NASDAQ: KFFB

General

References
in this Annual Report on Form 10-K to “we,” “us” and “our” refer to Kentucky First, and where appropriate,
collectively to Kentucky First, First Federal of Hazard and First Federal of Kentucky.

Kentucky
First Federal Bancorp. Kentucky First Federal Bancorp (“Kentucky First Federal” or 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 Savings and Loan Association of Hazard (“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 Savings Bank 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, Kentucky First Federal acquired CFK Bancorp, Inc., the savings and loan holding company for Central Kentucky Federal
Savings Bank, a federally chartered savings bank located in Danville, Kentucky. Central Kentucky Federal Savings Bank was merged into
First Federal of Kentucky and now operates as a division of First Federal of Kentucky under the name “Central Kentucky Federal
Savings Bank” through its two offices in Danville, Kentucky and its Lancaster, Kentucky branch. With the acquisition, the Company
expanded its customer base in the central Kentucky area with an institution that shared its community banking orientation and thrift
heritage and enjoyed a favorable reputation within the new Danville-Lancaster market area.

Kentucky
First’s and First Federal of Hazard’s executive offices are located at 655 Main Street, Hazard, Kentucky, 41702 and the telephone
number for investor relations is (888) 818-3372.

1

At
June 30, 2026, Kentucky First had total assets of $362.4 million, deposits of $260.8 million and stockholders’ equity of $50.3
million. The discussion in this Annual Report on Form 10-K relates primarily to the businesses of First Federal of Hazard and First Federal
of Kentucky, as Kentucky First’s operations consist primarily of operating the Banks and investing funds retained in the Reorganization.

First
Federal of Hazard and First Federal of Kentucky are subject to examination and comprehensive regulation by the Office of the Comptroller
of the Currency and their deposits are insured up to applicable limits by the Deposit Insurance Fund, which is administered by the Federal
Deposit Insurance Corporation. Both of the Banks are members of the Federal Home Loan Bank of Cincinnati, which is one of the 11 regional
banks in the FHLB System. See “Regulation and Supervision.”

First
Federal Savings and Loan Association of Hazard. First Federal of Hazard was formed as a federally chartered mutual savings and
loan association in 1960. First Federal of Hazard operates from a single office located at 655 Main Street, Hazard, Kentucky as a community-oriented
savings and loan association offering traditional financial services to consumers in Perry and surrounding counties in eastern Kentucky.
It 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 investment securities, although since the reorganization, First Federal of Hazard has
been purchasing whole loans and participations in loans originated at First Federal of Kentucky. At June 30, 2026, First Federal of Hazard
had total assets of $81.3 million, net loans of $73.1 million, total mortgage-backed and other securities of $2.1 million, deposits of
$56.6 million and total capital of $18.2 million.

First
Federal Savings Bank 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 originating primarily adjustable-rate loans secured by first mortgages
on owner-occupied and nonowner-occupied one- to four-family residences in Franklin, Boyle, Garrard and other counties in Kentucky. First
Federal of Kentucky also originates, to a lesser extent, home equity loans and loans secured by churches, multi-family properties, professional
office buildings and other types of property. At June 30, 2026, First Federal of Kentucky had total assets of $282.6 million, net loans
of $247.4 million, total mortgage-backed and other securities of $8.9 million, deposits of $207.8 million and total capital of $30.1
million.

First
Federal of Kentucky’s main office is located at 216 W. Main Street, Frankfort, Kentucky 40602 and its main telephone number is
(502) 223-1638.

Market
Areas

First
Federal of Hazard and First Federal of Kentucky operate in four market areas.

First
Federal of Hazard’s market area consists of Perry County, where the business office is located, as well as the surrounding counties
of Letcher, Knott, Breathitt, Leslie and Clay Counties in eastern Kentucky. The economy in its market area has been distressed in recent
years. The local economy depends on the coal industry and other industries, such as health care and manufacturing. Still, the economy
in First Federal of Hazard’s market area continues to lag behind the economies of Kentucky and the United States. In the most recent
available data, using information from the Commonwealth of Kentucky Economic Development and the United States Bureau of Labor Statistics,
median household income in Perry County is $46,792 compared to personal income of $64,989 in Kentucky and $82,091 in the United States.
Total population in Perry County is approximately 26,824. However, as a regional economic center, Hazard tends to draw consumers and
workers who commute from surrounding counties. Employment in the market area, particularly in Perry County, is led by healthcare, followed
by retail, education, and public administration. During the last five years, the unemployment rate (not seasonally adjusted) has been
higher than most regions, and in July 2026, was 6.9%, compared to 5.1% in Kentucky and 4.1% in the United States.

First
Federal of Kentucky’s primary lending area includes the Kentucky counties of Franklin, Boyle, Garrard and surrounding counties,
with the majority of lending originated on properties located in Franklin and Boyle Counties.

Franklin
County has a population of approximately 52,605, of which approximately 29,000 live within the city of Frankfort, which serves as the
capital of Kentucky. The primary sources of employment are public administration, education, other services, and health care. The median
household income in Franklin County is $67,709. The unemployment rate is 4.4%

Boyle
County has a population of approximately 31,481. The primary sources of employment are health care, retail, information services, and
manufacturing. The unemployment rate is 5.5% while the median household income in Boyle County is $63,357.

Garrard
County has a population of approximately 18,090. The primary sources of employment are education, health care, retail, and construction.
There is a 5.0% unemployment rate and $62,246 median household income.

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Lending
Activities

General.
Our loan portfolio consists primarily of one- to four-family residential mortgage loans. As opportunities arise, we also offer loans
secured by churches, commercial real estate, and multi-family real estate. We also offer loans secured by deposit accounts and home equity
loans. Substantially all of our loans are made within the Banks’ respective market areas.

Residential
Mortgage Loans. Historically, our primary lending activity is the origination of mortgage loans to enable borrowers to purchase
or refinance existing homes in the Banks’ respective market areas. At June 30, 2026, residential mortgage loans including construction
loans and multi-family totaled $265.8 million, or 82.6%, of our total loan portfolio. We offer a mix of adjustable rate and fixed-rate
mortgages with terms up to 30 years. Other than loans with very short terms, fixed-rate mortgages are originated to be sold on the secondary
market. After the initial term, the rate adjustments on most of our adjustable-rate loans are indexed to the MIRS Transition Index, formerly
known as PMMS+ Index. Loans originated from early 2024 are indexed to the 1-Year Constant Maturity Treasury index, plus a margin. The
interest rates on these mortgages are adjusted once a year. For older loans, the limitation on annual adjustments are mostly at 1.00%
while loans originated since 2024 have an annual limitation of 2.00% per adjustment period. The annual lifetime cap on older loans is
5.00% above the original rate and 6.00% on newer loans, with limitations on adjustments generally of one percentage point per adjustment
period, and a lifetime cap of five percentage points. We determine loan fees charged, interest rates and other provisions of mortgage
loans on the basis of our own pricing criteria and competitive market conditions. Some loans originated by the Banks have an additional
advance clause which allows the borrower to obtain additional funds at prevailing interest rates, subject to management’s approval.

At
June 30, 2026, the Company’s loan portfolio included $244.7 million in adjustable-rate residential mortgage loans, or 92.1% of
the Company’s residential mortgage loan portfolio.

The
retention of adjustable-rate loans in the portfolio helps reduce our exposure to increases in prevailing market interest rates. However,
there are unquantifiable credit risks resulting from potential increases in costs to borrowers in the event of upward repricing of adjustable-rate
loans. It is possible that during periods of rising interest rates, the risk of default on adjustable-rate loans may increase due to
increases in interest costs to borrowers. Further, although adjustable-rate loans allow us to increase the sensitivity of our interest-earning
assets to changes in interest rates, the extent of this interest sensitivity is limited by the initial fixed-rate period before the first
adjustment and the periodic and lifetime interest rate adjustment limitations. Accordingly, there can be no assurance that yields on
our adjustable-rate loans will fully adjust to compensate for increases in our cost of funds. Finally, adjustable-rate loans may decrease
at a pace faster than decreases in our cost of funds, resulting in reduced net income. The Company has attempted to shift direction from
adjustable-rate loans secured by owner-occupied homes. The Company is well-positioned to originate fixed-rate loans secured by owner-occupied
homes for sale into the secondary market. Doing so will free capital and liquidity for potential investment in higher-yielding types
of assets.

While
one- to four-family residential real estate loans are normally originated with up to 30-year terms, such loans typically remain outstanding
for substantially shorter periods because borrowers often prepay their loans in full upon sale of the mortgaged property or upon refinancing
the original loan. Therefore, average loan maturity is a function of, among other factors, the level of purchase and sale activity in
the real estate market, prevailing interest rates and the interest rates payable on outstanding loans.

