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:  December 31,
2007





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 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 x     
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





APPLICABLE
ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of
the issuer’s classes of common stock, as of the latest practicable
date:





Common
Stock, $.01 par value – 13,949,625 shares outstanding as of February 4,
2008.











Form
10-Q





K-FED
BANCORP


Table
of Contents





PagePart
      I.
            Financial InformationItem
      1:
            Financial Statements
      (Unaudited)Consolidated
      Statements of Financial ConditionatDecember 31, 2007and June 30, 2007
            1Consolidated Statements of Income and
      Comprehensive Income for the Threeand Six MonthsEndedDecember 31, 2007and 2006
            2Consolidated Statement of Stockholders’ Equity and
      Other Comprehensive Income for theSixMonths EndedDecember 31, 2007
            3Consolidated Statements of Cash Flows for theSixMonths EndedDecember 31, 2007and 2006
            4Notes to Consolidated Financial
      Statements
            5Item
      2:
            Management’s Discussion and
      Analysis of Financial Condition and Results of
      Operations
            8Item
      3:
            Quantitative and
      Qualitative Disclosures About Market Risk
            14Item
      4:
            Controls and
      Procedures
            15Part
      II.
            Other InformationItem
      1:
            Legal
      Proceedings
            20Item
      1A:
            Risk
      Factors
            20Item
      2:
            Unregistered
      Sales of Equity Securities and Use of Proceeds
            20Item
      3:
            Defaults upon Senior
      Securities
            20Item
      4:
            Submission
      of Matters to a Vote of Security Holders
            20Item
      5:
            Other
      Information
            20Item
      6:
            Exhibits
            20SIGNATURES
            21











Part I — FINANCIAL INFORMATION


Item
1. Financial Statements


K-FED
BANCORP AND SUBSIDIARY


Consolidated
Statements of Financial Condition


(Unaudited)


(Dollars
in thousands, except share data)


December
      31
              2007
            
            June
      30
              2007ASSETSCash
      and due from banks
            
            $
            7,473
            
            $
            10,982Federal
      funds sold
            
            
            23,975
            
            
            15,750Total
      cash and cash equivalents
            
            
            31,448
            
            
            26,732Interest
      earning deposits in other financial institutions
            
            
            —
            
            
            2,970Securities
      available-for-sale
            
            
            9,892
            
            
            13,579Securities
      held-to-maturity, fair value of $9,753 and
              $20,514
      at December 31, 2007 and June 30, 2007, respectively
            
            
            9,992
            
            
            21,096Federal
      Home Loan Bank stock, at cost
            
            
            12,220
            
            
            9,870Loans
      receivable
            
            
            743,593
            
            
            701,962Deferred
      net loan origination fees
            
            
            (54
            )
            
            (134
            )Net
      premium on purchased loans
            
            
            8
            
            
            120Allowance
      for loan losses
            
            
            (2,882
            )
            
            (2,805
            )Loans
      receivable, net
            
            
            740,665
            
            
            699,143Accrued
      interest receivable
            
            
            3,329
            
            
            3,259Premises
      and equipment, net
            
            
            3,224
            
            
            3,484Core
      deposit intangible
            
            
            272
            
            
            323Goodwill
            
            
            3,950
            
            
            3,950Bank-owned
      life insurance
            
            
            11,176
            
            
            10,954Other
      assets
            
            
            4,217
            
            
            4,265Total
      assets
            
            $
            830,385
            
            $
            799,625LIABILITIES
      AND STOCKHOLDERS’ EQUITYLiabilitiesDepositsNoninterest
      bearing
            
            $
            43,585
            
            $
            43,169Interest
      bearing
            
            
            420,196
            
            
            450,959Total
      deposits
            
            
            463,781
            
            
            494,128Federal
      Home Loan Bank advances, short-term
            
            
            38,000
            
            
            20,000Federal
      Home Loan Bank advances, long-term
            
            
            207,019
            
            
            190,016State
      of California time deposit
            
            
            25,000
            
            
            —Accrued
      expenses and other liabilities
            
            
            3,060
            
            
            3,164Total
      liabilities
            
            
            736,860
            
            
            707,308Commitments
      and contingent liabilities
            
            
            —
            
            
            —Stockholders’
      equityNonredeemable
      serial preferred stock, $.01 par value;
              2,000,000
      shares authorized; issued and outstanding — none
            
            
            —
            
            
            —Common
      stock, $0.01 par value; 18,000,000 authorized;
              December
      31, 2007 — 14,725,440 shares issued.
              June
      30, 2007 — 14,724,760 shares issued.
            
            
            147
            
            
            147Additional
      paid-in capital
            
            
            58,029
            
            
            57,626Retained
      earnings
            
            
            49,539
            
            
            49,084Accumulated
      other comprehensive loss, net of tax
            
            
            (4
            )
            
            (126
            )Unearned
      employee stock ownership plan shares
            
            
            (2,843
            )
            
            (3,071
            )Treasury
      stock, at cost (December 31, 2007 — 775,815 shares;
              June
      30, 2007 — 775,815 shares)
            
            
            (11,343
            )
            
            (11,343
            )Total
      stockholders’ equity
            
            
            93,525
            
            
            92,317Total
      liabilities and stockholders’ equity
            
            $
            830,385
            
            $
            799,625The
      accompanying notes are an integral part of these unaudited consolidated
      financial statements






1


K-FED BANCORP AND
SUBSIDIARY


Consolidated
Statements of Income and Comprehensive Income


(Unaudited)


(Dollars
in thousands, except per share data)





Three
      Months Ended
              December
      31
            
            Six
      Months Ended
              December
      312007
            
            2006
            
            2007
            
            2006Interest
      IncomeInterest
      and fees on loans
            
            $
            10,634
            
            $
            9,114
            
            $
            20,907
            
            $
            18,017Interest
      on securities, taxable
            
            
            285
            
            
            336
            
            
            658
            
            
            684Federal
      Home Loan Bank dividends
            
            
            133
            
            
            124
            
            
            251
            
            
            237Other
      interest
            
            
            199
            
            
            671
            
            
            422
            
            
            1,032Total
      interest income
            
            
            11,251
            
            
            10,245
            
            
            22,238
            
            
            19,970Interest
      ExpenseInterest
      on deposits
            
            
            3,844
            
            
            3,749
            
            
            7,918
            
            
            6,920Interest
      on borrowings
            
            
            2,644
            
            
            2,110
            
            
            5,030
            
            
            4,092Total
      interest expense
            
            
            6,488
            
            
            5,859
            
            
            12,948
            
            
            11,012Net
      interest income
            
            
            4,763
            
            
            4,386
            
            
            9,290
            
            
            8,958Provision
      for loan losses
            
            
            184
            
            
            180
            
            
            352
            
            
            303Net
      interest income after provision
              for
      loan losses
            
            
            4,579
            
            
            4,206
            
            
            8,938
            
            
            8,655Noninterest
      incomeService
      charges and fees
            
            
            595
            
            
            490
            
            
            1,180
            
            
            1,001ATM
      fees and charges
            
            
            369
            
            
            402
            
            
            734
            
            
            773Referral
      commissions
            
            
            70
            
            
            80
            
            
            134
            
            
            142Loss
      on equity investment
            
            
            (105
            )
            
            (75
            )
            
            (210
            )
            
            (56
            )Bank-owned
      life insurance
            
            
            107
            
            
            105
            
            
            222
            
            
            212Other
      noninterest income
            
            
            4
            
            
            7
            
            
            9
            
            
            14Total
      noninterest income
            
            
            1,040
            
            
            1,009
            
            
            2,069
            
            
            2,086Noninterest
      expenseSalaries
      and benefits
            
            
            1,985
            
            
            1,896
            
            
            3,992
            
            
            3,698Occupancy
      and equipment
            
            
            569
            
            
            510
            
            
            1,132
            
            
            1,030ATM
      expense
            
            
            309
            
            
            318
            
            
            626
            
            
            625Advertising
      and promotional
            
            
            78
            
            
            65
            
            
            125
            
            
            131Professional
      services
            
            
            221
            
            
            154
            
            
            467
            
            
            355Postage
            
            
            79
            
            
            80
            
            
            148
            
            
            149Telephone
            
            
            128
            
            
            127
            
            
            254
            
            
            218Stock
      offering costs
            
            
            1,270
            
            
            —
            
            
            1,270
            
            
            —Other
      operating expense
            
            
            442
            
            
            383
            
            
            907
            
            
            755Total
      noninterest expense
            
            
            5,081
            
            
            3,533
            
            
            8,921
            
            
            6,961Income
      before income tax expense
            
            
            538
            
            
            1,682
            
            
            2,086
            
            
            3,780Income
      tax expense
            
            
            132
            
            
            537
            
            
            687
            
            
            1,320Net
      income
            
            $
            406
            
            $
            1,145
            
            $
            1,399
            
            $
            2,460Comprehensive
      Income
            
            $
            445
            
            $
            1,186
            
            $
            1,521
            
            $
            2,584Earnings
      per common share:Basic
            
            $
            0.03
            
            $
            0.08
            
            $
            0.10
            
            $
            0.18Diluted
            
            $
            0.03
            
            $
            0.08
            
            $
            0.10
            
            $
            0.18The
      accompanying notes are an integral part of these unaudited consolidated
      financial statements


