Forward-Looking Statements

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

Recent Developments

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

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

The FDIC currently imposes an assessment against institutions for deposit insurance based on the risk category of the institution. Federal law requires that the designated reserve ratio for the deposit insurance fund be establish by the FDIC at 1.15% to 1.50% of estimated insured deposits. Recent bank failures coupled with deteriorating economic conditions have significantly reduced the deposit insurance fund's reserve ratio. As a result of the reduced reserve ratio, on December 22, 2008, the Federal Deposit Insurance Corporation published a final rule that raises the current deposit insurance assessment rates uniformly for all institutions by 7 basis points (to a range from 12 to 50 basis points) effective for the first quarter of 2009. On February 27, 2009, the Federal Deposit Insurance Corporation issued a final rule that would also alter the way the Federal Deposit Insurance Corporation calculates federal deposit insurance assessment rates beginning in the second quarter of 2009 and thereafter.

Under the rule, the Federal Deposit Insurance Corporation would first establish an institution's initial base assessment rate. This initial base assessment rate would range, depending on the risk category of the institution, from 12 to 45 basis points. The Federal Deposit Insurance Corporation would then adjust the initial base assessment (higher or lower) to obtain the total base assessment rate. The adjustments to the initial base assessment rate would be based

upon an institution's levels of unsecured debt, secured liabilities, and brokered deposits. The total base assessment rate would range from 7 to 77.5 basis points of the institution's deposits. Additionally, the Federal Deposit Insurance Corporation issued an interim final rule that would impose a special 20 basis points assessment on June 30, 2009, which would be collected on September 30, 2009. The Federal Deposit Insurance Corporation has indicated that it would reduce the special assessment 10 basis point if Congress expands the FDIC's borrowing authority. Future special assessments could also be assessed.

Federal Home Loan Bank ("FHLB") Stock Dividends. On January 8, 2009 and on April 10, 2009, the FHLB of San Francisco announced that it will not pay a quarterly dividend and will not repurchase excess capital stock on the next regularly scheduled repurchase date. FHLB dividends received by us for the three and nine months ended March 31, 2009 were $0 and $314,000, respectively.

Comparison of Financial Condition at March 31, 2009 and June 30, 2008.

Assets. Cash and cash equivalents increased $18.5 million, or 36.0% to $69.7 million at March 31, 2009 from $51.2 million at June 30, 2008. We also invested $9.0 million in interest earning time deposits in other financial institutions during the period. The increase in cash and interest earning time deposits was a result of an overall increase in liquidity due to increased deposits during the period.

Our investment portfolio decreased $4.2 million, or 26.0% to $11.9 million at March 31, 2009 from $16.0 million at June 30, 2008. The decrease was attributable to maturities and normal repayments of principal on our mortgage-backed securities and collateralized mortgage obligations.

Our gross loan portfolio increased by $10.7 million, or 1.4% to $756.1 million at March 31, 2009 from $745.4 million at June 30, 2008. One-to-four family real estate loans decreased $32.7 million, or 7.6% to $396.0 million at March 31, 2009 from $428.7 million at June 30, 2008. Commercial real estate loans increased $5.8 million, or 5.0% to $121.6 million at March 31, 2009 from $115.8 million at June 30, 2008. Multi-family loans increased $45.5 million, or 34.4% to $177.8 million at March 31, 2009 from $132.3 million at June 30, 2008. Other loans which are comprised primarily of automobile loans decreased $7.9 million, or 11.6% to $60.7 million at March 31, 2009 from $68.6 million at June 30, 2008. Real estate loans comprised 92.0% of the total loan portfolio at March 31, 2009, compared with 90.8% at June 30, 2008. The decrease in one-to-four family loans and increase in multi-family loans was due to our ongoing focus on originating income producing property loans as a means of diversifying the loan portfolio.

Deposits. Total deposits increased $59.2 million or 12.0% to $554.3 million at March 31, 2009 from $495.1 million at June 30, 2008 as depositors look for the safety of banks with strong capital positions. The change was comprised of increases of $23.1 million in money market accounts, $18.7 million in noninterest-bearing demand accounts, $15.5 million in certificates of deposit and $1.9 million in savings accounts. The increase in money market and certificates of deposit accounts was a result of promotions for these types of accounts.