The
Banks offer various programs for the purchase and refinance of one- to four-family loans. Most of these loans have loan-to-value ratios
of 80% or less, based on an appraisal provided by a state licensed or certified appraiser. For owner-occupied properties, the borrower
may be able to borrow up to 95% of the value if they secure and pay for private mortgage insurance or they may be able to obtain a second
mortgage (at a higher interest rate) in which they borrow up to 90% of the value. The Boards of Directors of the Banks may approve a
loan above the 80% loan-to-value ratio without such enhancements.

Construction
Loans. We originate loans for a term of one year or less to individuals to finance the construction of residential dwellings
for personal use or for use as rental property. On a case-by-case basis we consider construction loans on other than owner-occupied,
residential property. Due to demand in our local markets, we have also increased lending to borrowers who are building homes to sell.
These tend to be established borrowers building one or a few moderately-priced homes. At June 30, 2026 construction loans totaled $11.8
million, or 3.7%, of our total loan portfolio. Our construction loans generally provide for the payment of interest only during the construction
phase, which is usually 9 to 15 months. Loans generally can be made with a maximum loan to value ratio of 80% of the appraised value.
Funds are disbursed as progress is made toward completion of the construction based on site inspections by qualified bank staff or professional
appraisers.

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Construction
financing is generally considered to involve a higher degree of risk of loss than long-term financing on improved, occupied real estate.
Risk of loss on a construction loan depends largely upon the accuracy of the initial estimate of the property’s value at completion
of construction or development and the estimated cost (including interest) of construction. During the construction phase, a number of
factors could result in delays and cost overruns. If the estimate of construction costs proves to be inaccurate, we may be required to
advance funds beyond the amount originally committed to permit completion of the development. If the estimate of value proves to be inaccurate,
we may be confronted, at or before the maturity of the loan, with a project having a value which is insufficient to assure full repayment.
As a result of the foregoing, construction lending often involves the disbursement of substantial funds with repayment dependent, in
part, on the success of the ultimate project rather than the ability of the borrower or guarantor to repay principal and interest. If
we are forced to foreclose on a project before or at completion due to a default, there can be no assurance that we will be able to recover
the unpaid balance and accrued interest on the loan, as well as related foreclosure and holding costs.

Multi-Family
Loans. We offer mortgage loans secured by multi-family property (residential real estate comprised of five or more units.) At
June 30, 2026, multi-family loans totaled $14.0 million, or 4.3%, of our total loan portfolio. We originate multi-family real estate
loans for terms of generally 25 years or less. Loan amounts generally do not exceed 80% of the appraised value and tend to range much
lower.

Nonresidential
Loans. As opportunities arise, we offer mortgage loans secured by nonresidential real estate, which is generally secured by commercial
office buildings, churches, and properties used for other purposes. At June 30, 2026, nonresidential real estate loans totaled $32.8
million, or 10.2% of our total loan portfolio. We originate nonresidential real estate loans for terms of generally 25 years or less
and loan amounts generally do not exceed 80% of the appraised value and tend to range much lower.

Loans
secured by multi-family and nonresidential real estate generally have larger balances and involve a greater degree of risk than one-
to four-family residential mortgage loans. Of primary concern in multi-family and nonresidential real estate lending is the borrower’s
creditworthiness and the feasibility and cash flow potential of the project. Payments on loans secured by income properties often depend
on successful operation and management of the properties. As a result, repayment of such loans may be subject to a greater extent than
residential real estate loans to adverse conditions in the real estate market or the economy. To monitor cash flows on income properties,
we require borrowers and/or loan guarantors to provide annual financial statements on larger multi-family and commercial real estate
loans. In reaching a decision on whether to make a multi-family or nonresidential real estate loan, we consider the net cash flow of
the project, the borrower’s expertise, credit history and the value of the underlying property.

Commercial
Non-mortgage Loans. At June 30, 2026, commercial non-mortgage loans totaled $493,000, or 0.2%, of our total loan portfolio. We
do not emphasize commercial non-mortgage loans, which may be secured by vehicles used in business or by inventory and equipment of the
business or may be unsecured, although we do originate such loans on a limited basis and generally require a pre-existing relationship
with the Bank. These loans are made only to businesses in our local market and we generally require personal guarantees of well-established
individuals for these loans. Commercial loans involve an even greater degree of risk than real estate loans.

Consumer
Lending. Our consumer loans include home equity lines of credit, loans secured by savings deposits, automobile loans and unsecured
or personal loans. At June 30, 2026, our consumer loan balance totaled $18.9 million, or 5.9%, of our total loan portfolio. Of the consumer
loan balance at June 30, 2026, $17.8 million were home equity loans, $488,000 were loans secured by savings deposits and $636,000 were
automobile or unsecured loans. Our home equity loans are made on the security of residential real estate and have terms of up to 15 years.
Most of our home equity loans are second mortgages subordinate only to first mortgages also held by the bank and do not exceed 80% of
the estimated value of the property, less the outstanding principal of the first mortgage, although we do offer home equity loans up
to 90% of the value less the balance of the first mortgage at a premium rate to qualified borrowers. These loans are not secured by private
mortgage insurance. Our home equity loans require the monthly payment of 1.0% to 2.0% of the unpaid principal until maturity, when the
remaining unpaid principal, if any, is due. Home equity loans bear variable rates of interest indexed to the prime rate for loans with
80% or less loan-to-value ratio, and 2% above the prime rate for loans with a loan-to-value ratio in excess of 80%. Interest rates on
these loans can be adjusted monthly. At June 30, 2026, the total outstanding home equity loans amounted to 5.5% of the Company’s
total loan portfolio.

4

Loans
secured by savings are originated for up to 90% of the depositor’s savings account balance. The interest rate is varying percentage
points above the rate paid on the savings account, and the account must be pledged as collateral to secure the loan. At June 30, 2026,
loans on savings accounts totaled 0.2% of the Company’s total loan portfolio.

Consumer
loans generally entail greater risk than do residential mortgage loans, particularly in the case of consumer loans which are unsecured
or secured by rapidly depreciable assets. Automobile and unsecured loans at June 30, 2025, totaled 0.3% of the Company’s total
loan portfolio.

Loan
Originations, Purchases and Sales. Loan originations come from a number of sources. The primary source of loan originations are
our in-house loan originators, and to a lesser extent, advertising and referrals from customers and real estate agents. First Federal
of Kentucky sells fixed-rate loans with longer maturities to the Federal Home Loan Bank of Cincinnati (“FHLB-Cincinnati”).
We earn income on the loans sold through fees we charge on the origination, interest spread premiums earned when we sell the loans, and
loan servicing fees on an on-going basis, because servicing rights are retained on such loans. At June 30, 2026, $36.7 million in loans
were being serviced by First Federal of Kentucky for the FHLB-Cincinnati.

Loan
Approval Procedures and Authority. Our lending activities follow written, nondiscriminatory, underwriting standards and loan
origination procedures established by each Bank’s Board of Directors and management. Each Bank’s loan staff can approve or
deny loans totaling $500,000 or less. First Federal of Hazard’s loan committee consists of its two senior officers, while First
Federal of Kentucky’s loan approval process allows for various combinations of experienced bank officers to approve or deny loans.
Loans that do not conform to this criteria must be submitted to the Board of Directors or Loan Committee composed of at least three directors,
for approval.

It
is the Company’s practice to record a lien on the real estate securing a loan. The Banks generally do not require title insurance,
although it may be required for loans made in certain programs. The Banks do require fire and casualty insurance on all security properties
and flood insurance when the collateral property is located in a designated flood hazard area.

Loans
to One Borrower. The maximum amount either Bank may lend to one borrower and the borrower’s related entities is limited,
by regulation, to generally 15% of that Bank’s stated capital and the allowance for loan losses. At June 30, 2026, the regulatory
limit on loans to one borrower was $2.7 million for First Federal of Hazard and $4.8 million for First Federal of Kentucky. Neither of
the Banks had lending relationships in excess of their respective lending limits. However, loans or participations in loans may be sold
among the Banks, which may allow a borrower’s total loans with the Company to exceed the limit of either individual bank.

Loan
Commitments. The Banks issue commitments for the funding of mortgage loans. Generally, these commitments exist from the time
the underwriting of the loan is completed and the closing of the loan. Generally, these commitments are for a maximum of 30 or 60 days
but management routinely extends the commitment if circumstances delay the closing. Management reserves the right to verify or re-evaluate
the borrower’s qualifications and to change the rates and terms of the loan at that time.

If
conditions exist whereby either Bank experiences a significant increase in loans outstanding or commits to originate loans that are riskier
than a typical one- to four-family mortgage, management and the boards will consider reflecting the anticipated loss exposure in a separate
liability. Upon implementation of ASU 2016-13 or the current expected credit loss (CECL) model at July 1, 2023, the Banks began to utilize
a separate liability to reflect anticipated credit losses on loan commitments. At June 30, 2026, this amount totaled $59,000.