2





K-FED
BANCORP AND SUBSIDIARY


Consolidated Statements of Stockholders’
Equity


And
Other Comprehensive Income


(Unaudited)


(Dollars
in thousands, except share data)





Common
      Stock
            
            
            
            
            
            
            
            
            
            Treasury
      StockComprehensive
              Income
            
            Shares
            
            Amount
            
            Additional
              Paid-in
              Capital
            
            Retained
              Earnings
            
            Accumulated
              Other
              Comprehensive
              Loss,
      net
            
            Unearned
              ESOP
              Shares
            
            Shares
            
            Amount
            
            TotalBalance
      June 30, 2007
            
            
            
            
            14,724,760
            
            $
            147
            
            $
            57,626
            
            $
            49,084
            
            $
            (126
            )
            $
            (3,071
            )
            (775,815
            )
            $
            (11,343
            )
            $
            92,317Comprehensive
      incomeNet
      income for the six months ended December 31, 2007
            
            $
            1,399
            
            —
            
            
            —
            
            
            —
            
            
            1,399
            
            
            —
            
            
            —
            
            —
            
            
            —
            
            
            1,399Other
      comprehensive income – unrealized gain on securities, net of
      tax
            
            
            122
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            122
            
            
            —
            
            —
            
            
            —
            
            
            122Total
      comprehensive income
            
            $
            1,521Dividends
      paid ($0.20 per share) *
            
            
            
            
            —
            
            
            —
            
            
            —
            
            
            (944
            )
            
            —
            
            
            —
            
            —
            
            
            —
            
            
            (944
            )Stock
      options earned
            
            
            
            
            —
            
            
            —
            
            
            158
            
            
            —
            
            
            —
            
            
            —
            
            —
            
            
            —
            
            
            158Allocation
      of stock awards
            
            
            
            
            —
            
            
            —
            
            
            211
            
            
            —
            
            
            —
            
            
            —
            
            —
            
            
            —
            
            
            211Tax
      benefit of RRP shares vesting
            
            
            
            
            —
            
            
            —
            
            
            (35
            )
            
            —
            
            
            —
            
            
            —
            
            —
            
            
            —
            
            
            (35
            )Issuance
      of stock awards
            
            
            
            
            5,000
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            —
            
            
            —
            
            
            —Forfeiture
      of stock awards
            
            
            
            
            (4,320
            )
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            —
            
            
            —
            
            
            —Allocation
      of ESOP common stock
            
            
            
            
            —
            
            
            —
            
            
            69
            
            
            —
            
            
            —
            
            
            228
            
            —
            
            
            —
            
            
            297Balance
      December 31, 2007
            
            
            
            
            14,725,440
            
            $
            147
            
            $
            58,029
            
            $
            49,539
            
            $
            (4
            )
            $
            (2,843
            )
            (755,815
            )
            $
            (11,343
            )
            $
            93,525*
      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





3





K-FED
BANCORP AND SUBSIDIARY


Consolidated Statements of Cash
Flows


(Unaudited)


(Dollars
in thousands)


Six
      Months Ended
              December
      312007
            
            2006Operating
      ActivitiesNet
      income
            
            $
            1,399
            
            $
            2,460Adjustments
      to reconcile net income to cash provided by operating
      activities:Amortization
      of net premiums on securities
            
            
            12
            
            
            21Amortization
      of net premiums on loan purchases
            
            
            112
            
            
            120Accretion
      of net loan origination fees
            
            
            (20
            )
            
            (46
            )Provision
      for loan losses
            
            
            352
            
            
            303Federal
      Home Loan Bank stock dividend
            
            
            (251
            )
            
            (237
            )Depreciation
      and amortization
            
            
            412
            
            
            350Amortization
      of core deposit intangible
            
            
            51
            
            
            59Loss
      on equity investment
            
            
            210
            
            
            56Increase
      in cash surrender value of bank-owned life insurance
            
            
            (222
            )
            
            (212
            )Accretion
      of net premiums on purchased certificates of deposits
            
            
            (37
            )
            
            (28
            )Amortization
      of debt exchange costs
            
            
            4
            
            
            37Allocation
      of ESOP common stock
            
            
            297
            
            
            365Allocation
      of stock awards
            
            
            211
            
            
            134Stock
      options earned
            
            
            158
            
            
            102Net
      increase in accrued interest receivable
            
            
            (70
            )
            
            (298
            )Net
      (increase) decrease in other assets
            
            
            (246
            )
            
            234Net
      decrease in accrued expenses and other liabilities
            
            
            (104
            )
            
            (410
            )Net
      cash provided by operating activities
            
            
            2,268
            
            
            3,010Investing
      ActivitiesProceeds
      from maturities and principal repayments of available-for-sale
      securities
            
            
            3,882
            
            
            608Proceeds from maturities and principal repayments of held-to-maturity
      securities
            
            
            11,104
            
            
            1,924Decrease
      in interest bearing deposits at other institutions
            
            
            2,970
            
            
            5,940Purchases
      of loans
            
            
            —
            
            
            (53,461
            )(Increase)
      decrease in loans, excluding loan purchases
            
            
            (41,966
            )
            
            16,622Purchases
      of FHLB stock
            
            
            (2,099
            )
            
            (70
            )Purchases
      of premises and equipment
            
            
            (154
            )
            
            (638
            )Net
      cash used in investing activities
            
            
            (26,263
            )
            
            (29,075
            )Financing
      ActivitiesProceeds
      from FHLB advances
            
            
            93,500
            
            
            20,000Repayment
      of FHLB advances
            
            
            (58,500
            )
            
            (10,000
            )Dividends
      paid on common stock
            
            
            (944
            )
            
            (911
            )Purchases
      of treasury stock
            
            
            —
            
            
            (2,818
            )Net
      (decrease) increase in deposits
            
            
            (30,310)
            
            
            28,546Increase
      in State of California time deposit
            
            
            25,000
            
            
            —Exercise
      of stock options
            
            
            —
            
            
            149Tax
      benefit from RRP shares vesting
            
            
            (35
            )
            
            35Net
      cash provided by financing activities
            
            
            28,711
            
            
            35,001Net
      increase in cash and cash equivalents
            
            
            4,716
            
            
            8,936Cash
      and cash equivalents, at beginning of year
            
            
            26,732
            
            
            25,579Cash
      and cash equivalents, at end of period
            
            $
            31,448
            
            $
            34,515The
      accompanying notes are an integral part of these unaudited consolidated
      financial statements


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 all types of retail and commercial real
estate loans, the majority of its residential real estate loans have been
purchased from other financial institutions.





The
Company’s business activities generally are limited to passive investment
activities and oversight of our investment in the Bank. Unless the context
otherwise requires, all references to the Company include the Bank and the
Company on a consolidated basis.





Basis of
Presentation:  The financial statements of K-Fed Bancorp have
been prepared in conformity with accounting principles generally accepted in the
United States (“GAAP”) for interim financial information and predominant
practices followed by the financial services industry, and are unaudited. In the
opinion of the Company’s management, all adjustments consisting of normal
recurring accruals necessary for a fair presentation of the financial condition
and results of operations for the interim periods included herein have been
made.





The
results of operations for the six months ended December 31, 2007 are not
necessarily indicative of the results of operations that may be expected for any
other interim period or for the fiscal year ending June 30, 2008. 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
2007 Annual Report on Form 10-K filed with the Securities and Exchange
Commission.





