Forward Looking Statements

This Annual Report on Form 10-K contains 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 include words like "believe," "expect," "intend," "anticipate," "estimate," "project," or future 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-K to reflect future events or developments.

Overview and Management Strategy

Our results of operations depend primarily on our net interest income, which is the difference between interest income on interest-earning assets, which principally consist of loans and investment securities, and interest expense on interest-bearing liabilities, which principally consist of deposits and borrowings. Our results of operations also are affected by the level of our provisions for loan losses, noninterest income and noninterest expenses. Noninterest income consists primarily of service charges on deposit accounts and ATM fees and charges. Noninterest expense consists primarily of salaries and employee benefits, occupancy, equipment, ATM costs, federal deposit insurance premiums and other expenses. Our results of operations may also be affected significantly by general and local economic and competitive conditions, changes in market interest rates, governmental policies and actions of regulatory authorities.

Our strategy continues to focus on operating as an independent financial institution dedicated to serving the needs of customers in our market area, which extends from Southern California to the San Francisco Bay area as a result of our history as a credit union serving the employees of the Kaiser Permanente Medical Care Program. We intend to continue to attract retail deposits, with the goal of expanding the deposit base by building upon the existing market locations. We opened new financial service centers in Los Angeles and Riverside during the 2007 fiscal year as well as Bellflower and Harbor City in fiscal year 2006 as part of this effort. Financial service centers provide all the services of a full service branch but do not dispense or accept cash except through an on-site ATM. By utilizing a "cash-less" branch we are able to reduce personnel costs at the branch and improve our efficiency in the delivery of financial services.

Remote access methods, such as our 56 ATMs, audio response unit, call center, and internet banking / bill payer continue to process over 90% of our customer transactions. Branches and financial service centers strategically located for our markets provide touchstones to attract new account holders and facilitate transactions that cannot be completed electronically.

Historically, a majority of the deposits have been used to originate or purchase one-to-four family residential real estate, multi-family or commercial real estate loans. We anticipate we will continue this practice with greater emphasis on originating multi-family real estate loans. A large percentage of our one-to-four family loan portfolio consists of loans that we have purchased, using our own underwriting standards. However, we have not purchased any

loans since June 2007 as current demand for multi-family or commercial real estate loans has been sufficient to support our growth initiatives.

We have a commitment to our customers, existing and new, to provide high quality service. Our goal is to grow Kaiser Federal Bank while providing cost effective services to our market area.

Recent Developments

Legislative Proposal. The U.S. Treasury Department recently released a legislative proposal that would implement sweeping changes to the current bank regulatory structure. The proposal would create a new federal banking regulator, the National Bank Supervisor, and merge our current primary federal regulator, the OTS, as well as the Office of the Comptroller of the Currency (the primary federal regulator for national banks) into this new federal bank regulator. The proposal would also eliminate federal savings associations and require all federal savings associations, such as Kaiser Federal Bank, to elect, within six months of the effective date of the legislation, to convert to a national bank, state bank or state savings association. A federal savings association that does not make the election would, by operation of law, be converted into a national bank within one year of the effective date of the legislation. The proposal would also require thrift holding companies such as K-Fed Bancorp to be regulated as bank holding companies subject to the regulation and supervision of the Federal Reserve Board. Unlike a bank holding company, a thrift holding company is not required to maintain any minimum level of regulatory capital.

U.S. Treasury's Troubled Asset Relief Program-Capital Purchase Program. On October 3, 2008, Congress enacted the Emergency Economic Stabilization Act of 2008 that provides the U.S. Secretary of the Treasury broad authority to implement certain actions to help restore stability and liquidity to U.S. markets. One of the provisions resulting from the legislation is the Troubled Asset Relief Program Capital Purchase Program, which provides direct equity investment in perpetual preferred stock by the U.S. Treasury Department in qualified financial institutions. The program is voluntary and requires an institution to comply with a number of restrictions and provisions, including limits on executive compensation, stock redemptions and declaration of dividends. After careful consideration and given that the Bank is well capitalized and profitable with strong credit quality the Company elected not to participate.

