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,
2008





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 o
Non-accelerated filer o
Smaller Reporting Company x





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


Yes o
No x





Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date:





Common
Stock, $.01 par value – 13,390,052 shares outstanding as of January 30,
2009.











Form
10-Q





K-FED
BANCORP


Table
of Contents





PagePart
      I.
            FINANCIAL INFORMATIONItem
      1:
            Financial Statements
      (Unaudited)Consolidated
      Statements of Financial ConditionatDecember 31, 2008andJune 30,
      2008
            1Consolidated Statements of Income and
      Comprehensive Income for theThree  and  Six MonthsEndedDecember 31, 2008and2007
            2Consolidated
      Statement of Stockholders’ Equity and Comprehensive Income for
      theSix MonthsEndedDecember 31, 2008
            3Consolidated
      Statements of Cash Flows for theSix
      MonthsEndedDecember 31, 2008and 2007
            4Notes to Consolidated
      Financial Statements
            5Item
      2:
            Management’s Discussion and
      Analysis of Financial Condition and Results of
      Operations
            8Item
      3:
            Quantitative and Qualitative Disclosuresabout Market Risk
            19Item
      4:
            Controls and
      Procedures
            21Part
      II.
            OTHER INFORMATIONItem
      1:
            Legal
      Proceedings
            21Item
      1A:
            Risk
      Factors
            21Item
      2:
            Unregistered Sales of Equity
      Securities and Use of Proceeds
            22Item
      3:
            Defaults upon Senior
      Securities
            22Item
      4:
            Submission of Matters to a Vote of
      Security Holders
            22Item
      5:
            Other
      Information
            23Item
      6:
            Exhibits
            23SIGNATURES
            24

















Part I — FINANCIAL INFORMATION


Item
1. Financial Statements


K-FED
BANCORP AND SUBSIDIARY


Consolidated
Statements of Financial Condition


(Unaudited)


(Dollars
in thousands, except per share data)


December
      31
              2008
            
            June
      30
              2008ASSETSCash
      and due from banks
            
            $
            22,759
            
            $
            18,580Federal
      funds sold
            
            
            12,670
            
            
            32,660Total
      cash and cash equivalents
            
            
            35,429
            
            
            51,240Interest
      earning time deposits in other financial institutions
            
            
            4,131
            
            
            —Securities
      available-for-sale, at fair value
            
            
            6,968
            
            
            8,539Securities
      held-to-maturity, fair value of $7,093 and
              $7,308  at
      December 31, 2008 and June 30, 2008, respectively
            
            
            7,150
            
            
            7,504Federal
      Home Loan Bank stock, at cost
            
            
            12,649
            
            
            12,540Loans
      receivable, net of allowance for loan losses of $3,932 and
              $3,229
      at December 31, 2008 and June 30, 2008, respectively
            
            
            742,159
            
            
            742,191Accrued
      interest receivable
            
            
            3,292
            
            
            3,278Premises
      and equipment, net
            
            
            2,886
            
            
            3,059Core
      deposit intangible
            
            
            184
            
            
            226Goodwill
            
            
            3,950
            
            
            3,950Bank-owned
      life insurance
            
            
            11,645
            
            
            11,408Other
      real estate owned
            
            
            609
            
            
            1,045Other
      assets
            
            
            3,794
            
            
            4,036Total
      assets
            
            $
            834,846
            
            $
            849,016LIABILITIES
      AND STOCKHOLDERS’ EQUITYLiabilitiesDepositsNoninterest
      bearing
            
            $
            43,791
            
            $
            43,267Interest
      bearing
            
            
            464,186
            
            
            451,791Total
      deposits
            
            
            507,977
            
            
            495,058Federal
      Home Loan Bank advances, short-term
            
            
            60,000
            
            
            28,000Federal
      Home Loan Bank advances, long-term
            
            
            147,011
            
            
            207,019State
      of California time deposit
            
            
            25,000
            
            
            25,000Accrued
      expenses and other liabilities
            
            
            3,145
            
            
            3,211Total
      liabilities
            
            
            743,133
            
            
            758,288Commitments
      and contingent liabilities
            
            
            —
            
            
            —Stockholders’
      equityNonredeemable
      serial preferred stock, $.01 par value;
              2,000,000
      shares authorized; issued — none
            
            
            —
            
            
            —Common
      stock, $0.01 par value; 18,000,000 authorized;
              December
      31, 2008 — 14,718,440 shares issued
              June
      30, 2008 — 14,713,440 shares issued
            
            
            147
            
            
            147Additional
      paid-in capital
            
            
            58,785
            
            
            58,448Retained
      earnings
            
            
            52,429
            
            
            51,035Accumulated
      other comprehensive income, net of tax
            
            
            41
            
            
            20Unearned
      employee stock ownership plan (ESOP) shares
            
            
            (2,389
            )
            
            (2,616
            )Treasury
      stock, at cost (December 31, 2008 — 1,313,238 shares;
              June
      30, 2008 — 1,243,134 shares)
            
            
            (17,300
            )
            
            (16,306
            )Total
      stockholders’ equity
            
            
            91,713
            
            
            90,728Total
      liabilities and stockholders’ equity
            
            $
            834,846
            
            $
            849,016The
      accompanying notes are an integral part of these unaudited consolidated
      financial statements








Page
1





K-FEDBANCORP 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
      312008
            
            2007
            
            2008
            
            2007Interest
      IncomeInterest
      and fees on loans
            
            $
            10,719
            
            $
            10,634
            
            $
            21,619
            
            $
            20,907Interest
      on securities, taxable
            
            
            164
            
            
            285
            
            
            339
            
            
            658Federal
      Home Loan Bank dividends
            
            
            122
            
            
            133
            
            
            314
            
            
            251Other
      interest
            
            
            107
            
            
            199
            
            
            346
            
            
            422Total
      interest income
            
            
            11,112
            
            
            11,251
            
            
            22,618
            
            
            22,238Interest
      ExpenseInterest
      on deposits
            
            
            3,444
            
            
            3,844
            
            
            6,952
            
            
            7,918Interest
      on borrowings
            
            
            2,501
            
            
            2,644
            
            
            5,223
            
            
            5,030Total
      interest expense
            
            
            5,945
            
            
            6,488
            
            
            12,175
            
            
            12,948Net
      interest income
            
            
            5,167
            
            
            4,763
            
            
            10,443
            
            
            9,290Provision
      for loan losses
            
            
            984
            
            
            184
            
            
            1,347
            
            
            352Net
      interest income after provision
              for
      loan losses
            
            
            4,183
            
            
            4,579
            
            
            9,096
            
            
            8,938Noninterest
      incomeService
      charges and fees
            
            
            619
            
            
            595
            
            
            1,241
            
            
            1,180ATM
      fees and charges
            
            
            424
            
            
            369
            
            
            877
            
            
            734Referral
      commissions
            
            
            77
            
            
            70
            
            
            153
            
            
            134Loss
      on equity investment
            
            
            (66
            )
            
            (105
            )
            
            (132
            )
            