Principles of
Consolidation:The consolidated financial statements presented
in this quarterly report include the accounts of K-Fed Bancorp and its
wholly-owned subsidiary, Kaiser Federal Bank. All material intercompany balances
and transactions have been eliminated in consolidation.





Use of
Estimates:The preparation of consolidated financial
statements in conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of income and expenses during the
reporting period. Changes in these estimates and assumptions are considered
reasonably possible and may have a material impact on the consolidated financial
statements and thus actual results could differ from the amounts reported and
disclosed herein. Material estimates that are particularly susceptible to
significant change in the near term relate to the determination of the allowance
for loan losses, the valuation of financial instruments, and mortgage-loan
prepayment assumptions used to determine the effective interest amortization of
loan purchase premiums and discounts.





Newly
Issued Accounting Standards:





In July
2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation
No. 48 (“FIN 48”) “Accounting for Uncertainty in Income Taxes:  an
interpretation of Statement of Financial Accounting Standards (“SFAS”) Statement
No. 109.”  This interpretation clarifies the accounting for
uncertainty in income taxes recognized in an entity’s financial statements in
accordance with SFAS No. 109, “Accounting for Income Taxes.”  FIN 48
prescribes a recognition threshold and measurement attribute for a tax position
taken or expected to be taken in a tax return.  Under FIN 48, an
income tax position will be recognized if it is more likely than not that it
will be sustained upon IRS examination, based upon its technical merits. Once
that status is met, the amount recorded will be the largest amount of benefit
that is greater than 50 percent likely of being realized upon ultimate
settlement. FIN 48 also provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods, disclosure, and
transition. FIN 48 is effective as of the beginning of fiscal years that begin
after December 15, 2006.






5





We
adopted FIN 48 effective July 1, 2007. There was no cumulative effect of
applying the provisions of FIN 48 and there was no material effect on our
provision for income taxes for the three and six months ended December 31,
2007.  The adoption of FIN 48 had no effect on our financial condition
or results of operations.








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. 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
              December
      31,
            
            
            
            Six
      months ended
              December
      31,2007
            
            
            
            2006
            
            
            
            2007
            
            
            
            2006(Dollars
      in thousands)Net
      income
            
            $
            406
            
            
            
            $
            1,145
            
            
            
            $
            1,399
            
            
            
            $
            2,460Weighted
      average common shares outstanding
            
            
            13,596,244
            
            
            
            
            13,656,748
            
            
            
            
            13,567,813
            
            
            
            
            13,689,339Basic
      earnings per share
            
            $
            0.03
            
            
            
            $
            0.08
            
            
            
            $
            0.10
            
            
            
            $
            0.18Earnings
      per share assuming dilutionNet
      income available to common shareholders
            
            $
            406
            
            
            
            $
            1,145
            
            
            
            $
            1,399
            
            
            
            $
            2,460Weighted
      average common shares outstanding
            
            
            13,596,244
            
            
            
            
            13,656,748
            
            
            
            
            13,567,813
            
            
            
            
            13,689,339Dilutive
      effect of stock options
            
            
            —
            
            
            
            
            12,835
            
            
            
            
            —
            
            
            
            
            5,297Dilutive
      effect of stock awards
            
            
            —
            
            
            
            
            52,122
            
            
            
            
            —
            
            
            
            
            50,199Average
      common shares and dilutive potential common shares
            
            
            13,596,244
            
            
            
            
            13,721,705
            
            
            
            
            13,567,813
            
            
            
            
            13,744,835Diluted
      earnings per share
            
            $
            0.03
            
            
            
            $
            0.08
            
            
            
            $
            0.10
            
            
            
            $
            0.18





For the
three and six months ended December 31, 2007, outstanding stock options to
purchase 339,400 shares and outstanding stock awards of 78,560 shares were not
considered in computing diluted earnings per common share because they were
anti-dilutive.




Note
3 – Termination of
Second Step Conversion and Offering




On
November 29, 2007, K-Fed Bancorp, the holding company of Kaiser Federal
Bank, announced that Kaiser Federal Financial Group, Inc, the proposed new
holding company of Kaiser Federal Bank, had terminated its subscription and
community offering in connection with the second step conversion of K-Fed Mutual
Holding Company.








6





Item 2.
            MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS





Forward-Looking
Information





This Quarterly Report on Form 10-Q
contains certain forward-looking statements and information relating to the
Company and the Bank that are based on the beliefs of management as well as
assumptions made by and information currently available to management. In
addition, in portions of this document the words “anticipate,” “believe,”
“estimate,” “expect,” “intend,” “should” and similar expressions or the negative
thereof, as they relate to the Company or the Bank or their management, are
intended to identify forward-looking statements. Such statements reflect the
current views of the Company and/or the Bank with respect to forward-looking
events and are subject to certain risks, uncertainties and assumptions. Should
one or more of these risks or uncertainties materialize or should underlying
assumptions prove incorrect, actual results may vary materially from those
described herein as anticipated, believed, estimated, expected or intended. The
Company does not intend to update these forward-looking
statements.





Comparison
of Financial Condition at December 31, 2007 and June 30, 2007.





Assets: Cash and cash
equivalents increased $4.7 million, or 17.6% to $31.4 million at December 31,
2007 from $26.7 million at June 30, 2007. The increase related to federal funds
sold, which increased $8.2 million to $24.0 million at December 31, 2007 from
$15.8 million at June 30, 2007 offset by a $3.5 million decrease in cash and due
from banks to $7.5 million at December 31, 2007 from $11.0 million at June 30,
2007.





Our
investment portfolio decreased $14.8 million, or 42.7% to $19.9 million at
December 31, 2007 from $34.7 million at June 30, 2007. 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 $41.6 million, or 5.9% to $743.6 million at December
31, 2007 from $702.0 million at June 30, 2007. The increase was primarily due to
the bank’s focus on income property loans as a means of diversifying the
mortgage portfolio. One-to four-family real estate loans decreased $17.7
million, or 3.8% to $451.8 million at December 31, 2007 from $469.5 million at
June 30, 2007.  Commercial real estate loans increased $20.9 million,
or 26.8% to $98.7 million at December 31, 2007 from $77.8 million at June 30,
2007.  Multifamily loans increased $28.6 million, or 32.5% to $116.7
million at December 31, 2007 from $88.1 million at June 30,
2007.  Other loans which are comprised primarily of automobile loans
increased $9.8 million, or 14.7% to $76.4 million at December 31, 2007 from
$66.6 million at June 30, 2007. Real estate loans comprised 89.7% of the total
loan portfolio at December 31, 2007, compared with 90.5% at June 30,
2007.





Deposits: Total deposits
decreased $30.3 million, or 6.1% to $463.8 million at December 31, 2007 from
$494.1 million at June 30, 2007. The decrease was primarily due to declines in
savings, money market and certificate of deposits products as a result of the
bank’s focus on core relationships with customers instead of rate
offerings.





Borrowings: Advances from the
Federal Home Loan Bank of San Francisco increased $35.0 million, or 16.7% to
$245.0 million at December 31, 2007 from $210.0 million at June 30,
2007.  We interchange the use of deposits and borrowings to fund
assets such as the origination and purchase of loans depending on various
factors including liquidity and asset/liability management strategies. Other
borrowings are comprised of $25.0 million in deposits from the State of
California through the State’s Time Deposit program in exchange for pledging
certain investment securities as collateral.





Stockholders’ Equity:
Stockholders’ equity increased $1.2 million to $93.5 million at December 31,
2007 from $92.3 million at June 30, 2007 primarily as a result of $1.4 million
in net income earned for the six months ended December 31, 2007, an unrealized
gain on securities of $122,000 net of tax and the allocation of ESOP shares,
stock awards, and stock options earned totaling $666,000. This gain was offset
by cash payments of $944,000 in dividends to stockholders of record, excluding
shares held by K-Fed Mutual Holding Company, of $0.20 per share for the six
months ended December 31, 2007.