Federal Deposit Insurance Corporation Coverage/Assessments. The EESA temporarily increased the limit on FDIC coverage for deposits to $250,000 from $100,000 through December 31, 2009 which was recently extended to December 31, 2013. 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. This program, originally set to expire on December 31, 2009, was recently extended to June 30, 2010. 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 June 30, 2009 the Company did not have any non-interest bearing transaction accounts in excess of $250,000. On August 26, 2009, the FDIC extended the program until June 30, 2010. Institutions have until November 2, 2009 to decide whether they will opt out of the extension which takes effect on January 1, 2010. An annualized assessment rate between 15 and 25 basis points on balances in noninterest-bearing transaction accounts that exceed the existing deposit insurance limit of $250,000 will be assessed depending on the institution's risk category. We currently intend to opt into the extension.

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

established by the FDIC at 1.15% to 1.50% of estimated insured deposits. Recent bank failures coupled with deteriorating economic conditions have significantly reduced the deposit insurance fund's reserve ratio. As a result of the reduced reserve ratio, on December 22, 2008, the FDIC published a final rule that raised 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 FDIC issued a final rule that altered the way the FDIC calculates federal deposit insurance assessment rates beginning in the second quarter of 2009 and thereafter.

Under the rule, the Federal Deposit Insurance Corporation first establishes an institution's initial base assessment rate. This initial base assessment rate ranges, 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 are based upon an institution's levels of unsecured debt, secured liabilities, and brokered deposits. The total base assessment rate ranges from 7 to 77.5 basis points of the institution's deposits. Additionally, the Federal Deposit Insurance Corporation on May 22, 2009, issued a final rule that imposed a special 5 basis point assessment on each FDIC-insured depository institution's assets, minus its Tier 1 capital on June 30, 2009, which will be collected on September 30, 2009. The special assessment is capped at 10 basis points of an institution's domestic deposits. Future special assessments could also be assessed. Based upon our review of the Federal Deposit Insurance Corporation's new rule, our FDIC premium assessment for the fourth quarter of fiscal 2009 increased by approximately $460,000, including the special assessment.

Critical Accounting Policies and Estimates

In reviewing and understanding financial information for the Company, you are encouraged to read and understand the significant accounting policies used in preparing our consolidated financial statements.

These policies are described in Note 1 to the consolidated financial statements included in Item 8 of this report and are essential in understanding Management's Discussion and Analysis of Financial Condition and Results of Operation. The accounting and financial reporting policies of the Company conform to U.S. generally accepted accounting principles and to general practices within the banking industry. Accordingly, the consolidated financial statements require certain estimates, judgments, and assumptions, which are believed to be reasonable, based upon the information available. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the periods presented. The following accounting policies comprise those that management believes are the most critical to aid in fully understanding and evaluating our reported financial results.

Allowance for Loan Losses. The allowance for loan losses is established through a provision for loan losses charged to expense. Loans are charged off against the allowance for loan losses when management believes that collectability of the principal is unlikely. Subsequent recoveries, if any, are credited to the allowance.

The allowance is an amount that management believes will absorb probable incurred losses relating to specifically identified loans, as well as probable incurred losses inherent in the balance of the loan portfolio, based on an evaluation of the collectability of existing loans and prior loss experience. This evaluation also takes into consideration such factors as changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans, and current economic conditions that may affect the borrower's ability to pay. This evaluation does not include the effects of expected losses on specific loans or groups of loans that are related to future events or changes in economic conditions. While management uses the best information available to make its evaluation, future adjustments to the allowance may be necessary if there are significant changes in economic conditions. In addition,

regulatory agencies, as an integral part of their examination process, periodically review the allowance for loan losses, and may require adjustments to the allowance based on their judgment about information available to them at the time of their examinations. See "-Business-Asset Quality-Allowance for Loan Losses."

The allowance consists of specific and general components. The specific component relates to loans that are classified as doubtful, substandard, or special mention. For such loans that are also classified as impaired, a specific valuation allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers non-classified loans and is based on historical loss experience adjusted for qualitative factors.

A loan is impaired when it is probable, based on current information and events, the Bank will be unable to collect all contractual principal and interest payments due in accordance with the terms of the loan agreement. Real estate loans are evaluated for impairment based on their past due status and are measured on an individual basis based on the present value of expected future cashflows discounted at the loan's effective interest rate or, as a practical expedient, at the loan's observable market price or the fair value of the collateral if the loan is collateral dependent. The amount of impairment, if any and any subsequent changes are included in the allowance for loan losses.

Large groups of smaller balance homogenous loans are collectively evaluated for impairment. Accordingly, the Bank does not separately identify individual consumer loans or one-to-four family loans that are not 90 days or more past due for impairment disclosures.