            (210
            )Bank-owned
      life insurance
            
            
            118
            
            
            107
            
            
            237
            
            
            222Other
      noninterest income
            
            
            5
            
            
            4
            
            
            11
            
            
            9Total
      noninterest income
            
            
            1,177
            
            
            1,040
            
            
            2,387
            
            
            2,069Noninterest
      expenseSalaries
      and benefits
            
            
            1,991
            
            
            1,985
            
            
            3,982
            
            
            3,992Occupancy
      and equipment
            
            
            593
            
            
            569
            
            
            1,189
            
            
            1,132ATM
      expense
            
            
            356
            
            
            309
            
            
            721
            
            
            626Advertising
      and promotional
            
            
            92
            
            
            78
            
            
            194
            
            
            125Professional
      services
            
            
            237
            
            
            221
            
            
            459
            
            
            467Postage
            
            
            77
            
            
            79
            
            
            144
            
            
            148Telephone
            
            
            131
            
            
            128
            
            
            252
            
            
            254Stock
      offering costs
            
            
            —
            
            
            1,270
            
            
            —
            
            
            1,270Other
      operating expense
            
            
            488
            
            
            442
            
            
            960
            
            
            907Total
      noninterest expense
            
            
            3,965
            
            
            5,081
            
            
            7,901
            
            
            8,921Income
      before income tax expense
            
            
            1,395
            
            
            538
            
            
            3,582
            
            
            2,086Income
      tax expense
            
            
            464
            
            
            132
            
            
            1,242
            
            
            687Net
      income
            
            $
            931
            
            $
            406
            
            $
            2,340
            
            $
            1,399Comprehensive
      Income
            
            $
            948
            
            $
            445
            
            $
            2,361
            
            $
            1,521Earnings
      per common share:Basic
            
            $
            0.07
            
            $
            0.03
            
            $
            0.18
            
            $
            0.10Diluted
            
            $
            0.07
            
            $
            0.03
            
            $
            0.18
            
            $
            0.10The
      accompanying notes are an integral part of these unaudited consolidated
      financial statements





Page
2





K-FEDBANCORP AND SUBSIDIARY


Consolidated
Statements of Stockholders’ Equity


And
Comprehensive Income


(Unaudited)


(Dollars
in thousands, except per share data)





Common
      Stock
            
            
            
            
            
            
            
            
            
            Treasury
      StockComprehensive
              Income
            
            Shares
            
            Amount
            
            Additional
              Paid-in
              Capital
            
            Retained
              Earnings
            
            Accumulated
              Other
              Comprehensive
              Income,
      net
            
            Unearned
              ESOP
              Shares
            
            Shares
            
            Amount
            
            TotalBalance
      June 30, 2008
            
            
            
            
            14,713,440
            
            $
            147
            
            $
            58,448
            
            $
            51,035
            
            $
            20
            
            $
            (2,616
            )
            (1,243,134
            )
            $
            (16,306
            )
            $
            90,728Comprehensive
      incomeNet
      income for the six months ended December 31, 2008
            
            $
            2,340
            
            —
            
            
            —
            
            
            —
            
            
            2,340
            
            
            —
            
            
            —
            
            —
            
            
            —
            
            
            2,340Other
      comprehensive income – unrealized gain on securities, net of
      tax
            
            
            21
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            21
            
            
            —
            
            —
            
            
            —
            
            
            21Total
      comprehensive income
            
            $
            2,361Dividends
      declared ($0.22 per share) *
            
            
            
            
            —
            
            
            —
            
            
            —
            
            
            (946
            )
            
            —
            
            
            —
            
            —
            
            
            —
            
            
            (946
            )Purchase
      of treasury stock
            
            
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            (70,104
            )
            
            (994
            )
            
            (994
            )Stock
      options earned
            
            
            
            
            —
            
            
            —
            
            
            159
            
            
            —
            
            
            —
            
            
            —
            
            —
            
            
            —
            
            
            159Allocation
      of stock awards
            
            
            
            
            —
            
            
            —
            
            
            203
            
            
            —
            
            
            —
            
            
            —
            
            —
            
            
            —
            
            
            203Issuance
      of stock awards
            
            
            
            
            5,000
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            —
            
            
            —
            
            
            —Allocation
      of ESOP common stock
            
            
            
            
            —
            
            
            —
            
            
            (25
            )
            
            —
            
            
            —
            
            
            227
            
            —
            
            
            —
            
            
            202Balance
      December 31, 2008
            
            
            
            
            14,718,440
            
            $
            147
            
            $
            58,785
            
            $
            52,429
            
            $
            41
            
            $
            (2,389
            )
            (1,313,238
            )
            $
            (17,300
            )
            $
            91,713*
      K-Fed Mutual Holding Company waived its receipt of dividends on the
      8,861,750 shares it owns.The
      accompanying notes are an integral part of these unaudited consolidated
      financial statements





Page
3





K-FEDBANCORP AND SUBSIDIARY


Consolidated
Statements of Cash Flows


(Unaudited)


(Dollars
in thousands)


Six
      Months Ended
              December
      312008
            
            2007Operating
      ActivitiesNet
      income
            
            $
            2,340
            
            $
            1,399Adjustments
      to reconcile net income to cash provided by operating
      activities:Amortization
      of net premiums on securities
            
            
            7
            
            
            12Amortization
      of net premiums on loan purchases
            
            
            46
            
            
            112Accretion
      of net loan origination fees
            
            
            (36
            )
            
            (20
            )Provision
      for loan losses
            
            
            1,347
            
            
            352Federal
      Home Loan Bank (FHLB) stock dividend
            
            
            (314
            )
            
            (251
            )Depreciation
      and amortization
            
            
            431
            
            
            412Amortization
      of core deposit intangible
            
            
            42
            
            
            51Loss
      on equity investment
            
            
            132
            
            
            210Increase
      in cash surrender value of bank-owned life insurance
            
            
            (237
            )
            
            (222
            )Accretion
      of net premiums on purchased certificates of deposits
            
            
            —
            
            
            (37
            )(Accretion)
      amortization of debt exchange costs
            
            
            (8
            )
            
            4Allocation
      of ESOP common stock
            
            
            202
            
            
            297Allocation
      of stock awards
            
            
            203
            
            
            211Stock
      options earned
            
            
            159
            
            
            158Net
      increase in accrued interest receivable
            
            
            (14
            )
            
            (70
            )Net
      decrease (increase) in other assets
            
            
            91
            
            
            (246
            )Net
      decrease in accrued expenses and other liabilities
            
            
            (66
            )
            
            (104
            )Net
      cash provided by operating activities.
            
            
            4,325
            
            
            2,268Investing
      ActivitiesProceeds
      from maturities and principal repayments of available-for-sale
      securities
            
            
            1,602
            
            
            3,882Proceeds
      from maturities and principal repayments of held-to-maturity
      securities
            
            
            354
            
            
            11,104(Increase)
      decrease in interest earning deposits at other
institutions
            
            
            (4,131
            )
            
            2,970Increase
      in loans
            
            
            (1,934
            )
            
            (41,966
            )Proceeds
      from sale of other real estate owned
            
            
            1,047
            
            
            —Redemption
      (purchases) of FHLB stock
            
            
            205
            
            
            (2,099
            )Purchases
      of premises and equipment
            
            
            (258
            )
            
            (154
            )Net
      cash used in investing activities
            
            
            (3,115
            )
            
            (26,263
            )Financing
      ActivitiesProceeds
      from FHLB advances
            
            
            —
            
            
            93,500Repayment
      of FHLB advances
            
            
            (28,000
            )
            
            (58,500
            )Dividends
      paid on common stock
            
            
            (946
            )
            
            (944
            )Purchases
      of treasury stock
            
            
            (994
            )
            
            —Net
      increase in deposits
            
            
            12,919
            
            
            (30,310
            )Increase
      in State of California time deposit
            
            
            —
            
            
            25,000Tax
      benefit from RRP shares vesting
            
            
            —
            
            
            (35
            )Net
      cash (used in) provided by financing activities
            
            
            (17,021
            )
            
            28,711Net
      (decrease) increase in cash and cash equivalents
            
            
            (15,811
            )
            
            4,716Beginning
      cash and cash equivalents
            
            
            51,240
            
            
            26,732Ending
      cash and cash equivalents
            
            $
            35,429
            
            $
            31,448The
      accompanying notes are an integral part of these unaudited consolidated
      financial statements






Page
4





K-FEDBANCORP AND SUBSIDIARY


Notes
to Consolidated Financial Statements


(Unaudited)





Note
1 – Nature of Business
and Significant Accounting Policies





Nature of
Business:  K-Fed Bancorp (or the “Company”) is a majority-owned
subsidiary of K-Fed Mutual Holding Company (or the “Parent”). The Company and
its Parent are holding companies that are federally chartered. The Company’s
sole subsidiary, Kaiser Federal Bank (or the “Bank”), is a federally chartered
savings association, which provides retail and commercial banking services to
individuals and business customers from its nine branch locations throughout
California. While the Bank originates many types of residential and commercial
real estate loans, the majority of its residential real estate loans have been
purchased from other financial institutions.





