Kentucky First Federal Bancorp

Regulatory Developments Regarding First Federal of Kentucky

On August 13, 2024, First Federal of Kentucky entered into a formal written agreement (the “Agreement”) with the OCC (the “OCC”), First Federal of Kentucky’s primary federal banking regulator, which became effective as of the same date. As a result of the Agreement, pursuant to 12 C.F.R. § 5.51(c)(7)(ii), First Federal of Kentucky is in “troubled condition,” and is not an “eligible savings association” for purposes of 12 C.F.R. § 5.3, unless otherwise informed in writing by the OCC. In addition to the Agreement, the OCC has also imposed individual minimum capital requirements (“IMCRs”) on First Federal of Kentucky. The IMCRs require First Federal of Kentucky to maintain a common equity tier 1 capital ratio of at least 9.0%, a tier 1 capital ratio of at least 11.0%, a total capital ratio of at least 12.0%, and a leverage ratio of at least 9.0%. At June 30, 2025, First Federal of Kentucky exceeded the requirements of the IMCRs as its common equity tier 1 capital ratio was 16.83%, its tier 1 capital ratio was 16.83%, its total capital ratio was 16.83%, and its leverage ratio was 9.97%.

Under the terms of the Agreement, First Federal of Kentucky is required to take the following actions within the time frames specified in the Agreement:

The Agreement requires First Federal of Kentucky’s Board to (i) ensure that First Federal of Kentucky timely adopts and implements all corrective actions required by the Agreement and (ii) verify that First Federal of Kentucky adheres to the corrective actions and that they are effective in addressing First Federal of Kentucky’s deficiencies that resulted in the Agreement.

The Agreement will remain in effect until it is amended by First Federal of Kentucky and the OCC, or the OCC modifies, waives or terminates the Agreement. While First Federal of Kentucky is subject to the Agreement, we expect that the Board and management will be required to focus considerable time and attention on taking corrective actions to comply with its terms.

First Federal of Kentucky’s Board and management are committed to fully addressing the provisions of the Agreement within the required time frames. The Board and management of First Federal of Kentucky have been taking action and implementing programs to comply with the requirements of the Agreement. Although compliance with the Agreement will be determined by the OCC, the Board and management believes that First Federal of Kentucky has complied in all material respects with the provisions of the Agreement required to be complied with as of the date of this report, including the capital requirements imposed by the OCC. The OCC may determine, however, in its sole discretion that the issues raised by the Agreement have not been addressed satisfactorily, or that any current or past actions, violations or deficiencies could be the subject of further regulatory enforcement actions. If the OCC were to determine that First Federal of Kentucky was not in compliance with the Agreement, it would have available various remedies, including among others, the power to enjoin “unsafe or unsound” practices, to require affirmative action to correct any conditions resulting from any violation or practice, to direct an increase in capital, to restrict the growth of First Federal of Kentucky, to remove officers and/or directors, to assess civil monetary penalties, and to impose limitations on our business at First Federal of Kentucky, any of which could negatively affect our ability to implement our business plan and pay dividends on or our common stock, and may negatively affect the value of our common stock as well as our financial condition and results of operations.

First Federal of Kentucky will incur additional non-interest expenses associated with the implementation of the corrective actions set forth in the Agreement. These expenses may have a material impact on the financial condition of the Company.

For additional information, see Note K-Stockholders’ Equity and Regulatory Capital of the Notes to Consolidated Financial Statements included in this Annual Report.

Lending Operations and Credit Risk

**Income.**We have two primary sources of pre-tax income. The first is net interest income, which is the difference between interest income, the income that we earn on our loans and investments, and interest expense, the interest that we pay on our deposits and borrowings.

To a much lesser extent, we also recognize pre-tax income from fee and service charges, which is the compensation we receive from providing financial products and services.

**Expenses.**The expenses we incur in operating our business consist of compensation, taxes and benefits, office occupancy, data processing fees, taxes, and other expenses.

Compensation, taxes, and benefits consist primarily of the salaries and wages paid to our employees and directors, payroll taxes and expenses for retirement and other employee benefits.

Office occupancy expenses, which are the fixed and variable costs of buildings and equipment, consist primarily of taxes, depreciation charges, maintenance, and costs of utilities.

Data processing fees primarily include fees paid to our third-party data processing providers.

Taxes consist of the current and deferred portion of federal and state income taxes.

Other expenses include expenses for attorneys, accountants and consultants, advertising, telephone, employee training and education, charitable contributions, insurance, office supplies, postage, and other miscellaneous operating activities.