Exhibit 13

Parent company of

First Federal Savings and Loan Association of Hazard

and

First Federal Savings Bank of Kentucky

2022

Annual Report

KENTUCKY FIRST FEDERAL BANCORP

Kentucky First Federal Bancorp (“Kentucky First Federal” or the “Company”) was formed under federal law in March 2005 and is the holding company for First Federal Savings and Loan Association of Hazard, Hazard, Kentucky (“First Federal of Hazard”) and First Federal Savings Bank of Kentucky, Frankfort, Kentucky (“First Federal of Kentucky”) (collectively, the “Banks”). Kentucky First Federal’s operations consist primarily of operating the Banks as two independent, community-oriented savings institutions.

First Federal of Hazard is a federally chartered savings and loan association offering traditional financial services to consumers in Perry and surrounding counties in eastern Kentucky. First Federal of Hazard engages primarily in the business of attracting deposits from the general public and using such funds to originate, when available, loans secured by first mortgages on owner-occupied, residential real estate and, occasionally, other loans secured by real estate. To the extent there is insufficient loan demand in its market area, and where appropriate under its investment policies, First Federal of Hazard has historically invested in mortgage-backed and other securities, although since formation of the Company in 2005, First Federal of Hazard has been purchasing whole loans and participations in loans originated at First Federal of Kentucky.

First Federal of Kentucky is a federally chartered savings bank which is primarily engaged in the business of attracting deposits from the general public and the origination primarily of adjustable-rate loans secured by first mortgages on owner-occupied and non-owner-occupied one-to four-family residences in Franklin, Boyle, Garrard and surrounding counties in Kentucky. First Federal of Kentucky also originates, to a lesser extent, home equity loans, loans secured by churches, multi-family properties, professional office buildings and other types of property, as well as consumer loans and commercial and industrial loans.

MARKET INFORMATION

The Company’s common stock began trading under the symbol “KFFB” on the Nasdaq National Market on March 3, 2005. There are currently 8,154,695 shares of common stock outstanding and approximately 536 holders of record of the common stock. Following are the high and low closing prices, by fiscal quarter, as reported on the Nasdaq National Market during the periods indicated, as well as dividends declared on the common stock during each quarter.

TABLE OF CONTENTS

Dear Shareholder:

We are pleased to present the 2022 Annual Report for Kentucky First Federal Bancorp. We encourage you to read both the Annual Report and Proxy Statement. We encourage you to vote and, if possible, to attend our annual meeting on November 17, 2022. We are excited to return to The Challenger Center on the campus of Hazard Community and Technical College for this year’s meeting. The location is One Community College Drive in Hazard, KY.

The past year was an interesting one as we emerged from the COVID-19 pandemic and navigated two different interest rate scenarios. The beginning of the year saw real estate prices rise significantly due to continued low interest rates and strong demand caused partially by the inability to conduct business as usual for the previous period. In times of uncertainty people gravitate toward the safety that can be found in community banks. Consequently, we saw significant deposit increases during the pandemic as deposits increased $13.0 million or 5.7% year over year. On the other side of the ledger, we experienced a reduction in loans as some of our borrowers took advantage of the strong real estate market by selling their holdings. Other borrowers sold real estate holdings because of death or other reasons. Loans, net decreased $23.3 million or 7.8% year to year. However, in March 2022 the Federal Open Market Committee began raising interest rates in its attempt to tame high inflation. The end of the fiscal year showed promise as the hot real estate market began to cool and we were able to add $33.7 million in new loans to our portfolio. We responded by paying down advances from the Federal Home Loan Bank of Cincinnati (“FHLB”) by $22.8 million or 40.1% and investing in short-lived mortgage-backed securities to increase yield on our excess liquidity. We continue to focus on community banking during this difficult time by concentrating on our core business, which is attracting local deposits and lending funds primarily for one-to-four family residences. We continue to leverage the Banks’ infrastructure by offering long-term, fixed-rate mortgages to customers through our relationship with the FHLB. This relationship allows us to help customers with financial products they want without exposing the Banks to undue interest rate risk, all while maintaining our customer relationship through the servicing of the loan.

As shareholders, we appreciate the members of First Federal Savings and Loan for their continued support of the dividend waiver. For the eleventh year in a row, they have voted overwhelmingly to allow us to waive the dividend which allows Kentucky First to pay a competitive dividend.

I would like to take this opportunity to congratulate two long-term employees on their retirements. Bill Johnson retired in February after serving as our Danville/Lancaster Area President since our combination with Central Kentucky Federal Savings Bank in 2012. Bill’s banking career spans over 48 years in central Kentucky, but he is well-respected across our Commonwealth. Although Bill retired from day-to-day operations, he continues serving as Director on the Company’s Board of Directors, as well as that of First Federal of Kentucky. Loan Officer Jim Baxter had a long career in banking and retired in December after working in Danville for 16 years.