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





Basis of
Presentation:  The financial statements of K-Fed Bancorp have
been prepared in conformity with accounting principles generally accepted in the
United States of America (“GAAP”) for interim financial information and
predominant practices followed by the financial services industry, and are
unaudited. In the opinion of the Company’s management, all adjustments
consisting of normal recurring accruals necessary for (i) a fair presentation of
the financial condition and results of operations for the interim periods
included herein and (ii) to make such statements not misleading have been
made.





The
results of operations for the three and six months ended December 31, 2008 are
not necessarily indicative of the results of operations that may be expected for
any other interim period or for the fiscal year ending June 30, 2009. Certain
information and note disclosures normally included in the Company’s annual
financial statements have been condensed or omitted. Therefore, these
consolidated financial statements and notes thereto should be read in
conjunction with the consolidated financial statements and notes included in the
2008 Annual Report on Form 10-K filed with the Securities and Exchange
Commission.





Principles of
Consolidation:The consolidated financial statements presented
in this quarterly report include the accounts of K-Fed Bancorp and its
wholly-owned subsidiary, Kaiser Federal Bank. All material intercompany balances
and transactions have been eliminated in consolidation. K-Fed Mutual Holding
Company is owned by the depositors of the bank. These financial statements do
not include the transactions and balances of K-Fed Mutual Holding
Company.





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





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





Newly
Issued Accounting Standards:





In
December 2007, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards (“SFAS”) No. 141R, Business Combinations. SFAS
No. 141R replaces the current standard on business combinations and will
significantly change the accounting for and reporting of business combinations
in consolidated financial statements. This statement requires an entity to
measure the business acquired at fair value and to recognize goodwill
attributable to any noncontrolling interests (previously referred to as minority
interests) rather than just the portion attributable to the
acquirer.  The statement will also result in fewer exceptions to the
principle of measuring assets acquired and liabilities assumed in a business
combination at fair value.  In addition, the statement will result in
payments to third parties for consulting, legal, and similar services associated
with an acquisition to be




Page
5




recognized
as expenses when incurred rather than capitalized as part of the business
combination.  SFAS No. 141R is effective for fiscal years beginning on
or after December 15, 2008. The adoption of this statement is not expected to
have a material effect on the financial statements of the Company.





Adoption
of New Accounting Standards:





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





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





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





Note
2 – Earnings Per
Share





Basic
earnings per common share is net income divided by the weighted average number
of common shares outstanding during the period. Employee Stock Ownership Plan
(“ESOP”) shares are considered outstanding for this calculation unless unearned.
Diluted earnings per common share includes the dilutive effect of additional
potential common shares issuable under stock options and stock
awards.





Three
      months ended
              December
      31,
            
            
            
            Six
      months ended
              December
      31,2008
            
            
            
            2007
            
            
            
            2008
            
            
            
            2007Basic
            
            (Dollars
      in thousands, except per share data)Net
      income
            
            $
            931
            
            
            
            $
            406
            
            
            
            $
            2,340
            
            
            
            $
            1,399Weighted
      average common shares outstanding
            
            
            13,114,791
            
            
            
            
            13,596,244
            
            
            
            
            13,115,431
            
            
            
            
            13,567,813Basic
      earnings per share
            
            $
            0.07
            
            
            
            $
            0.03
            
            
            
            $
            0.18
            
            
            
            $
            0.10DilutedNet
      income
            
            $
            931
            
            
            
            $
            406
            
            
            
            $
            2,340
            
            
            
            $
            1,399Weighted
      average common shares outstanding
            
            
            13,114,791
            
            
            
            
            13,596,244
            
            
            
            
            13,115,431
            
            
            
            
            13,567,813Dilutive
      effect of stock options
            
            
            —
            
            
            
            
            —
            
            
            
            
            —
            
            
            
            
            —Dilutive
      effect of stock awards
            
            
            —
            
            
            
            
            —
            
            
            
            
            —
            
            
            
            
            —Average
      shares and dilutive potential common shares
            
            
            13,114,791
            
            
            
            
            13,596,244
            
            
            
            
            13,115,431
            
            
            
            
            13,567,813Diluted
      earnings per share
            
            $
            0.07
            
            
            
            $
            0.03
            
            
            
            $
            0.18
            
            
            
            $
            0.10





For the
three and six months ended December 31, 2008, outstanding stock options to
purchase 304,400 shares and outstanding stock awards of 43,780 shares were
anti-dilutive and not considered in computing diluted earnings per common
share. For the three and six months ended December 31, 2007, outstanding
stock options to purchase 339,400 shares and outstanding stock awards of 78,560
shares were anti-dilutive and not considered in computing diluted earnings per
common share.







Page
6






Note 3 –Fair
Value





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





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





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





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





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





Assets
and liabilities measured at fair value on a recurring basis are summarized
below:





Fair
      Value Measurements at December 31, 2008 UsingAssets at December 31,
2008:
            
            Total
            
            Quoted
      Prices in Active Markets for Identical Assets
              (Level
      1)
            
            Significant
      Other Observable Inputs (Level 2)
            
            Significant
      Unobservable Inputs
              (Level
      3)(Dollars
      in thousands)Available
      for sale securities
            $
            6,968
            
            —
            $
            6,968
            
            —





The
Company may also be required, from time to time, to measure certain other
financial assets at fair value on a non-recurring basis in accordance with
GAAP.  The following assets and liabilities were measured at fair
value on a non-recurring basis:





Fair
      Value Measurements at December 31, 2008 UsingAssets at December 31,
2008:
            
            Total
            
            Quoted
      Prices in Active Markets for Identical Assets
              (Level
      1)
            
            Significant
      Other Observable Inputs (Level 2)
            
            Significant
      Unobservable Inputs
              (Level
      3)(Dollars
      in thousands)Impaired
      loans
            $
            4,622
            
            —
            
            —
            $
            4,622








Impaired
loans, which are measured for impairment using the fair value of the collateral
for collateral dependent loans, had a carrying amount of $5,571,000 at December
31, 2008 as compared to $3,842,000 at June 30, 2008.  The fair value of collateral is
calculated using a third party appraisal.  The valuation allowance for
these loans was $949,000 at December 31, 2008 as compared to $334,000 at June
30, 2008.  An additional provision for loan losses of $211,000 was
made during the quarter ended December 31, 2008 relating to impaired
loans. (Level 3 inputs).








Page
7






Item 2. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
   Forward-Looking
Statements





This Quarterly Report on Form 10-Q
contains certain forward-looking statements and information relating to the
Company and the Bank that are based on the beliefs of management as well as
assumptions made by and information currently available to management.
Forward-looking statements can be identified by the fact that they do not relate
strictly to historical or current facts.  They often includes words
like” “believe,” “expect,” “anticipate,” “estimate,” and “intend” or future or
conditional verbs such as “will,” “should,” “could,” or “may” and similar
expressions or the negative thereof.  Certain factors that could cause
actual results to differ materially from expected results include, changes in
the interest rate environment, changes in general economic conditions,
legislative and regulatory changes that adversely affect the business of K-Fed
Bancorp and Kaiser Federal Bank, and changes in the securities markets. Should
one or more of these risks or uncertainties materialize or should underlying
assumptions prove incorrect, actual results may vary materially from those
described herein.  We caution readers not to place undue reliance on
forward-looking statements.  The Company disclaims any obligation to
revise or update any forward-looking statements contained in this release to
reflect future events or developments.