7


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




For
      the three months ended December 31,2007
      (4)
            
            
            
            
            
            
            
            2006
      (4)Average
            
            
            
            
            
            
            
            AverageAverage
            
            
            
            Yield/
            
            
            
            Average
            
            
            
            Yield/Balance
            
            Interest
            
            Cost
            
            
            
            Balance
            
            Interest
            
            Cost(Dollars
      in thousands)INTEREST-EARNING
      ASSETSLoans
      receivable(1)
            
            $
            722,873
            
            $
            10,634
            
            5.88
            %
            
            
            $
            639,363
            
            $
            9,114
            
            5.70
            %Securities(2)
            
            
            25,454
            
            
            285
            
            4.48
            %
            
            
            
            34,210
            
            
            336
            
            3.93
            %Fed
      Funds
            
            
            15,968
            
            
            182
            
            4.56
            %
            
            
            
            45,724
            
            
            589
            
            5.15
            %Federal
      Home Loan Bank stock
            
            
            10,708
            
            
            133
            
            4.97
            %
            
            
            
            9,023
            
            
            124
            
            5.50
            %Interest-earning
      deposits in other financial institutions
            
            
            1,178
            
            
            10
            
            3.40
            %
            
            
            
            5,793
            
            
            46
            
            3.18
            %Other
      interest-earning assets
            
            
            577
            
            
            7
            
            4.85
            %
            
            
            
            2,863
            
            
            36
            
            5.03
            %Total
      interest-earning assets
            
            
            776,758
            
            
            11,251
            
            5.79
            %
            
            
            
            736,976
            
            
            10,245
            
            5.56
            %Noninterest
      earning assets
            
            
            32,869
            
            
            
            
            
            
            
            
            
            35,959Total
      assets
            
            $
            809,627
            
            
            
            
            
            
            
            
            $
            772,935INTEREST-BEARING  LIABILITIESMoney
      Market
            
            $
            72,920
            
            $
            510
            
            2.80
            %
            
            
            $
            100,566
            
            $
            714
            
            2.84
            %Savings
      deposits
            
            
            128,767
            
            
            523
            
            1.62
            %
            
            
            
            114,608
            
            
            454
            
            1.58
            %Certificates
      of deposit
            
            
            230,846
            
            
            2,811
            
            4.87
            %
            
            
            
            224,120
            
            
            2,581
            
            4.61
            %Other
      borrowings
            
            
            235,035
            
            
            2,644
            
            4.50
            %
            
            
            
            189,980
            
            
            2,110
            
            4.44
            %Total
      interest-bearing liabilities
            
            
            667,568
            
            
            6,488
            
            3.89
            %
            
            
            
            629,274
            
            
            5,859
            
            3.72
            %Noninterest
      bearing liabilities
            
            
            48,502
            
            
            
            
            
            
            
            
            
            51,004Total
      liabilities
            
            
            716,070
            
            
            
            
            
            
            
            
            
            680,278Equity
            
            
            93,557
            
            
            
            
            
            
            
            
            
            92,657Total
      liabilities and equity
            
            $
            809,627
            
            
            
            
            
            
            
            
            $
            772,935Net
      interest/spread
            
            
            
            
            $
            4,763
            
            1.90
            %
            
            
            
            
            
            $
            4,386
            
            1.84
            %Margin(3)
            
            
            
            
            
            
            
            2.45
            %
            
            
            
            
            
            
            
            
            2.38
            %Ratio
      of interest-earning assets to interest bearing liabilities
            
            
            116.36
            %
            
            
            
            
            
            
            
            
            117.12
            %(1)
      Calculated net of deferred fees and loss reserves.(2)
      Calculated based on amortized cost.(3)
      Net interest income divided by interest-earning assets.(4)
      Yields earned and rates paid have been annualized.







8







For
      the six months ended December 31,2007
      (4)
            
            
            
            
            
            
            
            2006
      (4)Average
            
            
            
            
            
            
            
            AverageAverage
            
            
            
            Yield/
            
            
            
            Average
            
            
            
            Yield/Balance
            
            Interest
            
            Cost
            
            
            
            Balance
            
            Interest
            
            Cost(Dollars
      in thousands)INTEREST-EARNING
      ASSETSLoans
      receivable(1)
            
            $
            713,583
            
            $
            20,907
            
            5.86
            %
            
            
            $
            636,244
            
            $
            18,017
            
            5.66
            %Securities(2)
            
            
            29,234
            
            
            658
            
            4.50
            %
            
            
            
            34,797
            
            
            684
            
            3.93
            %Fed
      Funds
            
            
            15,879
            
            
            330
            
            4.16
            %
            
            
            
            32,364
            
            
            833
            
            5.15
            %Federal
      Home Loan Bank stock
            
            
            10,387
            
            
            251
            
            4.83
            %
            
            
            
            8,936
            
            
            237
            
            5.30
            %Interest-earning
      deposits in other financial institutions
            
            
            2,061
            
            
            35
            
            3.40
            %
            
            
            
            7,171
            
            
            128
            
            3.57
            %Other
      interest-earning assets
            
            
            2,349
            
            
            57
            
            4.85
            %
            
            
            
            2,407
            
            
            71
            
            5.90
            %Total
      interest-earning assets
            
            
            773,493
            
            
            22,238
            
            5.75
            %
            
            
            
            721,919
            
            
            19,970
            
            5.53
            %Noninterest
      earning assets
            
            
            32,775
            
            
            
            
            
            
            
            
            
            34,746Total
      assets
            
            $
            806,268
            
            
            
            
            
            
            
            
            $
            756,665INTEREST-BEARING  LIABILITIESMoney
      Market
            
            $
            74,026
            
            $
            1,038
            
            2.80
            %
            
            
            $
            105,521
            
            $
            1,513
            
            2.87
            %Savings
      deposits
            
            
            132,825
            
            
            1,125
            
            1.69
            %
            
            
            
            103,961
            
            
            544
            
            1.05
            %Certificates
      of deposit
            
            
            236,902
            
            
            5,755
            
            4.86
            %
            
            
            
            226,634
            
            
            4,863
            
            4.29
            %Other
      borrowings
            
            
            225,028
            
            
            5,030
            
            4.47
            %
            
            
            
            185,685
            
            
            4,092
            
            4.41
            %Total
      interest-bearing liabilities
            
            
            668,781
            
            
            12,948
            
            3.87
            %
            
            
            
            621,801
            
            
            11,012
            
            3.54
            %Noninterest
      bearing liabilities
            
            
            44,334
            
            
            
            
            
            
            
            
            
            42,133Total
      liabilities
            
            
            713,115
            
            
            
            
            
            
            
            
            
            663,934Equity
            
            
            93,153
            
            
            
            
            
            
            
            
            
            92,731Total
      liabilities and equity
            
            $
            806,268
            
            
            
            
            
            
            
            
            $
            756,665Net
      interest/spread
            
            
            
            
            $
            9,290
            
            1.88
            %
            
            
            
            
            
            $
            8,958
            
            1.99
            %Margin(3)
            
            
            
            
            
            
            
            2.40
            %
            
            
            
            
            
            
            
            
            2.48
            %Ratio
      of interest-earning assets to interest bearing liabilities
            
            
            115.66
            %
            
            
            
            
            
            
            
            
            116.10
            %(1)
      Calculated net of deferred fees and loss reserves.(2)
      Calculated based on amortized cost.(3)
      Net interest income divided by interest-earning assets.(4)
      Yields earned and rates paid have been annualized.


9








Comparison
of Results of Operations for the Three Months Ended December 31, 2007 and
December 31, 2006.





General.Net income for the
three months ended December 31, 2007 was $406,000, a decrease of $739,000, or
64.5%, compared to net income of $1.1 million for the three months ended
December 31, 2006. Earnings per basic and diluted common share were $0.03 for
the three months ended December 31, 2007 compared to $0.08 for the three months
ended December 31, 2006. The decline in net income for the three months ended
December 31, 2007 compared to the three months ended December 31, 2006 primarily
resulted from recognizing $1.3 million in stock offering costs resulting from
the cancellation of the second stock offering.  If the stock offering
had been successful, these costs would have been deducted from the proceeds of
the offering as required by GAAP instead of being expensed.





Interest Income.Interest
income increased by $1.1 million or 9.8%, to $11.3 million for the three months
ended December 31, 2007 from $10.2 million for the three months ended December
31, 2006. The primary factor for the increase in interest income was an increase
in the average loans receivable balance of $83.5 million or 13.1%, from $639.4
million for the three months ended December 31, 2006 to $722.9 million for the
three months ended December 31, 2007. Interest income was also positively
impacted by an 18 basis point increase in the average yield on loans receivable
from 5.70% for the three months ended December 31, 2006 to 5.88% for the three
months ended December 31, 2007.  The increase in the average yield on
loans receivable was primarily attributable to the addition of higher-yielding
multifamily and non-residential real estate loans to the bank’s
portfolio.