Borrowings. Advances from the FHLB of San Francisco decreased $28.0 million, or 11.9% to $207.0 million at March 31, 2009 from $235.0 million at June 30, 2008. The decline was the result of scheduled advance repayments in August and October 2008 and was funded with available liquidity due to increased deposits.

Stockholders' Equity. Stockholders' equity increased $1.3 million, to $92.0 million at March 31, 2009 from $90.7 million at June 30, 2008 primarily as a result of $3.5 million in net income for the nine months ended March 31, 2009 and the allocation of ESOP shares, stock awards, and stock options earned totaling $856,000. This increase was offset in part by cash payments of $1.8 million for the repurchase of shares of common stock and $1.4 million in dividends ($0.33 per share) paid to stockholders of record for the nine months ended March 31, 2009, excluding shares held by K-Fed Mutual Holding Company which waved receipt of its dividend payments.

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

                                                 For the three months ended March 31,
                                            2009 (1)                              2008 (1)
                                                        Average                               Average
                                 Average                Yield/         Average                Yield/
                                 Balance    Interest     Cost          Balance    Interest     Cost
                                                        (Dollars in thousands)
INTEREST-EARNING ASSETS
Loans receivable(2)             $ 750,189   $  11,059      5.90 %     $ 738,462   $  10,948      5.93 %
Securities(3)                      12,903         146      4.53 %        19,631         224      4.56 %
Federal funds sold                 26,568          13      0.20 %        40,263         268      2.66 %
Federal Home Loan Bank stock       12,649           -      0.00 %        12,257         146      4.76 %
Interest-earning deposits in
other financial institutions       18,380          66      1.44 %             -           -         - %
Total interest-earning
assets                            820,689      11,284      5.50 %       810,613      11,586      5.72 %
Noninterest earning assets         37,401                                33,021
Total assets                    $ 858,090                             $ 843,634

INTEREST-BEARING LIABILITIES
Money market                    $  95,057   $     412      1.73 %     $  74,833   $     446      2.38 %
Savings deposits                  119,071         238      0.80 %       120,037         402      1.34 %
Certificates of deposit           262,251       2,495      3.81 %       233,742       2,727      4.67 %
Borrowings                        232,009       2,333      4.02 %       270,019       2,924      4.33 %
Total interest-bearing
liabilities                       708,388       5,478      3.09 %       698,631       6,499      3.72 %
Noninterest bearing
liabilities                        57,922                                51,372
Total liabilities                 766,310                               750,003
Equity                             91,780                                93,631
Total liabilities and equity    $ 858,090                             $ 843,634
Net interest/spread                         $   5,806      2.41 %                 $   5,087      2.00 %

Margin(4)                                                  2.83 %                                2.51 %

Ratio of interest-earning
assets to interest bearing
liabilities                        115.85 %                              116.03 %

(1) Yields earned and rates paid have been annualized.
(2) Calculated net of deferred fees and loss reserves.
(3) Calculated based on amortized cost.
(4) Net interest income divided by interest-earning assets.

                                                  For the nine months ended March 31,
                                            2009 (1)                              2008 (1)
                                                        Average                               Average
                                 Average                Yield/         Average                Yield/
                                 Balance    Interest     Cost          Balance    Interest     Cost
                                                        (Dollars in thousands)
INTEREST-EARNING ASSETS
Loans receivable(2)             $ 743,877   $  32,678      5.86 %     $ 720,826   $  31,855      5.89 %
Securities(3)                      14,292         485      4.52 %        26,328         882      4.47 %
Federal funds sold                 34,373         285      1.11 %        24,823         598      3.21 %
Federal Home Loan Bank stock       12,632         314      3.31 %        10,952         398      4.85 %
Interest-earning deposits in
other financial institutions       11,707         140      1.59 %         2,937          92      4.18 %
Total interest-earning
assets                            816,881      33,902      5.53 %       785,866      33,825      5.74 %
Noninterest earning assets         36,671                                32,937
Total assets                    $ 853,552                             $ 818,803