In July 2022 eastern Kentucky suffered devastating flash floods that resulted in several deaths, impacted thousands of people, and caused billions of dollars in damage. Our Company is committed to helping our family and friends in Hazard and the surrounding area rebuild after this tragedy.

Please keep First Federal in mind for your banking needs in Frankfort, Danville, Lancaster, and Hazard and to recommend us to family and friends. All of our markets are very competitive and, while we market to offer attractive rates and useful products, often it is word of mouth or any additional help our shareholders can provide is appreciated. When you bank with us, you help yourself (and we think you will enjoy our excellent products and services.) Please let us know if there’s anything we can do for you.

Sincerely,

Don Jennings

SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

Selected Financial Condition Data

Selected Financial Condition Data

Selected Financial Ratios and Other Data (1)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

References in this Annual Report to “we,” “us,” and “our” refer to Kentucky First Federal Bancorp and where appropriate, collectively to Kentucky First Federal, First Federal of Hazard and First Federal of Kentucky.

Forward-Looking Statements

Certain statements contained in this Annual Report that are not historical facts are forward-looking statements that are subject to certain risks and uncertainties. When used herein, the terms “anticipates,” “plans,” “expects,” “believes,” and similar expressions as they relate to the Company or its management are intended to identify such forward-looking statements. Kentucky First Federal’s actual results, performance or achievements may materially differ from those expressed or implied in the forward-looking statements. Risks and uncertainties that could cause or contribute to such material differences include, but are not limited to, general economic conditions, prices for real estate in the Company’s market areas, interest rate environment, competitive conditions in the financial services industry, changes in law, governmental policies and regulations, rapidly changing technology affecting financial services, the potential effects of COVID-19 pandemic on the local and national economic environment, on our customers and on our operations (as well as any changes to federal, state and local government laws, regulations and orders in connection with the pandemic), and the other matters described in Item 1A of our Annual Report on Form 10-K for the year ended June 30, 2022. We wish to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made.

Except as required by applicable law or regulation, the Company does not undertake the responsibility, and specifically disclaims any obligation, to release publicly the result of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

General

The Company was incorporated as a mid-tier holding company under the laws of the United States on March 2, 2005, upon the completion of the reorganization of First Federal of Hazard into a federal mutual holding company form of organization (the “Reorganization”). On that date, Kentucky First Federal also completed its minority stock offering and its concurrent acquisition of Frankfort First Bancorp, Inc. (“Frankfort First Bancorp”) and its wholly owned subsidiary, First Federal of Kentucky, Frankfort Kentucky (“First Federal of Kentucky”) (the “Merger”). Following the Reorganization and Merger, the Company has operated First Federal of Hazard and First Federal of Kentucky (collectively, the “Banks”) as two independent, community-oriented savings institutions.

On December 31, 2012, the Company acquired CKF Bancorp, Inc., a savings and loan holding company which operated three banking locations in Boyle and Garrard Counties in Kentucky. In accounting for the transaction, the assets and liabilities of CKF Bancorp were recorded on the books of First Federal of Kentucky in accordance with accounting standard ASC 805, Business Combinations.

Our results of operations are dependent primarily on net interest income, which is the difference between the income earned on our loans and securities and our cost of funds, consisting of the interest paid on deposits and borrowings. Results of operations are also affected by the provision for losses on loans and service charges and fees collected on our deposit accounts. Our general, administrative, and other expense primarily consists of employee compensation and benefits expense, occupancy and equipment expense, data processing expense, other operating expenses and state and federal income taxes. Results of operations are also significantly affected by general economic and competitive conditions, particularly changes in interest rates, government policies and actions of regulatory authorities.

Business Continuity, Processes and Controls

 In response to the Covid-19 pandemic the Banks are considered essential businesses and have remained open for business. We implemented our pandemic preparedness plan and generally maintained regular business hours through drive-through facilities, automated teller machines, remote deposit capture and online and mobile banking applications. We offer by-appointment options for transactions requiring in-person contact while maintaining social distancing mandates and surface cleaning protocols. Our staff is practicing recommended personal hygiene protocols and social distancing while working on premises. We do not face current material resource constraints through the implementation of our pandemic preparedness plan and do not anticipate incurring any material cost related to its implementation. We have not identified any material operational or internal control challenges or risks, nor do we anticipate any significant challenges to our ability to maintain our systems and controls, related to operational changes resulting from implementation of the pandemic preparedness plan.