Both
Banks offer construction loans that either have a separate construction period of one year or less, approved with a simultaneous commitment
for permanent financing, or a loan that has a construction phase of one year or less that is convertible to permanent financing.

Interest
Rates and Loan Fees. Interest rates charged on mortgage loans are primarily determined by competitive loan rates offered in our
market areas and our yield objectives. Mortgage loan rates reflect factors such as prevailing market interest rate levels, the supply
of money available to the savings industry and the demand for such loans. These factors are in turn affected by general economic conditions,
the monetary policies of the federal government, including the Board of Governors of the Federal Reserve System, the general supply of
money in the economy, tax policies and governmental budget matters.

We
receive fees in connection with late payments on our loans. Depending on the type of loan and the competitive environment for mortgage
loans, we may charge an origination fee on all or some of the loans we originate. We may also offer a menu of loans whereby the borrower
may pay a higher fee to receive a lower rate or to pay a smaller or no fee for a higher rate.

5

Delinquencies.
When a borrower fails to make a required loan payment, we take a number of steps to have the borrower cure the delinquency and restore
the loan to current status. We make initial contact with the borrower when the loan becomes 15 days past due. Subsequently, bank staff,
under the direct supervision of senior management and with consultation by the Banks’ attorneys, attempt to contact the borrower
and determine their status and plans for resolving the delinquency. However, once a delinquency reaches 90 days, management considers
foreclosure and, if the borrower has not provided a reasonable plan (such as selling the collateral, securing a commitment from another
lender to refinance the loan or submitting a plan to repay the delinquent principal, interest, escrow, and late charges) the foreclosure
suit may be initiated. In some cases, management may delay initiating the foreclosure suit if, in management’s opinion, the Banks’
chance of loss is minimal (such as with loans where the estimated value of the property greatly exceeds the amount of the loan) or if
the original borrower is deceased or incapacitated. If a foreclosure action is initiated and the loan is not brought current, paid in
full, or refinanced with another lender before the foreclosure sale, the real property securing the loan is sold at foreclosure. The
Banks are represented at the foreclosure sale and in most cases will bid an amount equal to the Banks’ investment (including interest,
advances for taxes and insurance, foreclosure costs, and attorney’s fees). If another bidder outbids the Bank, the Bank’s
investment is received in full. If another bidder does not outbid the Banks, the Banks acquire the property and attempt to sell it to
recover their investment.

A
borrower’s filing for bankruptcy can alter the methods available to the Banks to seek collection. In such cases, the Banks work
closely with legal counsel to resolve the delinquency as quickly as possible.

We
may consider loan workout arrangements with certain borrowers under certain conditions. Management of each bank provides a report to
its board of directors on a monthly basis of all loans more than 60 days delinquent, including loans in foreclosure, and all property
acquired through foreclosure.

Investment
Activities

We
have legal authority to invest in various types of liquid assets, including U.S. Treasury obligations, securities of various federal
agencies and state and municipal governments, mortgage-backed securities and certificates of deposit of federally insured institutions.
We also are required to maintain an investment in FHLB-Cincinnati stock, the level of which is largely dependent on our level of borrowings
from the FHLB.

At
June 30, 2026, our investment portfolio consisted of mortgage-backed securities issued and guaranteed by Fannie Mae, Freddie Mac and
Ginnie Mae with stated final maturities of 30 years or less. The Company held no equity position with Fannie Mae or Freddie Mac.

Our
investment objectives are to provide an alternate source of low-risk investments when loan demand is insufficient, to provide and maintain
liquidity, to maintain a balance of high quality, diversified investments to minimize risk, to provide collateral for pledging requirements,
to establish an acceptable level of interest rate risk, and to generate a favorable return. The Banks’ Board of Directors has the
overall responsibility for each institution’s investment portfolio, including approval of investment policies. The management
of each Bank may authorize investments as prescribed in each of the Bank’s investment policies.

Bank
Owned Life Insurance

First
Federal of Kentucky owns several Bank Owned Life Insurance policies totaling $3.1 million at June 30, 2026. The purpose of these policies
is to offset future escalation of the costs of non-salary employee benefit plans such as First Federal of Kentucky’s defined benefit
retirement plan and First Federal of Kentucky’s health insurance plan. The lives of certain key Bank employees are insured, and
First Federal of Kentucky is the sole beneficiary and will receive any benefits upon the employee’s death. The policies were purchased
from four highly-rated life insurance companies. The design of the plan allows for the cash value of the policy to be designated as an
asset of First Federal of Kentucky. The asset’s value will increase by the crediting rate, which is a rate set by each insurance
company and is subject to change on an annual basis. The growth of the value of the asset will be recorded as other operating income.
Management does not foresee any expense associated with the plan. Because this is a life insurance product, current federal tax laws
exempt the income from federal income taxes.

6

Bank
owned life insurance is not secured by any government agency nor are the policies’ asset values or death benefits secured specifically
by tangible property. Great care was taken in selecting the insurance companies, and the bond ratings and financial condition of these
companies are monitored on a quarterly basis. The failure of one of these companies could result in a significant loss to First Federal
of Kentucky. Other risks include the possibility that the favorable tax treatment of the income could change, that the crediting rate
will not be increased in a manner comparable to market interest rates, or that this type of plan will no longer be permitted by First
Federal of Kentucky’s regulators. This asset is considered illiquid because, although First Federal of Kentucky may terminate the
policies and receive the original premium plus all earnings, such an action would require the payment of federal income taxes on all
earnings since the policies’ inception.

Deposit
Activities and Other Sources of Funds

General.
Deposits, loan repayments and maturities, redemptions, sales and repayments of investment and mortgage-backed securities are the
major sources of our funds for lending and other investment purposes. Loan repayments are a relatively stable source of funds, while
deposit inflows and outflows and loan prepayments are significantly influenced by general interest rates and money market conditions.

Deposit
Accounts. The vast majority of our depositors are residents of the Banks’ respective market areas. Deposits are attracted
from within our market areas through the offering of passbook savings and certificate accounts, and, at First Federal of Kentucky, checking
accounts and individual retirement accounts (“IRAs”). We began utilizing brokered funds in June 2023 and had $29.6 million
in such deposits at June 30, 2026. Deposit account terms vary according to the minimum balance required, the time periods the funds must
remain on deposit and the interest rate, among other factors. In determining the terms of our deposit accounts, we consider the rates
offered by our competition, profitability to us, asset liability management and customer preferences and concerns. We review our deposit
mix and pricing on an ongoing basis as needed.

Borrowings.
First Federal of Hazard and First Federal of Kentucky borrow from the FHLB-Cincinnati to supplement their supplies of investable
funds and to meet deposit withdrawal requirements. The Federal Home Loan Bank functions as a central reserve bank providing credit for
member financial institutions. As members, each Bank is required to own capital stock in the FHLB-Cincinnati and is authorized to apply
for advances on the security of such stock and certain of our mortgage loans and other assets (principally securities which are obligations
of, or guaranteed by, the United States), provided certain standards related to creditworthiness have been met. Advances are made under
several different programs, each having its own interest rate and range of maturities. Depending on the program, limitations on the amount
of advances are based either on a fixed percentage of an institution’s net worth or on the Federal Home Loan Bank’s assessment
of the institution’s creditworthiness.

Subsidiary
Activities

The
Company has no other wholly owned subsidiaries other than First Federal of Hazard and Frankfort First Bancorp. Frankfort First Bancorp
has one subsidiary, First Federal of Kentucky.

As
federally chartered savings institutions, the Banks are permitted to invest an amount equal to 2% of assets in subsidiaries, with an
additional investment of 1% of assets where such investment serves primarily community, inner-city and community-development purposes.
Under such limitations, as of June 30, 2026, First Federal of Hazard and First Federal of Kentucky were authorized to invest up to $1.6
million and $5.6 million, respectively, in the stock of or loans to subsidiaries, including the additional 1% investment for community,
inner-city and community development purposes.

Competition

We
face significant competition for the attraction of deposits and origination of loans. Our most direct competition for deposits has historically
come from the banks and credit unions operating in our market areas and, to a lesser extent, from other financial services companies,
such as investment brokerage firms. We also face competition for depositors’ funds from money market funds and other corporate
and government securities. Several of our competitors are significantly larger than us and, therefore, have significantly greater resources.
We expect competition to increase in the future as a result of legislative, regulatory and technological changes and the continuing trend
of consolidation in the financial services industry. Technological advances, for example, have lowered the barriers to enter new market
areas, allowed banks to expand their geographic reach by providing services over the Internet and made it possible for non-depository
institutions to offer products and services that traditionally have been provided by banks. Changes in federal law permit affiliation
among banks, securities firms and insurance companies, which promotes a competitive environment in the financial services industry. Competition
for deposits and the origination of loans could limit our growth in the future.