Interest
income on securities decreased by $51,000 or 15.2%, to $285,000 for the three
months ended December 31, 2007 from $336,000 for the three months ended December
31, 2006. The decrease was attributable to an $8.8 million decrease in the
average balance of investment securities from $34.2 million for the three months
ended December 31, 2006 to $25.5 million for the three months ended December 31,
2007.





Other
interest income decreased by $472,000 or 70.3% to $199,000 for the three months
ended December 31, 2007 from $671,000 for the three months ended December 31,
2006.  The decrease was primarily attributable to a decrease in the
average balance of fed funds sold of $29.7 million or 65.0%, from $45.7 million
for the three months ended December 31, 2006 to $16.0 million for the three
months ended December 31, 2007.  The decrease in fed funds was
attributable to increased loan growth during the comparable periods. Interest
income was also negatively impacted by a 59 basis point decrease in the average
yield earned on fed funds sold from 5.15% for the three months ended December
31, 2006 to 4.56% for the three months ended December 31, 2007.  The
decrease in the average yield on fed funds sold was primarily attributable to
declines in the fed funds rate during the comparable periods.





Interest Expense. Interest
expense increased $629,000, or 10.7% to $6.5 million for the three months ended
December 31, 2007 compared to $5.9 million for the three months ended December
31, 2006. The increase was primarily attributable to an increase in the average
balance of FHLB advances and other borrowings, combined with higher interest
rate levels. The average balance of interest-bearing liabilities increased $38.3
million or 6.1% to $667.6 million for the three months ended December 31, 2007
from $629.3 million for the three months ended December 31,
2006.  Interest expense was also negatively impacted by a 17 basis
point increase in the average interest rates paid on interest-bearing
liabilities to 3.89% for the three months ended December 31, 2007 from 3.72% for
the three months ended December 31, 2006.





Net Interest
Income.  Net income before provision for loan losses increased
$377,000 or 8.6%, to $4.8 million for the three months ended December 31, 2007
from $4.4 million for the three months ended December 31, 2006.  The
increase was attributable to an increase in the net interest margin as a result
of higher yielding multifamily and non-residential loans.  The net
interest margin increased 7 basis points to 2.45% for the three months ended
December 31, 2007 from 2.38% for the three months ended December 31,
2006.




Provision for Loan
Losses.We
maintain an allowance for loan losses to absorb probable incurred losses
inherent in the loan portfolio. The allowance is based on ongoing, quarterly
assessments of the probable losses inherent in the loan portfolio. Our
methodology for assessing the appropriateness of the allowance consists of
several key elements, which include loss ratio analysis by type of loan and
specific allowances for identified problem loans, including the results of
measuring impaired loans as provided in Statement of Financial Accounting
Standards (“SFAS”) No. 114, “Accounting by Creditors for Impairment of a Loan”
and SFAS No. 118, “Accounting by Creditors for Impairment of a Loan – Income
Recognition and Disclosures.”  These accounting standards prescribe
the measurement methods, income recognition and disclosures related to impaired
loans.




10











The loss
ratio analysis component of the allowance is calculated by applying loss factors
to outstanding loans based on the internal risk evaluation of the loans or pools
of loans. Changes in risk evaluations of both performing and nonperforming loans
affect the amount of the formula allowance. Loss factors are based both on our
historical loss experience as well as on significant factors that, in
management’s judgment, affect the collectibility of the portfolio as of the
evaluation date.




The
appropriateness of the allowance is reviewed and established by management based
upon its evaluation of then-existing economic and business conditions affecting
our key lending areas and other conditions, such as credit quality trends
(including trends in nonperforming loans expected to result from existing
conditions), collateral values, loan volumes and concentrations, specific
industry conditions within portfolio segments and recent loss experience in
particular segments of the portfolio that existed as of the balance sheet date
and the impact that such conditions were believed to have had on the
collectibility of the loan. Senior management reviews these conditions quarterly
in discussions with our senior credit officers. To the extent that any of these
conditions is evidenced by a specifically identifiable problem credit or
portfolio segment as of the evaluation date, management’s estimate of the effect
of such condition may be reflected as a specific allowance applicable to such
credit or portfolio segment. Where any of these conditions is not evidenced by a
specifically identifiable problem credit or portfolio segment as of the
evaluation date, management’s evaluation of the loss related to this condition
is reflected in the general allowance. The evaluation of the inherent loss with
respect to these conditions is subject to a higher degree of uncertainty because
they are not identified with specific problem credits or portfolio
segments.





Management
also evaluates the adequacy of the allowance for loan losses based on a review
of individual loans, historical loan loss experience, the value and adequacy of
collateral and economic conditions in our market area. This evaluation is
inherently subjective as it requires material estimates, including the amounts
and timing of future cash flows expected to be received on impaired loans that
may be susceptible to significant change. For all specifically reviewed loans
for which it is probable that 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 homogenous loans that are
collectively evaluated for impairment and are excluded from specific impairment
evaluation, and their allowance for loan losses is calculated in accordance with
the allowance for loan losses policy described above.




Because
the allowance for loan losses is based on estimates of losses inherent in the
loan portfolio, actual losses can vary significantly from the estimated amounts.
Our methodology as described above permits adjustments to any loss factor used
in the computation of the formula allowance in the event that, in management’s
judgment, significant factors which affect the collectibility of the portfolio
as of the evaluation date are not reflected in the loss factors. By assessing
the estimated losses inherent in the loan portfolio on a quarterly basis, we are
able to adjust specific and inherent loss estimates based upon any more recent
information that has become available. In addition, management’s determination
as to the amount of our allowance for loan losses is subject to review by the
Office of Thrift Supervision and the FDIC, which may require the establishment
of additional general or specific allowances based upon their judgment of the
information available to them at the time of their examination of Kaiser Federal
Bank.





Our
provision for loan losses was $184,000 for the three months ended December 31,
2007 compared to $180,000 for the three months ended December 31, 2006. The
allowance for loan losses as a percent of total loans was 0.39% at December 31,
2007 as compared to 0.44% at December 31, 2006.   The balance of
the allowance for loan losses at December 31, 2007 and the related provision for
the quarter then ended was impacted by a decrease in the amount of classified
loans, increases in historical loss factors for consumer loans based on the
recent charge-off activity and some minor adjustments to the real estate loan
subjective factors based on current market conditions.  Our gross loan
portfolio increased $70.2 million, or 10.4% to $743.6 million at December 31,
2007 from $673.4 million at December 31, 2006.  The assumptions are
based both on current industry and economic trends in addition to our internal
loan loss history.  We used the same methodology and generally similar
assumptions in assessing the adequacy of the allowance for consumer and real
estate loans for both periods.





Noninterest Income.Our
noninterest income increased $31,000, or 3.1% to $1.04 million for the three
months ended December 31, 2007 compared to $1.01 million for the three months
ended December 31, 2006. The increase was primarily the result of an increase in
customer service charges and fees offset by lower ATM fees and charges and
higher losses attributable to our investment in a California Affordable Housing
Program Fund.


11





Noninterest Expense.Our
noninterest expense increased $1.6 million, or 43.8% to $5.1 million for the
three months ended December 31, 2007 from $3.5 million for the three months
ended December 31, 2006. The increase was primarily due to the recognition of
$1.3 million in stock offering costs, an $89,000 increase in salaries and
benefits, a $67,000 increase in professional services and a $59,000 increase in
other operating expense.





Total
salaries and benefits increased $89,000, or 4.7% to $2.0 million for the three
months ended December 31, 2007 from $1.9 million for the three months ended
December 31, 2006. The increase was primarily due to annual salary
increases.





Professional
services increased $67,000, or 43.5% to $221,000 for the three months ended
December 31, 2007 from $154,000 for the three months ended December 31, 2006.
The increase in professional services was primarily due to increased legal costs
stemming from the bankruptcy of U.S. Mortgage as discussed in Part II Item 1 —
Legal Proceedings.





Other
operating expense increased $59,000, or 15.4% to $442,000 for the three months
ended December 31, 2007 from $383,000 for the three months ended December 31,
2006. The increase was primarily attributable to the Federal Deposit Insurance
Corporation imposing additional deposit insurance assessments effective January
1, 2007.