Financial Position and Results of Operations

 Bank regulators have issued guidance and are encouraging banks to work with customers affected by COVID-19. Accordingly, we have been actively working with borrowers affected by COVID-19 by offering a payment deferral program providing for either a three-month interest-only period or a full payment deferral for three months. While interest and fees will continue to accrue to income, under normal GAAP accounting if eventual credit losses on these deferred payments emerge, interest and/or fee income accrued may need to be reversed. As a result, interest income in future periods could be negatively impacted. At this time management anticipates that the deferral program will have an immaterial impact to the Company’s financial condition and results of operation, while recognizing that a sustained negative economic impact from COVID-19 could change this assessment, as borrowers’ ability to repay is impacted in future periods.

At June 30, 2022 the Company and the Banks were considered well-capitalized with capital ratios in excess of regulatory requirements. However, an extended economic recession resulting from the COVID-19 pandemic could adversely impact the Company’s and the Banks’ capital position and regulatory capital ratios due to a potential increase in credit losses.

Lending Operations and Credit Risk

The CARES Act includes a Paycheck Protection Program (“PPP”), which is administered by the Small Business Administration (“SBA”) and is designed to aid small- and medium-sized businesses through federally-guaranteed loans disbursed through banks. These loans are intended to provide eight weeks of payroll and other costs to assist those businesses to either remain open or to re-open quickly and allow their workers to pay their bills. First Federal of Kentucky qualified as an SBA lender to assist the small business community in securing this important funding. As of the date of this filing, First Federal of Kentucky had outstanding 22 PPP loans representing $367,000 in funding. It is our understanding that loans funded through the PPP are fully guaranteed by the United States government and, if the borrower complies with provisions of the program, will be forgiven by the SBA. Should those circumstances change, the bank could be required to increase its allowance for loan and lease losses related to these loans resulting in an increase in the provision for loan and lease losses.

The Banks are prepared to continue to offer short-term assistance in accordance with regulatory guidelines. Management continues to identify and monitor weaknesses in the loan portfolio resulting from fallout from the pandemic. On a portfolio level, management continues to monitor aggregate exposures to highly sensitive segments such as residential rental properties for changes in asset quality and payment performance. Management also monitors unfunded commitments such as lines of credit and overdraft protection to determine liquidity and funding issues that may arise with our customers. If economic conditions worsen, the Company could need to increase its required allowance for loan losses through additional provisions for loan losses. It is possible that the Company’s asset quality metrics could be materially and adversely impacted in future periods, if the effects of COVID-19 are prolonged.

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. However, during the twelve months ended June 30, 2022, we generated significant revenue from the sale of loans.

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. Effective January 1, 2021, the Banks became subject to state income tax in the Commonwealth of Kentucky in lieu of the Savings and Loan tax to which they had previously been subject.

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.

Critical Accounting Policies  

Our accounting and reporting policies comply with U.S. GAAP and conform to general practices within the banking industry. We believe that of our significant accounting policies, the following may involve a higher degree of management assumptions and judgments that could result in materially different amounts to be reported if conditions or underlying circumstances were to change.

Allowance for Loan Losses. The allowance for loan losses is the estimated amount considered necessary to cover probable incurred losses in the loan portfolio at the balance sheet date. The allowance is established through the provision for losses on loans, which is charged against income.

The management and the Boards of the Company and of First Federal of Hazard and First Federal of Kentucky review the allowance for loan losses on a quarterly basis. Consideration is given to a variety of factors in establishing this estimate including, but not limited to, current economic conditions, delinquency statistics, geographic and industry concentrations, the adequacy of the underlying collateral, the financial strength of the borrower, results of internal loan reviews, volume and mix of the loan portfolio and other relevant factors. This evaluation is inherently subjective, as it requires material estimates that may be susceptible to change. Management considers the economic climate in the Banks’ respective lending areas to be among the factors most likely to have an impact on the level of the required allowance for loan losses.

Management continues to monitor and evaluate factors which could have an impact on the required level of the allowance. Management watches for national issues that may negatively affect a significant percentage of homeowners in the Banks’ lending areas. These may include significant increases in unemployment or significant depreciation in home prices. Management reviews employment statistics periodically when determining the allowance for loan losses and generally finds the unemployment rates in both lending areas to be high in relation to historical trends. Management has no current plans to alter the type of lending or collateral currently offered, but if such plans change or market conditions result in large concentrations of certain types of loans, such as commercial real estate or high loan-to-value ratio residential loans, management will respond with an increase in the overall allowance for loan losses.