7

According to the Federal Deposit Insurance Corporation
(“FDIC”), at June 30, 2026, the latest date for which data is available, First Federal of Hazard had a deposit market share
of 6.1% in Perry County. Its largest competitors, Hazard Bancorp (Peoples Bank & Trust Company of Hazard,), Community Trust Bancorp,
Inc. (Community Trust Bank), and 1st Trust Bank, Inc., had Perry County deposit market shares of 43.3%, 26.4% and 19.8%, respectively.
First Federal of Hazard’s competition for loans comes primarily from financial institutions in its market area and, to a lesser
extent, from other financial services providers, such as mortgage companies and mortgage brokers. Competition for loans also comes from
the increasing number of non-depository financial services companies entering the mortgage market, such as insurance companies, securities
companies and specialty finance companies.

First Federal of Kentucky’s principal competitors for deposits in its market area are other banking institutions, such as commercial
banks and credit unions, as well as mutual funds and other investments. First Federal of Kentucky principally competes for deposits by
offering a variety of deposit accounts, convenient business hours and branch locations, customer service and a well-trained staff. According
to the FDIC, at June 30, 2026, First Federal of Kentucky had deposit market share of 9.9%, 6.5% and 10.9% for the Kentucky counties of
Franklin, Boyle and Garrard. Its largest competitors for depositors are the Boyle Bancorp, Inc. (The Farmers National Bank of Danville)
at 25.4%, Wesbanco Bank, Inc. (Wesbanco) at 15.2% and Community Trust Bancorp, Inc., Traditional Bank, Inc, at 7.0%, and (Community Trust
Bank) at 8.3% market share in the three-county area. Boyle Bancorp, Wesbanco, Inc., Traditional Bank, Inc. and Community Trust Bancorp,
Inc. had assets at June 30, 2026, of $1.0 billion, $27.8 billion, $2.4 billion, and $6.9 billion, respectively. The Bank also faces considerable
competition from credit unions including the Commonwealth Credit Union ($2.9 billion in assets) and the Expree Credit Union ($119.1 million
in assets). First Federal of Kentucky competes for loans with other depository institutions, as well as specialty mortgage lenders and
brokers and consumer finance companies. First Federal of Kentucky principally competes for loans on the basis of interest rates and the
loan fees it charges, the types of loans it originates and the convenience and service it provides to borrowers. In addition, First Federal
of Kentucky believes it has developed strong relationships with the businesses, real estate agents, builders and general public in its
market area.

Personnel

At
June 30, 2026, we had 57 full-time employees and two part-time employees, none of whom was represented by a collective bargaining unit.
We believe our relationship with our employees is good.

Regulation
and Supervision

General.
First Federal of Hazard and First Federal of Kentucky are subject to extensive regulation, examination and supervision by the
Office of the Comptroller of the Currency (OCC), as their primary federal regulator, and the Federal Deposit Insurance Corporation (FDIC),
as insurer of deposits. First Federal of Hazard and First Federal of Kentucky are each members of the Federal Home Loan Bank System and
their deposit accounts are insured up to applicable limits by the Deposit Insurance Fund (DIF) of the FDIC. First Federal of Hazard and
First Federal of Kentucky must each file reports with the OCC and the FDIC concerning their activities and financial condition in addition
to obtaining regulatory approvals before entering into certain transactions such as mergers with, or acquisitions of, other financial
institutions. There are periodic examinations by the OCC and, under certain circumstances, the FDIC to evaluate First Federal of Hazard’s
and First Federal of Kentucky’s safety and soundness and compliance with various regulatory requirements. The Board of Governors
of the Federal Reserve System (Federal Reserve Board), the agency that regulates and supervises bank and savings and loan holding companies,
supervises and regulates Kentucky First and First Federal MHC. Kentucky First and First Federal MHC, as savings and loan holding companies,
are required to file certain reports with, and are subject to examination by, and otherwise are required to comply with the rules and
regulations of the Federal Reserve Board. This regulatory structure is intended primarily for the protection of the DIF and depositors.

The
Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act) significantly changed the financial regulatory regime
in the United States. Since the enactment of the Dodd-Frank Act, U.S. banks and financial services firms have been subject to enhanced
regulation and oversight. Several provisions of the Dodd-Frank Act remain subject to further rulemaking, guidance, and interpretation
by the federal banking agencies.

8

Enacted
in 2018, the Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018 (EGRRCPA) amended certain provisions of the Dodd-Frank
Act. EGRRCPA provides limited regulatory relief to certain financial institutions, while preserving the existing framework under which
U.S. financial institutions are regulated. In addition to amending the Dodd-Frank Act, EGRRCPA also includes several provisions that
positively affect smaller banking institutions (e.g., those with less than $10 billion in assets) like the Banks. Specific provisions
of the EGRRCPA that benefit smaller banks include modifications to the “qualified mortgage” criteria under the “ability
to repay” rules for certain mortgages that are held and maintained on the Bank’s retained portfolio as well as relief from
certain capital requirements with the creation of a “community bank leverage ratio.” See “Federal Savings Association
Regulation – Capital Requirements.”

Certain
of the regulatory requirements that are applicable to First Federal of Hazard, First Federal of Kentucky, Kentucky First and First Federal
MHC are described below. This discussion does not purport to be a complete description of the laws and regulations involved and is qualified
in its entirety by the actual laws and regulations. Moreover, laws and regulations are subject to changes by the U.S. Congress or the
regulatory agencies as applicable.

Agreements
with Regulators. On August 13, 2024, First Federal of Kentucky entered into a formal written
agreement (the “Agreement”) with the OCC, which became effective as of the same date.On February 19, 2026, the OCC published
notification that it has terminated the Agreement. As a result of the termination of the Agreement, First Federal of Kentucky is no longer
considered to be in “troubled condition” pursuant to 12 C.F.R. § 5.51(c)(7)(ii) and is an “eligible savings association”
for purposes of 12 C.F.R. § 5.3.

In addition to terminating
the Agreement, the OCC also lifted the individual minimum capital requirements imposed on First Federal of Kentucky in connection
with the Agreement. For additional information, see the Company’s Current Report on Form 8-K filed with the Securities and
Exchange Commission on February 19, 2026. Under the terms of the Agreement, First Federal of Kentucky was required to take the
following actions:

● create
a compliance committee composed of at least three of First Federal of Kentucky’s directors to monitor and oversee First Federal
of Kentucky’s compliance with the provisions of the Agreement and submit quarterly evaluation reports to First Federal of Kentucky’s
board of directors regarding actions First Federal of Kentucky has taken to comply with the Agreement and the results and status of such
actions;

● submit
to the OCC, adopt and implement an acceptable revised written three-year strategic plan establishing objectives for First Federal of
Kentucky’s overall risk profile, balance sheet mix, funding structure, interest rate risk, liquidity and capital adequacy, earnings
performance, and asset and core deposit growth, together with strategies to achieve those objectives;

● submit
to the OCC, adopt and implement an acceptable revised written succession plan for First Federal of Kentucky that is designed to promote
adequate staffing and continuity of capable management;

● adopt
a revised written liquidity risk management program for First Federal of Kentucky that provides for the identification, measurement,
monitoring, and control of First Federal of Kentucky’s liquidity risk exposure, and that emphasizes the importance of cash flow
projections, diversified funding sources, a cushion of highly liquid assets, robust liquidity stress testing scenario analyses, and a
formal, well-developed contingency funding plan as primary tools for measuring and managing liquidity risk; and

● adopt
a revised written interest rate risk program that includes risk management systems to identify, measure, monitor, and control interest
rate risk.

The Agreement required 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.

9

Regulation
of Federal Savings Associations

Business
Activities. Federal law and regulations, primarily the Home Owners’ Loan Act and the regulations of the OCC, govern the
activities of federal savings associations, such as First Federal of Hazard and First Federal of Kentucky. These laws and regulations
delineate the nature and extent of the activities in which federal savings associations may engage. In particular, certain lending authority
for federal savings associations (e.g., commercial, nonresidential real property loans and consumer loans) is limited to a specified
percentage of the association’s capital or assets.

Branching.
Federal savings associations are authorized to establish branch offices in any state or states of the United States and its territories,
subject to the approval of the OCC.

Capital
Requirements. Federal regulations require insured depository institutions, including federal savings associations to meet four
minimum capital standards: a 4.0% Tier 1 leverage ratio; a 4.5% common equity Tier 1 ratio; a 6.0% Tier 1 capital to risk-weighted assets
ratio; and an 8% Total capital to risk-weighted assets ratio. These requirements were effective January 1, 2015, and are the result of
a final rule implementing recommendations of the Basel Committee on Banking Supervision (Basel III) and certain requirements of the Dodd
Frank Act. The regulations also include a “capital conservation buffer” of 2.5% above the regulatory minimum capital requirements,
which must consist entirely of common equity Tier 1 capital and result in the following minimum ratios: (1) a common equity Tier 1 capital
ratio of 7.0%, (2) a Tier 1 capital ratio of 8.5%, and (3) a total capital ratio of 10.5%. The capital conservation buffer requirement
was phased in beginning in January 2016 at 0.625% of risk-weighted assets and increased by that amount each year until fully implemented
in January 2019. An institution will be subject to limitations on paying dividends, engaging in share repurchases and paying discretionary
bonuses if its capital level falls below the buffer amount.