Recent
Developments





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





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





The FDIC
currently imposes an assessment against institutions for deposit insurance based
on the risk category of the institution.  Federal law requires that
the designated reserve ratio for the deposit insurance fund be establish by the
FDIC at 1.15% to 1.50% of estimated insured deposits.  Recent bank
failures coupled with deteriorating economic conditions have significantly
reduced the deposit insurance fund’s reserve ratio.  As a result of
the reduced reserve ratio, on December 22, 2008, the FDIC published a final rule
that increases deposit insurance assessment rates in order to restore the
insurance fund reserve ratio.  The final rule raises the rates
uniformly for all institutions by 7 basis points (to a range from 12 to 50 basis
points), effective for the first quarter of 2009.  The FDIC has also
issued a proposed rule that would also alter the way the FDIC differentiates for
risk among institutions in setting federal deposit insurance assessment rates
beginning in the second calendar quarter of 2009 and thereafter.  No
assurance can be given as to the final form of such rule.  We estimate
our deposit insurance assessments to increase approximately $80,000 per quarter
under the final rule.





Page
8




Federal Home Loan Bank (‘FHLB”) Stock
Dividends.On January 8, 2009, the FHLB of San Francisco announced that
they will not pay a dividend for the fourth quarter of 2008 and will not
repurchase excess capital stock on January 31, 2009, the next regularly
scheduled repurchase date.  FHLB dividends received by us for the
three and six months ended December 31, 2008 were $122,000 and $314,000,
respectively.








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





Assets. Cash and cash
equivalents decreased $15.8 million, or 30.9% to $35.4 million at December 31,
2008 from $51.2 million at June 30, 2008. The decrease was a result of pay downs
of higher costing FHLB advances that matured during the period and the purchase
of $4.1 million in interest earning time deposits in other financial
institutions.





Our
investment portfolio decreased $1.9 million, or 12.0% to $14.1 million at
December 31, 2008 from $16.0 million at June 30, 2008. The decrease was
attributable to maturities and normal repayments of principal on our
mortgage-backed securities and collateralized mortgage obligations.





Our gross
loan portfolio increased by $554,000 or 0.07% to $746.0 million at December 31,
2008 from $745.4 million at June 30, 2008. One-to-four family real estate loans
decreased $20.6 million, or 4.8% to $408.1 million at December 31, 2008 from
$428.7 million at June 30, 2008.  Commercial real estate loans
increased $1.2 million, or 1.03% to $117.0 million at December 31, 2008 from
$115.8 million at June 30, 2008.  Multi-family loans increased $24.2
million, or 18.3% to $156.5 million at December 31, 2008 from $132.3 million at
June 30, 2008.  Other loans which are comprised primarily of
automobile loans decreased $4.2 million, or 6.2% to $64.4 million at December
31, 2008 from $68.6 million at June 30, 2008. Real estate loans comprised 91.4%
of the total loan portfolio at December 31, 2008, compared with 90.8% at June
30, 2008. The decrease in one-to-four family loans and increase in multi-family
loans was due to our focus on income producing property loans as a means of
diversifying the mortgage portfolio.





Deposits. Total deposits
increased $12.9 million, or 2.6% to $508.0 million at December 31, 2008 from
$495.1 million at June 30, 2008. The change was due to increases of $13.5
million in money market accounts, $8.0 million in certificates of deposit and
$524,000 in noninterest-bearing demand accounts.  The increase in
money market and certificates of deposit accounts was a result of promotions for
these types of accounts.  The increase was partially offset by a
reduction of $9.1 million in savings accounts due to the annual distribution of
our Holiday Club accounts in November 2008.





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





Stockholders’ Equity.
Stockholders’ equity increased $985,000, to $91.7 million at December 31, 2008
from $90.7 million at June 30, 2008 primarily as a result of $2.3 million in net
income for the six months ended December 31, 2008 and the allocation of ESOP
shares, stock awards, and stock options earned totaling $564,000. This increase
was offset by cash payments of $994,000 for the repurchase of shares of common
stock and $946,000 in dividends ($0.22 per share) paid to stockholders of record
for the six months ended December 31, 2008, excluding shares held by K-Fed
Mutual Holding Company.


Page
9


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




For
      the three months ended December 31,2008
      (4)
            
            
            
            
            
            
            
            2007
      (4)Average
            
            
            
            
            
            
            
            AverageAverage
            
            
            
            Yield/
            
            
            
            Average
            
            
            
            Yield/Balance
            
            Interest
            
            Cost
            
            
            
            Balance
            
            Interest
            
            Cost(Dollars
      in thousands)INTEREST-EARNING
      ASSETSLoans
      receivable(1)
            
            $
            736,460
            
            $
            10,719
            
            5.82
            %
            
            
            $
            722,873
            
            $
            10,634
            
            5.88
            %Securities(2)
            
            
            14,590
            
            
            164
            
            4.50
            %
            
            
            
            25,454
            
            
            285
            
            4.48
            %Federal
      funds sold
            
            
            33,684
            
            
            71
            
            0.84
            %
            
            
            
            15,968
            
            
            182
            
            4.56
            %Federal
      Home Loan Bank stock
            
            
            12,640
            
            
            122
            
            3.86
            %
            
            
            
            10,708
            
            
            133
            
            4.97
            %Interest-earning
      deposits in other financial institutions
            
            
            9,908
            
            
            36
            
            1.45
            %
            
            
            
            1,755
            
            
            17
            
            3.87
            %Total
      interest-earning assets
            
            
            807,282
            
            
            11,112
            
            5.51
            %
            
            
            
            776,758
            
            
            11,251
            
            5.79
            %Noninterest
      earning assets
            
            
            35,007
            
            
            
            
            
            
            
            
            
            32,869Total
      assets
            
            $
            842,289
            
            
            
            
            
            
            
            
            $
            809,627INTEREST-BEARING  LIABILITIESMoney
      market
            
            $
            78,555
            
            $
            492
            
            2.51
            %
            
            
            $
            72,920
            
            $
            510
            
            2.80
            %Savings
      deposits
            
            
            118,389
            
            
            333
            
            1.13
            %
            
            
            
            128,767
            
            
            523
            
            1.62
            %Certificates
      of deposit
            
            
            255,909
            
            
            2,619
            
            4.09
            %
            
            
            
            230,846
            
            
            2,811
            
            4.87
            %Borrowings
            
            
            236,513
            
            
            2,501
            
            4.23
            %
            
            
            
            235,035
            
            
            2,644
            
            4.50
            %Total
      interest-bearing liabilities
            
            
            689,366
            
            
            5,945
            
            3.45
            %
            
            
            
            667,568
            
            
            6,488
            
            3.89
            %Noninterest
      bearing liabilities
            
            
            61,592
            
            
            
            
            
            
            
            
            
            48,502Total
      liabilities
            
            
            750,958
            
            
            
            
            
            
            
            
            
            716,070Equity
            
            
            91,331
            
            
            
            
            
            
            
            
            
            93,557Total
      liabilities and equity
            
            $
            842,289
            
            
            
            
            
            
            
            
            $
            809,627Net
      interest/spread
            
            
            
            
            $
            5,167
            
            2.06
            %
            
            
            
            
            
            $
            4,763
            
            1.90
            %Margin(3)
            
            
            
            
            
            
            
            2.56
            %
            
            
            
            
            
            
            
            
            2.45
            %Ratio
      of interest-earning assets to interest bearing liabilities
            
            
            117.10
            %
            
            
            
            
            
            
            
            
            116.36
            %(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.