The analysis has two components, specific and general allocations. Loans are classified as either homogenous or other. Homogenous loans are analyzed in the aggregate according to various criteria. Non-homogenous loans receive additional scrutiny and are classified as impaired or unimpaired. Specific allocations are made for loans that are determined to be impaired. Impairment is measured by determining the present value of expected future cash flows or, for collateral-dependent loans, the fair value of the collateral adjusted for market conditions and selling expenses. A loan is considered collateral-dependent when the circumstances of the borrower indicate that we can no longer rely upon the overall financial strength of that borrower to comply with the terms of the loan and that the loan will likely be repaid in whole or in part by proceeds from the sale of the collateral. Updated independent appraisals are ordered in most situations where management has determined to evaluate a loan for impairment. The general allocation is determined by segregating the remaining loans by type of loan, risk weighting (if applicable) and payment history. We also analyze historical loss experience, delinquency trends, general economic conditions and geographic and industry concentrations. This analysis establishes factors that are applied to the loan groups to determine the amount of the general reserve. Actual loan losses may be significantly more than the allowances we have established and, if so, this could have a material negative effect on our financial results.

Goodwill. We test goodwill for impairment at least annually and more frequently, if circumstances indicate its value may not be recoverable. We test goodwill for impairment by comparing the fair value of the reporting unit to the book value of the reporting unit. If the fair value exceeds book value, then goodwill is not considered to be impaired. Based on the annual goodwill impairment test at June 30, 2022, and consideration of potential triggering events through year end, management does not believe goodwill is impaired.

Deferred Taxes. We evaluate deferred tax assets and liabilities quarterly. We will realize these assets and liabilities to the extent profitable or carry back tax losses to periods in which we paid income taxes. Our determination of the realization of the deferred tax asset will be based upon management’s judgment of various future events and uncertainties, including the timing and amount of future income we will earn and the implementation of various tax plans to maximize realization of the deferred tax assets. Management believes the Company will generate sufficient operating earnings to realize the deferred tax benefits. Examinations of our income tax returns or changes in tax law may impact the tax liabilities and resulting provisions for income taxes.

Our Operating Strategy

Our mission is to operate and grow profitable, community-oriented financial institutions serving primarily retail customers in our market areas. We plan to pursue a strategy of:

Market Risk Analysis

Qualitative Aspects of Market Risk. Our most significant form of market risk is interest rate risk. We manage the interest rate sensitivity of our interest-bearing liabilities and interest-earning assets to minimize the adverse effects of changes in the interest rate environment. Deposit accounts typically react more quickly to changes in market interest rates than mortgage loans because of the shorter maturities of deposits. As a result, sharp increases in interest rates may adversely affect our earnings while decreases in interest rates may beneficially affect our earnings. To reduce the potential volatility of our earnings, we have sought to improve the match between asset and liability maturities (or rate adjustment periods), while maintaining an acceptable interest rate spread. Still, when market rates increase rapidly, increases in the cost of deposits and borrowings outpace the increases in the return on assets. The Company’s assets are primarily comprised of adjustable-rate mortgages (all of which have some contractual limits in their ability to react to market changes) and short-term securities. Those assets will, over time, re-price to counteract the increased costs of deposits and borrowings.

Asset/Liability Management. Management and the boards of the subsidiary Banks are responsible for the asset/liability management issues that affect the individual Banks. Either Bank may work with its sister Bank to mitigate potential asset/liability risks to the Banks and to the Company as a whole. Management utilizes a third-party to perform interest rate risk (“IRR”) calculations for each of the Banks. Management monitors and considers methods of managing the rate sensitivity and repricing characteristics of each of the Bank’s balance sheet components to maintain acceptable levels of change in the economic value of equity (“EVE”) as well as evaluating the impact on earnings in the event of changes in prevailing market interest rates. Interest rate sensitivity analysis is used to measure our interest rate risk by computing estimated changes in EVE that are a result of changes in the net present value of its cash flows from assets, liabilities, and off-balance sheet items. These changes in cash flow are estimated based on hypothetical instantaneous and permanent increases and decreases in market interest rates.

In March 2022 the Federal Open Market Committee (“FOMC”) of the Federal Reserve Bank began raising the target range for the fed funds rate of interest and since that time has raised the short-term interest rate by 225 basis points. At June 30, 2022, we believe our risk associated with rising interest rates was low. Our IRR model indicated that at June 30, 2022, in the event of a sudden and sustained increase in prevailing market interest rates of 300 basis points, our EVE would be expected to decrease $11.7 million or 17.4% to $55.4 million, at which level our fair value of tangible equity to fair value of tangible assets would be expected to be 18.5%. The projected decrease in EVE in the event of a sudden and sustained 300 basis point increase in prevailing interest rates is within the parameters established by each subsidiary Bank’s Board of Directors. Computations or prospective effects of hypothetical interest rate changes are based on numerous assumptions, including relative levels of market interest rates, loan prepayments, and deposit run-offs. These computations should not be relied upon as indicative of actual results. Further, the computations do not contemplate any actions the Banks may undertake in response to changes in interest rates. Certain shortcomings are inherent in this method of computing EVE. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in differing degrees to changes in market interest rates. 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.