Fair Value of Financial Instruments. Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in Note 18 of the Company's consolidated financial statements contained in Item 8. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the estimates.

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

General. Our total assets increased by $45.8 million, or 5.4%, to $895.1 million at June 30, 2009 compared to $849.3 million at June 30, 2008. The increase primarily reflected growth in cash and cash equivalents and interest earning time deposits in other financial institutions. The increase in assets was funded by the increase in deposits.

Loans. Our net loan portfolio increased $4.7 million, or 0.6%, to $746.9 million at June 30, 2009 from $742.2 million at June 30, 2008. This increase was primarily attributable to increases in multi-family residential loans, which increased $64.3 million, or 48.6% to $196.6 million at June 30, 2009 from $132.3 million at June 30, 2008. Additional increases were experienced in commercial real estate loans, which increased $5.3 million, or 4.6% to $121.1 million at June 30, 2009 from $115.8 million at June 30, 2008. These increases were offset by an overall decrease in one-to-four family residential loans of $51.5 million, or 12.0% to $377.2 million at June 30, 2009 from $428.7 million at June 30, 2008. There were also decreases in automobile loans of $10.5 million or 20.1% to $41.8 million at June 30, 2009 from $52.3 million at June 30, 2008. Real estate loans comprised 92.5% of the total loan portfolio at June 30, 2009, compared with 90.8% at June 30, 2008. The decrease in one-to-four family and automobile loans and increase in multi-family loans was due to our focus on originating income producing property loans as a means of diversifying the loan portfolio.

Investments. Our investment portfolio, consisting of available for sale and held to maturity securities (including mortgage-backed securities), decreased $6.2 million, or 39.1% to $9.8 million at June 30, 2009 from $16.0 million at June 30, 2008 due to maturity of existing securities.

Deposits. Total deposits increased $71.1 million, or 14.4%, to $566.2 million at June 30, 2009 from $495.1 million at June 30, 2008 as management believes depositors looked to the safety of banks with strong capital positions. The change was comprised of increases of $30.2 million in money market accounts, $27.2 million in certificates of deposit, $6.9 million in noninterest-bearing demand accounts, and $6.8 million in savings accounts. The increase in money market and certificate of deposit accounts was a result of promotions for these types of accounts as well as depositors looking for the safety of banks with strong capital positions.

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

Stockholders' Equity. Total stockholders' equity increased $2.2 million, or 2.5%, to $92.5 million at June 30, 2009, from $90.3 million at June 30, 2008 primarily as a result of $4.7 million in net income for the year and the allocation of Employee Stock Ownership Plan ("ESOP") shares, stock awards, and stock options earned totaling $1.2 million. This increase was offset in part by cash payments of $1.8 million for the repurchase of shares of common stock and $1.9 million in dividends ($.44 per share) paid to stockholders of record, excluding shares held by K-Fed Mutual Holding Company which waved receipt of its dividend payments. Our equity to assets ratio under accounting principles generally accepted in the United States of America ("GAAP") was 10.3% at June 30, 2009 compared to 10.6% at June 30, 2008.

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

The following table sets forth certain information at June 30, 2009 and for the
fiscal years ended June 30, 2009, 2008 and 2007, respectively. The average
yields and costs are derived by dividing income or expense by the average
balance of assets or liabilities, respectively, for the years presented. Average
balances are derived primarily from month-end balances. Management does not
believe that the use of month-end balances rather than daily average balances
has caused any material differences in the information presented.
                                                                                                             For the year ended June 30,
                               At June 30, 2009                           2009                                           2008                                           2007
                                                        Average                        Average         Average                        Average         Average                        Average
                                  Yield/Cost            Balance       Interest       Yield/Cost        Balance       Interest       Yield/Cost        Balance       Interest       Yield/Cost
Interest-Earning Assets                                                                                         (Dollars in thousands)
Loans receivable (1) (2)                    5.86 %     $  745,870     $  43,706              5.86 %   $  723,953     $  42,582              5.88 %   $  659,186     $  37,379              5.67 %
Securities(3)                               4.55           13,418           606              4.52         24,197         1,085              4.48         33,788         1,365              4.04
Federal funds sold                          0.20           34,930           303              0.87         30,301           873              2.88         31,357         1,604              5.12
Federal Home Loan Bank
stock                                          ?           12,636           314              2.48         11,305           572              5.06          9,111           480              5.27
Interest-earning deposits
in other financial
institutions                                1.20           16,513           244              1.48          3,669           126              3.43          7,996           338              4.23
Total interest-earning
assets                                      5.28          823,367        45,173              5.49        793,425        45,238              5.70        741,438        41,166              5.55
Noninterest earning assets                                 39,018                                         34,400                                         28,439
Total assets                                           $  862,385                                     $  827,825                                     $  769,877