Tier
1 capital is generally defined as common stockholders’ equity (including retained earnings), certain non-cumulative perpetual preferred
stock and related surplus and minority interests in equity accounts of consolidated subsidiaries, less intangibles other than certain
mortgage servicing rights and credit card relationships. The regulations eliminate the inclusion of certain instruments, such as trust
preferred securities, from Tier 1 capital. Instruments issued before May 19, 2010, are grandfathered for companies with consolidated
assets of $15 billion or less. The components of Tier 2 capital currently include cumulative preferred stock, long-term perpetual preferred
stock, mandatory convertible securities, subordinated debt and intermediate preferred stock, the allowance for loan and lease losses
limited to a maximum of 1.25% of risk-weighted assets and up to 45% of unrealized gains on available-for-sale equity securities with
readily determinable fair market values. Overall, the amount of Tier 2 capital included as part of total capital cannot exceed 100% of
core capital. Total capital is defined as core capital and supplementary capital, less certain specified deductions from total capital
such as reciprocal holdings of depository institution capital, instruments and equity investments. For purposes of determining the amount
of risk-weighted assets, all assets, including certain off-balance sheet assets, recourse obligations, residual interests and direct
credit substitutes, are multiplied by a risk-weight factor of 0% to 150%, as assigned by the capital regulation based on the risks believed
inherent in the type of asset.

The
EGRRCPA required the federal banking agencies, including the OCC, to establish a “community bank leverage ratio” (CBLR) for
qualifying community banking organizations having less than $10 billion in average total consolidated assets and a leverage ratio of
greater than 9%. The CBLR is an alternative framework that permits qualifying institutions to calculate a leverage ratio to measure capital
adequacy. Institutions opting into the CBLR framework are not be required to calculate or report risk-based capital and are deemed to
have met the “well capitalized” ratio requirements and be in compliance with the generally applicable capital rule if they
meet the CBLR ratio. 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 federal agencies published a final rule on October
9, 2020, effective November 9, 2020, that set the CBLR at 9% beginning on January 1, 2022. The CARES Act directed the federal banking
agencies to issue an interim rule temporarily lowering the CBLR ratio to 8% which the agencies did with a transition back to 9% by year-ended
2021. The Banks elected to use the CBLR framework effective for the quarter ended March 31, 2020. As of June 30, 2026, the capital levels
of First Federal of Hazard and First Federal of Kentucky exceed the minimum required capital amounts for capital adequacy. See Note J-Stockholders’
Equity and Regulatory Capital in notes to financial statements.

In August 2024, First Federal of Kentucky
entered into an Agreement with the OCC. The OCC has also imposed individual minimum capital requirements (“IMCRs”) which
require First Federal of Kentucky to achieve and maintain capital levels in excess of the minimum capital standards required under
OCC’s Prompt Corrective Action framework. Under the IMCRs, First Federal of Kentucky was required to achieve and 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%. First Federal of Kentucky exceeded the requirements of the IMCRs while they were in
effect. On February 19, 2026, the OCC published a notification that it has terminated the Agreement. As a result of the termination
of the Agreement, First Federal of Kentucky is no longer considered to be in “troubled condition” pursuant to 12 C.F.R.
§ 5.51(c)(7)(ii) and is an “eligible savings association” for purposes of 12 C.F.R. § 5.3. In addition to
terminating the Agreement, the OCC also lifted the individual minimum capital requirements imposed on First Federal of Kentucky in
connection with the Agreement. For additional information, see the Company’s Current Report on Form 8-K filed with the
Securities and Exchange Commission on February 19, 2026.

10

Prompt
Corrective Regulatory Action. Federal law requires the federal banking agencies to take “prompt corrective action”
should an insured depository institution fail to meet certain capital adequacy standards. Prompt corrective action regulations provide
five capital classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically
undercapitalized, although these terms are not used to represent overall financial condition. Under the regulations, an institution is
deemed to be “well capitalized” if it has a total risk-based capital ratio of 10.0% or greater, a Tier 1 risk-based capital
ratio of 8.0% or greater, a leverage ratio of 5.0% or greater and a common equity Tier 1 ratio of 6.5% or greater. An institution is
“adequately capitalized” if it has a total risk-based capital ratio of 8.0% or greater, a Tier 1 risk-based capital ratio
of 6.0% or greater, a leverage ratio of 4.0% or greater and a common equity Tier 1 ratio of 4.5% or greater. An institution is “undercapitalized”
if it has a total risk-based capital ratio of less than 8.0%, a Tier 1 risk-based capital ratio of less than 6.0%, a leverage ratio of
less than 4.0% or a common equity Tier 1 ratio of less than 4.5%. An institution is deemed to be “significantly undercapitalized”
if it has a total risk-based capital ratio of less than 6.0%, a Tier 1 risk-based capital ratio of less than 4.0%, a leverage ratio of
less than 3.0% or a common equity Tier 1 ratio of less than 3.0%. An institution is considered to be “critically undercapitalized”
if it has a ratio of tangible equity (as defined in the regulations) to total assets that is equal to or less than 2.0%.

If
less than adequately capitalized, regulatory approval is required to accept broker deposits. The OCC is required to take certain supervisory
actions against undercapitalized federal savings associations, the severity of which depends upon the association’s degree of undercapitalization.
In addition, numerous mandatory supervisory actions become immediately applicable to an undercapitalized association, including, but
not limited to, increased monitoring by regulators and restrictions on growth, capital distributions and expansion. The OCC could also
take any one of a number of discretionary supervisory actions, including the issuance of a capital directive and the replacement of senior
executive officers and directors. Significantly and undercapitalized associations are subject to additional mandatory and discretionary
measures.

Loans
to One Borrower. Federal law provides that federal savings associations are generally subject to the limits on loans to one borrower
applicable to national banks. Subject to certain exceptions, a federal savings association may not make a loan or extend credit to a
single or related group of borrowers in excess of 15% of its unimpaired capital and surplus. An additional amount may be lent, equal
to 10% of unimpaired capital and surplus, if secured by specified readily-marketable collateral, which generally does not include real
estate.

Standards
for Safety and Soundness. As required by statute, the federal banking agencies have adopted Interagency Guidelines prescribing
Standards for Safety and Soundness. The guidelines set forth the safety and soundness standards that the federal banking agencies use
to identify and address problems at insured depository institutions before capital becomes impaired. If the OCC determines that a federal
savings association fails to meet any standard prescribed by the guidelines, the OCC may require the institution to submit an acceptable
plan to achieve compliance with the standard. If an institution fails to meet these standards, the OCC may require the institution to
implement an acceptable compliance plan. Failure to implement such a plan can result in further enforcement action, including the issuance
of a cease-and-desist order or the imposition of civil money penalties.

Limitation
on Capital Distributions. OCC regulations impose limitations upon all capital distributions by a federal savings association,
including cash dividends, payments to repurchase its shares and payments to shareholders of another institution in a cash-out merger.
Under the regulations, an application to and the prior approval of the OCC is required before any capital distribution if, among other
circumstances the association will not remain an “eligible” savings association (i.e., generally, well capitalized
and with examination and Community Reinvestment Act ratings in the two top categories), the total capital distributions for the calendar
year exceed net income for that year plus the amount of retained net income for the preceding two years, the federal savings association
is directly or indirectly controlled by a mutual savings and loan holding company or the distribution would otherwise be agreement with the OCC. In addition, the federal savings association must provide 30 days prior notice to the Federal
Reserve Board of the capital distribution if, like First Federal of Hazard and First Federal of Kentucky, it is a subsidiary of a holding
company. If First Federal of Hazard’s or First Federal of Kentucky’s capital were ever to fall below its regulatory requirements
or the OCC notified it that it was in need of increased supervision, its ability to make capital distributions could be restricted. In
addition, the OCC could prohibit a proposed capital distribution that would otherwise be permitted by the regulation, if the agency determines
that such distribution would constitute an unsafe or unsound practice.

11

Qualified
Thrift Lender Test. Federal law requires federal savings associations to meet a qualified thrift lender test. Under the test,
a federal savings association is required to either qualify as a “domestic building and loan association” under the Internal
Revenue Code or maintain at least 65% of its “portfolio assets” (total assets less: (i) specified liquid assets up to 20%
of total assets; (ii) intangibles, including goodwill; and (iii) the value of property used to conduct business) in certain “qualified
thrift investments” (primarily residential mortgages and related investments, including certain mortgage-backed securities, education
loans, credit card loans and small business loans) in at least 9 months out of each 12-month period.