Statement of Financial Condition

General. At June 30, 2022, assets totaled $328.1 million, a decrease of $10.0 million, or 3.0%, compared to June 30, 2021. The decrease was related primarily to a decrease of $23.3 million or 7.8% in loans, net, which totaled $274.6 million at June 30, 2022. Somewhat offsetting the decrease in loans was an increase of $10.3 million in investment securities and a $4.2 million or 19.3% increase in cash and cash equivalents. Total liabilities decreased $9.7 million, or 3.4%, to $276.0 million at June 30, 2022, primarily as a result of decreased FHLB advances, which decreased $22.8 million or 40.1% and totaled $34.1 million at June 30, 2022, and were somewhat offset by increased deposits, which increased $13.0 million or 5.7% to $239.9 million at June 30, 2022.

Loans. Our primary lending activity is the origination of loans for the purchase, refinance, or construction of one- to four-family residential real estate located in our market areas. As opportunities arise, we also originate church loans, commercial real estate loans, and multi-family and nonresidential real estate loans. At June 30, 2022, one- to four- family residential real estate loans totaled $216.4 million, or 78.4% of total loans, compared to $224.1 million, or 74.8% of total loans, at June 30, 2021, caused by several reasons. Some borrowers decided to take advantage of high prices and sold all or part of their real estate holdings, while other borrowers sold their properties due to age or death. Other loans were lost to competing financial institutions who offered terms that we did not believe were prudent to match. Please refer to Note C-Loans of the Notes to Consolidated Financial Statements for a further breakdown of consumer and other loans.

The following table sets forth the composition of our loan portfolio at the dates indicated.

The following table sets forth certain information at June 30, 2022 regarding the dollar amount of loans repricing or maturing during the periods indicated. The table does not include any estimate of prepayments which significantly shorten the average life of all loans and may cause our actual repayment experience to differ from that shown below. Demand loans having no stated maturity are reported as due in one year or less.

As of June 30, 2022, there were $54.5 million fixed-rate and $152.4 million adjustable-rate real estate loans maturing in more than a year, while there were $405,000 fixed-rate and $0 adjustable-rate commercial loans maturing in more than a year.

The following table shows loan origination activity during the periods indicated.

Allowance for Loan Losses and Asset Quality. The allowance for loan losses is a valuation allowance for the probable incurred losses in the loan portfolio. We evaluate the allowance for loan losses no less than quarterly. When additional allowances are needed a provision for losses on loans is charged against earnings. The recommendations for increases or decreases to the allowance are presented by management to the Banks’ boards of directors. The Company’s board of directors oversees the overall allowance level for the Company and may propose increases or decreases for allowance levels at the banks.

The allowance for loan losses is established to recognize the probable incurred losses associated with lending activities. Loss and risk factors are based on our historical loss experience and industry averages and are adjusted for significant factors that in management’s judgment affect the collectibility of the portfolio as of the evaluation date. These significant factors may include changes in lending policies and procedures, changes in existing general economic and business conditions affecting our primary lending area, credit quality trends, collateral value, loan volumes and concentrations, seasoning of the loan portfolio, recent loss experience, duration of the current business cycle and bank regulatory examination results.

The allowance for loan losses totaled $1.5 million and $1.6 million at June 30, 2022 and 2021, respectively, which represented 0.55% and 0.54% of total loans, respectively. The allowance included no specific reserves at June 30, 2022 or 2021. Such reserves are calculated when a non-homogenous loan is considered impaired. An impaired loan is one in which it is likely that we will be unable to collect all amounts due according to the contractual terms of the loan agreement. Most of the Company’s loans are collateral-based and, in case of impairment, the loans are carried at the lower of cost or fair value less disposal costs.

Nonperforming loans, which consist of all loans 90 days or more past due and nonaccrual loans, totaled $5.8 million and $6.7 million at June 30, 2022 and 2021, respectively, a decrease of $836,000 or 12.6%. The allowance for loan losses totaled 26.2% and 24.4% of nonperforming loans at June 30, 2022 and 2021, respectively. In determining the allowance for loan losses at any point in time, management and the boards of directors of the subsidiary Banks apply a systematic process focusing on the risk of loss in the portfolio. First, the loan portfolio is segregated by loan types to be evaluated collectively and loan types to be evaluated individually. Delinquent multi-family and nonresidential loans are evaluated individually for potential impairment. Second, the allowance for loan losses is evaluated using historic loss experience adjusted for significant factors by applying these loss percentages to the loan types to be evaluated collectively in the portfolio. Our loss reserves do not include $427,000 in remaining discounts on acquired loans at June 30, 2022.