Interest-Bearing
Liabilities
Money market                                1.31 %     $   93,547     $   1,761              1.88 %   $   75,213     $   1,915              2.55 %   $   95,113     $   2,700              2.84 %
Savings deposits                            0.61          122,357         1,091              0.89        127,759         2,112              1.65        116,150         1,925              1.66
Certificates of deposit                     3.17          260,916        10,123              3.88        236,062        10,918              4.63        228,717        10,254              4.48
Borrowings                                  4.00          239,088         9,908              4.14        245,024        10,824              4.42        189,217         8,261              4.37
Total interest-bearing
liabilities                                 2.71          715,908        22,883              3.20        684,058        25,769              3.77        629,197        23,140              3.68
Noninterest bearing
liabilities                                                54,947                                         51,261                                         48,645
Total liabilities                                         770,855                                        735,319                                        677,842
Equity                                                     91,530                                         92,506                                         92,035
Total liabilities and
equity                                                 $  862,385                                     $  827,825                                     $  769,877

Net interest/spread                         2.57 %                    $  22,290              2.29 %                  $  19,469              1.93 %                  $  18,026              1.87 %

Margin(4)                                                                                    2.71 %                                         2.45 %                                         2.43 %

Ratio of interest-earning
assets to interest-bearing

(1) Calculated net of deferred fees, loan loss reserves and includes non-accrual loans.
(2) Interest income includes loan fees of $323,000, $328,000, and $251,000 for the fiscal years ended June 30, 2009, 2008, and 2007, respectively.
(3) Calculated based on amortized cost.
(4) Net interest income divided by interest-earning assets.

Rate/Volume Analysis

The following table presents the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to
(1) changes in volume, which are changes in volume multiplied by the old rate;
(2) changes in rate, which are changes in rate multiplied by the old volume; and
(3) changes in rate/volume, which are the changes in rate times the changes in volume.

                            For the Year Ended June 30,                      For the Year Ended June 30,
                                   2009 vs. 2008                                    2008 vs. 2007
                                Increase (Decrease)                              Increase (Decrease)
                                 Due to changes in                                Due to changes in
                                             Rate/                                            Rate/
                   Volume        Rate       Volume        Net        Volume       Rate        Volume        Net
                                                           (In thousands)
Interest-Earning
Assets
Loans receivable
(1)                $ 1,289     $   (160 )   $    (5 )   $  1,124     $ 3,673     $ 1,393     $    137     $ 5,203
Securities            (483 )          8          (4 )       (479 )      (387 )       150          (43 )      (280 )
Federal funds
sold                   133         (610 )       (93 )       (570 )       (54 )      (701 )         24        (731 )
Federal Home
Loan Bank stock         67         (291 )       (34 )       (258 )       116         (19 )         (5 )        92
Interest-earning
deposits in
other financial
institutions           438          (71 )      (249 )        118        (183 )       (66 )         37        (212 )
Total
interest-earning
assets             $ 1,444     $ (1,124 )   $  (385 )   $    (65 )   $ 3,165     $   757     $    150     $ 4,072

Interest-Bearing
Liabilities
Deposits:
Money market       $   467     $   (499 )   $  (122 )   $   (154 )   $  (565 )   $  (278 )   $     58     $  (785 )
Savings                (89 )       (973 )        41       (1,021 )       192          (5 )          ?         187
Certificates of
deposit              1,150       (1,759 )      (186 )       (795 )       329         324           11         664
  Borrowings          (262 )       (670 )        16         (916 )     2,436          98           29       2,563
Total
interest-bearing
liabilities          1,266       (3,901 )      (251 )     (2,886 )     2,392         139           98       2,629

Change in net
interest
income/spread      $   178     $  2,777     $  (134 )   $  2,821     $   773     $   618     $     52     $ 1,443

(1) Total loans
are net of
deferred fees
and costs.
. . .