Page
10







For
      the six months ended December 31,2008
      (4)
            
            
            
            
            
            
            
            2007
      (4)Average
            
            
            
            
            
            
            
            AverageAverage
            
            
            
            Yield/
            
            
            
            Average
            
            
            
            Yield/Balance
            
            Interest
            
            Cost
            
            
            
            Balance
            
            Interest
            
            Cost(Dollars
      in thousands)INTEREST-EARNING
      ASSETSLoans
      receivable(1)
            
            $
            740,025
            
            $
            21,619
            
            5.84
            %
            
            
            $
            713,583
            
            $
            20,907
            
            5.86
            %Securities(2)
            
            
            15,061
            
            
            339
            
            4.50
            %
            
            
            
            29,234
            
            
            658
            
            4.50
            %Federal
      funds sold
            
            
            35,733
            
            
            272
            
            1.52
            %
            
            
            
            15,879
            
            
            330
            
            4.16
            %Federal
      Home Loan Bank stock
            
            
            12,624
            
            
            314
            
            4.97
            %
            
            
            
            10,387
            
            
            251
            
            4.83
            %Interest-earning
      deposits in other financial institutions
            
            
            8,744
            
            
            74
            
            1.69
            %
            
            
            
            4,410
            
            
            92
            
            4.17
            %Total
      interest-earning assets
            
            
            812,187
            
            
            22,618
            
            5.57
            %
            
            
            
            773,493
            
            
            22,238
            
            5.75
            %Noninterest
      earning assets
            
            
            36,103
            
            
            
            
            
            
            
            
            
            32,775Total
      assets
            
            $
            848,290
            
            
            
            
            
            
            
            
            $
            806,268INTEREST-BEARING  LIABILITIESMoney
      market
            
            $
            80,244
            
            $
            972
            
            2.42
            %
            
            
            $
            74,026
            
            $
            1,038
            
            2.80
            %Savings
      deposits
            
            
            120,307
            
            
            715
            
            1.19
            %
            
            
            
            132,825
            
            
            1,125
            
            1.69
            %Certificates
      of deposit
            
            
            254,678
            
            
            5,265
            
            4.13
            %
            
            
            
            236,902
            
            
            5,755
            
            4.86
            %Borrowings
            
            
            245,158
            
            
            5,223
            
            4.26
            %
            
            
            
            225,028
            
            
            5,030
            
            4.47
            %Total
      interest-bearing liabilities
            
            
            700,387
            
            
            12,175
            
            3.48
            %
            
            
            
            668,781
            
            
            12,948
            
            3.87
            %Noninterest
      bearing liabilities
            
            
            56,880
            
            
            
            
            
            
            
            
            
            44,334Total
      liabilities
            
            
            757,267
            
            
            
            
            
            
            
            
            
            713,115Equity
            
            
            91,023
            
            
            
            
            
            
            
            
            
            93,153Total
      liabilities and equity
            
            $
            848,290
            
            
            
            
            
            
            
            
            $
            806,268Net
      interest/spread
            
            
            
            
            $
            10,443
            
            2.09
            %
            
            
            
            
            
            $
            9,290
            
            1.88
            %Margin(3)
            
            
            
            
            
            
            
            2.57
            %
            
            
            
            
            
            
            
            
            2.40
            %Ratio
      of interest-earning assets to interest bearing liabilities
            
            
            115.96
            %
            
            
            
            
            
            
            
            
            115.66
            %(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.


Page
11








Comparison
of Results of Operations for the Three Months Ended December 31, 2008 and
December 31, 2007.





General.Net income for the
three months ended December 31, 2008 was $931,000, an increase of $525,000 as
compared to net income of $406,000 for the three months ended December 31, 2007.
Earnings per basic and diluted common share were $0.07 for the three months
ended December 31, 2008 compared to $0.03 for the three months ended December
31, 2007.  Net income for the three months ended December 31, 2007
included $1.3 million in stock offering costs resulting from the cancellation of
the Company’s stock offering in November 2007 due to unfavorable market
conditions.  The recognition of these expenses resulted in a decline
of $0.05 per share in basic and diluted earnings per share for the three months
ended December 31, 2007.





Interest Income.Interest
income decreased by $139,000 or 1.2%, to $11.1 million for the three months
ended December 31, 2008 from $11.3 million for the three months ended December
31, 2007. The primary reasons for the decline in interest income were a decrease
in interest income on securities and other interest income.





Interest
income on securities decreased by $121,000 or 42.5%, to $164,000 for the three
months ended December 31, 2008 from $285,000 for the three months ended December
31, 2007. The decrease was attributable to a $10.9 million decrease in the
average balance of investment securities from $25.5 million for the three months
ended December 31, 2007 to $14.6 million for the three months ended December 31,
2008 as a result of maturities and normal repayments of principal on our
mortgage-backed securities and collateralized mortgage obligations.





Other
interest income decreased by $92,000 or 46.2% to $107,000 for the three months
ended December 31, 2008 from $199,000 for the three months ended December 31,
2007. The decrease was a result of a 372 basis point decline in the average
yield earned on federal funds sold from 4.56% for the three months ended
December 31, 2007 to 0.84% for the three months ended December 31,
2008.  The yield earned on federal funds sold was impacted by the
actions taken by the Federal Reserve in lowering the targeted federal funds
rate.





Interest Expense. Interest
expense decreased $543,000 or 8.4% to $5.9 million for the three months ended
December 31, 2008 from $6.5 million for the three months ended December 31,
2007. The decrease was primarily attributable to a 44 basis point decline in the
average cost of interest bearing liabilities from 3.89% for the three months
ended December 31, 2007 to 3.45% for the three months ended December 31, 2008 as
a result of a general decline in interest rates during the
period.  The decrease was partially offset by an increase in the
average balance of interest-bearing liabilities of $21.8 million from $667.6
million for the three months ended December 31, 2007 to $689.4 million for the
three months ended December 31, 2008.







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




Page
12




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




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





Management
also evaluates the adequacy of the allowance for loan losses based on a review
of individual loans, historical loan loss experience, the value and adequacy of
collateral and economic conditions in our market area. This evaluation is
inherently subjective as it requires material estimates, including the amounts
and timing of future cash flows expected to be received on impaired loans that
may be susceptible to significant change. For all specifically reviewed loans
for which it is probable that we will be unable to collect all amounts due
according to the terms of the loan agreement, we determine impairment by
computing a fair value either based on discounted cash flows using the loan’s
initial interest rate or the fair value of the collateral if the loan is
collateral dependent. Large groups of smaller balance homogeneous loans that are
collectively evaluated for impairment and are excluded from specific impairment
evaluation, and their allowance for loan losses is calculated in accordance with
the allowance for loan losses policy described above.




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





Our
provision for loan losses increased to $984,000 for the three months ended
December 31, 2008 compared to $184,000 for the three months ended December 31,
2007. The allowance for loan losses as a percent of total loans was 0.53% at
December 31, 2008 as compared to 0.39% at December 31, 2007. Net charge-offs
totaled $330,000 or 0.18% of average loans for the three months ended December
31, 2008 as compared to $244,000 or 0.03% of average loans for the three months
ended December 31, 2007. The increase in provision for loan losses was primarily
attributable to an increase in real estate loan delinquencies as well as an
increase in potential problem loans that are reviewed for
impairment.





Noninterest Income.Our
noninterest income increased $137,000, or 13.2% to $1.2 million for the three
months ended December 31, 2008 compared to $1.0 million for the three months
ended December 31, 2007. The increase was primarily the result of increased
customer service charges and fees due to increased customer activity coupled
with an increase in ATM surcharge fees for non-customers.


Page
13





Noninterest Expense.Our
noninterest expense decreased $1.1 million, or 22.0% to $4.0 million for the
three months ended December 31, 2008 compared to $5.1 million for the three
months ended December 31, 2007. The decrease resulted from the recognition of
$1.3 million in expenses relating to the previously noted cancellation of the
stock offering in November 2007.  Excluding the stock offering costs
noninterest expense increased $154,000 due to increases in general operational
costs of the Bank.





Income Tax Expense. Income tax
expense increased $332,000 to $464,000 for the three months ended December 31,
2008 compared to $132,000 for the three months ended December 31, 2007. This
increase was the result of higher pre-tax income of $1.4 million for the three
months ended December 31, 2008 compared to $538,000 for the three months ended
December 31, 2007. The effective tax rate was 33.3% and 24.5% for the three
months ended December 31, 2008 and 2007, respectively.  The increase
in the effective tax rate was attributable to non-taxable income from our
bank-owned life insurance and low income housing credits which have a reduced
impact on our effective tax rate when our taxable income is higher.