Our banking regulators, as an integral part of their examination process, periodically review our allowance for loan losses. The examinations may require us to make additional provisions for loan losses based on judgments different from ours. In addition, because further events affecting borrowers and collateral cannot be predicted with certainty, there can be no assurance that the existing allowance for loan losses is adequate or that increases will not be necessary should the quality of any loans deteriorate because of the factors discussed above. Any material increase in the allowance for loan losses may adversely affect our financial condition and results of operations.

Summary of Loan Loss Experience. The following table sets forth an analysis of the allowance for loan losses for the periods indicated. Where specific loan loss allowances have been established, any difference between the loss allowance and the amount of loss realized has been charged or credited to the allowance.

The following table sets forth the breakdown of the allowance for loan losses by loan category, which management believes can be allocated on an approximate basis, at the dates indicated.

Nonperforming and Classified Assets. When a loan becomes 90 days delinquent, the loan may be placed on nonaccrual status at which time the accrual of interest ceases, the interest previously accrued to income is reversed and interest income is thereafter recognized on a cash basis. Payments on a nonaccrual loan are applied to the outstanding principal and interest as determined at the time of collection of the loan or applied entirely to principal, depending on management’s assessment of ultimate collectability. In situations where management believes collection of interest due is likely even if the loan is more than 90 days delinquent, then management may decide not to place the loan on non-accrual status.

We consider repossessed assets and loans that are 90 days or more past due to be nonperforming assets. Real estate that we acquire because of foreclosure or by deed-in-lieu of foreclosure is classified as real estate owned until it is sold. When property is acquired, it is recorded at the lower of carrying value of the investment or fair value less estimated selling costs at the date of foreclosure. Holding costs and declines in fair value after acquisition of the property are charged against income.

Under current accounting guidelines, a loan is defined as impaired when, based on current information and events, it is probable that the creditor will be unable to collect all amounts due under the contractual terms of the loan agreement. Loans identified as impaired are evaluated on an individual basis. At June 30, 2022, there were no loans individually considered impaired with valuation adjustments.

The following table provides information with respect to our nonperforming assets at the dates indicated.

Interest income that would have been recorded for the years ended June 30, 2022 and 2021, had nonaccrual loans been current according to their original terms amounted to $27,000, and $27,000, respectively. Income related to nonaccrual loans included in interest income for the years ended June 30, 2022 and 2021 amounted to $48,000, and $49,000, respectively.

Federal regulations require us to regularly review and classify our assets. In addition, our regulators have the authority to identify problem assets and, if appropriate, require them to be classified. There are three classifications for problem assets: substandard, doubtful and loss. “Substandard assets” must have one or more defined weaknesses and are characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected. “Doubtful assets” have the weaknesses of substandard assets with the additional characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions and values questionable, and there is a high possibility of loss. An asset classified “loss” is considered uncollectible and of such little value that continuance as an asset of the institution is not warranted. The regulations also provide for a “special mention” category, described as assets which do not currently expose us to a sufficient degree of risk to warrant classification but do possess credit deficiencies or potential weaknesses deserving our close attention. Special mention assets totaled $896,000 and $1.6 million at June 30, 2022 and 2021, respectively.

The following table shows the aggregate amounts of our assets classified for regulatory purposes at the dates indicated.

Substandard assets at June 30, 2022, consisted of 142 loans totaling $7.4 million and one parcel of real estate owned with an aggregate carrying value of $10,000, compared to substandard assets at June 30, 2021 which consisted of 157 loans totaling $8.8 million and two parcels of real estate owned with an aggregate carrying value of $82,000. At June 30, 2022, 0.1% of the Company’s substandard assets were represented by real estate acquired through foreclosure compared to 0.9% at June 30, 2021. During the fiscal years ended June 30, 2022 and 2021, the Company made loans to facilitate the purchase of its other real estate owned by qualified borrowers. The Company sold property with carrying values of $117,000 and $75,000 for $82,000 and $72,000 during the fiscal years ended June 30, 2022 and 2021, respectively. Such loans are considered loans to facilitate an exchange. Loans to facilitate the sale of other real estate owned and which were included in substandard loans totaled $0 and $43,000 at June 30, 2022 and 2021, respectively.

The table below summarizes other real estate owned at June 30, 2022:

The table below summarizes substandard loans at June 30, 2022:

Other than disclosed above, there are no other loans at June 30, 2022 that we have serious doubts about the ability of the borrowers to comply with the present loan repayment terms.

