduled to mature in one year or less at March 31, 2009, totaled
$149.9 million, $25.0 million and $60.0 million, respectively. Based on
historical experience, management believes that a significant portion of
maturing deposits will remain with Kaiser Federal Bank and we anticipate that we
will continue to have sufficient funds, through deposits and borrowings, to meet
our current commitments.





At March
31, 2009, we had available additional advances from the FHLB of San Francisco in
the amount of $123.9 million.





Capital





The table
below sets forth Kaiser Federal Bank’s capital position relative to its OTS
capital requirements at March 31, 2009 and June 30, 2008. The definitions of the
terms used in the table are those provided in the capital regulations issued by
the OTS.


Actual
            
            Minimum
      Capital Requirements
            
            Minimum
      required to be Well Capitalized Under Prompt Corrective Actions
      ProvisionsMarch 31, 2009
            
            Amount
            
            Ratio
            
            Amount
            
            Ratio
            
            Amount
            
            Ratio(Dollars
      in thousands)Total
      risk-based capital (to risk-weighted assets)
            
            $78,633
            
            13.21
            %
            $47,615
            
            8.00
            %
            $59,518
            
            10.00
            %Tier
      1 risk-based capital (to risk-weighted assets)
            
            75,476
            
            12.68
            
            23,807
            
            4.00
            
            35,711
            
            6.00Tier
      1 (core) capital (to adjusted tangible assets)
            
            75,476
            
            8.65
            
            34,902
            
            4.00
            
            43,628
            
            5.00








Page
20







Actual
            
            Minimum
      Capital Requirements
            
            Minimum
      required to be Well Capitalized Under Prompt Corrective Actions
      ProvisionsJune 30, 2008
            
            Amount
            
            Ratio
            
            Amount
            
            Ratio
            
            Amount
            
            Ratio(Dollars
      in thousands)Total
      risk-based capital (to risk-weighted assets)
            
            $73,811
            
            12.93
            %
            $45,661
            
            8.00
            %
            $57,077
            
            10.00
            %Tier
      1 risk-based capital (to risk-weighted assets)
            
            70,666
            
            12.38
            
            22,831
            
            4.00
            
            34,246
            
            6.00Tier
      1 (core) capital (to adjusted tangible assets)
            
            70,666
            
            8.45
            
            33,433
            
            4.00
            
            41,791
            
            5.00





Consistent
with our goal to operate a sound and profitable financial organization, we
actively seek to continue as a “well capitalized” institution in accordance with
regulatory standards.  At March 31, 2009, 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 fixed rate loans generally have longer maturities than our fixed
rate 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.





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.





Page
21


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
monthly.





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 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 FHLB
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. We intend
to continue our existing strategy of originating 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 OTS
provides Kaiser Federal Bank with the information presented in the following
table, which is based on information provided to the OTS by Kaiser Federal Bank.
It presents the change in Kaiser Federal Bank’s net portfolio value at December
31, 2008 which is the latest information available that would occur upon an
immediate change in interest rates based on OTS assumptions but without giving
effect to any steps that management might take to counteract that
change.





December
      31, 2008Change
      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
            
            $
            67,423
            
            
            
            $
            (20,513
            )
            
            
            (23
            )%
            
            
            8.24
            %
            
            
            (201
            )bp+200
      bp
            
            
            78,754
            
            
            
            
            (9,182
            )
            
            
            (10
            )
            
            
            9.43
            
            
            
            (82
            )+100
      bp
            
            
            85,789
            
            
            
            
            (2,147
            )
            
            
            (2
            )
            
            
            10.11
            
            
            
            (14
            )0
      bp
            
            
            87,936
            
            
            
            
            —
            
            
            
            —
            
            
            
            10.25
            
            
            
            —-100
      bp
            
            
            82,410
            
            
            
            
            (5,526
            )
            
            
            (6
            )
            
            
            9.60
            
            
            
            (65
            )





The OTS
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.





Page
22





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 Rule 13a-15(e) and 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 Rule 13a-15(f) under the Act) that occurred during the quarter ended
March 31, 2009 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.











Part
II. OTHER INFORMATION








Item
1. Legal Proceedings





None.








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,
2008 and as supplemented by later Form 10-Q filings.








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





Issuer
Purchases of Equity Securities


Period
            
            Total
      Number of Shares Purchased
            
            Weighted
      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 Plan07/1/08
      – 07/31/08
            
            41,469
            
            $
            10.87
            
            508,788
            
            —08/1/08
      – 08/31/08
            
            —
            
            
            —
            
            —
            
            228,35409/1/08
      – 09/30/08
            
            14,024
            
            
            9.96
            
            14,024
            
            214,33010/1/08
      – 10/31/08
            
            —
            
            
            —
            
            —
            
            214,33011/1/08
      – 11/30/08
            
            14,536
            
            
            8.14
            
            28,560
            
            199,79412/1/08
      – 12/31/08
            
            75
            
            
            7.41
            
            28,635
            
            199,71901/1/09
      – 01/31/09
            
            15,150
            
            
            8.04
            
            43,785
            
            184,56902/1/09
      – 02/28/09
            
            46,983
            
            
            7.56
            
            90,768
            
            137,58603/1/09
      – 03/31/09
            
            37,956
            
            
            7.68
            
            128,724
            
            99,630





* On
August 27, 2008, the Company announced its intention to repurchase an additional
5% of its outstanding publicly held common stock, or 228,354 shares of
stock.








Item
3. Defaults Upon Senior
Securities





None.





Page
23


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
Act


31.1           Certification
of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act


32.1           Certification
of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley
Act


32.2           Certification
of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley
Act


Page
24





K-FED BANCORP AND SUBSIDIARY


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
BANCORP











Dated:
May 4,
2009


BY: /s/ K. M.
Hoveland


K. M. Hoveland


President, Chief Executive Officer





BY: /s/ Dustin
Luton


Dustin Luton


Chief Financial Officer





Page
25





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)) and 15d-15(e)) and
      internal control over financial reporting (as defined in Exchange Act
      Rules 13a-15(f) and 15d-15(f)) 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)
            Designed
      such internal control over financial reporting, or cause such internal
      control over financial reporting to be designed under our supervision, to
      provide reasonable assurance regarding the reliability of financial
      reporting and the preparation of financial statements for external
      purposes in accordance with generally accepted accounting
      principles;





(c)
            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





(d)
            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 4,
2009                                                                                               /s/ K. M.
Hoveland


K.
M. Hoveland


President and Chief Executive Officer


























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)) and 15d-15(e)) and
      internal control over financial reporting (as defined in Exchange Act
      Rules 13a-15(f) and 15d-15(f)) 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)
            Designed
      such internal control over financial reporting, or cause such internal
      control over financial reporting to be designed under our supervision, to
      provide reasonable assurance regarding the reliability of financial
      reporting and the preparation of financial statements for external
      purposes in accordance with generally accepted accounting
      principles;





(c)
            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





(d)
            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 4,
2009                                                                                               
/s/ Dustin
Luton


Dustin Luton


Chief Financial Officer








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, 2009 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 4,
2009                                                                                          /s/ K. M.
Hoveland


K. M. Hoveland


Chief Executive Officer


























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, 2009 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 4,
2009                                                                                         
/s/ Dustin
Luton


Dustin Luton


Chief Financial Officer