Comparison
of Results of Operations for the Six Months Ended December 31, 2008 and December
31, 2007.





General.Net income for the
six months ended December 31, 2008 was $2.3 million, an increase of $941,000 as
compared to net income of $1.4 million for the six months ended December 31,
2007. Earnings per basic and diluted common share were $0.18 for the six months
ended December 31, 2008 compared to $0.10 for the six months ended December 31,
2007. Net income for the six months ended December 31, 2007 includes $1.3
million in stock offering costs.  The recognition of these expenses
resulted in a decline of $0.05 per share in basic and diluted earnings per share
for the six months ended December 31, 2007.Excluding
the effect of the stock offering costs, the increase in net income was primarily
the result of increased net interest income resulting from a lower cost of
funds.





Interest Income.Interest
income increased by $380,000, or 1.7%, to $22.6 million for the six months ended
December 31, 2008 from $22.2 million for the six months ended December 31, 2007.
The primary factor for the increase in interest income was an increase in the
average loans receivable balance of $26.4 million or 3.71%, from $713.6 million
for the six months ended December 31, 2007 to $740.0 million for the six months
ended December 31, 2008.





Interest
income on securities decreased by $319,000, or 48.5%, to $339,000 for the six
months ended December 31, 2008 from $658,000 for the six months ended December
31, 2007. The decrease was attributable to a $14.2 million decrease in the
average balance of investment securities from $29.2 million for the six months
ended December 31, 2007 to $15.1 million for the six months ended December 31,
2008 as a result of maturities and normal repayments of principal on our
mortgage-backed securities and collateralized mortgage obligations.





Other
interest income decreased by $76,000 or 18.0% to $346,000 for the six months
ended December 31, 2008 from $422,000 for the six months ended December 31,
2007. The decrease was a result of a 264 basis point decline in the average
yield earned on federal funds sold from 4.16% for the six months ended December
31, 2007 to 1.52% for the six months ended December 31, 2008.  The
yield earned on federal funds sold was impacted by the actions taken by the
Federal Reserve in lowering the targeted federal funds rate.





Interest Expense. Interest
expense decreased $773,000, or 6.0% to $12.2 million for the six months ended
December 31, 2008 compared to $12.9 million for the six months ended December
31, 2007. The decrease was primarily attributable to a 39 basis point decline in
the average cost of interest bearing liabilities from 3.87% for the six months
ended December 31, 2007 to 3.48% for the six months ended December 31, 2008 as a
result of a general decline in interest rates during the period. The decrease
was partially offset by an increase in the average balance of interest-bearing
liabilities of $31.6 million from $668.8 million for the six months ended
December 31, 2007 to $700.4 million for the six months ended December 31,
2008.





Provision for Loan Losses. Our
provision for loan losses increased to $1.3 million for the six months ended
December 31, 2008 compared to $352,000 for the six months ended December 31,
2007. Net charge-offs totaled $645,000 or 0.17% of average loans for the six
months ended December 31, 2008 as compared to $275,000 or 0.04% of average loans
for the six months ended December 31, 2007. The increase in provision for loan
losses was primarily attributable to an increase in real estate loan
delinquencies as well as an increase in potential problem loans that are
reviewed for impairment.




Page
14





Noninterest Income.Our
noninterest income increased $318,000, or 15.4% to $2.4 million for the six
months ended December 31, 2008 compared to $2.1 million for the six months ended
December 31, 2007. The increase was primarily the result of increased customer
service charges and fees due to increased customer activity coupled with an
increase in ATM surcharge fees for non-customers.





Noninterest Expense.Our
noninterest expense decreased $1.0 million, or 11.4% to $7.9 million for the six
months ended December 31, 2008 compared to $8.9 million for the six months ended
December 31, 2007.  The decrease resulted from the recognition of $1.3
million in expenses relating to the cancellation of the stock offering in
November 2007.  Excluding the stock offering costs noninterest expense
increased $250,000 due to increases in general operational costs of the
Bank.





Income Tax Expense. Income tax
expense increased $555,000 to $1.2 million for the six months ended December 31,
2008 compared to $687,000 for the six months ended December 31, 2007. This
increase was primarily the result of higher pre-tax income of $3.6 million for
the six months ended December 31, 2008 compared to $2.1 million for the six
months ended December 31, 2007. The effective tax rate was 34.7% and 32.9% for
the six months ended December 31, 2008 and 2007, respectively.  The
increase in the effective tax rate was attributable to non-taxable income from
our bank-owned life insurance and low income housing credits which have a
reduced impact on our effective tax rate when our taxable income is
higher.








Asset
Quality





Asset
quality continues to remain strong despite the current economic crisis and
continued deterioration in the housing market.  This has been
accomplished through our conservative and disciplined lending practices
including our strict adherence to a long standing disciplined credit culture
that emphasizes the consistent application of underwriting standards to all
loans. In this regard, the Bank fully underwrites all loans based on an
applicant’s employment history, credit history and an appraised value of the
subject property. With respect to purchased loans, the Bank underwrites each
loan based upon our own underwriting standards prior to making the
purchase.





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





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


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


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





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








Page
15


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, 2008Real estate loans:One-to-four
      family
            
            
            1
            
            $
            343
            
            
            9
            
            $
            4,150
            
            
            10
            
            $
            4,493Commercial
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Multi-family
            
            
            —
            
            
            —
            
            
            1
            
            
            233
            
            
            1
            
            
            233Other loans:Automobile
            
            
            3
            
            
            42
            
            
            5
            
            
            73
            
            
            8
            
            
            115Home
      equity
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Other
            
            
            11
            
            
            6
            
            
            16
            
            
            11
            
            
            27
            
            
            17Total
      loans
            
            
            15
            
            $
            391
            
            
            31
            
            $
            4,467
            
            
            46
            
            $
            4,858At June 30, 2008Real estate loans:One-to-four
      family
            
            
            —
            
            $
            —
            
            
            4
            
            $
            1,583
            
            
            4
            
            $
            1,583Commercial
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Multi-family
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Other loans:Automobile
            
            
            10
            
            
            159
            
            
            8
            
            
            132
            
            
            18
            
            
            291Home
      equity
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Other
            
            
            22
            
            
            34
            
            
            9
            
            
            15
            
            
            31
            
            
            49Total
      loans
            
            
            32
            
            $
            193
            
            
            21
            
            $
            1,730
            
            
            53
            
            $
            1,923At June 30, 2007Real estate loans:One-to-four
      family
            
            
            —
            
            $
            —
            
            
            2
            
            $
            1,115
            
            
            2
            
            $
            1,115Commercial
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Multi-family
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Other loans:Automobile
            
            
            7
            
            
            111
            
            
            2
            
            
            19
            
            
            9
            
            
            130Home
      equity
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Other
            
            
            5
            
            
            8
            
            
            4
            
            
            7
            
            
            9
            
            
            15Total
      loans
            
            
            12
            
            $
            119
            
            
            8
            
            $
            1,141
            
            
            20
            
            $
            1,260





Page
16


Non-Performing Assets.The
following table sets forth the amounts and categories of non-performing assets
in our loan portfolio. Non-performing assets consist of non-accrual loans and
foreclosed assets. Loans to a customer whose financial condition has
deteriorated are considered for non-accrual status whether or not the loan is 90
days and over past due. All loans past due 90 days and over are classified as
non-accrual. On non-accrual loans, interest income is not recognized until
actually collected. At the time the loan is placed on non-accrual status,
interest previously accrued but not collected is reversed and charged against
current income.  At December 31, 2008 we had $682,000 of troubled debt
restructurings (loans for which a concession has been granted due to the
debtor’s financial difficulties) that are included in non-accrual loans
below.