INTEREST-BEARING LIABILITIES
Money market                    $  89,211   $   1,384      2.07 %     $  74,391   $   1,484      2.66 %
Savings deposits                  120,494         874      0.97 %       129,172       1,527      1.58 %
Certificates of deposit           257,318       7,840      4.06 %       238,916       8,482      4.73 %
Borrowings                        241,213       7,556      4.18 %       238,525       7,955      4.45 %
Total interest-bearing
liabilities                       708,236      17,654      3.32 %       681,004      19,448      3.81 %
Noninterest bearing
liabilities                        54,059                                44,492
Total liabilities                 762,295                               725,496
Equity                             91,257                                93,307
Total liabilities and equity    $ 853,552                             $ 818,803
Net interest/spread                         $  16,248      2.21 %                 $  14,377      1.93 %

Margin(4)                                                  2.65 %                                2.44 %

Ratio of interest-earning
assets to interest bearing
liabilities                        115.34 %                              115.40 %

(1) Yields earned and rates paid have been annualized.
(2) Calculated net of deferred fees and loss reserves.
(3) Calculated based on amortized cost.
(4) Net interest income divided by interest-earning assets.

Comparison of Results of Operations for the Three Months Ended March 31, 2009 and March 31, 2008.

General. Net income for the three months ended March 31, 2009 was $1.2 million, a decrease of $131,000 as compared to net income of $1.3 million for the three months ended March 31, 2008. Earnings per basic and diluted common share were $0.09 for the three months ended March 31, 2009 compared to $0.10 for the three months ended March 31, 2008.

Interest Income. Interest income decreased by $302,000 or 2.6%, to $11.3 million for the three months ended March 31, 2009 from $11.6 million for the three months ended March 31, 2008. The primary reasons for the decline in interest income were decreases in interest on securities, dividends on FHLB stock and interest on federal funds sold.

Interest income on securities decreased by $78,000 or 34.8%, to $146,000 for the three months ended March 31, 2009 from $224,000 for the three months ended March 31, 2008. The decrease was primarily attributable to a $6.7 million decrease in the average balance of investment securities from $19.6 million for the three months ended March 31, 2008 to $12.9 million for the three months ended March 31, 2009 as a result of maturities and normal repayments of principal on our mortgage-backed securities and collateralized mortgage obligations.

On January 8, 2009, the FHLB of San Francisco announced that it would not pay a dividend for the fourth quarter of 2008. Accordingly we received no dividends for the three months ended March 31, 2009 as compared to $146,000 for the three months ended March 31, 2008. On April 10, 2009 the FHLB of San Francisco announced that it will not pay a dividend for the first quarter of 2009 and will not repurchase excess capital stock on the next regularly scheduled repurchase date.

Other interest income decreased by $189,000 or 70.5% to $79,000 for the three months ended March 31, 2009 from $268,000 for the three months ended March 31, 2008. The decrease was a result of a 246 basis point decline in the average yield earned on federal funds sold from 2.66% for the three months ended March 31, 2008 to 0.20% for the three months ended March 31, 2009. The yield earned on federal funds sold was impacted by the actions taken by the Federal Reserve in lowering the targeted federal funds rate.

Interest Expense. Interest expense decreased $1.0 million or 15.7% to $5.5 million for the three months ended March 31, 2009 from $6.5 million for the three months ended March 31, 2008. The decrease was primarily attributable to a 63 basis point decline in the average cost of interest bearing liabilities from 3.72% for the three months ended March 31, 2008 to 3.09% for the three months ended March 31, 2009 as a result of a general decline in interest rates during the period. The decrease was partially offset by an increase in the average balance of interest-bearing liabilities of $9.8 million from $698.6 million for the three months ended March 31, 2008 to $708.4 million for the three months ended March 31, 2009.

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

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

The appropriateness of the allowance is reviewed and established by management based upon its evaluation of then-existing economic and business conditions affecting our key lending areas and other conditions, such as credit quality trends (including trends in nonperforming loans expected to result from existing conditions), collateral values, loan volumes and concentrations, specific industry conditions within portfolio segments and recent loss experience in particular segments of the portfolio that existed as of the balance sheet date and the impact that such conditions were believed to have had on the collectability of the loan. Significant factors reviewed in determining the allowance

for loan losses included loss ratio trends by loan product and concentrations in geographic regions, interest only loans, stated income loans and loans with credit scores less than a specified amount. The company also reviewed the debt service coverage ratios and seasoning for income property loans. Senior management reviews these conditions quarterly in discussions with our senior credit officers. To the extent that any of these conditions is evidenced by a specifically identifiable problem credit or portfolio segment as of the evaluation date, management's estimate of the effect of such condition may be reflected as a specific allowance applicable to such credit or portfolio segment. Where any of these conditions is not evidenced by a specifically identifiable problem credit or portfolio segment as of the evaluation date, management's evaluation of the loss related to this condition is reflected in the general allowance. The evaluation of the inherent loss with respect to these conditions is subject to a higher degree of uncertainty because they are not identified with specific problem credits or portfolio segments.