A
savings association that fails the qualified thrift lender test is immediately subject to certain operating restrictions, including restrictions
on new activities, branching and the payment of dividends. The Dodd-Frank Act also specifies that failing the qualified thrift lender
test is a violation of law that could result in an enforcement action. Failure to correct the violation within 12 months will cause the
association’s savings and loan holding company to register as and be deemed a bank holding company. At June 30, 2026, First Federal
of Hazard and First Federal of Kentucky were in compliance with the qualified thrift lender test in each of the prior 12 months.

Transactions
with Related Parties. Federal law limits the authority of First Federal of Hazard and First Federal of Kentucky to lend to, and
engage in certain other transactions (collectively, “covered transactions”), with “affiliates” (e.g.,
any company that controls or is under common control with an insured depository institution, including Kentucky First, First Federal
MHC and their non-savings institution subsidiaries). The aggregate amount of covered transactions with any individual affiliate is limited
to 10% of the capital and surplus of the savings association. The aggregate amount of covered transactions with all affiliates is limited
to 20% of the savings association’s capital and surplus. Loans and other specified transactions with affiliates are required to
be secured by collateral in an amount and of a type described in federal law. The purchase of low-quality assets from affiliates is generally
prohibited. Transactions with affiliates must be on terms and under circumstances that are at least as favorable to the association as
those prevailing at the time for comparable transactions with non-affiliated companies. In addition, savings associations are prohibited
from lending to any affiliate that is engaged in activities that are not permissible for bank holding companies and no federal savings
association may purchase the securities of any affiliate other than a subsidiary. Transactions between sister depository institutions
that are 80% or more owned by the same holding company are exempt from the quantitative limits and collateral requirements.

The
Sarbanes-Oxley Act of 2002 generally prohibits a company from making loans to its executive officers and directors. However, that law
contains a specific exception for loans by a depository institution to its executive officers and directors in compliance with federal
banking laws. Under such laws, First Federal of Hazard’s and First Federal of Kentucky’s authority to extend credit to executive
officers, directors and 10% shareholders (“insiders”), as well as entities such persons control, is limited. The law restricts
both the individual and aggregate amount of loans First Federal of Hazard and First Federal of Kentucky may make to insiders based, in
part, on First Federal of Hazard’s and First Federal of Kentucky’s respective capital positions and requires certain board
approval procedures to be followed. Such loans must be made on terms, including rates and collateral, substantially the same as, and
follow credit underwriting procedures that are not less stringent than, those prevailing for comparable transactions with unaffiliated
persons and that do not involve more than the normal risk of repayment or any other unfavorable features. There are additional restrictions
applicable to loans to executive officers.

Enforcement.
The OCC has primary enforcement responsibility over federal savings associations and has the authority to bring actions against
the institution and all institution-affiliated parties, including stockholders, and any attorneys, appraisers and accountants who knowingly
or recklessly participate in wrongful action likely to have an adverse effect on an insured institution. Formal enforcement actions may
range from the issuance of a capital directive or cease and desist order to removal of officers and/or directors to appointment of a
receiver or conservator or termination of deposit insurance. Civil penalties cover a wide range of violations and can amount to $25,000
per day, or even $1 million per day in especially egregious cases. The FDIC has authority to recommend to the OCC that enforcement action
to be taken with respect to a particular savings association. If action is not taken by the OCC, the FDIC has authority to take such
action under certain circumstances. Federal law also establishes criminal penalties for certain violations of law.

Assessments.
Federal savings associations pay assessments to the OCC to fund its operations. The general assessments, paid on a semi-annual
basis, are based upon the savings association’s total assets, including consolidated subsidiaries, its financial condition and
the complexity of its portfolio. During the current year, our assessments totaled $59,000.

12

Insurance
of Deposit Accounts. The deposits of both First Federal of Hazard and First Federal of Kentucky are insured up to applicable
limits by the DIF administered by the FDIC. Deposit insurance per account owner is currently $250,000. Under the FDIC’s risk-based
assessment system, insured depositories are assigned a risk category based on supervisory evaluations, regulatory capital levels and certain
other factors. An institution’s assessment rate depends upon the category to which it is assigned, and certain adjustments specified
by FDIC regulations. Institutions deemed less risky pay lower assessments. The FDIC may adjust the scale uniformly, except that no adjustment
can deviate more than two basis points from the base scale without notice and comment. No institution may pay a dividend if in default
of the federal deposit insurance assessment. Assessment rates currently range from 1.5 to 30 basis points of total average assets less
average tangible equity.

The
FDIC has authority to increase insurance assessments. A significant increase in insurance premiums would likely have an adverse effect
on the operating expenses and results of operations of the Banks. Management cannot predict what insurance assessment rates will be in
the future.

Federal
Home Loan Bank System. First Federal of Hazard and First Federal of Kentucky are members of the Federal Home Loan Bank System,
which consists of 11 regional Federal Home Loan Banks. The Federal Home Loan Bank provides a central credit facility primarily for member
institutions. As members of the Federal Home Loan Bank of Cincinnati, First Federal of Hazard and First Federal of Kentucky are each
required to acquire and hold shares of capital stock in that Federal Home Loan Bank. First Federal of Hazard and First Federal of Kentucky
were in compliance with this requirement with investments in Federal Home Loan Bank of Cincinnati stock at June 30, 2026, of $521,000
and $3.4 million, respectively.

Reserve
Requirements. Federal Reserve Board regulations require insured depository institutions to maintain non-interest earning reserves
against their transaction accounts (primary interest-bearing and regular checking accounts). Required reserves must be in the form of
vault cash and if vault cash does not fully satisfy the required reserves, requirements may be satisfied in the form of a balance maintained
with the appropriate Federal Reserve Bank. The Federal Reserve Board generally makes annual adjustments to the tiered cash reserve requirements,
however, effective March 26, 2020, the reserve requirement was set to zero for all depository institutions.

Community
Reinvestment Act. All insured depository institutions, including federal savings associations have a continuing and affirmative
obligation consistent with safe and sound operation to help meet the credit needs of their entire community, including low and moderate
income neighborhoods. The Community Reinvestment Act does not establish specific lending requirements or programs, nor does it limit
an institution’s discretion to develop the types of products and services that it believes are best suited to its particular community
consistent with the Community Reinvestment Act. The Community Reinvestment Act requires the OCC, in connection with its examination of
a savings association, to assess the association’s record of meeting the credit needs of its community and to take such record
into account in its evaluation of certain applications made by such association, including applications for mergers and acquisitions,
and applications to open, relocate or close a branch or facility.

The
Community Reinvestment Act requires public disclosure of an institution’s rating and requires the OCC to provide a written evaluation
of an institution’s Community Reinvestment Act performance utilizing a four-tiered descriptive rating system. First Federal of
Hazard and First Federal of Kentucky each received a “Satisfactory” rating as a result of their most recent Community Reinvestment
Act assessments.

Privacy
Standards. The Banks are subject to FDIC regulations regarding the privacy protection provisions of the Gramm-Leach-Bliley
Act. These regulations require each of the Banks to disclose its privacy policy, including identifying with whom it shares “non-public
personal information” to customers at the time of establishing the customer relationship and annually thereafter. The regulations
also require each of the Banks to provide its customers with initial notices that accurately reflect its privacy policies and practices,
to make its privacy policies available to customers through its website, and to provide its customers with the ability to “opt-out”
of having the Bank share their non-public personal information with unaffiliated third parties before it can disclose such information,
subject to certain exceptions.

Cybersecurity. In
addition to the provisions in the Gramm-Leach-Bliley Act (discussed above), the Company and its subsidiaries are subject to many federal
and state laws, regulations and regulatory interpretations which impose standards and requirements related to cybersecurity. For example,
federal regulatory statements regarding cybersecurity indicates that financial institutions should design multiple layers of security
controls to establish lines of defense and to ensure that their risk management processes address the risk posed by compromised customer
credentials, including security measures to reliably authenticate customers accessing internet-based services of the financial institution.
Additionally, the statements indicate that a financial institution’s management is expected to maintain sufficient business continuity
planning processes to ensure the rapid recovery, resumption and maintenance of the institution’s operations after a cyber-attack
involving destructive malware. A financial institution is also expected to develop appropriate processes to enable recovery of data and
business operations and address rebuilding network capabilities and restoring data if the institution or its critical service providers
fall victim to this type of cyber-attack. Financial institutions that fail to observe this regulatory guidance on cybersecurity may be
subject to various regulatory sanctions, including financial penalties.