Delinquencies. The following table provides information about delinquencies in our loan portfolios at the dates indicated.

Securities. Our securities portfolio consists of mortgage-backed securities with maturities of 30 years or less, which totaled $10.8 million at June 30, 2022, an increase of $10.3 million, compared to the $495,000 total at June 30, 2021. The increase in these securities resulted from Management’s investment plan to earn additional interest spread on excess liquidity by investing in short-lived mortgage-backed securities. All of our mortgage-backed securities were issued by Ginnie Mae, Fannie Mae or Freddie Mac.

The following table sets forth the carrying values and fair values of our securities portfolio at the dates indicated.

At June 30, 2022 and 2021, we did not own any securities that had an aggregate book value in excess of 10% of our equity at that date.

At June 30, 2022 the book value of debt securities maturing in one to five years was $10.8 million with a weighted average yield of 3.16%, while those maturing in five to ten years totaled $58,000 with a weighted average yield of 1.90%. At June 30, 2022, we had no agency securities with adjustable rates.

Other Assets. Other assets at June 30, 2022 and 2021 include goodwill of $947,000, which was a result of the Company’s acquisition of Frankfort First, and bank owned life insurance policies with a carrying value of $2.8 million and $2.7 million at June 30, 2022 and 2021, respectively, of which First Federal of Kentucky is the owner and beneficiary. Both subsidiary Banks are members and stockholders of the Federal Home Loan Bank. FHLB stock, at cost, totaled $6.5 million at June 30, 2022 and 2021.

Deposits. Our primary source of funds is retail deposit accounts held primarily by individuals within our market areas. Deposits totaled $239.9 million at June 30, 2022, increasing $13.0 million or 5.7% between the two periods.

The following table sets forth the balances of our deposit products at the dates indicated.

The following table indicates at June 30, 2022, the amount of certificate of deposit accounts with balances equal to or greater than $100,000, by time remaining until maturity. The Federal Deposit Insurance Corporation (“FDIC”) currently insures deposits up to $250,000 in most cases, making certificate of deposit accounts with balances equal to or greater than $100,000 less volatile as before the limit was raised.

The following table sets forth our certificate of deposit accounts classified by rates at the dates indicated.

The following table sets forth the amount and maturities of certificate accounts at June 30, 2022.

The following table sets forth the average balances and rates paid on deposits.

The following table sets forth the deposit activities for the periods indicated.

Borrowings. Advances from the Federal Home Loan Bank of Cincinnati amounted to $34.1 million and $56.9 million at June 30, 2022 and 2021, respectively.

The following table presents certain information regarding our Federal Home Loan Bank of Cincinnati advances during the periods and at the dates indicated.

Capital. Total shareholders’ equity totaled $52.0 million at June 30, 2022, a decrease of $271,000 or 0.5%, compared to June 30, 2021. The decrease resulted primarily from repurchase of common stock by the Company for placement in treasury.

Effective January 1, 2015, the Company and the Banks became subject to the capital regulations in accordance with Basel III. These regulations established higher minimum risk-based capital ratio requirements, a new common equity Tier 1 risk-based capital ratio and a new capital conservation buffer (“CCB”). The regulations also included a revised definition of capital and changed the risk-weighting of certain assets. For purposes of prompt corrective action, the new regulations establish definitions of “well capitalized” as follows:

Additionally, the CCB of Common Equity Tier 1 Risk-Based capital above the minimum risk-based capital requirements was introduced. The CCB is 2.5%. The Company and the Banks, in order to avoid limitations on capital distributions, including dividend payments, engaging in share repurchases and certain discretionary bonus payments to executive officers, must maintain the CCB at the appropriate level.

Community Bank Leverage Ratio

Certain community banks and holding companies (which include the Company, Frankfort First, First Federal of Kentucky and First Federal of Hazard) that satisfy certain qualifying criteria, including having less than $10 billion in average total consolidated assets and a leverage ratio (referred to as the “community bank leverage ratio”) of greater than 9%, were eligible to opt-in to the CBLR framework. The CBLR ratio is the ratio of a banking organization’s Tier 1 capital to its average total consolidated assets as reported on the banking organization’s applicable regulatory filings. The Banks elected to utilize the CBLR framework effective for the quarter ended March 31, 2021. See Note K-Stockholders’ Equity and Regulatory Capital in audited financial statements.

At June 30, 2022, both First Federal of Hazard’s and First Federal of Kentucky’s regulatory capital substantially exceeded all minimum regulatory capital requirements. Management is not aware of any recent event that would cause this classification to change. See Note K-Stockholders’ Equity and Regulatory Capital in the Notes to Financial Statements.