Income Tax Expense. Income tax
expense decreased $405,000, or 75.4% to $132,000 for the three months ended
December 31, 2007 compared to $537,000 for the three months ended December 31,
2006. This decrease was primarily the result of lower pre-tax income of $538,000
for the three months ended December 31, 2007 compared to $1.7 million for the
three months ended December 31, 2006. The effective tax rate was 24.5% and 31.9%
for the three months ended December 31, 2007 and 2006,
respectively.  The decrease in effective tax rate was attributable to
an increase in non-taxable income from our bank-owned life insurance and low
income housing credits which have a greater impact on our rate when our taxable
income is lower.





Comparison
of Results of Operations for the Six Months Ended December 31, 2007 and December
31, 2006.





General.Net income for the
six months ended December 31, 2007 was $1.4 million, a decrease of $1.1 million,
or 43.1%, compared to net income of $2.5 million for the six months ended
December 31, 2006. Earnings per basic and diluted common share were $0.10 for
the six months ended December 31, 2007 compared to $0.18 for the six months
ended December 31, 2006. The decline in net income for the six months ended
December 31, 2007 compared to the six months ended December 31, 2006
primarily resulted from recognizing $1.3 million in stock offering costs
resulting from the cancellation of the second stock offering.  If the
stock offering had been successful, these costs would have been deducted from
the proceeds of the offering as required by GAAP instead of being
expensed.


Interest Income.Interest
income increased by $2.2 million or 11.4%, to $22.2 million for the six months
ended December 31, 2007 from $20.0 million for the six months ended December 31,
2006. The primary factor for the increase in interest income was an increase in
the average loans receivable balance of $77.4 million or 12.2%, from $636.2
million for the six months ended December 31, 2006 to $713.6 million for the six
months ended December 31, 2007. Interest income was also positively impacted by
a 20 basis point increase in the average yield on loans receivable from 5.66%
for the six months ended December 31, 2006 to 5.86% for the six months ended
December 31, 2007.  The increase in the average yield on loans
receivable was primarily attributable to the addition of higher-yielding
multifamily and non-residential real estate loans to the bank’s
portfolio.





Interest
income on securities decreased by $26,000 or 3.8%, to $658,000 for the six
months ended December 31, 2007 from $684,000 for the six months ended December
31, 2006. The decrease was attributable to a $5.6 million decrease in the
average balance of investment securities from $34.8 million for the six months
ended December 31, 2006 to $29.2 million for the six months ended December 31,
2007.





Other
interest income decreased by $610,000 or 59.1% to $422,000 for the six months
ended December 31, 2007 from $1.0 million for the six months ended December 31,
2006.  The decrease was primarily attributable to a decrease in the
average balance of fed funds sold of $16.5 million or 50.9%, from $32.4 million
for the six months ended December 31, 2006 to $15.9 million for the six months
ended December 31, 2007.  The decrease in fed funds was attributable
to increased loan growth during the comparable periods. Interest income was also
negatively impacted by a 99 basis point decrease in the average yield earned on
fed funds sold from 5.15% for the six months ended December 31, 2006 to 4.16%
for the six months ended December 31, 2007.  The decrease in the
average yield on fed funds sold was primarily attributable to declines in the
fed funds rate during the comparable periods.


12





Interest Expense. Interest
expense increased $1.9 million, or 17.6% to $12.9 million for the six months
ended December 31, 2007 compared to $11.0 million for the six months ended
December 31, 2006. The increase was primarily attributable to an increase in the
average balance of deposits and FHLB advances, combined with higher interest
rate levels. The average balance of interest-bearing liabilities increased $47.0
million or 7.6% to $668.8 million for the six months ended December 31, 2007
from $621.8 million for the six months ended December 31,
2006.  Interest expense was also negatively impacted by a 33 basis
point increase in the average interest rate paid on interest-bearing liabilities
to 3.87% for the six months ended December 31, 2007 from 3.54% for the six
months ended December 31, 2006.





Provision for Loan Losses. Our
provision for loan losses was $352,000 for the six months ended December 31,
2007 compared to $303,000 for the six months ended December 31, 2006. The
allowance for loan losses as a percent of total loans was 0.39% at December 31,
2007 as compared to 0.44% at December 31, 2006. The increase in provision for
loan losses was primarily attributable to an increase in multifamily and
commercial real estate lending, which generally has a higher risk than
traditional one-to four-family real estate lending.  Our gross loan
portfolio increased $70.2 million, or 10.4% to $743.6 million at December 31,
2007 from $673.4 million at December 31, 2006.  The assumptions are
based both on current industry and economic trends in addition to our internal
loan loss history.  We used the same methodology and generally similar
assumptions in assessing the adequacy of the allowance for consumer and real
estate loans for both periods.





Noninterest Income.Our
noninterest income decreased $17,000, or 0.8% to$2.07 million for the six months
ended December 31, 2007 compared to $2.09 million for the six months ended
December 31, 2006. The decrease was primarily the result of an increase in
losses attributable to our investment in a California Affordable Housing Program
Fund offset by increased fee and transaction income related to customer service
charges and fees.





Noninterest Expense.Our
noninterest expense increased $1.9 million, or 28.2% to $8.9 million for the six
months ended December 31, 2007 from $7.0 million for the six months ended
December 31, 2006. The increase was primarily due to the recognition of $1.3
million in stock offering costs, a $294,000 increase in salaries and benefits, a
$112,000 increase in professional services and a $152,000 increase in other
operating expense.





Total
salaries and benefits increased $294,000, or 8.0% to $4.0 million for the
six months ended December 31, 2007 from $3.7 million for the six months ended
December 31, 2006. The increase was primarily due to annual salary increases and
an increase in the number of full-time equivalent employees.





Professional
services increased $112,000, or 31.5% to $467,000 for the six months ended
December 31, 2007 from $355,000 for the six months ended December 31, 2006. The
increase in professional services was primarily due to increased legal costs
stemming from the bankruptcy of U.S. Mortgage as discussed in Part II Item 1 —
Legal Proceedings.





Other
operating expense increased $152,000, or 20.1% to $907,000 for the six months
ended December 31, 2007 from $755,000 for the six months ended December 31,
2006. The increase was primarily attributable to the Federal Deposit Insurance
Corporation imposing additional deposit insurance assessments effective January
1, 2007.





Income Tax Expense. Income tax
expense decreased $633,000, or 48.0% to $687,000 for the six months ended
December 31, 2007 compared to $1.3 million for the six months ended December 31,
2006. This decrease was primarily the result of lower pre-tax income of $2.1
million for the six months ended December 31, 2007 compared to $3.8 million for
the six months ended December 31, 2006. The effective tax rate was 32.9% and
34.9% for the six months ended December 31, 2007 and 2006,
respectively.  The decrease in effective tax rate was attributable to
an increase in non-taxable income from our bank-owned life insurance and low
income housing credits which have a greater impact on our rate when our taxable
income is lower.








Asset
Quality





The asset
quality of the Bank has remained strong and consistent over the past quarter.
This has been accomplished by the strict adherence to our long standing
disciplined credit culture that emphasizes the consistent application of our
underwriting standards to all loans. In this regard, we fully underwrite all
loans based on an applicant’s employment history, credit history and an
appraised value of the subject property. With respect to purchased loans, we
underwrite each loan based upon our own underwriting standards prior to making
the purchase.


13


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. Should we grant a loan with a
      loan-to-value ratio in excess of 80%, we require private mortgage
      insurance in order to reduce our exposure below
  80%.