13

Anti-Money
Laundering and OFAC. Under federal law, financial institutions must maintain anti-money laundering programs that include
established internal policies, procedures, and controls. Financial institutions are also prohibited from entering into specified financial
transactions and account relationships and must meet enhanced standards for due diligence and customer identification. Financial institutions
must take reasonable steps to conduct enhanced scrutiny of account relationships to guard against money laundering and to report any
suspicious transactions. Law enforcement authorities have been granted increased access to financial information maintained by financial
institutions. Bank regulators routinely examine institutions for compliance with these obligations and they consider an institution’s
compliance in connection with the regulatory review of applications, including applications for banking mergers and acquisitions. The
U.S. Department of the Treasury’s Office of Foreign Assets Control, or “OFAC,” is responsible for helping to ensure
that U.S. entities do not engage in transactions with certain prohibited parties, as defined by various Executive Orders and Acts of
Congress. OFAC publishes lists of persons, organizations, and countries suspected of aiding, harboring or engaging in terrorist acts,
known as Specially Designated Nationals and Blocked Persons. If the Bank finds a name on any transaction, account or wire transfer that
is on an OFAC list, the Bank must freeze or block such account or transaction, file a suspicious activity report and notify the appropriate
authorities. The U.S. Treasury Department’s Financial Crises Enforcement Network rules include customer due diligence requirements
for banks, including a requirement to identify and verify the identity of beneficial owners of customers that are legal entities, subject
to certain exclusions and exemptions.

Prohibitions
Against Tying Arrangements. Federal savings associations are prohibited, subject to some exceptions, from extending credit
to or offering any other service, or fixing or varying the consideration for such extension of credit or service, on the condition that
the customer obtain some additional service from the institution or its affiliates or not obtain services of a competitor of the institution.

Other
Regulations. Interest and other charges collected or contracted for by First Federal of Hazard and First Federal of Kentucky
are subject to state usury laws and federal laws concerning interest rates. The operations of First Federal of Hazard and First Federal
of Kentucky are also subject to federal laws applicable to credit transactions, such as the:

● Truth-In-Lending
Act, governing disclosures of credit terms to consumer borrowers;

● Equal
Credit Opportunity Act, prohibiting discrimination on the basis of race, creed or other prohibited factors in extending credit;

● Fair
Credit Reporting Act, governing the use and provision of information to credit reporting agencies;

● Fair
Debt Collection Act, governing the manner in which consumer debts may be collected by collection agencies;

●
Truth in Savings Act, prescribing
disclosure and advertising requirements with respect to deposit accounts; and

●
Rules and regulations of
the various federal agencies charged with the responsibility of implementing such federal laws.

The
operations of First Federal of Hazard and First Federal of Kentucky also are subject to the:

●
Right to Financial Privacy
Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with
administrative subpoenas of financial records;

●
Electronic Funds Transfer
Act and Regulation E promulgated thereunder, which govern automatic deposits to and withdrawals from deposit accounts and customers’
rights and liabilities arising from the use of automated teller machines and other electronic banking services;

●
Check Clearing for the
21st Century Act (also known as “Check 21”), which gives “substitute checks,” such as digital check images
and copies made from that image, the same legal standing as the original paper check; and

●
The USA PATRIOT Act, which
requires savings associations to, among other things, establish broadened anti-money laundering compliance programs, and due diligence
policies and controls to ensure the detection and reporting of money laundering. Such required compliance programs are intended to
supplement existing compliance requirements that also apply to financial institutions under the Bank Secrecy Act and the Office of
Foreign Assets Control regulations.

Holding
Company Regulation

General.
Kentucky First and First Federal MHC are savings and loan holding companies within the meaning of federal law. As such, they
are registered with the Federal Reserve Board and are subject to Federal Reserve Board regulations, examinations, supervision, reporting
requirements and regulations concerning corporate governance and activities. In addition, the Federal Reserve Board has enforcement authority
over Kentucky First and First Federal MHC and their non-savings association subsidiaries. Among other things, this authority permits
the Federal Reserve Board to restrict or prohibit activities that are determined to be a serious risk to First Federal of Hazard and/or
First Federal of Kentucky.

14

Restrictions
Applicable to Mutual Holding Companies. Federal law and Federal Reserve Board regulations, limit the activities of a mutual holding
company, such as First Federal MHC, to the following: (1) investing in the stock of insured savings association and acquiring them by
means of a merger or acquisition; (2) investing in a corporation the capital stock of which may be lawfully purchased by a savings association
under federal law; (3) furnishing or performing management services for a savings association subsidiary of a savings and loan holding
company; (4) conducting an insurance agency or escrow business; (5) holding, managing or liquidating assets owned or acquired from
a savings association subsidiary of the savings and loan holding company; (6) holding or managing properties used or occupied by a savings
association subsidiary of the savings and loan holding company; (7) acting as trustee under deed of trust; (8) any activity permitted
for multiple savings and loan holding companies by Federal Reserve Board regulations and; (9) any activity permitted by the Federal Reserve
Board for bank holding companies and financial holding companies.

Federal
law prohibits a savings and loan holding company, including a federal mutual holding company, from directly or indirectly, or through
one or more subsidiaries, acquiring more than 5% of the voting stock of another savings association, or its holding company, without
prior written approval of the Federal Reserve Board. Federal law also prohibits a savings and loan holding company from acquiring or
retaining control of a depository institution that is not insured by the FDIC. In evaluating applications by holding companies to acquire
savings associations, the Federal Reserve Board must consider the financial and managerial resources and future prospects of the company
and institution involved, the effect of the acquisition on the risk to the insurance funds, the convenience and needs of the community
and competitive factors.

The
Federal Reserve Board is prohibited from approving any acquisition that would result in a multiple savings and loan holding company controlling
savings associations in more than one state, except: (1) the approval of interstate supervisory acquisitions by savings and loan
holding companies, and (2) the acquisition of a savings institution in another state if the laws of the state of the target savings
association specifically permit such acquisitions. The states vary in the extent to which they permit interstate savings and loan holding
company acquisitions.

Capital
Requirements. Savings and loan holding companies are generally subject to consolidated capital requirements. The Federal Reserve
Board has provided a “Small Bank Holding Company” exception to its consolidated capital requirements, and EGRRCP directed
the Federal Reserve Board to increase the asset threshold for the exception to $3.0 billion, which was done in 2018. Consequently, savings
and loan holding companies of less than $3.0 billion of assets, such as First Federal, MHC and Kentucky First, are exempt from consolidated
capital requirements unless otherwise directed by the Federal Reserve Board individually.

Source
of Strength. Federal Reserve Board regulations require savings and loan holding companies to act as a source of financial and
managerial strength to their subsidiary savings associations. The Dodd-Frank Act codified the requirement that savings and loan holding
companies act as a source of financial strength to their insured depository institution subsidiaries. As a result, savings and loan holding
companies are expected to commit resources to support subsidiary savings associations, including at times when the savings and loan holding
company may not be in a financial position to provide such resources.

Dividends.
The Federal Reserve Board has issued a policy statement on the payment of cash dividends by bank holding companies, which expressed
the Federal Reserve Board’s view that a bank holding company should pay cash dividends only to the extent that the company’s
net income for the past year is sufficient to cover both the cash dividends and a rate of earnings retention that is consistent with the
company’s capital needs, asset quality and overall financial condition. The Federal Reserve Board also indicated that it would
be inappropriate for a company experiencing serious financial problems to borrow funds to pay dividends. Furthermore, under the prompt
corrective action regulations, the Federal Reserve Board may prohibit a bank holding company from paying any dividends if the holding
company’s insured depository institution subsidiary is classified as “undercapitalized.” See “Federal Savings
Association Regulation – Prompt Corrective Regulatory Action.”

Stock
Holding Company Subsidiary Regulation. Federal Reserve Board regulations govern the two-tier mutual holding company form of organization
and subsidiary stock holding companies that are controlled by mutual holding companies. Kentucky First is the stock holding company subsidiary
of First Federal MHC. Kentucky First is only permitted to engage in activities that are permitted for First Federal MHC subject to the
same restrictions and conditions.

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Waivers of Dividends by First Federal MHC.
Federal Reserve Board regulations require First Federal MHC to notify the Federal Reserve Board if it proposes to waive the right
to receive dividends declared by Kentucky First. The Dodd-Frank Act specified that dividends may be waived if certain conditions are met,
including that the Federal Reserve Board does not object after being given written notice of the dividend and proposed waiver. The Federal
Reserve Board may not object to such a waiver (i) if the mutual holding company involved has, prior to December 1, 2009, reorganized into
a mutual holding company structure, engaged in a minority stock offering and waived dividends it had a right to receive; (ii) the board
of directors of the mutual holding company expressly determines that a waiver of the dividend is consistent with its fiduciary duties
to members and (iii) the waiver would not be detrimental to the safe and sound operation of the savings association subsidiaries of the
holding company. Beginning with the dividend paid in September 2012, First Federal MHC has annually sought member approval to obtain Federal
Reserve Board approval to waive the MHC’s dividends from the Company. In January 2024, the Company announced that dividends to shareholders
would be suspended indefinitely, and that First Federal MHC had suspended efforts to seek member approval to obtain the dividend waiver
in the coming year. On July 28, 2026, , the Company’s Board of Directors announced the resumption of the dividend and declared a
cash dividend of $0.05 per share payable on September 21, 2026. For more information, see Item 1A, “Risk Factors – Our
ability to pay dividends is subject to the ability of First Federal of Hazard and First Federal of Kentucky to make capital distributions
to Kentucky First and the waiver of dividends by First Federal MHC.”

