KBRA assigns a senior unsecured debt rating of BBB, a subordinated debt rating of BBB-, and a short-term debt rating of K3 to Lake City, Florida-based First Federal Bancorp, Inc. ("First Federal" or "the company"). In addition, KBRA assigns deposit and senior unsecured debt ratings of BBB+, a subordinated debt rating of BBB, and short-term deposit and debt ratings of K2 to its main subsidiary, First Federal Bank. The Outlook for all long-term ratings is Stable.

First Federal’s ratings are supported by the company’s strong consolidated risk-based capital ratios, substantial earnings contribution from noninterest income, and solid on-balance-sheet liquidity. Additionally, the company employs a comprehensive hedging program to mitigate interest rate risk associated with long-duration securities within its sizeable investment portfolio as well as its residential mortgage portfolio. In KBRA’s view, this prudent strategy supports the ratings.

Strong risk-based capital ratios benefit from the company’s asset composition (52% RWA density), driven by its large investment portfolio (over half of total assets) and the predominance of residential lending (35% of total loans), along with solid earnings retention.

Earnings are supported by noninterest income representing approximately 33% of total revenues (or 1.3% of average assets). While the company’s net interest margin trails that of peers, it has remained relatively stable in the 3% range, reflecting a loan-lite balance sheet partially offset by a slightly lower cost of deposits.

First Federal’s funding and liquidity profile is characterized by a slightly better-than-peer cost of deposits, alongside a relatively high concentration of large deposits (with the top 20 accounts representing approximately 29% of total deposits). This concentration is mitigated by substantial on-balance-sheet liquidity (~27% after deducting pledged securities) and the use of brokered deposits (~22% of total deposits), which management views as a hedge against the concentration of large deposits.

Credit quality has generally performed in line with rated peers. The company’s NPA ratio was slightly elevated in 2025 due primarily to one larger credit (~$3.4 million agricultural-related loan), while net charge-off activity has remained minimal.

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Methodologies

• Financial Institutions: Bank & Bank Holding Company Global Rating Methodology
• ESG Global Rating Methodology

Disclosures

Further information on key credit considerations, sensitivity analyses that consider what factors can affect these credit ratings and how they could lead to an upgrade or a downgrade, and ESG factors (where they are a key driver behind the change to the credit rating or rating outlook) can be found in the full rating report referenced above.

A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the Information Disclosure Form(s) located here.

Information on the meaning of each rating category can be located here.

Further disclosures relating to this rating action are available in the Information Disclosure Form(s) referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.

About KBRA

Kroll Bond Rating Agency, LLC (KBRA), one of the major credit rating agencies (CRA), is a full-service CRA registered with the U.S. Securities and Exchange Commission as an NRSRO. Kroll Bond Rating Agency Europe Limited is registered as a CRA with the European Securities and Markets Authority. Kroll Bond Rating Agency UK Limited is registered as a CRA with the UK Financial Conduct Authority. In addition, KBRA is designated as a Designated Rating Organization (DRO) by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized as a Qualified Rating Agency by Taiwan’s Financial Supervisory Commission and is recognized by the National Association of Insurance Commissioners as a Credit Rating Provider (CRP) in the U.S.

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