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




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 December 31, 2007Real
      estate loans:One-
      to four-family
            
            
            1
            
            $
            416
            
            
            3
            
            $
            1,439
            
            
            4
            
            $
            1,855Commercial
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Multi-family
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Other
      loans:Automobile
            
            
            5
            
            
            57
            
            
            5
            
            
            89
            
            
            10
            
            
            146Home
      equity
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Other
            
            
            4
            
            
            2
            
            
            2
            
            
            1
            
            
            6
            
            
            3Total
      loans
            
            
            10
            
            $
            475
            
            
            10
            
            $
            1,529
            
            
            20
            
            $
            2,004At 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
            
            $
            1,260At June 30, 2006Real
      estate loans:One-
      to four-family
            
            
            2
            
            $
            383
            
            
            —
            
            $
            —
            
            
            2
            
            $
            383Commercial
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Multi-family
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Other
      loans:Automobile
            
            
            8
            
            
            108
            
            
            7
            
            
            57
            
            
            15
            
            
            165Home
      equity
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Other
            
            
            3
            
            
            3
            
            
            6
            
            
            10
            
            
            9
            
            
            13Total
      loans
            
            
            13
            
            $
            494
            
            
            13
            
            $
            67
            
            
            26
            
            $
            561





14


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.  Interest is not accrued on loans
greater than 90 days or more delinquent. At each date presented, we had no
troubled debt restructurings (loans for which a portion of interest or principal
has been forgiven and loans modified at interest rates materially less than
current market rates).




Foreclosed
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.




At
      December 31,
            
            At
      June 30,
            
            At
      June 30,2007
            
            2007
            
            2006(Dollars
      in thousands)Non-accrual loans:Real estate loans:One-
      to four-family
            
            $
            1,439
            
            $
            1,115
            
            $
            —Commercial
            
            
            —
            
            
            —
            
            
            —Multi-family
            
            
            —
            
            
            —
            
            
            —Other loans:Automobile
            
            
            89
            
            
            19
            
            
            57Home
      Equity
            
            
            —
            
            
            —
            
            
            —Other
            
            
            1
            
            
            7
            
            
            10Total
            
            
            1,529
            
            
            1,141
            
            
            67Real estate owned and Repossessed
      assets:Real estate loans:One-
      to four-family
            
            
            —
            
            
            238
            
            
            —Commercial
            
            
            —
            
            
            —
            
            
            —Multi-family
            
            
            —
            
            
            —
            
            
            —Other loans:Automobile
            
            
            88
            
            
            74
            
            
            69Home
      equity
            
            
            —
            
            
            —
            
            
            —Other
            
            
            —
            
            
            —
            
            
            —Total
            
            
            88
            
            
            312
            
            
            69Total
      non-performing assets
            
            $
            1,617
            
            $
            1,453
            
            $
            136Non-performing
      loans to total loans (1)
            
            
            0.21
            %
            
            0.16
            %
            
            0.01
            %Non-performing
      assets to total assets
            
            
            0.19
            %
            
            0.18
            %
            
            0.02
            %(1)
      Total loans are net of deferred fees and costs





15


Liquidity
and Commitments





Liquidity
may increase or decrease depending upon the availability of funds and
comparative yields on investments in relation to the return on loans.
Historically, we have maintained liquid assets at levels above the minimum
requirements imposed by Office of Thrift Supervision regulations and above
levels believed to be adequate to meet the requirements of normal operations,
including potential deposit outflows. Cash flow projections are regularly
reviewed and updated to assure that adequate liquidity is maintained. See
“Consolidated Statements of Cash Flows” contained in the Consolidated Financial
Statements included in this document.





Our
liquidity, represented by cash and cash equivalents and mortgage-backed and
related securities, is a product of operating, investing and financing
activities. Our primary sources of funds are deposits; amortization, prepayments
and maturities of outstanding loans and mortgage-backed and related securities,
and other short-term investments; and funds provided from operations. While
scheduled payments from the amortization of loans and mortgage-backed related
securities and maturing investment securities and short-term investments are
relatively predictable sources of funds, deposit flows and loan prepayments are
greatly influenced by general interest rates, economic conditions, and
competition. In addition, we invest excess funds in short-term interest-earning
assets, which provide liquidity to meet lending requirements. We also generate
cash through borrowings. We utilize Federal Home Loan Bank advances to leverage
our capital base and provide funds for our lending and investment activities and
enhance our interest rate risk management.





Liquidity
management is both a daily and long-term function of business management. Excess
liquidity is generally invested in short-term investments such as overnight
deposits. On a longer-term basis, we maintain a strategy of investing in various
lending products. We use our sources of funds primarily to meet ongoing
commitments, to pay maturing time deposits and savings withdrawals, to fund loan
commitments and to maintain our portfolio of mortgage-backed and related
securities. At December 31, 2007, the total approved loan commitments unfunded
amounted to $10.9 million, which includes the unadvanced portion of loans of
$6.0 million.





During
the six months ended December 31, 2007, the Bank pledged certain investment
securities and mortgage loan to obtain $25.0 million in deposits with the State
of California through the State’s Time Deposit program.  Time deposits
and advances from the Federal Home Loan Bank of San Francisco scheduled to
mature in one year or less at December 31, 2007, totaled $101.6 million and
$38.0 million, respectively. Based on historical experience, management believes
that a significant portion of maturing deposits will remain with Kaiser Federal
Bank. We anticipate that we will continue to have sufficient funds, through
deposits and borrowings, to meet our current commitments.





At
December 31, 2007, we had available additional advances from the Federal Home
Loan Bank of San Francisco in the amount of $71.8 million.  Kaiser
Federal Bank’s credit limit with the Federal Home Loan Bank is limited to 40% of
the Bank’s total assets.








Capital





The table
below sets forth Kaiser Federal Bank’s capital position relative to its Office
of Thrift Supervision capital requirements at December 31, 2007. The definitions
of the terms used in the table are those provided in the capital regulations
issued by the Office of Thrift Supervision.


Actual
            
            Minimum
      Capital Requirements
            
            Minimum
      required to be Well Capitalized Under Prompt Corrective Actions
      ProvisionsAmount
            
            Ratio
            
            Amount
            
            Ratio
            
            Amount
            
            Ratio(Dollars
      in thousands)Total
      risk-based capital (to risk-weighted assets)
            
            $70,366
            
            12.70
            %
            $44,310
            
            8.00
            %
            $55,388
            
            10.00
            %Tier
      1 risk-based capital (to risk-weighted assets)
            
            67,538
            
            12.19
            
            22,155
            
            4.00
            
            33,233
            
            6.00Tier
      1 (core) capital (to adjusted tangible assets)
            
            67,538
            
            8.28
            
            32,329
            
            4.00
            
            40,786
            
            5.00





Consistent
with our goal to operate a sound and profitable financial organization, we
actively seek to maintain a “well capitalized” institution in accordance with
regulatory standards.  At December 31, 2007, Kaiser Federal Bank was a
“well-capitalized” institution under regulatory standards.


16





Impact
of Inflation





The
consolidated financial statements presented herein have been prepared in
accordance with GAAP. These principles require the measurement of financial
position and operating results in terms of historical dollars, without
considering changes in the relative purchasing power of money over time due to
inflation.





Our
primary assets and liabilities are monetary in nature. As a result, interest
rates have a more significant impact on our performance than the effects of
general levels of inflation. Interest rates, however, do not necessarily move in
the same direction or with the same magnitude as the price of goods and
services, since such prices are affected by inflation. In a period of rapidly
rising interest rates, the liquidity and maturity structure of our assets and
liabilities are critical to the maintenance of acceptable performance
levels.





The
principal effect of inflation, as distinct from levels of interest rates, on
earnings is in the area of noninterest expense. Such expense items as employee
compensation, employee benefits and occupancy and equipment costs may be subject
to increases as a result of inflation. An additional effect of inflation is the
possible increase in the dollar value of the collateral securing loans that we
have made. We are unable to determine the extent, if any, to which properties
securing our loans have appreciated in dollar value due to
inflation.








ITEM
3. Quantitative and Qualitative Disclosures About Market Risk





Our Risk When Interest Rates Change.The rates of interest we earn on assets and pay on liabilities generally
are established contractually for a period of time. Market interest rates change
over time. Our loans generally have longer maturities than our deposits.
Accordingly, our results of operations, like those of other financial
institutions, are impacted by changes in interest rates and the interest rate
sensitivity of our assets and liabilities. The risk associated with changes in
interest rates and our ability to adapt to these changes is known as interest
rate risk and is our most significant market risk.





How We Measure Our Risk of Interest
Rate Changes.As part of our attempt to manage our exposure to changes in
interest rates and comply with applicable regulations, we monitor our interest
rate risk. In monitoring interest rate risk we continually analyze and manage
assets and liabilities based on their payment streams and interest rates, the
timing of their maturities, and their sensitivity to actual or potential changes
in market interest rates.