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






At
      December 31,
            
            At
      June 30,
            
            At
      June 30,2008
            
            2008
            
            2007(Dollars
      in thousands)Non-accrual loans:Real estate loans:One-to-four
      family
            
            $
            4,150
            
            $
            1,583
            
            $
            1,115Commercial
            
            
            —
            
            
            —
            
            
            —Multi-family
            
            
            233
            
            
            —
            
            
            —Other loans:Automobile
            
            
            73
            
            
            132
            
            
            19Home
      equity
            
            
            —
            
            
            —
            
            
            —Other
            
            
            11
            
            
            15
            
            
            7Troubled debt
restructuring:One-to-four
      family
            
            
            446
            
            
            —
            
            
            —Commercial
            
            
            —
            
            
            —
            
            
            —Multi-family
            
            
            236
            
            
            —
            
            
            —Total
      non-accrual loans
            
            
            5,149
            
            
            1,730
            
            
            1,141Other real estate owned and repossessed
      assets:Real estate
      loans:One-to-four
      family
            
            
            609
            
            
            1,045
            
            
            238Commercial
            
            
            —
            
            
            —
            
            
            —Multi-family
            
            
            —
            
            
            —
            
            
            —Other
      loans:Automobile
            
            
            44
            
            
            161
            
            
            74Home
      equity
            
            
            —
            
            
            —
            
            
            —Other
            
            
            —
            
            
            —
            
            
            —Totalother real estate
      owned and repossessed assets
            
            
            653
            
            
            1,206
            
            
            312Total non-performing
      assets
            
            $
            5,802
            
            $
            2,936
            
            $
            1,453Non-performing loans to
      total loans(1)
            
            
            0.69
            %
            
            0.23
            %
            
            0.16
            %Non-performing assets
      to total assets
            
            
            0.69
            %
            
            0.35
            %
            
            0.18
            %(1) Total loans are net
      of deferred fees and costs





Page
17


Liquidity,
Capital Resources and Commitments





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





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





Liquidity
management is both a daily and long-term function of business management. Excess
liquidity is generally invested in short-term investments such as overnight
deposits. On a longer-term basis, we maintain a strategy of investing in various
lending products. We use our sources of funds primarily to meet ongoing
commitments, to pay maturing certificates of deposit and savings withdrawals, to
fund loan commitments and to maintain our portfolio of mortgage-backed and
related securities. At December 31, 2008, total approved loan commitments
amounted to $11.6 million, which includes the unfunded portion of loans of $3.2
million.





Certificates
of deposit, State of California time deposits, and advances from the FHLB of San
Francisco scheduled to mature in one year or less at December 31, 2008, totaled
$84.0 million, $25.0 million and $60.0 million, respectively. Based on
historical experience, management believes that a significant portion of
maturing deposits will remain with Kaiser Federal Bank and we anticipate that we
will continue to have sufficient funds, through deposits and borrowings, to meet
our current commitments.





At
December 31, 2008, we had available additional advances from the FHLB of San
Francisco in the amount of $131.0 million.








Capital





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


Actual
            
            Minimum
      Capital Requirements
            
            Minimum
      required to be Well Capitalized Under Prompt Corrective Actions
      ProvisionsAmount
            
            Ratio
            
            Amount
            
            Ratio
            
            Amount
            
            Ratio(Dollars
      in thousands)Total
      risk-based capital (to risk-weighted assets)
            
            $76,881
            
            13.24
            %
            $46,467
            
            8.00
            %
            $58,084
            
            10.00
            %Tier
      1 risk-based capital (to risk-weighted assets)
            
            73,985
            
            12.74
            
            23,234
            
            4.00
            
            34,851
            
            6.00Tier
      1 (core) capital (to adjusted tangible assets)
            
            73,985
            
            8.98
            
            32,943
            
            4.00
            
            41,179
            
            5.00





Consistent
with our goal to operate a sound and profitable financial organization, we
actively seek to continue as a “well capitalized” institution in accordance with
regulatory standards.  At December 31, 2008, Kaiser Federal Bank was a
“well-capitalized” institution under regulatory standards.


Page
18





Impact
of Inflation





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





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





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








Item 3. Quantitative and
Qualitative Disclosures about Market Risk





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





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





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





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





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





Page
19


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





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





The OTS
provides Kaiser Federal Bank with the information presented in the following
table, which is based on information provided to the OTS by Kaiser Federal Bank.
It presents the change in Kaiser Federal Bank’s net portfolio value at September
30, 2008 which is the latest information available that would occur upon an
immediate change in interest rates based on OTS assumptions but without giving
effect to any steps that management might take to counteract that
change.





September
      30, 2008Change
      in interest rates in basis points (“bp”)
              (Rate
      shock in rates)Net
      portfolio value (NPV)
            
            
            
            NPV
      as % of PV of assets$
      amount
            
            
            
            $
      change
            
            
            
            %
      change
            
            
            
            NPV
      ratio
            
            
            
            Change(bp)(Dollars
      in thousands)+300
      bp
            
            $
            59,526
            
            
            
            $
            (30,432
            )
            
            
            (34
            )%
            
            
            7.28
            %
            
            
            (308
            )+200
      bp
            
            
            70,022
            
            
            
            
            (19,936
            )
            
            
            (22
            )
            
            
            8.39
            
            
            
            (197
            )+100
      bp
            
            
            80,543
            
            
            
            
            (9,415
            )
            
            
            (10
            )
            
            
            9.46
            
            
            
            (90
            )0
      bp
            
            
            89,958
            
            
            
            
            —
            
            
            
            —
            
            
            
            10.36
            
            
            
            —-100
      bp
            
            
            93,653
            
            
            
            
            3,695
            
            
            
            4
            
            
            
            10.66
            
            
            
            30





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





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





Page
20





Item 4. Controls and Procedures





Our
management evaluated, with the participation of our Chief Executive Officer and
Chief Financial Officer, the effectiveness of our disclosure controls and
procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934 (the “Act”)) as of the end of the period covered by this
report. The Company’s Chief Executive Officer and Chief Financial Officer
concluded that the Company’s disclosure controls and procedures as of the end of
the period covered by this report are effective in ensuring that the information
required to be disclosed by the Company in the reports it files or submits under
the Act is (i) accumulated and communicated to the Company’s management
(including the Chief Executive Officer and Chief Financial Officer) in a timely
manner, and (ii) recorded, processed, summarized, and reported within the time
periods specified in the SEC’s rules and forms.




There
have been no changes in our internal control over financial reporting (as
defined in Rule 13a-15(f) under the Act) that occurred during the quarter ended
December 31, 2008 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.








Part
II. OTHER INFORMATION








Item1. Legal Proceedings





None.








Item 1A. Risk Factors





Except as
noted below, there have been no material changes to the risk factors that were
previously disclosed in the Company’s annual report on Form 10-K for the fiscal
year ended June 30, 2008.







Recent
Legislation in Response to Market and Economic Conditions May Significantly
Affect Our Operations, Financial Condition, and Earnings.





Instability
and volatility in the credit markets has led to the adoption of legislation and
regulatory actions which have the potential to significantly affect financial
institutions and holding companies, including us. Under the Emergency Economic
Stabilization Act of 2008 (“EESA”), the U.S. Department of the Treasury has the
authority to expend up to $700 billion to assist in stabilizing and providing
liquidity to the U.S. financial system. Although it was originally contemplated
that these funds would be used primarily to purchase troubled assets under the
Troubled Asset Relief Program (“TARP”), on October 14, 2008, the Treasury
announced the Capital Purchase Program (“CPP”) under which it will purchase up
to $250 billion of non-voting senior preferred shares of certain qualified
financial institutions in an attempt to encourage U.S. financial institutions to
build capital to increase the flow of financing to U.S. businesses and consumers
and to support the U.S. economy. In addition, Congress has temporarily increased
FDIC deposit insurance from $100,000 to $250,000 per depositor through
December 31, 2009. The FDIC has also announced the creation of the
Temporary Liquidity Guarantee Program (“TLGP”) which is intended to strengthen
confidence and encourage liquidity in the U.S. financial institutions by
temporarily guaranteeing newly issued senior unsecured debt of participating
organizations and providing full coverage for noninterest-bearing transaction
deposit accounts (such as business checking accounts, interest-bearing
transaction accounts paying 50 basis points or less and lawyers’ trust
accounts), regardless of dollar amount until December 31,
2009.