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

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

Our provision for loan losses increased to $660,000 for the three months ended March 31, 2009 compared to $200,000 for the three months ended March 31, 2008. The allowance for loan losses as a percent of total loans was 0.57% at March 31, 2009 as compared to 0.42% at March 31, 2008. Net charge-offs totaled $289,000 or 0.15% of average loans for the three months ended March 31, 2009 as compared to $25,000 or 0.01% of average loans for the three months ended March 31, 2008. The increase in provision for loan losses was primarily attributable to an increase in real estate loan delinquencies as well as an increase in loans that were reviewed for impairment. The increase in delinquencies was experienced primarily in our one-to-four family loans as a result of the continued deterioration in the housing market as well as deteriorating general economic conditions and increased unemployment in our market area.

The increase in non-performing loans has impacted the level of the allowance for loan losses at March 31, 2009. Non-performing loans are assessed to determine impairment. Loans that are found to be impaired are individually evaluated and a specific valuation allowance is applied. Accordingly the Company's specific valuation allowance has increased from $334,000 at June 30, 2008 to $1.1 million at March 31, 2009.

Noninterest Income. Our noninterest income decreased $94,000, or 8.3% to $1.0 million for the three months ended March 31, 2009 compared to $1.1 million for the three months ended March 31, 2008. The decrease was primarily the result of a decrease in ATM activity and from non-sufficient funds service charges during the period.

Noninterest Expense. Our noninterest expense increased $290,000, or 7.4% to $4.2 million for the three months ended March 31, 2009 compared to $3.9 million for the three months ended March 31, 2008. The increase was primarily due to a $124,000 increase in ATM expense and a $156,000 increase in other operating expense.

ATM expense increased $124,000, or 38.0% to $450,000 for the three months ended March 31, 2009 from $326,000 for the three months ended March 31, 2008. The increase in ATM expense was primarily due to ATM installations, one-time communication capacity expense, and an increase in ATM fraud losses of $45,000.

Other operating expense increased $156,000, or 37.1% to $576,000 for the three months ended March 31, 2009 from $420,000 for the three months ended March 31, 2008. The increase was primarily attributable to the FDIC imposing additional deposit insurance premium assessments.

Income Tax Expense. Income tax expense was relatively unchanged at $772,000 for the three months ended March 31, 2009 as compared to $766,000 for the three months ended March 31, 2008. The effective tax rate was 39.3% and 36.6% for the three months ended March 31, 2009 and 2008, respectively. The increase in the effective tax rate was attributable to an increase in non-deductible expense related to stock options and stock awards.

Comparison of Results of Operations for the Nine Months Ended March 31, 2009 and March 31, 2008.

General. Net income for the nine months ended March 31, 2009 was $3.5 million, an increase of $809,000 as compared to net income of $2.7 million for the nine months ended March 31, 2008. Earnings per basic and diluted common share were $0.27 for the nine months ended March 31, 2009 compared to $0.20 for the nine months ended March 31, 2008. Net income for the nine months ended March 31, 2008 included $1.3 million in stock offering costs. The recognition of these expenses resulted in a decline of $0.05 per share in basic and diluted earnings per share for the nine months ended March 31, 2008. Excluding the effect of the stock offering costs, the increase in net income was primarily the result of increased net interest income resulting from a lower cost of funds.

Interest Income. Interest income increased by $77,000, or 0.23%, to $33.9 million for the nine months ended March 31, 2009 from $33.8 million for the nine months ended March 31, 2008. Interest and fees on loans increased $823,000, or 2.58%, to $32.7 million for the nine months ended March 31, 2009 from $31.9 million for the nine months ended March 31, 2008. The primary factor for the . . .