Conversion
of First Federal MHC to Stock Form. Federal Reserve Board regulations permit First Federal MHC to convert from the mutual form
of organization to the capital stock form of organization. In a conversion transaction, a new holding company would be formed as successor
to First Federal MHC, its corporate existence would end, and certain depositors would receive the right to subscribe for additional shares
of the new holding company. In a conversion transaction, each share of common stock held by stockholders other than First Federal MHC
would be automatically converted into a number of shares of common stock of the new holding company based on an exchange ratio determined
at the time of conversion that ensures that stockholders other than First Federal MHC own the same percentage of common stock in the
new holding company as they owned in us immediately before conversion. Under Federal Reserve Board regulations, stockholders other than
First Federal MHC would not be diluted because of any dividends waived by First Federal MHC (and waived dividends would not be considered
in determining an appropriate exchange ratio, provided that the mutual holding company involved was formed, engaged in a minority offering
and waived dividends prior to December 1, 2009), in the event First Federal MHC converts to stock form. First Federal MHC was formed,
engaged in a minority stock offering and waived dividends prior to December 1, 2009. The total number of shares held by stockholders
other than First Federal MHC after a conversion transaction also would be increased by any purchases by stockholders other than First
Federal MHC in the stock offering conducted as part of the conversion transaction.

Acquisition
of Control. Under the federal Change in Bank Control Act, a notice must be submitted to the Federal Reserve Board if any person
(including a company), or group acting in concert, seeks to acquire “control” of a savings and loan holding company or savings
association. An acquisition of “control” can occur upon the acquisition of 10% or more of the voting stock of a savings and
loan holding company or savings association or as otherwise defined by the Federal Reserve Board. Under the Change in Bank Control Act,
the Federal Reserve Board has 60 days from the filing of a complete notice to act, taking into consideration certain factors, including
the financial and managerial resources of the acquirer and the anti-trust effects of the acquisition. Any company that so acquires control
would then be subject to regulation as a savings and loan holding company.

Future
Legislation. Federal and state legislatures may introduce legislation that will impact the financial services industry. In addition,
federal banking agencies may introduce regulatory initiatives that are likely to impact the financial services industry, generally. Such
initiatives may include proposals to expand or contract the powers of savings and loan holding companies and/or depository institutions
or proposals to substantially change the financial institution regulatory system. Such legislation could change banking statutes and
the operating environment of the Company in substantial and unpredictable ways. If enacted, such legislation could increase or decrease
the cost of doing business, limit or expand permissible activities, or affect the competitive balance among banks, savings associations,
credit unions, and other financial institutions. The Company cannot predict whether any such legislation will be enacted, or, if enacted,
the effect that it or any implementing regulations would have on the financial condition or results of operations of the Company. A change
in statutes, regulations, or regulatory policies applicable to Kentucky First or any of its subsidiaries could have a material effect
on the business of the Company.

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Federal
and State Taxation

General.
We report our income on a fiscal year basis using the cash method of accounting. See Note H-Federal Income Taxes in the Notes
to Consolidated Financial Statements for a description of the change in accounting method available through the Tax Cuts and Jobs Act.

Federal
Taxation. The federal income tax laws apply to us in the same manner as to other corporations with some exceptions, including
particularly the reserve for bad debts discussed below. The following discussion of tax matters is intended only as a summary and does
not purport to be a comprehensive description of the tax rules applicable to us. Our federal income tax returns are subject to examination
for years 2019 and later. The federal statutory tax rate was 21% for the fiscal years ended June 30, 2026 and 2025.

On
December 22, 2017, the Tax Cuts and Jobs Act was enacted, which amended the Internal Revenue Code of 1986, reducing tax rates and
modifying certain policies, credits, and deductions for individuals and businesses. Included in this legislation was a reduction of the
federal corporate income tax rate from 35% to 21%. The Tax Cuts and Jobs Act also added limitations on the deductibility of business
interest expense. While this limitation should not impact the deductibility of the Company’s interest expense, the limitation could
impact our commercial borrowers. The Tax Cuts and Jobs Act also includes changes to personal income taxes, including: (i) a lower
limit on the deductibility of mortgage interest on single-family residential mortgages; (ii) the elimination of interest deductions for
home equity loans; and (iii) a limitation on the deductibility of property taxes and state and local income taxes.

For
fiscal years beginning before June 30, 1996, thrift institutions that qualified under certain definitional tests and other conditions
of the Internal Revenue Code were permitted to use certain favorable provisions to calculate their deductions from taxable income for
annual additions to their bad debt reserve. A reserve could be established for bad debts on qualifying real property loans, generally
secured by interests in real property improved or to be improved, under the percentage of taxable income method or the experience method.
The reserve for nonqualifying loans was computed using the experience method. Federal legislation enacted in 1996 repealed the reserve
method of accounting for bad debts and the percentage of taxable income method for tax years beginning after 1995 and require savings
institutions to recapture or take into income certain portions of their accumulated bad debt reserves. First Federal of Hazard did not
qualify for such favorable tax treatment for any years through 1996. Approximately $5.2 million of First Federal of Kentucky’s accumulated bad debt reserves would not be recaptured into taxable income unless Frankfort First makes a “non-dividend distribution”
to Kentucky First as described below. If First Federal of Hazard or First Federal of Kentucky makes “non-dividend distributions”
to us, the distributions will be considered to have been made from First Federal of Hazard’s and First Federal of Kentucky’s
unrecaptured tax bad debt reserves, including the balance of their reserves as of December 31, 1987, to the extent of the “non-dividend
distributions,” and then from First Federal of Kentucky’s supplemental reserve for losses on loans, to the extent of those
reserves, and an amount based on the amount distributed, but not more than the amount of those reserves, will be included in First Federal
of Kentucky’s taxable income. Non-dividend distributions include distributions in excess of First Federal of Kentucky’s current
and accumulated earnings and profits, as calculated for federal income tax purposes, distributions in redemption of stock, and distributions
in partial or complete liquidation. Dividends paid out of First Federal of Kentucky’s current or accumulated earnings and profits
will not be so included in First Federal of Kentucky’s taxable income.

The
amount of additional taxable income triggered by a non-dividend distribution is an amount that, when reduced by the tax attributable
to the income, is equal to the amount of the distribution. Therefore, if First Federal of Kentucky makes a non-dividend distribution
to us, approximately one and one-half times the amount of the distribution not in excess of the amount of the reserves would be includable
in income for federal income tax purposes, assuming a 21% federal corporate income tax rate. First Federal of Kentucky does not intend
to pay dividends in the future that would result in a recapture of any portion of its bad debt reserves.

State
Taxation. Although First Federal MHC and Kentucky First are subject to the Kentucky corporation income tax and state corporation
license tax (franchise tax), the corporation license tax is repealed effective for tax periods ending on or after December 31, 2005.
Gross income of corporations subject to Kentucky income tax is similar to income reported for federal income tax purposes except that
dividend income, among other income items, is exempt from taxation. For First Federal MHC and Kentucky First tax years beginning July
1, 2005, the corporations are subject to an alternative minimum income tax. Corporations must pay the greater of the income tax, the
alternative tax or $175. The corporations can choose between two methods to calculate the alternative minimum; 9.5 cents per $100 of
the corporation’s gross receipts, or 75 cents per $100 of the corporation’s Kentucky gross profits. Kentucky gross profits
means Kentucky gross receipts reduced by returns and allowances attributable to Kentucky gross receipts, less Kentucky cost of goods
sold. The corporations, in their capacity as holding companies for financial institutions, do not have a material amount of cost of goods
sold. Although the corporate license tax rate is 0.21% of total capital employed in Kentucky, a bank holding company, as defined in Kentucky
Revised Statutes 287.900, is allowed to deduct from its taxable capital, the book value of its investment in the stock or securities
of subsidiaries that are subject to the bank franchise tax.

First
Federal of Hazard and First Federal of Kentucky are subject to both the Kentucky corporation income tax and corporation license tax.
On March 26, 2019, HB 354 was enacted which sunsets the Savings and Loan Tax after 2020 and subjects financial institutions to the corporate
income tax beginning January 1, 2021. Effective January 1, 2021, the Savings and Loan Tax no longer applies to financial institutions.

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