We can
provide no assurances that these actions will have the beneficial effects that
are intended, particularly with respect to the extreme levels of volatility and
limited credit availability currently being experienced. These new laws,
regulations, and changes will increase our FDIC insurance premiums and may also
increase our costs of regulatory compliance and of doing business, and otherwise
affect our operations. At this time, we cannot fully determine the extent of
these effects, or any other effects, on us caused by these and future laws and
regulations. However, they may significantly affect the markets in which we do
business, the markets for and value of our investments, and our ongoing
operations, costs and profitability.







Page
21


Lack
of Consumer Confidence in Financial Institutions May Decrease Our Level of
Deposits.





Our level
of deposits may be affected by lack of consumer confidence in financial
institutions, which have caused fewer depositors to be willing to maintain
deposits that are not FDIC-insured accounts. That may cause depositors to
withdraw deposits and place them in other institutions or to invest uninsured
funds in investments perceived as being more secure, such as securities issued
by the United States Treasury. These consumer preferences may cause us to
be forced to pay higher interest rates to retain deposits and may constrain
liquidity as we seek to meet funding needs caused by reduced deposit
levels.




Future
Legislative or Regulatory Actions Responding to Perceived Financial and Market
Problems Could Impair Our Rights Against Borrowers.





There
have been proposals made by members of Congress and others that would reduce the
amount distressed borrowers are otherwise contractually obligated to pay under
their mortgage loans and limit an institution’s ability to foreclose on mortgage
collateral. Were proposals such as these, or other proposals limiting our rights
as a creditor, to be implemented, we could experience increased credit losses,
increased expense in pursuing our remedies as a creditor, and reduced interest
income from potentially prolonged non-accrual periods.





There
have been no material changes to the risk factors that were previously disclosed
in the Company’s annual report on Form 10-K for the fiscal year ended June 30,
2008.






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


Issuer
Purchases of Equity Securities


Period
            
            Total
      Number of Shares Purchased
            
            Weighted
      Average Price Paid Per Share
            
            Total
      Number of Shares Purchased as Part of Publicly Announced Plans*
            
            Maximum
      Number of Shares That May Yet be Purchased Under the Plan07/1/08
      – 07/31/08
            
            41,469
            
            $
            10.87
            
            508,788
            
            —08/1/08
      – 08/31/08
            
            —
            
            
            —
            
            —
            
            228,35409/1/08
      – 09/30/08
            
            14,024
            
            
            9.96
            
            14,024
            
            214,33010/1/08
      – 10/31/08
            
            —
            
            
            —
            
            —
            
            214,33011/1/08
      – 11/30/08
            
            14,536
            
            
            8.14
            
            28,560
            
            199,79412/1/08
      – 12/31/08
            
            75
            
            
            7.41
            
            28,635
            
            199,719





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








Item3. 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 October 25, 2008.
At that meeting, the shareholders elected the following persons to three-year
terms to the Board of Directors: Kay M. Hoveland by a vote of 11,949,868
for and 203,477 withheld and Rita H. Zwern by a vote of 11,759,563 for and
393,782 withheld. There were 1,275,492 non-voting shares.  James L.
Breeden, Gerald A. Murbach, Robert C. Steinbach, and Laura G. Weisshar also
continued to serve as directors after the meeting.





The
appointment of Crowe Horwath LLP as independent registered public accounting
firm for the fiscal year ending June 30, 2009 was ratified by a vote of
12,126,572 for, 23,603 against and 3,170 abstain.





Page
22


Item 5. Other Information





None.











Item 6. Exhibits





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


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


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


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





Page
23





K-FED
BANCORP AND SUBSIDIARY


SIGNATURES





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








K-FED
BANCORP











Dated:
February 5,
2009


BY: /s/ Kay M.
Hoveland


Kay M.
Hoveland


President, Chief
Executive Officer





BY: /s/ Dustin
Luton


Dustin
Luton


Chief Financial
Officer





Page
24





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 5,
2009                                                                                            /s/ Kay M.
Hoveland


Kay M. Hoveland


President and Chief Executive Officer


























EXHIBIT
31.2





Certification
of the Chief Financial Officer


Pursuant
to Section 302 of the Sarbanes-Oxley Act








I, Dustin
Luton, certify that:





1.
            I
      have reviewed this Quarterly Report on Form 10-Q of K-Fed
      Bancorp;





2.
            Based
      on my knowledge, this report does not contain any untrue statement of a
      material fact or omit to state a material fact necessary to make the
      statements made, in light of the circumstances under which such statements
      were made, not misleading with respect to the period covered by this
      report;





3.
            Based
      on my knowledge, the financial statements, and other financial information
      included in this report, fairly present in all material respects the
      financial condition, results of operations and cash flows of the
      registrant as of, and for, the periods presented in this
      report;





4.
            The
      registrant’s other certifying officer(s) and I are responsible for
      establishing and maintaining disclosure controls and procedures (as
      defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and 15d-15(e)) and
      internal control over financial reporting (as defined in Exchange Act
      Rules 13a-15(f) and 15d-15(f)) for the registrant and
  have:





(a)
            Designed
      such disclosure controls and procedures, or caused such disclosure
      controls and procedures to be designed under our supervision, to ensure
      that material information relating to the registrant, including its
      consolidated subsidiaries, is made known to us by others within those
      entities, particularly during the period in which this report is being
      prepared;





(b)
            Designed
      such internal control over financial reporting, or cause such internal
      control over financial reporting to be designed under our supervision, to
      provide reasonable assurance regarding the reliability of financial
      reporting and the preparation of financial statements for external
      purposes in accordance with generally accepted accounting
      principles;





(c)
            Evaluated
      the effectiveness of the registrant’s disclosure controls and procedures
      and presented in this report our conclusions about the effectiveness of
      the disclosure controls and procedures, as of the end of the period
      covered by this report based on such evaluation;
  and





(d)
            Disclosed
      in this report any changes in the registrant’s internal control over
      financial reporting that occurred during the registrant’s most recent
      fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
      annual report) that has materially affected, or is reasonably likely to
      materially effect, the registrant’s internal control over financial
      reporting; and





5.
            The
      registrant’s other certifying officer(s) and I have disclosed, based on
      our most recent evaluation of internal control over financial reporting,
      to the registrant’s auditors and the audit committee of the registrant’s
      board of directors (or persons performing the equivalent
      functions):





(a)
            All
      significant deficiencies and material weaknesses in the design or
      operation of internal control over financial reporting which are
      reasonably likely to adversely affect the registrant’s ability to record,
      process, summarize and report financial information;
  and





(b)
            Any
      fraud, whether or not material, that involves management or other
      employees who have a significant role in the registrant’s internal control
      over financial reporting.











Date:  February 5,
2009                                                                                            /s/ Dustin
Luton


Dustin Luton


Chief Financial Officer








EXHIBIT
32.1





Certification
of the Chief Executive Officer


Pursuant
to 18 U.S.C. Section 1350,


as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002





In
connection with the Quarterly Report of K-Fed Bancorp (the “Company”) on Form
10-Q for the period ended December 31, 2008 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 5,
2009                                                                                       /s/ Kay M.
Hoveland


Kay M. Hoveland


Chief Executive Officer


























EXHIBIT
32.2





Certification
of the Chief Financial Officer


Pursuant
to 18 U.S.C. Section 1350,


as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002





In
connection with the Quarterly Report of K-Fed Bancorp (the “Company”) on Form
10-Q for the period ended December 31, 2008 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 5,
2009                                                                                       /s/ Dustin
Luton


Dustin Luton


Chief Financial Officer