Results of Operations for the Years Ended June 30, 2022 and 2021

General. Net income totaled $1.6 million or $0.19 diluted earnings per share for the year ended June 30, 2022, compared to net income of $1.8 million or $0.22 per common share for the twelve months ended June 30, 2021.

Net income decreased $230,000 or 12.6% year to year primarily due to decreased net interest income, decreased non-interest income and increased income taxes, which were somewhat offset by decreased non-interest expenses and decreased provision for loan losses. Net interest income decreased $851,000 or 8.5% totaling $9.2 million for the year just ended.

Interest Income. Total interest income for the fiscal year ended June 30, 2022 was $10.9 million, a decrease of $1.2 million, or 10.2%, compared to the fiscal year ended June 30, 2021. The decrease in interest income was due primarily to lower average rates earned on interest-earning assets, as well as lower average balances.

Interest income from loans decreased $1.3 million or 11.0% to $10.7 million for the year ended June 30, 2022 due to a decrease in the average rate earned on the portfolio, which decreased 28 basis points to 3.76% for the year just ended, while the average balance of the loan portfolio decreased $12.9 million or 4.4% to $283.3 million for the year just ended. Loans are the largest component of our interest-earning assets and came under pricing pressure until March 2022 when the Federal Open Market Committee began raising the overnight interest rates in an attempt to fight high inflation. During that time we encountered rate competition for existing as well as for new loans in our portfolio, which resulted in a decreased average rate earned on the loan portfolio. In addition to a relatively low interest rate environment in the first nine months of our fiscal year, loans receivable, net, decreased as some borrowers decided to take advantage of high prices and sold all or part of their real estate holdings. Some borrowers sold their properties due to age or death and some loans were lost to competing financial institutions who offered terms that our Banks did not believe were prudent to match.

Interest income from mortgage-backed securities increased $9,000 or 64.3% to $23,000 for the recently ended fiscal year primarily due to a decrease in the volume of assets, as we invested in short-lived mortgage-backed securities to take advantage of higher interest rates available in the latter part of the fiscal year. Interest income from other investment securities decreased $3,000 for the recently ended year. Income from other interest-earning assets increased $76,000 or 48.7% year over year and totaled $232,000 for the recently ended fiscal year.

Interest Expense. Interest expense totaled $1.8 million for the fiscal year ended June 30, 2022, a decrease of $387,000, or 18.1%, from fiscal 2021. The decrease in interest expense resulted primarily from lower average costs of deposits along with lower average balances of interest-bearing liabilities. Interest expense on deposits decreased $324,000 or 18.9% to $1.4 million for the 2022 fiscal year primarily due to a decrease in the average rate paid on those deposits, which decreased 17 basis points to 0.64% for the recently-ended fiscal year. The average balance of deposits increased $8.2 million or 3.9% to $218.6 million for the year just ended. Interest expense on certificates of deposit was primarily responsible for the decrease in interest expense on deposits for the year and was due principally to a decrease in the rate paid on certificates of deposits. The average rate paid on certificates of deposit decreased 26 basis points to 0.85% for the year, while the average balance outstanding decreased $1.0 million or 0.8% to $126.4 million for the recently-ended year. The average balance of savings and interest-bearing demand deposits increased $9.1 million or 14.1% and $81,000 or 0.4%, respectively, totaling $73.7 million and $18.5 million for the 2022 fiscal year, respectively. Interest expense on borrowings decreased $63,000 or 14.7% to $367,000 for the twelve months ended June 30, 2022, primarily due to a decrease in the average balance of FHLB advances outstanding. The average balance of borrowings decreased $7.5 million or 13.8% to $46.8 million for the year just ended rate, while the average rate paid on borrowings decreased one basis point year over year to 0.78% for the recently-ended period.

Net Interest Income. As a result of the aforementioned changes in interest income and interest expense, net interest income before provision for loan losses decreased $851,000 or 8.5% to $9.2 million for the 2022 year. As indicated on the following table, our net interest margin decreased from 3.14% for the 2021 fiscal year to 2.81% for the year just ended. The Banks’ net interest margins began to shrink in response to the accommodative policy begun in March 2021.

Average Balances and Yields. The following table presents information regarding average balances of assets and liabilities, the total dollar amounts of interest income and dividends, the total dollar amount of interest expense and the resulting average yields and costs. The yields and costs for the periods indicated are derived by dividing income or expense by the average balances of assets or liabilities, respectively, for the periods presented. For purposes of this table, average balances have been calculated using the average of daily balances and nonaccrual loans are included in average balances only. We did not hold any non-taxable securities during any of the periods presented in the table.