In order
to minimize the potential for adverse effects of material and prolonged
increases in interest rates on our results of operations, we have adopted
investment/asset and liability management policies to better match the
maturities and repricing terms of our interest-earning assets and
interest-bearing liabilities. The board of directors sets and recommends the
asset and liability policies of Kaiser Federal Bank, which are implemented by
the asset/liability management committee.





The
purpose of the asset/liability management committee is to communicate,
coordinate and control asset/liability management consistent with our business
plan and board approved policies. The committee establishes and monitors the
volume and mix of assets and funding sources taking into account relative costs
and spreads, interest rate sensitivity and liquidity needs. The objectives are
to manage assets and funding sources to produce results that are consistent with
liquidity, capital adequacy, growth, risk and profitability goals.





The
asset/liability management committee generally meets on a weekly basis to
review, among other things, economic conditions and interest rate outlook,
current and projected liquidity needs and capital position, anticipated changes
in the volume and mix of assets and liabilities and interest rate risk exposure
limits versus current projections pursuant to net present value of portfolio
equity analysis and income simulations. The asset/liability management committee
regularly reviews interest rate risk by forecasting the impact of alternative
interest rate environments on net interest income and market value of portfolio
equity, which is defined as the net present value of an institution’s existing
assets, liabilities and off-balance sheet instruments, and evaluating such
impacts against the maximum potential changes in net interest income and market
value of portfolio equity that are authorized by the board of directors of
Kaiser Federal Bank. The asset/liability management committee recommends
appropriate strategy changes based on this review. The chairman or his designee
is responsible for reviewing and reporting on the effects of the policy
implementations and strategies to the board of directors at least
quarterly.





17


In order
to manage our assets and liabilities and achieve the desired liquidity, credit
quality, interest rate risk, profitability and capital targets, we have focused
our strategies on: (1) originating and purchasing adjustable rate loans; (2)
originating a reasonable volume of short- and intermediate-term consumer loans;
(3) managing our deposits to establish stable deposit relationships; and (4)
using Federal Home Loan Bank advances, and pricing on fixed-term non-core
deposits to align maturities and repricing terms.





At times,
depending on the level of general interest rates, the relationship between long-
and short-term interest rates, market conditions and competitive factors, the
asset/liability management committee may determine to increase our interest rate
risk position somewhat in order to maintain our net interest margin. In the
future, we intend to continue our existing strategy of originating and
purchasing relatively short-term and/or adjustable rate loans. The Bank does not
maintain any securities for trading purposes. The Bank does not currently engage
in trading activities or use instruments such as interest rate swaps, hedges, or
other similar derivatives to control interest rate risk.





The
Office of Thrift Supervision provides Kaiser Federal Bank with the information
presented in the following table, which is based on information provided to the
Office of Thrift Supervision by Kaiser Federal Bank. It presents the change in
Kaiser Federal Bank’s net portfolio value at September 30, 2007 which is the
latest information available that would occur upon an immediate change in
interest rates based on Office of Thrift Supervision assumptions but without
giving effect to any steps that management might take to counteract that
change.





September
      30, 2007Change
      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
            
            $
            43,194
            
            
            
            $
            (36,518
            )
            
            
            (46
            )%
            
            
            5.80
            %
            
            
            (415
            )bp+200
      bp
            
            
            56,756
            
            
            
            
            (22,956
            )
            
            
            (29
            )
            
            
            7.42
            
            
            
            (253
            )+100
      bp
            
            
            69,493
            
            
            
            
            (10,219
            )
            
            
            (13
            )
            
            
            8.86
            
            
            
            (109
            )0
      bp
            
            
            79,712
            
            
            
            
            —
            
            
            
            —
            
            
            
            9.95
            
            
            
            —-100
      bp
            
            
            86,547
            
            
            
            
            6,835
            
            
            
            9
            
            
            
            10.62
            
            
            
            67-200
      bp
            
            
            87,326
            
            
            
            
            7,614
            
            
            
            10
            
            
            
            10.62
            
            
            
            67





The
Office of Thrift Supervision uses certain assumptions in assessing the interest
rate risk of savings associations. These assumptions relate to interest rates,
loan prepayment rates, deposit decay rates, and the market values of certain
assets under differing interest rate scenarios.





As with
any method of measuring interest rate risk, shortcomings are inherent in the
method of analysis presented in the foregoing tables. For example, although
assets and liabilities may have similar maturities or periods to repricing, they
may react in different degrees to changes in the market interest rates. Also,
the interest rates on certain types of assets and liabilities may fluctuate in
advance of changes in market interest rates, while interest rates on other types
may lag behind changes in market rates. Additionally, certain assets, such as
adjustable rate mortgage loans, have features, that restrict changes in interest
rates on a short-term basis and over the life of the asset. Further, if interest
rates change, expected rates of prepayments on loans and early withdrawals from
certificates of deposit could deviate significantly from those assumed in
calculating the table.








ITEM
4. Controls and Procedures





Our
management evaluated, with the participation of our Chief Executive Officer and
Chief Financial Officer, the effectiveness of our disclosure controls and
procedures (as defined in 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.






18




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
December 31, 2007 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial
reporting.


19


PART
II. OTHER INFORMATION





Item 1. Legal Proceedings





In March
2007, U.S. Mortgage converted its Chapter 11 bankruptcy proceeding to a Chapter
7 in the District Court of Nevada. U.S. Mortgage was responsible for servicing
various commercial real estate participation loans totaling approximately $1.0
million that Kaiser Federal Bank purchased from the company. Through this
transition period, all servicing functions of U.S. Mortgage are being handled by
the Bankruptcy Trustee.





During
the course of these proceedings, U.S. Bank has asserted a claim against
$500,000  in loan principal being serviced by U.S. Mortgage on the
basis that U.S. Bank has a priority right to the funds. Kaiser Federal Bank is
vigorously contesting this claim and believes it has the priority ownership
interest in these loans.





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,
2007.






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




None.




Item 3. Defaults Upon Senior
Securities




None.





Item 4. Submission of Matters to a Vote of
Security Holders





The
Annual Meeting of Shareholders for K-Fed Bancorp was held on December 18, 2007.
At that meeting, the shareholders elected the following persons to three-year
terms to the Board of Directors: James L. Breeden by a vote of 11,371,927
for and 17,496 withheld and Laura G. Weisshar by a vote of 11,370,342 for and
19,081 withheld. There were 775,815 non-voting shares.  Kay M.
Hoveland, Gerald A. Murbach, Robert C. Steinbach, and Rita H. Zwern also
continued to serve as directors after the meeting.  There were no
broker non-votes.





The
appointment of Crowe Chizek and Company LLP as independent registered public
accounting firm for the fiscal year ending June 30, 2008 was ratified by a vote
of 11,379,562 for, 1,080 against and 2,498 abstain.





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





20





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


Registrant











Date:
February 8,
2008                                                                             /s/ Kay M.
Hoveland


Kay M. Hoveland


President, Chief Executive Officer







/s/ Dustin
Luton


Dustin Luton


Chief Financial Officer





21





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:  February 8,
2008                                                                                     /s/ Kay M.
Hoveland


Kay M. Hoveland


President and Chief Executive Officer

















22








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:  February 8,
2008                                                                                     /s/ Dustin
Luton


Dustin Luton


Chief Financial Officer

















23





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 December 31, 2007 as filed with the Securities and
Exchange Commission on the date hereof (the “Report”), I, Kay M. Hoveland, Chief
Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and in
connection with this quarterly report on Form 10-Q that:





1.
            The
      Report fully complies with the requirements of sections 13(a) or 15(d) of
      the Securities Exchange Act of 1934, as amended,
  and





2.
            The
      information contained in the report fairly presents, in all material
      respects, the company’s financial condition and results of
      operations.








Date:
February 8,
2008                                                                                /s/ Kay M.
Hoveland


Kay M.
Hoveland


Chief
Executive Officer




















24





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 December 31, 2007 as filed with the Securities and
Exchange Commission on the date hereof (the “Report”), I, Dustin Luton, Chief
Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and in
connection with this quarterly report on Form 10-Q that:





1.
            The
      Report fully complies with the requirements of sections 13(a) or 15(d) of
      the Securities Exchange Act of 1934, as amended,
  and





2.
            The
      information contained in the report fairly presents, in all material
      respects, the company’s financial condition and results of
      operations.











Date:
February 8,
2008                                                                                /s/ Dustin
Luton


Dustin
Luton


Chief
Financial Officer


25